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the following table provides information about our common stock that may be issued upon the exercise of options , warrants , and rights under our incentive award plan , as of december 31 , 2012. plan category number of securities to be issued upon exercise of outstanding options , warrants , and rights weighted-average exercise price of outstanding options , warrants , and rights number of securities remaining available for future issuance equity compensation plans approved by security holders ( 1 ) 22,000 $ 10.00 462,000 equity compensation plans not approved by security holders — — — total 22,000 $ 10.00 462,000 ( 1 ) we have granted 5,500 options for our common stock , as defined in our 2005 long-term incentive plan , to each of michael p. mccollum , e. nelson mills , donald s. moss , and willis j. potts , jr. mr. mills was an independent director until july 2010. these options were fully vested as of august 2011 and remained exercisable as of december 31 , 2012. item 13. certain relationships and related transactions , and director independence the following is a report containing disclosure of all material terms , factors , and circumstances surrounding any and all transactions involving us , members of our board of directors , our advisor , our sponsor , or any of their affiliates , occurring as of december 31 , 2012 , and describes all transactions story_separator_special_tag the following discussion and analysis should be read in conjunction with the selected financial data in `` item 6. selected financial data '' above and our accompanying consolidated financial statements and notes thereto . see also “ cautionary note regarding forward-looking statements ” preceding part i. overview we engage in the ownership and management of timberland properties located in the timber-producing regions of the southeastern united states . as of december 31 , 2012 , we owned interests in approximately 288,800 acres of timberland located on the lower piedmont and upper coastal plains of east central alabama and west central georgia , which we refer to as the mahrt timberland . based on acreage , the mahrt timberland consisted of approximately 75 % of pine and approximately 25 % of hardwood as of december 31 , 2012. we generate a majority of our revenues by selling timber and the right to access land and harvest timber to third parties pursuant to supply agreements and through open-market sales , from selling hbu timberland , and leasing land-use rights to third parties . a substantial portion of our 39 index to consolidated financial statements timber sales are derived from the timber agreements under which we sell specified amounts of timber to meadwestvaco subject to market pricing adjustments . the initial term of the timber agreements is from october 9 , 2007 through december 31 , 2032 , subject to extension and early termination provisions . for the years ended december 31 , 2012 , 2011 , and 2010 , approximately 54 % , 58 % , and 61 % , respectively , of our net timber sales revenue was derived from the timber agreements . see `` part i. item 1. business '' for additional information regarding the material terms of the timber agreements . we have elected to be taxed as a reit for federal income tax purposes . we have no paid employees and are externally advised and managed by wells timo , a wholly owned subsidiary of wells capital . on march 16 , 2012 , we entered into an amendment to the advisory agreement ( `` advisory agreement amendment no . 2 '' ) to amend certain provisions related to fees and expense reimbursements . advisory agreement amendment no . 2 provides that as of and for each quarter , the amount of advisor fees and expense reimbursements payable to wells timo will be limited to the lesser of ( 1 ) 1.0 % of assets under management as of the last day of the quarter less advisor fees paid for the preceding three quarters , and ( 2 ) free cash flow for the four quarters then ended in excess of an amount equal to 1.25 multiplied by our interest expense . under advisory agreement amendment no . 2 , free cash flow is defined as ebitda ( as defined in our loan agreements ) , less all capital expenditures paid by us on a consolidated basis , less any cash distributions ( except for the payments of accrued but unpaid dividends as a result of any redemptions of our outstanding preferred stock ) . advisory agreement amendment no . 2 , which was effective april 1 , 2012 , superseded a previous amendment to our advisory agreement entered into on april 1 , 2011 , referred to herein as advisory agreement amendment no . 1 , which provided that , as of and for each quarter , the amount of fees and expense reimbursements payable to wells timo were limited to the least of : ( 1 ) an asset management fee equal to one fourth of 1.0 % of asset under management plus reimbursements for all costs and expenses wells timo incurred in fulfilling its duties as the asset manager , ( 2 ) one-fourth of 1.5 % of assets under management , or ( 3 ) free cash flow in excess of an amount equal to 1.05 multiplied by our interest expense . under advisory agreement amendment no . 1 , free cash flow was defined as ebitda ( as defined in our loan agreements ) , less all capital expenditures paid by us on a consolidated basis , less any cash distributions ( except for the payments of accrued but unpaid dividends as a result of any redemptions of our outstanding preferred stock ) , less any cash proceeds from timberland sales equal to the cost basis of the properties sold . the amount of the disposition fees and the reimbursement of organization and offering expenses payable pursuant to the advisory agreement remain unchanged . story_separator_special_tag these factors kept pulpwood prices high throughout the summer of 2012 despite extremely dry weather , which typically improves harvest conditions and results in ample timber supply , causing prices to drop . due to the emergence of pellet mills as a buyer of pulpwood and the continued strong demand from paper mills , we expect pine pulpwood prices , which continue to remain attractive by historical standards , to remain steady in 2013. chip-n-saw and hardwood sawtimber prices increased approximately 11 % and 3 % , respectively , during 2012 as a result of improvements in the lumber and wood products markets , which are coming off decade lows . the demand for lumber , panel , and other wood-related products is largely affected by the level of new residential construction activity and repair and remodeling . the number of housing starts , which is generally considered to be a leading indicator of the general u.s. economy , increased approximately 27 % through november 2012 as compared to 2011. residential remodeling activity has also increased during 2012. according to the u.s. census , remodeling expenditures increased approximately 7 % year-to-date through november 2012 as compared to the same period in 2011. due to this increase in residential construction and remodeling activity , we are forecasting minor improvements in sawtimber and chip-n-saw prices during 2013. our operating and financial plans for 2013 were established to meet volume obligations under the timber agreements , to meet the debt service requirements of our debt facility , and to continue to maximize the production capacity and long-term value of the mahrt timberland . we continue to practice intensive forest management and silvicultural 41 index to consolidated financial statements techniques that increase the biological growth of the forest . we intend to capitalize on the operational flexibility afforded to timberland owners in order to take advantage of then-prevailing market prices , including , but not limited to , adjusting harvest levels in context of supply and demand for wood in the local wood markets . we plan to harvest approximately 0.9 million tons of timber this year , down slightly from the 1.1 million -ton harvest in 2012. although we believe that our timber assets are well-positioned to weather current market conditions , we are not immune to the adverse effects of a prolonged downturn in the economy , weak real estate fundamentals , or disruptions in the credit markets . such conditions would likely adversely affect the value of our portfolio , our results of operations , and our liquidity . liquidity and capital resources overview we ceased offering shares for sale under the follow-on offering effective december 31 , 2011. between january 1 , 2012 and february 13 , 2012 , we accepted gross offering proceeds of approximately $ 4.1 million from the sale of shares of our common stock under the follow-on offering , which sales were agreed to by the investors on or before december 31 , 2011. we may offer shares to our existing stockholders through our drp to the extent we make future cash distributions to our stockholders . on september 28 , 2012 , we entered into a first mortgage loan agreement ( the `` cobank loan '' ) with a syndicate of banks with cobank , acb ( `` cobank '' ) serving as administrative agent . the cobank loan amended and restated the five -year senior loan agreement for $ 211.0 million entered into on march 24 , 2010 and its amendments ( the `` mahrt loan '' ) . proceeds from the cobank term loan of $ 133.0 million were used to pay off the outstanding balance of the mahrt loan , fund costs associated with closing the cobank loan , and partially fund the property acquisition . under the cobank loan , we can initially borrow up to $ 148.0 million in principal , including $ 133.0 million through a term loan facility ( the `` cobank term loan '' ) , and up to $ 15.0 million through a revolving credit facility ( the `` cobank revolver '' ) . during the term of the cobank loan , we also have the ability to increase the amount of the cobank term loan by up to $ 50.0 million ( the `` cobank incremental loan '' ) . the cobank loan is secured by a first mortgage in the mahrt timberland , a first priority security interest in all of our bank accounts , and a first priority security interest on all of our other assets . the cobank loan bears interest at an adjustable rate based on the one- , two- , or three-month libor plus an applicable margin ranging from 2.00 % to 2.75 % that varies based on the ltv ratio at the time of determination . as of february 28 , 2013 and december 31 , 2012 , the outstanding balance of the cobank loan was approximately $ 132.4 million , all of which was outstanding under the cobank term loan . we intend to maintain substantial amounts outstanding on the cobank loan in order to have more funds available for working capital and investment in timberland properties . on august 11 , 2018 , all outstanding principal , interest , and any fees or other obligations on the cobank loan will be due and payable in full . the cobank loan is subject to mandatory prepayment from proceeds generated from dispositions of timberland and lease terminations . the mandatory prepayment excludes ( 1 ) the first $ 4.0 million of cost basis of timberland dispositions in any fiscal year if ( a ) ltv ratio calculated on a pro forma basis after giving effect to such disposition does not exceed 40 % , and ( b ) such cost basis is used as permitted under the cobank loan ; and ( 2 ) lease termination proceeds of less than $ 2.0 million in a single termination until aggregate lease termination proceeds during the term of the cobank loan exceeds $ 5.0 million .
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results of operations overview our results of operations are materially impacted by the fluctuating nature of timber prices , changes in the levels and composition of our harvest volumes , the level of timberland sales , changes to associated depletion rates , and varying interest expense based on the amount and cost of outstanding borrowings . timber prices , harvest volumes , and changes in the levels and composition of each for the mahrt timberland for the years ended december 31 , 2012 , 2011 , and 2010 is shown in the following tables : 44 index to consolidated financial statements replace_table_token_4_th replace_table_token_5_th ( 1 ) includes sales of chip-n-saw and sawtimber . ( 2 ) prices per ton are rounded to the nearest dollar and shown on a stumpage basis ( i.e. , net of contract logging and hauling costs ) and , as such , the sum of these prices multiplied by the tons sold does not equal timber sales in the accompanying consolidated statements of operations for the years ended december 31 , 2012 , 2011 , and 2010. comparison of the year ended december 31 , 2012 versus the year ended december 31 , 2011 revenue . revenues increased to approximately $ 44.2 million for the year ended december 31 , 2012 from approximately $ 40.0 million for the year ended december 31 , 2011 due to an increase in timberland sales revenue of approximately $ 9.2 million , offset by a decrease in timber sales revenue of approximately $ 5.0 million . timberland sales revenue increased due to selling more acres of timberland . timber sales revenue decreased primarily due to reductions in harvest volumes , as planned . 45 index to consolidated financial statements details of timber sales by product for the year ended december 31 , 2012 and 2011 is shown in the following table : replace_table_token_6_th ( 1 ) timber sales are presented on a gross basis .
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the company maintains director and officer insurance , which may story_separator_special_tag you should read the following discussion in conjunction with the section titled `` selected consolidated financial and other data '' and our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. in addition to historical information , this discussion contains forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from our expectations , as discussed in `` forward-looking statements '' in part i of this annual report on form 10-k. factors that could cause such differences include , but are not limited to , those described in the section titled `` risk factors '' and elsewhere in this annual report on form 10-k. overview we are a pioneer and leading provider of cloud security and compliance solutions that enable organizations to identify security risks to their it infrastructures , help protect their it systems and applications from ever-evolving cyber attacks and achieve compliance with internal policies and external regulations . our cloud solutions address the growing security and compliance complexities and risks that are amplified by the dissolving boundaries between internal and external it infrastructures and web environments , the rapid adoption of cloud computing and the proliferation of geographically dispersed it assets . our integrated suite of security and compliance solutions delivered on our qualysguard cloud platform enable our customers to identify their it assets , collect and analyze large amounts of it security data , discover and prioritize vulnerabilities , recommend remediation actions and verify the implementation of such actions . organizations use our integrated suite of solutions delivered on our qualysguard cloud platform to cost-effectively obtain a unified view of their security and compliance posture across globally-distributed it infrastructures . we were founded and incorporated in december 1999 with a vision of transforming the way organizations secure and protect their it infrastructure and applications and initially launched our first cloud solution , qualysguard vulnerability management , in 2000. this solution has provided the substantial majority of our revenues to date , representing 87 % , 90 % and 92 % of total revenues in 2012 , 2011 and 2010 , respectively . as this solution gained acceptance , we introduced new solutions to help customers manage increasing it security and compliance requirements . in 2006 , we added our pci compliance solution , and in 2008 , we added our policy compliance solution . in 2009 , we broadened the scope of our cloud services by adding web application scanning . we continued our expansion in 2010 , launching malware detection service and qualys secure seal for automated protection of websites . we provide our solutions through a software-as-a-service model , primarily with renewable annual subscriptions . these subscriptions require customers to pay a fee in order to access our cloud solutions . we invoice our customers for the entire subscription amount at the start of the subscription term , and the invoiced amounts are treated as deferred revenues and are recognized ratably over the term of each subscription . historically , we have experienced significant revenue growth from existing customers as they renew and purchase additional subscriptions . revenues from customers existing at or prior to december 31 , 2011 grew $ 7.8 million to $ 84.0 million during 2012 . we expect this trend to continue . we market and sell our solutions to enterprises , government entities and to small and medium size businesses across a broad range of industries , including education , financial services , government , healthcare , insurance , manufacturing , media , retail , technology and utilities . as of december 31 , 2012 , we had over 6,150 customers in more than 100 countries , including a majority of each of the forbes global 100 and fortune 100. in 2012 , 2011 and 2010 , approximately 68 % , 67 % and 67 % , respectively , of our revenues were derived from customers in the united states . we sell our solutions to enterprises and government entities primarily through our field sales force and to small and medium-sized businesses through our inside sales force . we generate a significant portion of sales through our channel partners , including managed service providers , value-added resellers and consulting firms in the united states and internationally . we have had strong revenue growth over the past three years . our revenues increased from $ 65.4 million in 2010 to $ 76.2 million in 2011 , and reached $ 91.4 million in 2012 , representing period-over-period increases of $ 10.8 million , and $ 15.2 million , or 16 % and 20 % , respectively . we generated net income of $ 0.8 million in 2010 , $ 2.0 million in 2011 , and $ 2.3 million in 2012 . 41 on september 28 , 2012 , our common stock commenced trading on the nasdaq stock market under the trading symbol “ qlys , ” and on october 3 , 2012 we closed our initial public offering . in our initial public offering , we sold and issued 7,836,250 shares and certain selling stockholders sold an additional 875,000 shares . the net proceeds to us from the offering were approximately $ 87.5 million , after deducting underwriting discounts and commissions , and before deducting total expenses in connection with this offering of $ 2.9 million . key metrics in addition to measures of financial performance presented in our consolidated financial statements , we monitor the key metrics set forth below to help us evaluate growth trends , establish budgets , measure the effectiveness of our sales and marketing efforts , and assess operational efficiencies . four-quarter bookings we monitor four-quarter bookings , a non-gaap financial measure , which is calculated as revenues for the preceding four quarters plus the change in current deferred revenues for the same period . story_separator_special_tag other expenses include marketing and promotional events , lead-generation marketing programs , public relations , travel and overhead allocations . all costs are expensed as incurred , including sales commissions . sales commissions are expensed in the quarter in which the related order is received and are paid in the month subsequent to the end of that quarter , which results in increased expenses prior to the recognition of related revenues . our new sales personnel are typically not immediately productive , and the resulting increase in sales and marketing expenses we incur when we add new personnel may not result in increased revenues if these new sales personnel fail to become productive . the timing of our hiring of sales personnel and the rate at which they generate incremental revenues may affect our future operating results . we expect that sales and marketing expenses will increase in absolute dollars . general and administrative general and administrative expenses consist primarily of personnel expenses , comprised of salaries , benefits , performance-based compensation and stock-based compensation , for our executive , finance and accounting , legal , human resources and internal information technology support teams as well as professional services fees and overhead allocations . we anticipate that we will incur additional expenses for personnel and for professional services , including auditing and legal services , insurance and other corporate governance-related expenses , including compliance with section 404 of the sarbanes-oxley act , related to operating as a public company . we expect that general and administrative expenses will increase in absolute dollars , especially in the near term , as we continue to add personnel to support our growth and operate as a public company . other income ( expense ) , net our other income ( expense ) , net consists primarily of interest expense associated with our capital leases and foreign exchange gains and losses , the majority of which result from fluctuations between the u.s. dollar and the euro , british pound and japanese yen . provision for income taxes our provision for income taxes consists primarily of corporate income taxes resulting from profits generated in foreign jurisdictions by wholly-owned subsidiaries , along with state income taxes payable in the united states . the provision for income taxes also includes changes to unrecognized tax benefits related to uncertain tax positions . income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the tax impact of timing differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards . deferred tax assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the statutory rate change is enacted into law . we maintain a valuation allowance on our u.s. federal and state net deferred tax assets . our cash tax expense is impacted by each jurisdiction 's individual tax rates , laws on timing of recognition of income and deductions and availability of net operating losses and tax credits . given the valuation allowance and sensitivity of current cash taxes to local rules , our effective tax rate could fluctuate significantly on a quarterly basis , to the extent earnings are lower than anticipated in countries that have lower statutory rates and higher than anticipated in countries that have higher statutory rates , and also due to changes in our earnings projections , by changes in the valuation of our deferred tax assets or liabilities , or by changes in tax laws , regulations , or accounting principles . 44 story_separator_special_tag width= '' 1 % '' > year ended december 31 , change 2011 2010 $ % ( in thousands , except percentages ) revenues $ 76,212 $ 65,432 $ 10,780 16 % revenues increased $ 10.8 million in 2011 compared to 2010. revenues from customers existing at or prior to december 31 , 2010 grew $ 5.8 million to $ 71.2 million in 2011 due to increased subscriptions . subscriptions from new customers added in 2011 contributed $ 5.0 million to the increase in revenues . of the total increase of $ 10.8 million , $ 7.4 million was from customers in the united states and the remaining $ 3.4 million was from customers in foreign countries . the growth in revenues reflects increased demand for our solutions . cost of revenues replace_table_token_20_th cost of revenues increased $ 2.0 million in 2011 compared to 2010 , primarily due to $ 1.4 million of increased personnel expenses , principally driven by the addition of employees in our operations team and customer support team , and $ 0.6 million of higher depreciation expenses , principally driven by additional data center equipment and third-party software . 48 research and development expenses replace_table_token_21_th research and development expenses increased $ 3.9 million in 2011 compared to 2010 , primarily due to increased personnel expenses of $ 3.0 million , principally driven by the addition of employees and higher performance-based compensation , as we continued to invest in enhancing our platform and solutions , and developing new solutions , increased travel expenses of $ 0.3 million , and increased amortization expenses of $ 0.3 million as a result of the addition of intangible assets acquired through our acquisition of nemean networks , llc , or nemean , in 2010. sales and marketing expenses replace_table_token_22_th sales and marketing expenses increased $ 2.5 million in 2011 compared to 2010 , primarily due to increased personnel expenses of $ 1.5 million , principally driven by the addition of employees as we continued to expand our domestic and international sales and marketing efforts and higher sales commissions as a result of higher bookings , increased marketing program and event expenses of $ 0.5 million , and higher travel and
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results of operations the following tables set forth selected consolidated statements of income data for each of the periods presented . replace_table_token_11_th ( 1 ) includes stock-based compensation as follows : replace_table_token_12_th 45 the following table sets forth selected consolidated statements of income data for each of the periods presented as a percentage of revenues . replace_table_token_13_th comparison of years ended december 31 , 2012 and 2011 revenues year ended december 31 , change 2012 2011 $ % ( in thousands , except percentages ) revenues $ 91,420 $ 76,212 $ 15,208 20 % revenues increased $ 15.2 million in 2012 compared to 2011 . revenues from customers existing at or prior to december 31 , 2011 grew $ 7.8 million to $ 84.0 million in 2012 due to increased subscriptions . subscriptions from new customers added in 2012 contributed $ 7.4 million to the increase in revenues . of the total increase of $ 15.2 million , $ 11.6 million was from customers in the united states and the remaining $ 3.6 million was from customers in foreign countries . the growth in revenues reflects increased demand for our solutions . cost of revenues replace_table_token_14_th cost of revenues increased $ 5.2 million in 2012 compared to 2011 , primarily due to $ 2.0 million of higher depreciation expenses related to additional data center equipment , third-party software and physical scanner appliances deployed to customers , increased personnel expenses of $ 1.5 million , principally driven by the addition of employees in our operations team , and increased third-party software maintenance expense of $ 1.0 million . the decrease in gross profit percentage reflects the impact of increased investments to expand our data center infrastructure and to add capacity to deploy new solutions on our cloud platform .
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the information contained in this section has been derived from our historical financial statements and should be read together with our historical financial statements and related notes included elsewhere in this document . the discussion below contains forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . these forward-looking statements involve risks and uncertainties including , but not limited to : demand and acceptance of services offered by us , our ability to achieve and maintain acceptable cost levels , pricing levels and actions by competitors , regulatory matters , general economic conditions , and changing business strategies . forward-looking statements are subject to a number of factors that could cause actual results to differ materially from our expressed or implied expectations , including , but not limited to our performance in future periods , our ability to generate working capital from operations , the adequacy of our insurance coverage , and the results of litigation or investigations . our forward-looking statements can be identified by the use of terminology such as “ anticipates , ” “ expects , ” “ intends , ” “ believes , ” “ will ” or the negative thereof or variations thereon or comparable terminology . except as required by law , we undertake no obligation to publicly update or revise any forward-looking statement , whether as a result of new information , future events or otherwise . overview ebix endeavors to provide on-demand software and e-commerce services to the insurance , financial , healthcare and e-learning industries . in the insurance sector , the company 's main focus is to develop and deploy a wide variety of insurance and reinsurance exchanges on an on-demand basis , while also , providing software-as-a-service ( `` saas '' ) enterprise solutions in the area of crm , front-end & back-end systems , outsourced administrative and risk compliance , across the world . the p & c exchanges operate primarily in australia , new zealand and the united kingdom . with a `` phygital ” strategy that combines 320,000 physical distribution outlets in many ( “ asean ” ) countries , to an omni-channel online digital platform , the company 's ebixcash financial exchange portfolio encompasses leadership in areas of domestic & international money remittance , forex , travel , pre-paid & gift cards , utility payments , lending , wealth management etc. , in india . the company 's forex exchange has a dominant market share of india 's airport foreign exchange business encompassing 32 international airports like delhi , mumbai , bangalore , hyderabad , chennai and kolkata international airports , while conducting over $ 4.8 billion in gross transaction value per annum . ebixcash 's inward remittance business in india conducts gross annual remittance of approximately $ 5 billion annually , while having an undisputed leadership position in the indian markets . ebixcash , through its travel portfolio of via and mercury , is also one of southeast asia 's leading travel exchanges with over 2,200+ employees , 212,450+ agent network , 25 branches and 9800+ corporate clients ; processing an estimated $ 2.5 billion in gmv annually . through its various saas-based software platforms , ebix employs thousands of domain-specific technology professionals to provide products , support and consultancy to thousands of customers on six continents . ebix provides application software products for the insurance industry including carrier systems , agency systems and exchanges , as well as custom software development . approximately 83 % of the company 's revenues are recurring . rather than license our products in perpetuity , we typically either license them for a few years with ongoing support revenues or license them on a limited term basis using a subscription hosting or application service provider ( `` asp '' ) model . our goal is to be the leading powerhouse of back-end insurance transactions in the world . during 2018 , combined subscription-based and transaction-based revenues increased by $ 135 million to $ 412 million , while as a percentage of the company 's total revenues increased to 83 % in 2018 , as compared to 76 % 2017. in 2018 subscription based revenues decreased $ 18 million to $ 184 million , and as a percentage of the company 's total revenues decreased to 37 % in 2018 , as compared to 55 % in the year 2017. the company 's technology vision is on the convergence of all processes in a manner such that data can seamlessly flow from entity to entity once an initial data entry has been made . our customers include many of the top insurance and financial sector companies in the world . the insurance and financial markets continue to focus on initiatives to reduce paper-based processes and facilitate improvements in efficiency both at the back-end side and also at the consumer-end side , involving all entities and directly impacts the manner in which insurance and financial products are distributed . management believes that both the insurance and financial industry will continue to experience significant change and increased efficiencies through online exchanges as reduced paper-based processes are becoming increasingly a norm across the world insurance and financial markets . management focuses on a variety of key indicators to monitor operating and financial performance . these performance indicators include measurements of revenue growth , operating income , operating margin , income from continuing operations , 31 diluted earnings per share , and cash provided by operating activities . we monitor these indicators , in conjunction with our corporate governance practices , to ensure that our business is efficiently managed and that effective controls are maintained . story_separator_special_tag the pre-tax income from and the applicable statutory tax rates in each jurisdiction in which the company had operations for the year ending december 31 , 2018 are as follows : replace_table_token_8_th twelve months ended december 31 , 2017 and 2016 operating revenue the company derives its revenues primarily from professional and support services , which includes subscription and transaction fees pertaining to services delivered over our exchanges or from our asp platforms , revenue generated from software development projects and associated fees for consulting , implementation , training , and project management provided to customers using our systems , and business process outsourcing revenue . ebix 's revenue streams come from four product channels . presented in the table below is the breakout of our revenues for each of those product channels for the years ended december 31 , 2017 and 2016. replace_table_token_9_th during the twelve months ended december 31 , 2017 our total revenue increased $ 65.7 million , or 22.0 % , to $ 364.0 million compared to $ 298.3 million in 2016. the company leverages product cross-selling opportunities across all channels , as facilitated by our operating philosophy and business acquisition strategy . with respect to business acquisitions completed during the fiscal years 2017 and 2016 on a pro forma basis , as disclosed in the table in note 4 “ pro forma financial information ” to the enclosed consolidated financial statements , combined pro forma revenues increased $ 6.4 million or 1.5 % to $ 440.5 million for 35 the year 2017 from the $ 434.2 million of pro forma revenue for the year 2016 , with the change in exchange rates favorably affecting reported revenues by $ 2.1 million , whereas there was a 22.0 % increase in reported revenues for the same comparative periods . the cause for the difference between the 22.0 % increase in reported 2017 revenue versus 2016 revenue , as compared to the 1.5 % increase in 2017 pro forma versus 2016 pro forma revenue is due to the effect of combining the additional revenue derived from those businesses acquired during the years 2017 and 2016 , specifically itzcash , youfirst , wall street , paul merchants , via , bebetter , wdev , hope health , and the ebixhealth jv with the company 's pre-existing operations . the 2017 and 2016 pro forma financial information below assumes that all such business acquisitions were made on january 1 , 2016 , whereas the company 's reported financial statements for 2017 only includes the operating results from the businesses since the effective date that they were acquired by ebix , and thusly includes only nine months of itzcash , seven months of bebetter , four months of youfirst , three months of wall street , two months of paul merchants , and two months of via . similarly , the 2016 pro forma financial information below includes a full year of results for wdev , hope health , and ebixhealth jv as if they had been acquired on january 1 , 2016 , whereas the company 's reported financial statements for the 2016 includes only two months of wdev , two months of hope health , and six months of the ebixhealth jv . the pro forma analysis is based on the following premises : 2017 and 2016 pro forma revenue contains actual revenue of the acquired entities before acquisition date , as reported by the sellers , as well as actual revenue of the acquired entities after acquisition . growth in revenues of the acquired entities after acquisition date is only reflected for the period after their acquisition . revenue billed to existing clients from the cross selling of acquired products has been assigned to the acquired section of our business . any existing products sold to new customers acquired through the acquisition customer base , has also been assigned to the acquired section of our business . 2016 pro forma revenues include revenues from some product lines whose sale was discontinued after the acquisition date and revenues from some customers whose contracts were discontinued . this is typically done for efficiency and or competitive reasons . the impact from fluctuations of the exchange rates for the foreign currencies in the countries in which we conduct operations also partially adversely affected reported revenues . during each of the years 2017 , 2016 and 2015 the change in foreign currency exchange rates increased ( decreased ) reported consolidated operating revenues by $ 2.1 million , $ ( 3.3 ) million , and $ ( 10.7 ) million , respectively . the specific components of our revenue and the changes experienced during the past year are discussed immediately below . exchange division revenues increased by $ 53.0 million , or 26 % , principally due to the 2017 acquisitions of itzcash , youfirst , wall street , paul merchants , and via . broker p & c systems division revenue increased by $ 569 thousand , or 4 % . reported revenues partially increased due to the effects of changing currency exchange rates . risk compliance solutions division revenues increased by $ 12.6 million , or 17 % , primarily due to new e-governance revenues associated with our indian operations and consulting service revenues generated by november 2016 acquisition of wdev . carrier p & c systems division revenues decreased by $ 571 thousand , or 16 % . revenues in this division have decreased during the last few years due the completion of certain large projects resulting in decreased professional service revenues .
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results of operations replace_table_token_6_th twelve months ended december 31 , 2018 and 2017 operating revenue the company derives its revenues primarily from professional and support services , which includes subscription and transaction fees pertaining to services delivered over our exchanges or from our asp platforms , revenue generated from software development projects and associated fees for consulting , implementation , training , and project management provided to customers using our systems , and business process outsourcing revenue . additionally , through the company 's ebixcash financial exchange portfolio we derive revenue from domestic & international money remittance , foreign exchange ( forex ) , travel , pre-paid & gift 32 cards , utility payments , lending , wealth management , etc . in india and other markets . ebix 's revenue streams come from four product channels . presented in the table below is the breakout of our revenues for each of those product channels for the years ended december 31 , 2018 and 2017 . replace_table_token_7_th during the twelve months ended december 31 , 2018 our total revenue increased $ 133.9 million , or 36.8 % , to $ 497.8 million compared to $ 364.0 million in 2017 . the company leverages product cross-selling opportunities across all channels , as facilitated by our operating philosophy and business acquisition strategy . with respect to business acquisitions completed during the fiscal years 2018 and 2017 on a pro forma basis , as disclosed in the table in note 4 “ pro forma financial information ” to the enclosed consolidated financial statements , combined pro forma revenues decreased $ 21.5 million or 3.6 % to $ 584.1 million for the year 2018 from the $ 605.6 million of pro forma revenue for the year 2017 , whereas there was a 36.8 % increase in reported revenues for the same comparative periods .
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total gross loans are recorded net of deferred loan fees and costs , which totaled $ 3.3 million and $ 2.8 million as of december 31 , 2019 and december 31 , 2018 , respectively . replace_table_token_33_th the story_separator_special_tag the following discussion and analysis 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 annual report on form 10-k. 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 , 2019 , we had total assets of $ 2.27 billion , a 19.3 % increase from total assets of $ 1.90 billion at december 31 , 2018. the largest components of our total assets are loans which were $ 1.94 billion and $ 1.68 billion at december 31 , 2019 and 2018 , respectively . our liabilities and shareholders ' equity at december 31 , 2019 totaled $ 2.06 billion and $ 205.9 million , respectively , compared to liabilities of $ 1.73 billion and shareholders ' equity of $ 173.9 million at december 31 , 2018. the principal component of our liabilities is deposits which were $ 1.88 billion and $ 1.65 billion at december 31 , 2019 and 2018 , 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 available to common shareholders for the years ended december 31 , 2019 and 2018 was $ 27.9 million and $ 22.3 million , or diluted earnings per share ( “ eps ” ) of $ 3.58 and $ 2.88 for the years ended december 31 , 2019 and 2018 , respectively . the increase in net income resulted primarily from increases in net interest income and noninterest income , partially offset by an increase in noninterest expense . in addition , our net income available to shareholders was $ 13.0 million during the year ended december 31 , 2017. 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 . critical accounting policies and estimates we have adopted various accounting policies that govern the application of accounting principles generally accepted in the u.s. 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 , 2019. certain accounting policies inherently involve a greater reliance on the use of estimates , assumptions and judgments and , as such , have a greater possibility of producing results that could be materially different than originally reported , which could have a material impact on the carrying values of our assets and liabilities and our results of operations . we consider these accounting policies and estimates to be critical accounting policies . we have identified the determination of the allowance for loan losses , the fair valuation of financial instruments and income taxes to be the accounting areas that require the most subjective or complex judgments and , as such , could be most subject to revision as new or additional information becomes available or circumstances change , including overall changes in the economic climate and or market interest rates . therefore , management has reviewed and approved these critical accounting policies and estimates and has discussed these policies with the company 's audit committee . 42 allowance for loan losses the allowance for loan loss is management 's estimate of credit losses inherent in the loan portfolio . the allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings . loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance . the allowance for loan losses is evaluated on a regular basis by management and is based upon management 's periodic review of the collectability of the loans in light of historical experience , the nature and volume of the loan portfolio , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral and prevailing economic conditions . story_separator_special_tag 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 market 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 . 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 . 44 income taxes the financial statements have been prepared on the accrual basis . when income and expenses are recognized in different periods for financial reporting purposes versus for the purposes of computing income taxes currently payable , deferred taxes are provided on such temporary differences . deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the consolidated financial statements or tax returns . deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled . the company believes that its income tax filing positions taken or expected to be taken on its tax returns will more likely than not be sustained upon audit by the taxing authorities and does not anticipate any adjustments that will result in a material adverse impact on the company 's financial condition , results of operations , or cash flow . therefore , no reserves for uncertain income tax positions have been recorded . on december 22 , 2017 , the tax act was signed into law and includes numerous provisions that impact the company , most notably a reduction in the corporate tax rate from the maximum rate of 35 % to a flat rate of 21 % . as a result , the company recorded an incremental income tax expense of $ 2.4 million in the fourth quarter of 2017. story_separator_special_tag 67.3 million for the year ended december 31 , 2019 , a $ 7.1 million increase from net interest income of $ 60.2 million for the year ended december 31 , 2018. the increase in net interest income is due to a $ 16.0 million increase in interest income partially offset by an $ 8.9 million increase in interest expense . during 2019 , our average interest-earning assets increased $ 281.1 million as compared to 2018 , resulting in $ 12.9 million of additional interest income , while higher rates on our interest-earning assets also increased interest income by $ 2.7 million from the prior year . overall , our average interest-bearing liabilities increased by $ 190.4 million during 2019 resulting in $ 2.4 million of additional interest expense . in addition , higher rates on our interest-bearing deposits , subordinated debt , and fhlb advances and other borrowings resulted in an increase of $ 5.5 million of additional interest expense from the prior year . during 2018 , our average interest-earning assets increased $ 251.2 million as compared to 2017 , resulting in $ 11.8 million of additional interest income while higher rates on our interest-earning assets also increased interest income by $ 3.2 million from the prior year . in addition , our average interest-bearing deposits increased by $ 230.2 million while our average fhlb advances and other borrowings decreased by $ 49.0 million .
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results of operations net interest income and margin our level of net interest income is determined by the level of earning assets and the management of our net interest margin . for the years ended december 31 , 2019 , 2018 , and 2017 , our net interest income was $ 67.3 million , $ 60.2 million , and $ 50.9 million , respectively . the $ 7.1 million , or 11.8 % , increase in net interest income during 2019 , compared to 2018 , was driven by a $ 281.1 million increase in average earning assets , partially offset by a $ 190.4 million increase in our average interest-bearing liabilities . the increase in average earning assets was primarily related to an increase in average loans , while the increase in average interest-bearing liabilities was primarily driven by an increase in interest-bearing deposits . during 2018 , our net interest income increased $ 9.3 million , or 18.2 % , compared to 2017 , while average interest-earning assets increased $ 251.2 million and average interest-bearing liabilities increased by $ 181.2 million . interest income for the years ended december 31 , 2019 , 2018 , and 2017 was $ 92.7 million , $ 76.7 million , and $ 61.2 million , respectively . a significant portion of our interest income relates to our strategy to maintain a large portion of our assets in higher earning loans compared to lower yielding investments and federal funds sold . as such , 96.0 % of our interest income related to interest on loans during 2019 , compared to 96.2 % during 2018 and 96.1 % during 2017. also , included in interest income on loans was $ 1.2 million , $ 1.1 million and $ 950,000 related to the net amortization of loan fees and capitalized loan origination costs for the years ended december 31 , 2019 , 2018 and 2017 , respectively .
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” forward-looking statements this report contains forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . forward looking statements that we may make include statements regarding balance sheet and revenue growth , the provision for loans losses , loan growth expectations , management 's predictions about charge-offs for loans , including energy-related credits , the impact of changes in oil and gas prices on our energy portfolio , and the downstream impact on businesses that support the energy sector , especially in the gulf coast region , the impact of the first nbc transaction on our performance and financial condition , deposit trends , credit quality trends , net interest margin trends , future expense levels , success of revenue-generating initiatives , projected tax rates , future profitability , improvements in expense to revenue ( efficiency ) ratio , purchase accounting impacts such as accretion levels , possible repurchases of shares under stock buyback programs , and the financial impact of regulatory requirements . also , any statement that does not describe historical or current facts is a forward-looking statement . these statements often include the words “ believes , ” “ expects , ” “ anticipates , ” “ estimates , ” “ intends , ” “ plans , ” “ forecast , ” “ goals , ” “ targets , ” “ initiatives , ” “ focus , ” “ potentially , ” “ probably , ” “ projects , ” “ outlook ” or similar expressions or future conditional verbs such as “ may , ” “ will , ” “ should , ” “ would , ” and “ could. ” forward-looking statements are based upon the current beliefs and expectations of management and on information currently available to management . our statements speak as of the date hereof , and we do not assume any obligation to update these statements or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events . factors that could cause actual results to differ from those expressed in the company 's forward-looking statements include , but are not limited to , those risk factors outlined in “ item 1a . risk factors. ” you are cautioned not to place undue reliance on these forward-looking statements . hancock does not intend , and undertakes no obligation , to update or revise any forward-looking statements , whether as a result of differences in actual results , changes in assumptions or changes in other factors affecting such statements , except as required by law . non-gaap financial measures management 's discussion and analysis of financial condition and results of operations include non-gaap measures used to describe hancock 's performance . a reconciliation of those measures to gaap measures are provided in “ item 6. selected financial data . ” consistent with securities and exchange commission industry guide 3 , the company presents net interest income , net interest margin and efficiency ratios on a fully taxable equivalent ( “ te ” ) basis . the te basis adjusts for the tax-favored status of net interest income from certain loans and investments using a federal tax rate of 35 % to increase tax-exempt interest income to a taxable-equivalent basis . the company believes this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources . over the past several quarters we have disclosed our focus on strategic initiatives that were designed to replace declining levels of purchase accounting income from acquisitions with improvement in core income , which the company defines as income excluding net purchase accounting income . the company presents core income non-gaap measures including core net interest income and core net interest margin , core revenue and core pre-tax , pre-provision profit . these measures are provided to assist the reader with a better understanding of the company 's performance period over period as well as providing investors with assistance in understanding the success management has experienced in executing its strategic initiatives . we define core net interest income as net interest income ( te ) excluding net purchase accounting accretion resulting from the fair market value adjustments related to acquired operations . we define core net interest margin as report ed core net interest income , annualized , expressed as a percentage of average earning assets . we define core revenue as core net interest income and noninterest income less the amortization of the fdic loss share receivable related to loans acquired in an fdic assisted transaction . 34 we define core pre-tax , pre-provision income as core revenue less noninterest expense , excluding nonoperating items and amortization of intangibles . management believes that core pre-tax , pre-provision profit is a useful financial measure because it enables investors and others to assess the company 's ability to generate capital to cover credit losses through a credit cycle . executive overview current economic environment after falling precipitously from july 2014 through the first quarter of 2016 , west texas intermediate ( “ wti ” ) crude oil and other energy commodity prices reflected signs of recovery and stabilization during the second half of 2016. as a result , a ctivity at energy-related businesses , which are concentrated mainly in the company 's south louisiana and houston , texas market areas , improved during the fourth quarter of 2016. t he north american active drilling rig count increased over 60 % from 404 at may 31 , 2016 , to 658 at year-end . approximately 70 % of this increase occurred in texas and oklahoma . even with the recent improvement in activity , the total active rig count remains well below third quarter 2014 totals where there were over 1,900 drilling rigs in use . story_separator_special_tag core pre-tax , pre-provision income , tax-equivalent ( “ te ” ) ( “ core ptpp ” ) was $ 334.8 million for the year ended december 31 , 2016 , compared to $ 267.1 million for the year ended december 31 , 2015. management believes core ptpp is a useful financial measure as it enables investors and others to assess the ability of the company to generate capital to cover credit losses during a credit cycle . the company established as one of its 2016 strategic objectives a core ptpp of $ 323.4 million , representing a 25 % increase over 2014 core ptpp of $ 258.7 million . the company exceeded this goal by $ 11.4 million . total assets at december 31 , 2016 were $ 24.0 billion , up about $ 1.1 billion , or 5 % , from the prior year-end . total loans increased $ 1.0 billion , or 7 % , during 2016. n et loan growth was experienced in most major product lines across the company 's footprint , except energy , during 2016 . at december 31 , 2016 , energy related loans totaled $ 1.41 billion , or 8.4 % of the loan portfolio , down $ 168 million from $ 1.58 billion at december 31 , 2015 . at december 31 , 2016 , total deposits were $ 19.4 billion , up approximate ly $ 1.1 billion , or 6 % , from december 31 , 2015. all deposit categories reflected a year-over-year increase . noninterest-bearing demand deposits increased 5 % to $ 7.7 billion , or 39 % of total deposits at december 31 , 2016. total noninterest-bearing and interest-bearing transaction and savings deposits were up $ 525 million , or 4 % , in 2016 . on december 16 , 2016 , the company issued approximately $ 259 million , or 6.325 million shares , of its common stock . as a result , the company 's t angible common equity ratio increased to 8.64 % at december 31 , 2016 , up 102 bps from 7.62 % at december 31 , 2015. see capital resources section of this item for further discussion . on december 30 , 2016 , the company signed a purchase agreement to acquire approximately $ 1.3 billion in loans , nine branch locations with approximately $ 500 million in transaction and savings deposits and to assume approximately $ 600 million in fhlb borrowings from first nbc bank . the company will pay a $ 44 million premium to first nbc for the earnings stream acquired . the transaction is expected to add approximately $ 26 million in annual incremental earnings with one-time acquisition costs estimated to total approximately $ 12 million . as part of the transaction , the com pany acquired approximately $ 260 million in loans from first nbc in january 2017 with the remaining portion of the transaction expected to close on march 10 , 2017 . results of operations net interest income net interest income ( te ) is the primary component of our earnings and represents the difference , or spread , between revenue generated from interest-earning assets and the interest expense related to funding those assets . for analytical purposes , net interest income is adjusted to a taxable equivalent basis using a 35 % federal tax rate on tax exempt items ( primarily interest on municipal securities and loans ) . 2016 compared to 2015 net interest income ( te ) for 2016 totaled $ 685 million , a $ 46 million , or 7 % , increase from 2015. excluding a $ 16 million decrease in net purchase accounting discount accretion , core net interest income was up $ 62 million in 2016 compared to 2015. this increase primarily resulted from interest earned on a $ 2.0 billion , or 10 % , increase in average earning assets . the average earning asset growth is attributable to a number of strategic initiatives management implemented in recent years to increase sustainable interest income in an effort to replace the decreasing amount of interest income from purchase accounting adjustments . these initiatives included , among other items , hiring experienced middle market commercial lenders in growing markets , expanding the company 's product base in 36 areas such as specialty financing , lease financing and health care , and opening business banking centers specifically designed for commercial customers . the net interest margin declined 10 bps to 3.23 % in 2016 from 3.33 % in 2015 due to a 10 bp decrease in net purchase accounting discount accretion . excluding purchase accounting discount accretion , the 2016 core net interest margin was 3.14 % for both 2016 and 2015. the net interest margin is the ratio of net interest income ( te ) to average earnings assets . the sections on asset/liability management and net interest income at risk in this section provide additional information regarding the company 's management of interest rate risk and potential impact from changes in interest rates , respectively . the overall reported yield on earning assets was 3.58 % in 2016 , down 4 bps from 2015. the reported loan portfolio yield was 4.01 % in 2016 compared to 4.13 % in 2015. excluding the impact from purchase accounting discount accretion , the loan yield was up 1 bp to 3.87 % . the reported tax-equivalent yield on the investment securities portfolio increased 9 bps from 2015 to 2.37 % for 2016 , reflecting a change in the mix within the investment securities portfolio . the company increased the percentage of high-quality municipal securities in the portfolio during 2016. these securities offer higher tax-equivalent yields than those available for mortgage-backed securities or collateral mortgage obligations . the company also began investing in agency commercial mortgage-backed securities in 2016 that provide a slightly higher yield than residential mortgage-backed securities . agency commercial mortgage-backed securities totaled approximately $ 501 million at december 31 , 2016 .
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fourth quarter results net income for the fourth quarter of 2016 was $ 51.8 million , or $ 0.64 per diluted common share , compared to $ 46.7 million , or $ 0.59 , and $ 15.3 million , or $ 0.19 , respectively in the third quarter of 2016 and the fourth quarter of 2015. the following discussion highlights recent factors impacting hancock 's results of operations and financial position . highlights of the company 's fourth quarter of 2016 results ( compared to third quarter 2016 ) : · earnings up approximately 11 % o revenue up 3 % o noninterest income up almost 5 % o loan loss provision decreased 24 % to $ 14.5 million , compared to $ 19.0 million · total loans up $ 681 million , or 17 % linked-quarter annualized ( lqa ) · net interest margin ( nim ) o f 3.26 % up 6 basis points ( bps ) · energy loans comprise 8.4 % of total loans , down from 8.7 % · allowance for the energy portfolio totals $ 106.5 million , or 7.5 % of energy loans · tangible common equity ( tce ) ratio up 71 bps to 8.64 % ; company raised $ 259 million of new capital on december 16 , 2016 total loans at december 31 , 2016 were $ 16.8 billion , an increase of $ 681 million , or 4 % , from september 30 , 2016. the company 's net loan growth during the quarter was diversified across the footprint and also in areas identified as part of the company 's revenue-generating initiatives . tot al deposits at december 31 , 2016 were $ 19.4 billion , up $ 539 million , or 3 % , from september 30 , 2016. the fourth quarter increase reflected year-end seasonality of both commercial and public fund customers . historically , customers have built deposits at year-end , particularly in demand deposits , with some of those deposits being withdrawn in the first quarter .
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business jet market sales to the business jet aerospace market include sales of lighting & safety products , avionics products , and electrical power & motion products . sales to this market totaled approximately 6.6 % of our consolidated revenue in 2017 and amounted to $ 41.3 million . sales to the business jet market are driven by our ship set content on new aircraft and build rates of new aircraft . business jet oem build rates continue to be significantly impacted by slow global wealth creation and corporate profitability which have been negatively affected during the past several years by global economic uncertainty among prospective buyers . our sales to the business jet market will continue to be challenged in the upcoming year as business jet aircraft production rates are not expected to increase significantly during 2018 . despite the current market conditions , we continue to see opportunities on new aircraft currently in the design phase to employ our lighting & safety , electrical power and avionics technologies in the business jet market . there is risk involved in the development of any new aircraft including the risk that the aircraft will not ultimately be produced or that it will be produced in lower quantities than originally expected and thus impacting our return on our engineering and development efforts . other aerospace sales of our other aerospace products include sales of airfield lighting products and other peco products . sales to this market totaled approximately 2.8 % of our total revenue or $ 17.5 million in 2017 . tests systems products our test systems segment accounted for approximately 14.4 % of our consolidated sales in 2017 and amounted to $ 89.9 million . sales to the semiconductor market were approximately $ 32.0 million . sales to the aerospace & defense market were approximately $ 57.9 million in 2017 . critical accounting policies our financial statements and accompanying notes are prepared in accordance with u.s. generally accepted accounting principles . the preparation of the company 's financial statements requires management to make estimates , assumptions and judgments that affect the amounts reported . these estimates , assumptions and judgments are affected by management 's 17 application of accounting policies , which are discussed in the notes to consolidated financial statements , note 1 of item 8 , financial statements and supplementary data of this report . the critical accounting policies have been reviewed with the audit committee of our board of directors . revenue recognition the vast majority of our sales agreements are for standard products and services , with revenue recognized on the accrual basis at the time of shipment of goods , transfer of title and customer acceptance , where required . there are no significant contracts allowing for right of return . to a limited extent , certain contracts involve multiple elements ( such as equipment and service ) . the company recognizes revenue for delivered elements when they have stand-alone value to the customer , they have been accepted by the customer , and for which there are only customary refund or return rights . arrangement consideration is allocated to the deliverables by use of the relative selling price method . the selling price used for each deliverable is based on vendor-specific objective evidence ( “ vsoe ” ) if available , third party-evidence ( “ tpe ” ) if vsoe is not available , or estimated selling price if neither vsoe nor tpe is available . estimated selling price is determined in a manner consistent with that used to establish the price to sell the deliverable on a standalone basis . for prepaid service contracts , sales revenue is recognized on a straight-line basis over the term of the contract , unless historical evidence indicates the costs are incurred on other than a straight-line basis . revenue of approximately $ 21.0 million , $ 20.7 million and $ 17.2 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively , was recognized from long-term , fixed-price contracts using the percentage-of-completion method of accounting , measured by multiplying the estimated total contract value by the ratio of actual contract costs incurred to date to the estimated total contract costs . the company makes significant estimates involving its usage of percentage-of-completion accounting to recognize contract revenues . the company periodically reviews contracts in process for estimates-to-completion , and revises estimated gross profit accordingly . while the company believes its estimated gross profit on contracts in process is reasonable , unforeseen events and changes in circumstances can take place in a subsequent accounting period that may cause the company to revise its estimated gross profit on one or more of its contracts in process . accordingly , the ultimate gross profit realized upon completion of such contracts can vary significantly from estimated amounts between accounting periods . for contracts with anticipated losses at completion , a charge is taken against income for the amount of the entire loss in the period in which it is estimated . reviews for impairment of long-lived assets goodwill impairment testing our goodwill is the result of the excess of purchase price over net assets acquired from acquisitions . as of december 31 , 2017 , we had approximately $ 125.6 million of goodwill . as of december 31 , 2016 , we had approximately $ 115.2 million of goodwill . the change in goodwill is primarily due to the goodwill recorded associated with the acquisitions of ccc and csc of $ 2.3 million and $ 23.4 million , respectively , offset by a goodwill impairment of $ 16.2 million at armstrong . we identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components . the test systems operating segment is its own reporting unit while the other reporting units are one level below our aerospace operating segment . story_separator_special_tag included in the net deferred tax liabilities are approximately $ 24.2 million in deferred tax assets net of a $ 3.8 million valuation allowance . these deferred tax assets principally relate to employee benefit liabilities , asset reserves , leases , deferred revenue , state net operating loss carry-forwards and state general business tax credit carry-forwards . because of the uncertainty as to the company 's ability to generate sufficient future taxable income in certain states , the company has recorded the valuation allowances accordingly in 2017 and 2016 . 19 supplemental executive retirement plan ( serp ) assumptions we maintain two non-qualified defined benefit supplemental retirement plans ( “ serp ” and “ serp ii ” ) for certain executive officers and retired former executive officers . expense for these plans in 2017 was $ 1.9 million and in 2016 was $ 1.9 million . plan obligations and the related costs are determined using actuarial valuations that involve several assumptions that may be highly uncertain and may have a material impact on the financial statements if different reasonable assumptions had been used . the most critical assumptions include the discount rate , future wage increases , retirement age and life expectancy . the discount rate is used to state expected future cash flows at present value . using a lower discount rate increases the present value of pension obligations and increases pension expense . for determining the discount rate the company considers long-term interest rates for high-grade corporate bonds . the discount rate for determining the expense recognized in 2017 was 4.20 % compared with 4.45 % in 2016 . we will use a discount rate of 3.60 % in determining our 2018 expense . the assumption for compensation increases takes a long-term view of inflation and performance based salary adjustments based on the company 's approach to executive compensation . the rate used for future wage increases was 2-3 % . it was assumed that each participant retires after fully vesting in the plan at age 62 or 65. a 100 point increase in the discount rate we used would decrease our annual pension expense for 2018 by $ 0.3 million . if we had assumed annual wage increases of 3-4 % , our 2018 pension expense would increase approximately $ 0.2 million . stock-based compensation we have stock-based compensation plans , which include non-qualified stock options as well as incentive stock options . expense recognized for stock-based compensation was $ 2.6 million for 2017 , $ 2.3 million for 2016 and $ 2.3 million for 2015 . we determine the fair value of the option awards at the date of grant using a black-scholes model . option pricing models require management to make assumptions and to apply judgment to determine the fair value of the award . these assumptions and judgments include estimating the future volatility of our stock price , expected dividend yield , future employee stock option exercise behaviors and future employee turnover rates . changes in these assumptions can materially affect the fair value estimate . acquisitions the company accounts for its acquisitions under asc topic 805 , business combinations and reorganizations ( “ asc topic 805 ” ) . asc topic 805 provides guidance on how the acquirer recognizes and measures the consideration transferred , identifiable assets acquired , liabilities assumed , non-controlling interests , and goodwill acquired in a business combination . asc topic 805 also expands required disclosures surrounding the nature and financial effects of business combinations . acquisition costs are expensed as incurred . acquisition related expenses were $ 0.3 million in 2017 , insignificant in 2016 , and $ 0.4 million in 2015 . when the company acquires a business , we allocate the purchase price to the assets acquired and liabilities assumed in the transaction at their respective estimated fair values . we record any premium over the fair value of net assets acquired as goodwill . the allocation of the purchase price involves judgments and estimates both in characterizing the assets and in determining their fair value . the way we characterize the assets has important implications , as long-lived assets with definitive lives , for example , are depreciated or amortized , whereas goodwill is tested annually for impairment , as explained previously . with respect to determining the fair value of assets , the most subjective estimates involve valuations of long-lived assets , such as property , plant , and equipment as well as identified intangible assets . we use all available information to make these fair value determinations and engage independent valuation specialists to assist in the fair value determination of the acquired long-lived assets . the fair values of long-lived assets are determined using valuation techniques that use discounted cash flow methods , independent market appraisals and other acceptable valuation techniques . with respect to determining the fair value of the purchase price , the most subjective estimates involve valuations of contingent consideration . significant judgment is necessary to determine the fair value of the purchase price when the transaction includes an earn-out provision . we engage valuation specialists to assist in the determination of the fair value of contingent consideration . key assumptions used to value the contingent consideration include future projections and discount rates . during 2017 , acquisitions added approximately $ 4.0 million in property , plant and equipment and $ 66.5 million in purchased intangible assets . see note 18 in the notes to the consolidated financial statements in item 8 , financial statements and supplementary data , regarding the acquisitions in 2017 . 20 consolidated results of operations and outlook replace_table_token_6_th ( 1 ) our results of operations for 2015 include the operations of armstrong , beginning january 14 , 2015 . ( 2 ) our results of operations for 2017 include the operations of ccc , beginning april 3 , 2017 , and the operations of csc , beginning december 1 , 2017 ( `` collectively , the acquired businesses '' ) .
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overview astronics , through its subsidiaries , designs and manufactures advanced , high-performance electrical power generation , distribution and motion systems , lighting & safety systems , avionics products , aircraft structures , systems certification and automated test systems . our strategy is to increase our value by developing technologies and capabilities either internally or through acquisition , and use those capabilities to provide innovative solutions to the aerospace & defense , semiconductor and other markets where our technology can be beneficial . we have two reportable segments , aerospace and test systems . our aerospace segment has thirteen principal operating facilities with one located in new york state , florida , oregon , quebec , canada and montierchaume , france ; two located in new hampshire ; and three located in each of illinois and washington state . our test systems segment has facilities located in florida and california . our aerospace segment serves three primary markets . they are the military , commercial transport and business jet markets . our test systems segment serves the aerospace & defense and semiconductor markets . important factors affecting our growth and profitability are the rate at which new aircraft are produced , government funding of military programs , our ability to have our products designed into new aircraft and the rates at which aircraft owners , including commercial airlines , refurbish or install upgrades to their aircraft . new aircraft build rates and aircraft owners spending on upgrades and refurbishments is cyclical and dependent on the strength of the global economy . once designed into a new aircraft , the spare parts business is frequently retained by the company . future growth and profitability of the test business is dependent on developing and procuring new and follow-on business in the semiconductor market as well as with the military . the nature of our test systems business is such that it pursues large multi-year projects .
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overview we are an industry-leading commercial specialty contractor in the areas of hvac , plumbing , electrical and building controls through design and construction of new and renovated buildings , maintenance services , energy retrofits and equipment upgrades for private customers and federal , state , and local public agencies in florida , california , massachusetts , new jersey , pennsylvania , delaware , maryland , washington dc , virginia , west virginia , ohio and michigan . we operate our business in two segments , ( i ) construction , in which we generally manage large construction or renovation projects that involve primarily hvac , plumbing , or electrical services , and ( ii ) service , in which we provide facility maintenance or services primarily on hvac , plumbing or electrical systems . our market sectors primarily include the following : healthcare , including research , acute and outpatient not-for-profit , for-profit facilities and pharmaceutical and biotech ; education , including colleges , universities , research centers and k-12 public and private facilities ; sports & amusement , including arenas , rides and related facilities ; transportation , including passenger terminals and maintenance facilities for rail and airports ; government facilities , including federal , state and local agencies ; hospitality , including hotels and resorts ; corporate and commercial office buildings , including new builds and interior fit-outs ; retail and mixed use ; residential multifamily apartment buildings ( excluding condominiums ) ; mission critical , facilities including data centers ; and 26 industrial manufacturing . limbach was founded in 1901 , and maintains an established brand within the industry . we believe we are viewed as a value added and trusted partner by our customers , which include building owners , general contractors ( “ gcs ” ) and construction managers ( “ cms ” ) . we also construct new buildings , additions and provide renovations of existing buildings for owners , gcs and cms . in addition , we provide services to building owners that are centered on hvac , plumbing , and electrical building systems , which typically include ongoing maintenance , upgrades to existing building systems , energy retrofits and delivering general construction services . construction segment our construction offerings for owners , gcs , and cms include the following : competitive lump sum bidding ( including plan and specification bidding with select qualified competitors ) ; design/assist services , for which we typically contract on a negotiated basis to maintain a project budget , and occasionally are contracted on a lump sum basis ; integrated project delivery ( “ ipd ” ) , for which we contract on a negotiated basis to collaborate with a team to establish a target budget and execute on a project within the target budget ; design/build , which services are provided on either a negotiated basis or through competitive bidding ; and performance contracting , for which we assess a building owner 's facilities and offer a proposal to reduce energy and operating costs , and when successful , we often perform ongoing maintenance of the building systems . our specialty contracting is provided through either our special projects division or our construction segment . special projects typically range in value from $ 5,000 to $ 1 million . construction projects typically range in value from $ 1 million to $ 100 million . actual contracts may be below or above these stated ranges depending upon the actual project requirements . we possess the ability to provide design services in-house through our design center located in orlando , florida . we sell the majority of our services by leading with our engineered solutions , which we believe are highly valued by our select customer base and drive higher margin outcomes . services segment our services primarily include the following categories : specialty contracting , including the design and construction of hvac , plumbing and or electrical systems within commercial and institutional buildings ; general contracting , including construction on projects that primarily involve hvac , plumbing and or electrical ; maintenance of hvac , plumbing and or electrical systems ; service projects for system and equipment upgrades , including energy retrofits ; emergency service work , which we refer to as “ spot work ” ; water treatment ; automatic temperature controls ( “ atc ” ) ; and performance contracting , including significant building energy retrofits . typical maintenance and water treatment agreements range in value from $ 2,500 to over $ 200,000. service projects typically range in value from $ 1,000 to $ 500,000. spot work varies in value and is typically billed at preapproved billing rates . atc projects vary in size from $ 10,000 to over $ 250,000. specialty contracting , general contracting and performance contracting can range from $ 100,000 to $ 100 million . the durations of our contracts generally range from six months to three years . while these ranges are typical for our services , certain projects may be below or above these stated ranges . 27 jobs act we are an “ emerging growth company ” ( “ egc ” ) pursuant to the jobs act . the jobs act contains provisions that , among other things , reduce certain reporting requirements for qualifying companies . under the jobs act , we will remain an egc until the earliest of : december 31 , 2019 ( the last day of the fiscal year following the fifth anniversary of our initial public offering of common equity securities ) ; the last day of the fiscal year in which we have annual gross revenue of $ 1.07 billion or more ; the date on which we have , during the previous three-year period , issued more than $ 1.0 billion in non-convertible debt ; and the date on which we are deemed to be a “ large accelerated filer , ” which will occur at such time as the company has an aggregate worldwide market value of common equity securities held by non-affiliates of $ 700.0 million or more as of the last business day of our story_separator_special_tag the company 's financial statement presentation for the combined year 2016 distinguishes the company 's presentations into two distinct periods , the period up to the closing date of the business combination ( predecessor ) and the period including and after that date ( successor ) . the business combination was accounted for as a business combination using the acquisition method of accounting , and the successor financial statements reflect a new basis of accounting that is based on the fair value of the net assets acquired . determining the fair value of certain assets and liabilities assumed is judgmental in nature and often involves the use of significant estimates and assumptions . see note 4 – business combination in the notes to consolidated financial statements for a discussion of the estimated fair values of assets and liabilities recorded in connection with the company 's acquisition of lhllc . operating segments we manage and measure the performance of our business in two operating segments : construction and service . these segments are reflective of how the company 's chief operating decision maker ( “ codm ” ) reviews operating results for the purposes of allocating resources and assessing performance . our codm is comprised of our chief executive officer , chief financial officer and chief operating officer . the codm evaluates performance and allocates resources based on operating income , which is profit or loss from operations before “ other ” corporate expenses , income tax provision ( benefit ) and dividends on redeemable convertible preferred stock , if any . the accounting policies of the segments are the same as those described in the summary of significant accounting policies below in note 2 – significant accounting policies in the notes to consolidated financial statements . our codm evaluates performance based on income from operations of the respective branches after the allocation of corporate office operating expenses . in accordance with asc topic 280 – segment reporting , the company has elected to aggregate all of the construction branches into one construction reportable segment and all of the service branches into one service reportable segment . all transactions between segments are eliminated in consolidation . our corporate departments provide general and administrative support services to our two operating segments . we allocate costs between segments for selling , general and administrative expenses and depreciation expense . some selling , general and administrative expenses such as executive and administrative salaries and payroll expenses , corporate marketing , corporate depreciation and amortization , and consulting , accounting and corporate legal fees are not allocated to segments because the allocation method would be arbitrary and would not provide an accurate presentation of operating results of segments ; instead these types of expenses are maintained as a corporate expense . see note 14 – operating segments in the notes to consolidated financial statements . we do not identify capital expenditures and total assets , including goodwill , by segment in our internal financial reports due in part to the shared use of a centralized fleet of vehicles and specialized equipment . interest expense is not allocated to segments because of the corporate management of debt service . the company had a single construction segment customer that accounted for approximately 15 % of consolidated total revenues for the year ended december 31 , 2017. for the successor period from july 20 , 2016 through december 31 , 2016 and for the predecessor period from january 1 , 2016 through july 19 , 2016 , this same construction segment customer represented approximately 24 % and 11 % of the company 's consolidated total revenues , respectively . this resulted from a construction project which commenced in early 2016 , of which the majority of the construction work was completed by the fourth quarter of 2017 with the contract to be closed out in 2018 . 31 comparison of results of operations for the year ended december 31 , 2017 ( successor ) , july 20 , 2016 through december 31 , 2016 ( successor ) and january 1 , 2016 through july 19 , 2016 ( predecessor ) the following table presents operating results for the year ended december 31 , 2017 ( successor ) , july 20 , 2016 through december 31 , 2016 , ( successor ) and january 1 , 2016 through july 19 , 2016 ( predecessor ) in absolute terms and expressed as a percentage of total revenue : replace_table_token_2_th ( 1 ) as a percentage of construction revenue . ( 2 ) as a percentage of service revenue . ( 3 ) as a percentage of total revenue . 32 comparison of select financial data : replace_table_token_3_th revenue revenue was $ 485.7 million for the year ended december 31 , 2017 ( successor ) as compared to $ 225.6 million for july 20 , 2016 through december 31 , 2016 ( successor ) and $ 221.4 million for january 1 , 2016 through july 19 , 2016 ( predecessor ) . revenue increased $ 38.7 million , or 8.7 % , for the year ended december 31 , 2017 ( successor ) as compared to the comparable 2016 period . construction revenue increased by $ 26.6 million , or 7.3 % , and service revenue increased by $ 12.1 million , or 14.8 % . the increase in construction revenue was primarily driven by growth in the mid-atlantic , michigan , and eastern pennsylvania regions and partially offset by a decline in the southern california and new england regions . the $ 12.1 million increase in service revenue resulted primarily from the company 's focus over recent years on developing longer term customer relationships and sales of larger service owner-direct projects and contracts and growth in the maintenance contract base . growth in michigan , florida and southern california caused the overall service revenue increase .
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cash flow summary our cash used in operating activities for the year ended december 31 , 2017 was due to the commencement of new projects and billing and collections that were not at a sufficient level to support the short-term needs for project start-ups . billing and collections on both construction and service projects are increasing on a monthly basis and management expects this operating cash flow trend will improve as these projects mature , cash is collected , and profits increase . management further expects that high volumes of service work , which is less sensitive to the cash flow issues presented by large construction projects , will further continue to positively impact our cash flow trends . we believe our current cash and cash equivalents of $ 0.6 million , cash to be received from existing and new customers , and availability of borrowing under a revolving line of credit under our credit agreement ( pursuant to which we had $ 15.9 million of availability as of december 31 , 2017 ) will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months . additionally , we expect that certain non-cash items , certain permanent book-tax differences originating in the ordinary course of business , and certain additional temporary differences between book and tax basis resulting from the business combination will mitigate our cash outflow until such items are completely utilized , and therefore add to liquidity in the near term . our future capital requirements will depend on many factors , including revenue growth and costs incurred to support it , and increased selling , general and administrative expenses to support the anticipated growth in our operations and regulatory requirements as a new public company . our capital expenditures in future periods are expected to grow in line with our business .
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for the balancer segment , the company designs , manufactures and sells computer-controlled vibration detection , balancing and process control systems for the worldwide machine tool industry , particularly for grinding machines . through its wholly owned subsidiary , schmitt measurement systems , inc. , an oregon corporation , the company designs , manufactures and sells laser and white light sensors for distance , dimensional and area measurement for a wide variety of commercial applications , laser-based microroughness measurement products for the semiconductor wafer and hard disk drive industries and for other industrial applications , laser-based surface analysis and measurement products for a variety of scientific applications , and ultrasonic measurement products that accurately measure the fill levels of tanks holding propane , diesel and other tank-based liquids and transmit that data via satellite to a secure web site for display ( the measurement segment ) . the company also provides sales and service for europe and asia through its wholly owned subsidiary , schmitt europe limited ( sel ) , located in coventry , england and through its sales representative office located in shanghai , china . for the fiscal year ended may 31 , 2016 ( fiscal 2016 ) , total sales decreased $ 1,383,738 , or 10.6 % , to $ 11,685,353 from $ 13,069,091 in the fiscal year ended may 31 , 2015 ( fiscal 2015 ) . the focus of balancer segment sales throughout the world is on end-users , rebuilders and original equipment manufacturers of grinding machines with the target geographic markets of north america , asia , and europe . balancer sales decreased $ 887,490 , or 11.3 % , to $ 6,962,746 in fiscal 2016 compared to $ 7,850,236 in fiscal 2015. sales to customers in europe increased $ 173,359 , or 16.0 % , to $ 1,259,868 in fiscal 2016 compared to $ 1,086,509 in fiscal 2015. sales to customers in the rest of the world decreased $ 1,060,849 , or 15.7 % , from fiscal 2015 to fiscal 2016 with sales into china and other parts of asia accounting for 77 % of the decrease . the measurement segment product lines consist of the sms and lasercheck laser-based surface microroughness measurement systems , the acuity laser-based distance measurement and dimensional sizing laser sensors , and the xact ultrasonic-based remote tank monitoring products . total measurement segment sales decreased $ 496,248 , or 9.5 % , to $ 4,722,607 for fiscal 2016 as compared to $ 5,218,855 for fiscal 2015. the overall decrease in sales in the measurement segment is primarily attributed to decreased sales in our sms product line of $ 886,468 , or 71.7 % , which had sales of two casi machines included in its fiscal 2015 results which were not repeated in fiscal 2016. this decrease was , in part , offset by increased sales in our acuity product line . acuity posted sales of $ 2,401,465 in fiscal 2016 as compared to $ 1,991,596 in fiscal 2015 , an increase of $ 409,869 , or 20.6 % . page 19 operating expenses increased $ 98,613 , or 1.6 % , to $ 6,303,769 in fiscal 2016 from $ 6,205,156 in fiscal 2015. general , administrative and sales expenses increased $ 189,246 , or 3.2 % , in fiscal 2016 to $ 6,016,097 as compared to $ 5,826,851 in the prior fiscal year . this increase was offset by a decrease in spending of $ 90,633 , or 24.0 % , for research and development expenses in fiscal 2016 as compared to the same period in the prior year . net loss was $ 1,515,189 , or $ ( 0.51 ) per fully diluted share , for the year ended may 31 , 2016 as compared to net loss of $ 93,669 , or $ ( 0.03 ) per fully diluted share , for the year ended may 31 , 2015. critical accounting policies revenue recognition the company recognizes revenue for sales and billing for freight charges upon delivery of the product to the customer at a fixed or determinable price with a reasonable assurance of collection , passage of title to the customer as indicated by shipping terms and fulfillment of all significant obligations , pursuant to the guidance provided by accounting standards codification topic 605. for sales to all customers , including manufacturer representatives , distributors or their third-party customers , these criteria are met at the time product is shipped . when other significant obligations remain after products are delivered , revenue is recognized only after such obligations are fulfilled . in addition , judgments are required in evaluating the credit worthiness of our customers . credit is not extended to customers and revenue is not recognized until we have determined that collectability is reasonably assured . the company estimates customer product returns based on historical return patterns and reduces sales and cost of sales accordingly . allowance for doubtful accounts the company maintains credit limits for all customers based upon several factors , including but not limited to financial condition and stability , payment history , published credit reports and use of credit references . management performs various analyses to evaluate accounts receivable balances to ensure recorded amounts reflect estimated net realizable value . this review includes accounts receivable agings , other operating trends and relevant business conditions , including general economic factors , as they relate to the company 's domestic and international customers . if these analyses lead management to the conclusion that potential significant accounts are uncollectible , a reserve is provided . story_separator_special_tag inventories inventories are valued at the lower of cost or market with cost determined on the average cost basis . costs included in inventories consist of materials , labor and manufacturing overhead , which are related to the purchase or production of inventories . write-downs , when required , are made to reduce excess inventories to their net realizable values . such estimates are based on assumptions regarding future demand and market conditions . if actual conditions become less favorable than the assumptions used , an additional inventory write-down may be required . deferred taxes the company applies the asset and liability method in recording income taxes , under which deferred income tax assets and liabilities are determined , based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using currently enacted tax rates and laws . additionally , deferred tax assets are evaluated and a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized . management continues to review the level of the valuation allowance on a quarterly basis . there can be no assurance that the company 's future operations will produce sufficient earnings so that the deferred tax assets can be fully utilized . intangible assets intangible and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable . recoverability is determined by comparing the forecasted future undiscounted net cash flows from the operations to which the assets relate , based on management 's best estimates using the appropriate assumptions and projections at the time , to the carrying amount of the assets . if the carrying value is determined to be in excess of future operating cash flows , the asset is considered impaired and a loss is recognized equal to the amount by which the carrying amount exceeds the estimated fair value of the assets . page 20 recently issued accounting pronouncements refer to note 2 of the notes to consolidated financial statements for a discussion of recently issued accounting pronouncements . story_separator_special_tag and certain expenses not being deductible for income tax reporting , offset by tax credits related to research and experimentation expenses . the effective tax rate in fiscal 2014 was 1.8 % . the effective tax rate on consolidated net loss in fiscal 2014 differed from the federal statutory tax rate primarily due to changes in the deferred tax valuation allowance and certain expenses not being deductible for income tax reporting , offset by tax credits related to research and experimentation expenses . net income ( loss ) net loss was $ 1,515,189 , or $ ( 0.51 ) per fully diluted share , for the year ended may 31 , 2016 as compared to net loss of $ 93,669 , or $ ( 0.03 ) per fully diluted share , for the year ended may 31 , 2015. net loss for fiscal 2016 was primarily the result of the decline in sales to our customers in china , other asia markets and north america within the balancer segment , lower sales in the sms product line and higher operating expenses . net loss was $ 93,669 , or $ ( 0.03 ) per fully diluted share , for the year ended may 31 , 2015 as compared to net loss of $ 539,624 , or $ ( 0.18 ) per fully diluted share for the year ended may 31 , 2014. net loss for fiscal 2015 reflected increased sales and a higher gross margin percentage , which was partially offset by an increase in operating expenses . liquidity and capital resources the company 's working capital decreased $ 1,227,608 to $ 6,325,707 as of may 31 , 2016 compared to $ 7,553,315 as of may 31 , 2015. cash and cash equivalents decreased $ 806,968 from $ 1,795,654 as of may 31 , 2015 to $ 988,686 as of may 31 , 2016. cash used in operating activities was $ 819,808 in fiscal 2016 , as compared to cash provided by operating activities of $ 390,146 in fiscal 2015 and cash used in operations of $ 392,376 in fiscal 2014. the amount of cash used in or provided by operating activities was primarily impacted by the amount of the net loss in each of the fiscal years , the timing of collections of accounts receivable , shifts in the level of inventories , and the timing of payments of accounts payable . at may 31 , 2016 , accounts receivable decreased $ 561,344 to $ 2,099,082 compared to $ 2,660,426 as of may 31 , 2015. the decrease in accounts receivable was due to the decrease in sales in the second half of fiscal 2016 and the timing of collections . inventories increased $ 170,410 to $ 4,727,977 as of may 31 , 2016 compared to $ 4,557,567 as of may 31 , 2015 as a result of lower level of sales occurring during fiscal 2016. at may 31 , 2016 , total current liabilities increased $ 15,369 to $ 1,630,700 as compared to $ 1,615,331 at may 31 , 2015. during fiscal 2016 , net cash provided by investing activities of $ 11,430 consisted primarily of the proceeds from the disposition of some office equipment , offset by the purchase of computer equipment . during fiscal 2015 , net cash used in investing activities of $ 49,127 consisted primarily of the addition of a new vehicle and new manufacturing and computer equipment , offset by the proceeds from the disposition of one of the company 's vehicles . during fiscal 2014 , net cash used in investing activities of $ 36,692 consisted primarily of additions to property and equipment of new manufacturing and computer equipment , offset by proceeds from the disposition of one of the company 's
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discussion of operating results replace_table_token_3_th sales sales in the balancer segment decreased $ 887,490 , or 11.3 % , to $ 6,962,746 for fiscal 2016 compared to $ 7,850,236 for fiscal 2015. while sales in the overall balancing segment declined in fiscal 2016 , sales to customers in europe increased $ 173,359 , or 16.0 % , to $ 1,259,868 in fiscal 2016 compared to $ 1,086,509 in fiscal 2015. this increase is the direct result of the targeted market strategy we have been pursuing in that geographic area . sales to customers in the rest of the world decreased $ 1,060,849 , or 15.7 % , from fiscal 2015 to fiscal 2016 , with sales into china and other parts of asia accounting for $ 819,666 , or 77 % , of the decrease . sales into china decreased $ 555,076 , or 31.6 % , during fiscal 2016 as compared to fiscal 2015 and sales into other parts of asia decreased $ 264,590 , or 21.7 % , during fiscal 2016 as compared to fiscal 2015. north american sales decreased $ 90,869 , or 2.6 % , during the year ended may 31 , 2016 and compared to the prior fiscal year . the economic circumstances in china , in the other asia markets and in the north american market appear to be significantly contributing to the decline in sales experienced in fiscal 2016. the levels of demand for our balancer products in any of these geographic markets can not be forecasted with any certainty given current economic trends and the historical volatility experienced in these markets .
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2018 highlights the following are the more significant developments in our businesses during the year ended december 31 , 2018 : revenue of $ 4,727.8 million in 2018 increased $ 1,849.2 million or approximately 64 percent versus last year . a more detailed review of revenues by segment is included under the section entitled “ results of operations ” . on a regional basis , sales in north america increased 66 percent , sales in asia increased 81 percent and sales in europe , middle east and africa ( emea ) increased by 78 percent and sales in latin america increased by 40 percent . our gross margin , excluding transaction-related charges , of $ 2,156.5 million increased $ 1,035.0 million or approximately 92 percent versus last year . gross margin , excluding transaction-related charges , as a percent of revenue is approximately 46 percent versus 39 percent in 2017 . the increase in gross margin was primarily driven by higher margin products in fmc agricultural solutions as well as a full year of earnings from the acquired dupont crop protection business . selling , general and administrative expenses increased 42 percent from $ 600.4 million to $ 851.2 million primarily due to the acquisition of the dupont crop protection business which is being integrated into our fmc agricultural solutions segment . selling , general and administrative expenses , excluding transaction-related charges , of $ 728.7 million increased $ 258.5 million or approximately 55 percent primarily due to a full year of operations of the acquired dupont crop protection business . transaction-related charges are presented in our adjusted earnings non-gaap financial measurement below under the section titled “ results of operations ” . research and development expenses of $ 291.5 million increased $ 150.0 million or 106 percent . the increase was primarily due to investments in discovery and product development from the newly acquired state of the art facilities from the dupont crop protection business acquisition . net income ( loss ) attributable to fmc stockholders of $ 502.1 million decreased approximately $ 33.7 million from $ 535.8 million in the prior year period . net income in 2017 included the gain on sale of our discontinued fmc health and nutrition of approximately $ 727 million , net of tax which was partially offset by a provisional income tax charge of approximately $ 316 million related to the tax cuts and jobs act ( `` the act '' ) . additionally , in 2018 , we recorded a charge of $ 106.3 million related to active negotiations for a settlement agreement primarily to address discontinued operations at our environmental site in middleport , new york . these were partially offset by higher income from continuing operations in the current year driven by a full year of results from the dupont crop protection business . adjusted after-tax earnings from continuing operations attributable to fmc stockholders of $ 854.7 million increased approximately $ 486.4 million or 132 percent primarily due to higher results in fmc agricultural solutions . see the disclosure of our adjusted earnings non-gaap financial measurement below under the section titled “ results of operations ” . other 2018 highlights on october 15 , 2018 , livent closed on its ipo . after completion of the ipo and the underwriters ' exercise to purchase additional shares of common stock , fmc owned 123 million shares of livent 's common stock , representing approximately 84 percent of the total outstanding shares of livent 's common stock . fmc presently intends to distribute the remaining livent shares on march 1 , 2019. we will continue to consolidate livent as the fmc lithium reporting segment until the full separation date . at that time , results of livent will move to discontinued operations . we began and advanced the implementation of the sap s/4 hana platform during 2018 as part of our transformation process . 2019 outlook 20 our 2019 expectation for the overall global crop protection market growth is that it will be flat to up low-single digits in u.s. dollars . we expect that fmc 's above-market growth in 2019 will be driven by the continued strength in global demand for our diamides , pre-emergent herbicide growth , sales expansions in brazil , sulfonylurea herbicide growth in key european countries as well as new product introductions . we expect north america , emea and asia will also be flat to up low-single digits - driven by a variety of factors - and latin america will grow in the low- to mid-single digits . in north america , growth will come from an increase in corn acreage and normalized pest pressures . we expect 2019 revenue for fmc will be in the range of approximately $ 4.45 billion to $ 4.55 billion , up approximately 5 percent at the midpoint year over year versus 2018 sales , excluding fmc lithium . we also expect total company adjusted ebitda ( 1 ) of $ 1.165 billion to $ 1.205 billion , which represents 7 percent growth at the midpoint versus 2018 recast results , excluding fmc lithium ( 2 ) . 2019 adjusted earnings are expected to be in the range of $ 5.55 to $ 5.75 per diluted share ( 1 ) , up 8 percent at the midpoint versus recast 2018 , excluding any impact from share repurchases in 2019 ( 2 ) . ( 1 ) although we provide forecasts for adjusted earnings per share and total company adjusted ebitda ( non-gaap financial measures ) , we are not able to forecast the most directly comparable measures calculated and presented in accordance with gaap . certain elements of the composition of the gaap amounts are not predictable , making it impractical for us to forecast . such elements include , but are not limited to , restructuring , acquisition charges , and discontinued operations . as a result , no gaap outlook is provided . story_separator_special_tag we have excluded the following items from segment ebitda : corporate staff expense , interest income and expense associated with corporate debt facilities and investments , income taxes , gains ( or losses ) on divestitures of businesses , restructuring and other charges ( income ) , non-operating pension and postretirement charges , investment gains and losses , loss on extinguishment of debt , asset impairments , last-in , first-out ( `` lifo '' ) inventory adjustments , transaction-related charges , and other income and expense items . information about how each of these items relates to our businesses at the segment level and results by segment are discussed below and in note 20 to our consolidated financial statements included in this form 10-k. fmc agricultural solutions replace_table_token_8_th 2018 vs. 2017 revenue of $ 4,285.3 million increased $ 1,754.1 million , or approximately 69 percent versus the prior year period . the increase was primarily due to the revenue from the dupont crop protection acquisition , which was completed on november 1 , 2017 , and contributed approximately $ 1,742 million to the increase . segment ebitda of $ 1,217.8 million increased by $ 641.7 million , or approximately 111 percent , compared to the prior year period . the increase was primarily driven by the addition of the results from the acquired dupont crop protection business . refer to the fmc agricultural solutions pro forma financial results with the dupont crop protection business section below for further discussion . 2017 vs. 2016 revenue of $ 2,531.2 million increased approximately 11 percent versus the prior year period . higher volumes contributed 12 percent to the increase while favorable foreign currency had an impact of 1 percent . the acquired dupont crop protection business contributed 8 percent to these higher volumes , or approximately $ 193 million . these increases were partially offset by lower pricing which impacted revenue by 2 percent . segment ebitda of $ 576.1 million increased approximately 20 percent compared to the year-ago period . the higher volumes discussed above impacted the change in ebitda by approximately 43 percent and favorable foreign currency impacted the change in ebitda by approximately 5 percent . the acquired business represented a majority of these higher volumes . offsetting these increases were lower pricing which had an unfavorable impact of approximately 11 percent as well as higher costs which unfavorably impacted the segment by approximately 17 percent to the increase . the higher costs were also due to the recently acquired business . fmc agricultural solutions pro forma financial results with the dupont crop protection business we began to present pro forma combined results for the fmc agricultural solutions segment in the first quarter of 2018. we believe that reviewing our operating results by combining actual and pro forma results for the fmc agricultural solutions segment is more useful in identifying trends in , or reaching conclusions regarding , the overall operating performance of this segment . our pro forma segment information includes adjustments as if the dupont crop protection business acquisition had occurred on january 1 , 2016. our pro forma data is also adjusted for the effects of acquisition accounting but does not include adjustments for 24 costs related to integration activities , cost savings or synergies that might be achieved by the combined businesses . pro forma amounts presented are not necessarily indicative of what our results would have been had we operated the dupont crop protection business since january 1 , 2016 , nor our future results . replace_table_token_9_th _ ( 1 ) as reported amounts are the results of operations of fmc agricultural solutions , including the results of the dupont crop protection acquisition from november 1 , 2017 onward . ( 2 ) dupont crop protection business pro forma amounts include the historical results of the dupont crop protection business , prior to november 1 , 2017. these amounts also include adjustments as if the dupont crop protection business acquisition had occurred on january 1 , 2016 , including the effects of acquisition accounting . the pro forma amounts do not include adjustments for expenses related to integration activities , cost savings or synergies that may have been or may be achieved by the combined segment . ( 3 ) the pro forma combined amounts are not necessarily indicative of what the results would have been had we acquired the dupont crop protection business on january 1 , 2016 or indicative of future results . ( 4 ) for the year ended december 31 , 2018 , pro forma results and actual results are the same . replace_table_token_10_th _ ( 1 ) for the year ended december 31 , 2018 , pro forma results and actual results are the same . ( 2 ) pro forma combined revenue by region for the years ended december 31 , 2017 and 2016 includes the results of the dupont crop protection business of $ 1,325.4 million and $ 1,439.3 million , respectively , assuming the acquisition occurred on january 1 , 2016. these amounts include adjustments as if the dupont crop protection business acquisition had occurred on january 1 , 2016. the pro forma combined revenue by region amounts are not necessarily indicative of what the results would have been had we acquired the dupont crop protection business on january 1 , 2016 or indicative of future results . ( 3 ) increase in the year ended december 31 , 2018 was due primarily to strong growth of the acquired insecticides and herbicides , the move to direct market access in france , as well as sales synergies of legacy fmc products . these were partially offset by a forced divestiture ( anti-trust remedy ) , unfavorable weather conditions that led to a shorter growing season and lower demand in northern and central europe . ( 4 ) increase in the year ended december 31 , 2018 was due to very strong demand for the acquired insecticides , growth in u.s. soy acreage in 2018 , and strong demand across niche crops .
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pro forma combined results - 2018 vs. 2017 pro forma combined revenue of $ 4,285.3 million increased by approximately 11 percent versus the prior year period . refer to the fmc agricultural solutions pro forma combined revenue by region chart above for further discussion . pro forma combined segment ebitda of $ 1,217.8 million increased approximately 15 percent compared to the prior year . the increase was primarily driven by revenue growth discussed above as our sales organization leveraged valuable cross-selling opportunities due to minimal customer overlap with dupont . additionally , we reduced expected operating costs for the acquired dupont crop protection business through accelerated functional integration , leveraging our back office infrastructure and reducing manufacturing costs at the acquired plants . these were partially offset by higher raw material costs which have had a negative impact on results year over year . this is impacting the chemical industry broadly as the chinese government has been shutting down industrial parks as part of their environmental program . we have been able to mitigate and manage the impact on our ability to supply our customer due to our diversified supply chain network . for 2019 , full-year segment revenue is expected to be approximately $ 4.45 billion to $ 4.55 billion . fmc lithium replace_table_token_11_th 2018 vs. 2017 revenue of $ 442.5 million increased by approximately 27 percent versus the prior-year period primarily driven by higher volumes which impacted revenue by approximately 21 percent . additionally , improved pricing and mix added approximately 8 percent to the change in revenue . foreign currency had an unfavorable impact on the change in revenue of approximately 2 percent . segment ebitda of $ 195.7 million increased approximately $ 54 million versus the year ago period . the higher volumes noted above impacted ebitda by $ 46 million while improved pricing and mix had an approximately $ 27 million impact .
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pursuant to the terms of the company 's non-cancelable lease agreements in effect at december 31 , 2015 , the future minimum rent commitments are as follows : replace_table_token_13_th total rent expense for the years ended december 31 , 2015 and 2014 , including month-to-month leases , was $ 55,496 and $ 35,550 , respectively . 7. notes payable the company entered into notes payable agreements with vendors in lieu of making payments due on accounts payable to these vendors . interest accrued on these interest bearing notes payable at an annual rate of 7 % with accrued interest and principal due at maturity . in august 2014 , the company entered into a settlement agreement with a vendor for the repayment of $ 631,000 which included $ 531,000 in notes payable , $ 93,000 of accrued interest and $ 7,000 of accounts payable . under the terms of the settlement agreement , the company paid the vendor $ 90,000 and issued 541,948 shares of common stock and a warrant to purchase 162,539 shares of common stock exercisable at $ 1.00 per share with a five year term . the company valued the common stock at $ 341,000 and estimated the fair value of the warrant to be $ 55,000 based on a black-sholes valuation . the company estimated the fair value of the common stock to be $ 0.63 per share based upon the 2014 private placement in which the company sold units consisting of one share of common stock and one warrant for $ 1.00 each . the company estimated the fair value of each warrant to be $ 0.37 based on a black scholes valuation model . for the year ended december 31 , 2014 , the company recorded a gain on the settlement of $ 145,006 which was recorded as other income in the statement of operations . the company also had a note payable outstanding to another vendor with a balance due of $ 75,244 at september 30 , 2014 which had no stated interest rate . the company had been accruing interest on this note but reached an agreement with the vendor to pay off this note payable with no interest in four equal monthly principal installments of $ 25,081 and the note was paid off as of december 31 , 2014. in october 2014 , the company entered into a loan agreement with a financing company for $ 192,000 . the terms of the loan stipulated equal monthly payments of principal and interest payments of $ 24,293 over an eight month period . interest accrued on this loan at an annual rate of 3.25 % . the loan was fully repaid in june 2015. in november 2015 , the company entered into a loan agreement with a financing company for $ 207,750 . the terms of the loan stipulate equal monthly payments of principal and interest payments of $ 23,397 over a nine month period . interest accrues on this loan at an annual rate of 3.25 % . interest expense for notes payable for the years ended december 31 , 2015 and 2014 totaled $ 2,440 and $ 24,021 , respectively . notes payable consisted of the following : december 31 , 2015 2014 notes payable $ 162,019 $ 144,389 less : current portion ( 162,019 ) ( 144,389 ) $ — $ — f-13 8. accrued expenses accrued expenses consisted of the following : replace_table_token_14_th 9. deferred revenue in may 2015 , the company received $ 1,250,000 upon signing the cfft award agreement and in the fourth quarter of 2015 , the company received $ 1,250,000 from cfft upon the achievement of a milestone for dosing the first patient ( see note 3 and note 17 ) . the company recorded these amounts as deferred revenue and is amortizing the deferred revenue and recognizing revenue on a straight-line basis over the performance period of the development program , which is expected to conclude during the first quarter of 2017. the company recorded $ 648,382 of revenue during the year ended december 31 , 2015. deferred revenue consists of the following : december 31 , 2015 2014 deferred revenue $ 1,851,618 $ — less : current portion ( 1,591,358 ) — long term portion 260,260 — 10. income taxes no provision or benefit for federal or state income taxes has been recorded , as the company has incurred a net loss for all of the periods presented , and the company has provided a full valuation allowance against its deferred tax assets . at december 31 , 2015 , and 2014 , the company had federal and massachusetts net operating loss carryforwards of approximately $ 22,416,000 and $ 7,164,000 story_separator_special_tag f financial condition and results of operations the following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this annual report . this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this annual report , particularly those under “ risk factors. ” overview we are a clinical stage pharmaceutical company , focused on the development and commercialization of novel therapeutics to treat rare or uncommon chronic and serious inflammatory and fibrotic diseases with clear unmet medical needs . our product resunab is a novel synthetic oral endocannabinoid-mimetic drug that is intended to resolve chronic inflammation and halt fibrotic processes without causing immunosuppression . resunab is currently being evaluated in three separate phase 2 studies for the treatment of cystic fibrosis , diffuse cutaneous systemic sclerosis and skin-predominant dermatomyositis . story_separator_special_tag upon the execution of the award agreement , we received a payment of $ 1,250,000 in may 2015. in november 2015 , we received a second payment of $ 1,250,000 upon the achievement of a milestone for dosing the first patient . we recorded these two milestone payments received from the cfft totaling $ 2,500,000 as deferred revenue and they are being amortized on a straight-line basis over the expected duration of the performance period of the development program under the award , which is expected to conclude in february 2017. the remaining $ 2,500,000 under the award will be paid to us incrementally upon the achievement of certain milestones related to the progress of the phase 2 cf clinical trial , as set forth in the award agreement . research and development research and development expenses are incurred for the development of resunab and consist primarily of payroll , and payments to contract research and development companies . to date , these costs are related to generating pre-clinical data and the cost of manufacturing resunab for clinical trials and conducting clinical trials . these costs are expected to increase significantly in the future as resunab is evaluated in clinical trials . general and administrative expenses general and administrative expenses consist primarily of payroll , rent and professional services . other general and administrative expenses include accounting and legal services . we anticipate that our general and administrative expenses will increase significantly during 2016 and in the future as we increase our headcount to support our continued research and development and the potential commercialization of our product candidates . we also anticipate increased expenses related to audit , legal , regulatory , and tax-related services associated with maintaining compliance with nasdaq exchange listing and sec requirements , director and officer insurance , and investor relations costs associated with being a public company . total other income ( expense ) total other income ( expense ) consists primarily of interest income we earn on interest-bearing accounts , interest expense incurred on our outstanding debt , and gains or losses related to foreign currency exchange rate fluctuations . additionally , in fiscal 2014 amounts included in other income ( expense ) included a gain on the settlement of debt , a gain related to the forgiveness of a note payable , and a loss related to the change in the fair value of a warrant liability . 46 accrued research and development expenses as part of the process of preparing financial statements , we are required to estimate and accrue expenses , the largest of which are research and development expenses . this process involves : communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost ; estimating and accruing expenses in our financial statements as of each balance sheet date based on facts and circumstances known to us at the time ; and periodically confirming the accuracy of our estimates with selected service providers and making adjustments , if necessary . examples of estimated research and development expenses that we accrue include : · fees paid to cros in connection with nonclinical studies ; · fees paid to contract manufacturers in connection with the production of resunab for clinical trials ; · fees paid to cro and research institutions in connection with conducting of clinical studies ; and · professional service fees for consulting and related services . we base our expense accruals related to clinical studies on our estimates of the services performed pursuant to contracts with multiple research institutions and clinical research organizations that conduct and manage clinical studies on our behalf . the financial terms of these agreements vary from contract to contract and may result in uneven payment flows . payments under some of these contracts depend on factors , such as the successful enrollment of patients and the completion of clinical study milestones . our service providers invoice us monthly in arrears for services performed . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services , our actual expenses could differ from our estimates . to date , we have not experienced significant changes in our estimates of accrued research and development expenses following each applicable reporting period . however , due to the nature of estimates , we can not assure you that we will not make changes to our estimates in the future as we become aware of additional information regarding the status or conduct of our clinical studies and other research activities . stock-based compensation stock options are granted with an exercise price at no less than fair market value at the date of the grant . the stock options normally expire ten years from the date of grant . stock option awards vest upon terms determined by our board of directors . we recognize compensation costs resulting from the issuance of stock-based awards to employees , members of our board of directors and consultants . the fair value of each option grant was estimated as of the date of grant using the black-scholes option-pricing model . the fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards , which is generally the vesting period .
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results of operations comparison of year ended 2015 to 2014 collaboration revenue . on april 20 , 2015 , we entered into an award agreement with the cfft , a non-profit drug discovery and development affiliate of the cystic fibrosis foundation , pursuant to which we received a development award ( the “ award ” ) for up to $ 5 million in funding . the funding from the award is supporting the phase 2 clinical trial of resunab-inflammatory in adults with cystic fibrosis ( “ cf ” ) . upon the execution of the award agreement , we received a payment of $ 1,250,000 in may 2015. in november 2015 , we received $ 1,250,000 from the cfft upon the achievement of a milestone for dosing the first patient . in fiscal 2015 , we recorded these two milestone payments received from the cfft totaling $ 2,500,000 as deferred revenue . we are amortizing the $ 2,500,000 on a straight-line basis over the expected duration of the performance period of the development program under the award , which is expected to conclude in february 2017. accordingly , we recorded $ 648,382 of collaboration revenue in fiscal 2015. the remaining $ 2,500,000 that the company can receive under the award will be paid to the company incrementally upon the achievement of certain milestones related to the progress of the phase 2 cf clinical trial , as set forth in the award agreement . research and development .
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we are a team of over 16,000 employees , providing global support for all facets of the product realization process – design and development , supply chain solutions , new product introduction , manufacturing , and aftermarket services – to companies in the healthcare/life sciences , industrial/commercial , communications and aerospace/defense market sectors . plexus is an industry leader that specializes in serving customers with complex products used in demanding regulatory environments in the americas ( `` amer '' ) , asia-pacific ( `` apac '' ) and europe , middle east , and africa ( `` emea '' ) regions . with a culture built around innovation and customer service , plexus ' teams create customized end-to-end solutions to assure the realization of the most intricate products . the following information should be read in conjunction with our consolidated financial statements included herein and `` risk factors '' included in part i , item 1a herein . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2016 . the reduction in net sales was driven by overall decreased customer end-market demand as well as decreases of $ 38.7 million from customer disengagements , $ 25.5 million due to manufacturing transfers to our apac and emea segments , $ 24.0 million due to a customer 's decision to manufacture product internally , $ 16.4 million from end-of-life products and $ 5.8 million that resulted from a program disengagement . partially offsetting these decreases were net sales increases of $ 36.6 million from the ramp of new programs for existing customers and $ 11.0 million from the ramp of production for new customers . net sales for fiscal 2016 in the amer segment decreased $ 60.2 million , or 4.3 % , as compared to fiscal 2015 , primarily due to decreased net sales of $ 75.8 million with a customer that resulted from decreased customer end-market demand for one of its products and $ 71.9 million due to two customer disengagements . the remaining reduction in net sales resulted from decreases of $ 17.4 million due to two customers bringing the manufacturing of three programs in house , $ 12.4 million due to pilot programs for three customers not transitioning into the production stage and $ 5.5 million due to a product disengagement , as well as net overall decrease in customer end-market demand . partially offsetting these decreases were increased net sales of $ 187.3 million due to the ramp of production for a major customer , $ 59.8 million from the ramp of various new programs for several existing customers and $ 10.4 million due to the ramp of production for a new customer . apac . net sales for fiscal 2017 in the apac segment increased $ 117.4 million , or 10.1 % , as compared to fiscal 2016 . the increase in net sales was primarily due to a $ 115.6 million increase due to the ramp of new programs for existing customers , net increased customer end-market demand and $ 21.4 million due to manufacturing transfers from our amer segment . these increases were partially offset by decreases of $ 50.3 million due to a program disengagement , $ 38.6 million due to a customer 's partial divestiture of one of its businesses and $ 14.6 million that resulted from an end-of-life product . net sales for fiscal 2016 in the apac segment decreased $ 124.0 million , or 9.6 % , as compared to fiscal 2015. the reduction in net sales was primarily driven by a $ 90.7 million decrease in net sales due to a program disengagement . net sales also declined by $ 30.2 million due to two customers revising their business models as a result of decreased end-market demand and $ 7.0 million due to two customer disengagements . the remaining decrease in net sales was due to a net decrease in customer end-market demand . these decreases were partially offset by increased net sales of $ 76.5 million from the ramp of new programs for three existing customers and $ 19.4 million from the ramp of production for two new customers . emea . net sales for fiscal 2017 in the emea segment increased $ 22.4 million , or 13.1 % , as compared to fiscal 2016 . the increase in net sales was primarily attributable to a $ 34.6 million increase due to the ramp of new programs for existing customers and $ 4.1 million due to manufacturing transfers from our amer segment . partially offsetting the increases was net decreased customer end-market demand and a $ 3.2 million decrease from end-of-life products . net sales for fiscal 2016 in the emea segment increased $ 30.1 million , or 21.5 % , as compared to fiscal 2015 , primarily due to a $ 30.3 million increase in net sales due to the ramp of production of various new programs with several existing customers and $ 5.0 million from the ramp of production for a new customer . this was partially offset by a $ 3.8 million decrease as a result of a customer bringing the manufacturing of a program in house . the remaining decrease in net sales was due to a net decrease in customer end-market demand . 25 our net sales by market sector for fiscal 2017 , 2016 and 2015 were as follows ( in millions ) : replace_table_token_6_th healthcare/life sciences . net sales for fiscal 2017 in the healthcare/life sciences sector increased $ 78.5 million , or 10.1 % , as compared to fiscal 2016 . the increase was primarily driven by increases in net sales of $ 74.4 million due to the ramp of new programs for existing customers , net increased customer end-market demand and $ 7.0 million from the ramp of production for new customers . partially offsetting the increases were decreases in net sales of $ 24.8 million due to a customer 's decision to manufacture product internally and $ 2.1 million due to end-of-life products . net sales for fiscal 2016 in the healthcare/life sciences sector increased $ 30.1 story_separator_special_tag as compared to fiscal 2016 , the percentage decrease in cost of sales in fiscal 2017 was greater than the 1.1 % decrease in net sales primarily due to a positive shift in customer mix , on-going supply chain productivity initiatives and decreased inventory obsolescence expenses , which resulted primarily from $ 2.9 million of inventory losses sustained from a typhoon that impacted the company 's manufacturing facilities in xiamen , china during fiscal 2016. cost of sales for fiscal 2016 decreased $ 86.1 million , or 3.6 % , as compared to fiscal 2015. as expected , the decrease in cost of sales of 3.6 % as compared to fiscal 2015 was generally in line with the 3.7 % decrease in net sales . cost of sales decreased slightly less than the decrease in net sales primarily due to a $ 2.9 million increase in cost of sales that resulted from the xiamen typhoon during fiscal 2016. gross profit . gross profit for fiscal 2017 increased $ 28.5 million , or 12.5 % , as compared to fiscal 2016 . gross margin increased 120 basis points as compared to fiscal 2016. the primary driver of the increases in gross profit and gross margin as compared to fiscal 2016 was the larger percentage decrease in cost of sales as compared to the decrease in net sales , driven by the factors previously discussed . gross profit for fiscal 2016 decreased $ 12.2 million , or 5.1 % , as compared to fiscal 2015. gross margin decreased 10 basis points as compared to fiscal 2015. the primary driver of the decreases in gross profit and gross margin as compared to fiscal 2015 was the decrease in net sales and the $ 2.9 million increase in cost of sales due to the typhoon-related losses previously discussed . operating income . operating income for fiscal 2017 increased $ 30.5 million as compared to fiscal 2016 as a result of the increase in gross profit and a $ 7.0 million decrease in restructuring and other charges , partially offset by a $ 5.1 million increase in selling and administrative expenses ( `` s & a '' ) . restructuring and other charges in fiscal 2016 related to the closure of our manufacturing facility in fremont , california and the partial closure of our livingston , scotland facility . the increase in s & a in fiscal 2017 resulted from a $ 3.5 million increase in variable compensation expense as a result of improved roic and $ 2.0 million of increased salary and wage-related expenses , partially offset by a $ 1.9 million decrease in share-based compensation expense . while the level of fiscal 2017 share-based compensation expense benefited from the non-recurrence of $ 5.2 million of accelerated share-based compensation expense related to the retirement of the company 's former president and chief executive officer in fiscal 2016 , that effect was partially offset by a non-recurring $ 2.1 million equity grant in 2017 in connection with his appointment as executive chairman of the board . operating margin increased to 5.1 % in fiscal 2017 from 3.9 % in fiscal 2016 . operating income for fiscal 2016 decreased $ 16.0 million as compared to fiscal 2015 as a result of the decrease in gross profit and a $ 5.3 million increase in restructuring and other charges , as discussed above , partially offset by a $ 1.5 million reduction in s & a . the reduction in s & a in fiscal 2016 resulted from a $ 6.4 million decrease in variable compensation expense , partially offset by a $ 5.4 million increase in share-based compensation expense primarily due to $ 5.2 million of accelerated share-based compensation expense due to the retirement of the company 's former president and chief executive officer , as discussed above . operating margin decreased to 3.9 % in fiscal 2016 from 4.3 % in fiscal 2015 . 27 a discussion of operating income ( loss ) by reportable segment is presented below ( in millions ) : replace_table_token_7_th amer . operating income decreased $ 23.0 million in fiscal 2017 as compared to fiscal 2016 , primarily as a result of the decrease in net sales and increased variable labor costs to support new program ramps . the impact of the decrease in net sales was partially offset by a positive shift in customer mix due in part to decreased net sales to lower margin customers that resulted from two customer disengagements . operating income for fiscal 2016 decreased $ 3.7 million as compared to fiscal 2015 , driven primarily by decreased net sales . the impact of the net sales decrease was partially offset by a positive change in customer mix due in part to decreased net sales to lower margin customers that resulted from two customer disengagements . apac . operating income increased $ 44.6 million in fiscal 2017 as compared to fiscal 2016 , primarily as a result of the increase in net sales , a positive shift in customer mix , supply chain productivity initiatives and decreased inventory obsolescence expenses , which resulted primarily from the $ 2.9 million of losses sustained in fiscal 2016 from the xiamen typhoon discussed above . operating income decreased $ 4.7 million in fiscal 2016 as compared to fiscal 2015 , primarily as a result of the decrease in net sales and the effects of the xiamen typhoon . the impact of the decrease in net sales was partially offset by a positive shift in net sales mix , partially due to a program disengagement , and a $ 4.7 million decrease in fixed manufacturing expenses due to cost saving initiatives . emea . operating loss increased $ 2.5 million in fiscal 2017 as compared to fiscal 2016 primarily due to increased labor costs to support new program ramps , partially offset by the impact of the increase in net sales .
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results of operations consolidated performance summary . the following table presents selected consolidated financial data for the indicated fiscal years ( dollars in millions , except per share data ) : 2017 2016 2015 * net sales $ 2,528.1 $ 2,556.0 $ 2,654.3 cost of sales 2,272.2 2,328.6 2,414.7 gross profit 255.9 227.4 239.6 gross margin 10.1 % 8.9 % 9.0 % operating income 129.9 99.4 115.4 operating margin 5.1 % 3.9 % 4.3 % net income 112.1 76.4 94.3 diluted earnings per share $ 3.24 $ 2.24 $ 2.74 return on invested capital * * 16.2 % 13.8 % 14.0 % economic return * * 5.7 % 2.8 % 3.0 % * fiscal 2015 included 53 weeks , while all other periods presented included 52 weeks . * * non-gaap metric ; refer to `` return on invested capital ( `` roic '' ) and economic return '' below for more information and exhibit 99.1 for a reconciliation . net sales . fiscal 2017 net sales decreased $ 27.9 million , or 1.1 % , as compared to fiscal 2016 . fiscal 2016 net sales decreased $ 98.3 million , or 3.7 % , as compared to fiscal 2015. net sales are analyzed by management by geographic segment , which reflects the company 's reportable segments , and by market sector . management measures operational performance and allocates resources on a geographic segment basis . the company 's global business development strategy is based on our targeted market sectors . 24 a discussion of net sales by reportable segment is presented below ( in millions ) : replace_table_token_5_th amer . net sales for fiscal 2017 in the amer segment decreased $ 162.4 million , or 12.2 % , as compared to fiscal < font
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other general and administrative expenses amounted to $ 130,425 in 2004 , consistent with 2003 . 16 net loss on disposal of equipment for 2004 was $ 768,375 , as compared to a net loss of $ 693,649 for 2003. the change was a result of two primary factors : the registrant 's disposal of 1,607 containers in 2004 , as compared to 1,389 containers during 2003. these disposals resulted in a net loss of $ 464,046 during 2004 , compared to a net loss of $ 693,649 during 2003. the registrant disposed of additional containers during 2004 in response to its original investment objective , to realize the residual value of its containers after the expiration of their useful lives . the registrant believes that the net loss on container disposals in 2004 was a result of the volume of container disposals , in addition to other various factors , including the age , condition , suitability for continued leasing , as well as the geographical location of the containers when disposed . these factors will continue to influence the amount of sales proceeds received and the related gain or loss on container disposals . the december 1 , 2004 amendment of a term lease agreement with one lessee to include a bargain purchase option . as a result of the amendment , the registrant reclassified the term lease agreement as a sales-type lease , recorded a sales-type lease receivable and recognized the sale of the 532 on-hire containers that were subject to the amended term lease agreement . the difference between the present value of the future payments under this lease and $ 405,595 , the net book value of the containers at the time of the amendment , resulted in a net loss of $ 304,329. the sales-type lease expires march 31 , 2006. the level of the registrant 's container disposals in subsequent periods , as well as the price of steel , new container prices and the current leasing market 's impact on sales prices for existing older containers such as those owned by the registrant , will also contribute to fluctuations in the net gain or loss on disposals . there were no reductions to the carrying value of container rental equipment due to impairment during 2004 , 2003 and 2002. year ended december 31 , 2003 compared to the year ended december 31 , 2002 net lease revenue was $ 1,967,600 for the year ended december 31 , 2003 compared to $ 2,290,732 for the prior year . the decrease was due to a $ 558,764 decline in gross rental revenue partially offset a $ 122,316 decrease in rental equipment operating expenses from the year ended december 31 , 2002. gross rental revenue was impacted by the registrant 's smaller fleet size . the decrease in direct operating expense was attributable to the registrant 's higher combined utilization rate in 2003 , and its impact on activity based expenses such as storage , handling , and repair and maintenance expenses , partially offset by an increase in repositioning expenses and the provision for doubtful accounts . other components of net lease revenue , including management fees , and reimbursed administrative expenses , were lower by a combined $ 113,316 when compared to 2002 , and partially offset the decline in gross lease revenue . during 2003 , the leasing company employed a leasing strategy that included a repositioning program , whereby the registrant 's off-hire containers in low demand locations , primarily the u.s. east coast and certain european locations , were repositioned to high demand locations within asia and other far east locations . the leasing company and ccc believes that the cost of repositioning containers is more than offset from the savings in storage and inventory related expenses , combined with future lease revenues derived from the containers . the leasing company , on behalf of the registrant , has modified many of its lease agreements with the shipping lines to safeguard against the future build-up of container inventories in low demand locations . depreciation expense of $ 2,551,413 in 2003 declined by $ 436,085 when compared to 2002 a direct result of the registrant 's aging and declining fleet size . other general and administrative expenses were $ 123,744 in 2003 , consistent with 2002. net loss on disposal of equipment was a result of the registrant 's disposal of 1,389 containers in 2003 , as compared to 2,800 containers during 2002. these disposals resulted in a net loss of $ 693,649 during 2003 , compared to a net loss of $ 2,068,346 during 2002. fewer containers were disposed during 2003 compared to 2002 due to the high demand for leased containers which reduced the number of containers available for disposal . the registrant believes that the net loss on container disposals in 2003 was a result of the volume of container disposals , in addition to other various factors , including the age , condition , suitability for continued leasing , as well as the geographical location of the containers when disposed . 17 critical accounting policies container equipment depreciable lives : the registrant 's container rental equipment is depreciated over a useful life of 15 years to a residual value of 10 % . the registrant and ccc evaluate the period of amortization and residual values to determine whether subsequent events and circumstances warrant revised estimates of useful lives and residual values . container equipment valuation : the registrant and ccc review container rental equipment when changes in circumstances require consideration as to whether the carrying value of the equipment has become impaired , pursuant to guidance established in sfas no . 144 , accounting for the impairment or disposal of long-lived assets . story_separator_special_tag the registrant and ccc consider assets to be impaired if the carrying value of the asset exceeds the future projected cash flows from related operations ( undiscounted and without interest charges ) . when impairment is deemed to exist , the assets are written down to fair value or projected discounted cash flows from related operations . the registrant and ccc evaluate future cash flows and potential impairment of its fleet by container type rather than for each individual container . therefore , future losses could result for individual container dispositions due to various factors including age , condition , suitability for continued leasing , as well as geographic location of the containers where disposed . considerable judgment is required in estimating future cash flows from container rental equipment operations . accordingly , the estimates may not be indicative of the amounts that may be realized in future periods . as additional information becomes available in subsequent periods , reserves for the impairment of the container rental equipment carrying values may be necessary based upon changes in market and economic conditions . allowance for doubtful accounts : the leasing company continually tracks the registrant 's credit exposure to each of the sub-lessees of the registrant 's containers using specialist third-party credit information services and reports prepared by its local staff to assess credit quality . the leasing company 's credit committee meets quarterly to analyze the performance of existing customers and to recommend actions taken in order to minimize credit risk . the leasing company derives an allowance for doubtful accounts from specific amounts provided against known probable losses plus an additional amount based on historical loss experience . however , the registrant 's may be subject to an unexpected loss in net lease revenue resulting from sub-lessees of its containers that default under their container lease agreements with the leasing company . new accounting pronouncements in november 2004 , the fasb issued sfas no . 151 inventory costs an amendment of arb no . 43 , chapter 4 ( sfas 151 ) . sfas 151 amends the guidance in arb no . 43 , chapter 4 inventory pricing , to clarify the accounting for abnormal amounts of idle facility expense , freight , handling costs , and wasted material ( spoilage ) . sfas 151 will not have any impact on the financial statements of the registrant . in december 2004 , the fasb issued sfas no . 153 exchanges of nonmonetary assets an amendment of apb opinion no . 29 ( sfas 153 ) . this statement amends opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance . a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange . the registrant does not expect the introduction of sfas 153 to have any impact on its financial statements . inflation the registrant believes inflation has not had a material adverse affect on the results of its operations . risk factors that could affect future results because of the following factors , as well as other variables affecting the registrant 's operating results , past financial performance may not be a reliable indicator of future performance , and historical trends should not be used to anticipate results or trends in future periods . dependence of the container leasing business on the volume of world trade and other factors . containers , particularly marine dry cargo containers , are relatively simple , and fungible items of capital equipment . while one distinguishing characteristic of container leasing companies is the level of service they provide to lessees , fundamentally the success of the container leasing business depends upon the level of demand for leased containers . while there is continuing demand from customers to transport their cargo in containers rather than by break-bulk methods , this demand , in turn , largely depends upon levels of world trade and the supply of containers relative to demand . when the volume of 18 world trade decreases , container leasing companies are particularly apt to suffer since container lessees , most of which also have their own fleets of containers , generally reduce the number of leased containers in their fleets in favor of utilizing their fleet of owned containers . in addition , average daily revenue per leased container unit can decrease significantly as the volume of world trade decreases and the supply of available containers exceeds the level of demand . such factors can cause a material reduction in a leasing company 's revenues . furthermore , the increased availability of capital combined with low interest rates may provide an incentive for shipping lines to reduce their demand for leased containers in favor of purchasing them . as a result , the registrant 's container leasing operations could be negatively affected by future fluctuations in world trade and other factors , including , without limitation , the supply and pricing of new and used containers , economic conditions in the shipping industry , fluctuations in interest rates and currency valuations , and other economic considerations that are inherently unpredictable and beyond the control of the registrant , ccc and the leasing company . risks of ownership and leasing of special purpose containers . a portion of the registrant 's container portfolio consists of refrigerated containers . unlike dry cargo containers , these special purpose containers are built for specific market demands . as such , the markets for the leasing of special purpose containers are narrower than the market for dry cargo containers . lessors in these markets are thus more sensitive to fluctuations in the demand for and supply of such containers . moreover , the ownership of refrigerated containers entails risks of mechanical breakdown and technological obsolescence not
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results of operations market overview pursuant to the limited partnership agreement of the registrant , all authority to administer the business of the registrant is vested in ccc . a leasing agent agreement ( agreement ) exists between the registrant and the leasing company , whereby the leasing company has the responsibility to manage the leasing operations of all equipment owned by the registrant . pursuant to the agreement , the leasing company is responsible for leasing , managing and re-leasing the registrant 's containers to ocean carriers , and has full discretion over which ocean carriers and suppliers of goods and services it may deal with . the leasing agent agreement permits the leasing company to use the containers owned by the registrant , together with other containers owned or managed by the leasing company and its affiliates , as part of a single fleet operated without regard to ownership . the primary component of the registrant 's results of operations is net lease revenue . net lease revenue is determined by deducting direct operating expenses , management fees and reimbursed administrative expenses from gross lease revenues billed by the leasing company from the leasing of the registrant 's containers . net lease revenue is directly related to the size , utilization and per-diem rental rates of the registrant 's fleet . direct operating expenses are direct costs associated with the registrant 's containers . direct operating expenses may be categorized as follows : activity-related expenses include agents costs and depot costs such as repairs , maintenance and handling . inventory-related expenses for off-hire containers , comprising of storage and repositioning costs . these costs are sensitive to the quantity of off-hire containers as well as the frequency at which containers are re-delivered . legal and other expenses include legal costs related to the recovery of containers and doubtful accounts , insurance and provisions for doubtful accounts .
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risk factors in this annual report on form 10-k. the following section is qualified in its entirety by the more detailed information , including our consolidated financial statements and the notes thereto , which appears elsewhere in this annual report . overview organization we are a leading global provider of security products and solutions operating in three geographic regions : americas , emeia and asia pacific . we sell a wide range of security products and solutions for end-users in commercial , institutional and residential markets worldwide , including the education , healthcare , government , commercial office and single and multi-family residential markets . our leading brands include cisa , interflex , lcn , schlage , simonsvoss and von duprin . trends and economic events the security products industry has benefited from accelerated growth in institutional , commercial and residential end-markets in recent years . we also expect the security products industry will benefit from favorable long-term demographic trends such as continued urbanization of the global population , increased concerns about safety and security and technology-driven innovation . in recent years , growth in electronic security products and solutions continues to outperform mechanical products , and we expect growth in the global electronic product categories we serve to continue to outperform growth in mechanical products , as end-users adopt newer technologies in their facilities and homes . our recent acquisitions have been made to capitalize on this trend . the economic conditions discussed above and a number of other challenges and uncertainties that could affect our business are described under part i , item 1a , `` risk factors . '' 2018 and 2017 significant events acquisitions we completed six business acquisitions in 2018 and one business acquisition in 2017 : business date republic doors & frames , llc ( `` republic '' ) january 2017 technical glass products , inc. ( `` tgp '' ) january 2018 hammond enterprises , inc. ( `` hammond '' ) january 2018 qatar metal industries llc ( `` qmi '' ) february 2018 ad systems , inc. ( `` ad systems '' ) march 2018 gainsborough hardware and api locksmiths ( `` door and access systems '' ) july 2018 isonas security systems , inc. ( `` isonas '' ) july 2018 republic provides hollow metal doors and frames throughout the u.s. and in select non-u.s. markets , complementing our steelcraft® brand and core business in the americas segment . republic has been integrated into our americas segment . tgp provides fire-rated architectural glass and framing solutions for commercial buildings , as well as non-fire rated architectural glass and framing , including channel glass systems and curtain walls throughout the u.s. , canada and select markets in the middle east . tgp has been integrated into our americas and emeia segments . we acquired 100 % of the machinery , equipment and intellectual property of a division of hammond . the assets acquired have been integrated into our existing production facilities and are specific to our schlage-branded products . qmi specializes in fire rated and non-fire rated steel and wooden doors , acoustic doors , wooden cabinets and access panels in the middle east and africa . qmi has been integrated into our emeia segment . 29 ad systems designs and manufactures high-performance interior and storefront door systems , specializing in sliding and acoustic solutions for the u.s. market . ad systems ' portfolio includes sliding and swinging doors , perimeter frames , door hardware , gasketing , seals and sidelite panels . ad systems has been integrated into our americas segment . door and access systems , based in australia , includes the brands gainsborough hardware , the market-leading residential door hardware brand in australia , and api locksmiths , which serves the australian market with its keying , installation and access control services . door and access systems has been integrated into our asia pacific segment . isonas designs and manufactures edge-computing technology that produces power over ethernet access control solutions for non-residential end-markets in the u.s. isonas has been integrated into our americas segment . the incremental impact of the 2018 acquisitions for the twelve months ended december 31 , 2018 was an increase in net revenues of approximately $ 160.2 million and an increase to operating income of approximately $ 2.8 million . the incremental impact of acquisitions for the twelve months ended december 31 , 2017 was an increase in net revenues of approximately $ 32.3 million and a decrease to operating income of approximately $ 0.6 million . during the years ended december 31 , 2018 and 2017 , we incurred $ 10.0 million and $ 4.7 million of acquisition and integration related expenses , respectively . 2018 dividends we paid quarterly dividends of $ 0.21 per ordinary share to shareholders on record as of march 15 , 2018 , june 15 , 2018 , september 17 , 2018 , and december 17 , 2018 . we paid a total of $ 79.4 million in cash for dividends to ordinary shareholders during the year ended december 31 , 2018 . restructuring charges we incurred charges of $ 4.9 million and $ 12.3 million for the years ended december 31 , 2018 and 2017 , respectively , in conjunction with ongoing restructuring actions . we also incurred other non-qualified restructuring charges of $ 1.6 million and $ 1.5 million for the years ended december 31 , 2018 and 2017 , respectively , related to costs directly attributable to restructuring activities but that do not fall into the severance , exit or disposal category . story_separator_special_tag these decreases were partially offset by favorable volume/product mix and lower restructuring and acquisition costs . operating income for the year ended december 31 , 2017 increased $ 58.2 million and operating margin increased to 20.5 % from 19.4 % for the same period in 2016 due to the following : replace_table_token_6_th operating income and operating margin both increased due to favorable volume/product mix in all segments , pricing improvements and productivity in excess of inflation , favorable foreign currency exchange rate movements and lower environmental remediation charges in 2017 due to a charge in 2016 for a change in approach for environmental remediation related to two sites in the americas . these increases were partially offset by increased investment spending , the impact of acquisitions and higher restructuring and acquisition costs . interest expense interest expense for the year ended december 31 , 2018 decreased $ 51.7 million compared to the same period of 2017 primarily due to $ 44.7 million of costs in the prior year associated with the refinancing of our credit facilities , issuance of our 3.200 % and 3.550 % senior notes and redemption of our previously outstanding senior notes due 2021 and 2023 in the third and fourth quarters of 2017. lower interest rates on our outstanding indebtedness also contributed to the decrease in interest expense . interest expense for the year ended december 31 , 2017 increased $ 41.4 million compared to the same period of 2016 . interest expense increased primarily due to $ 44.7 million of costs associated with the refinancing of our credit facilities , issuance of our 33 3.200 % and 3.550 % senior notes and redemption of our previously outstanding senior notes due 2021 and 2023 in the third and fourth quarters of 2017 , as discussed above . other income , net the components of other income , net , for the year ended december 31 were as follows : replace_table_token_7_th for the year ended december 31 , 2018 , other income , net decreased by $ 5.5 million compared to the same period in 2017 , due to a cumulative gain of $ 5.4 million from the sale of idevices , llc and gains of $ 7.3 million related to legal entity liquidations in our asia pacific region , of which $ 2.2 million was attributed to noncontrolling interests , in 2017 , neither of which were recurring in 2018. these decreases were partially offset by net periodic pension and postretirement benefit income , less service cost of $ 2.8 million in 2018 , compared to net periodic pension and postretirement benefit cost , less service cost of $ 4.3 million in 2017 . for the year ended december 31 , 2017 , other income , net decreased by $ 0.5 million compared with the same period in 2016 . this decrease was due to gains from the sale of marketable securities of $ 12.4 million in 2016 , which did not recur in 2017 . this decrease is partially offset by the cumulative $ 5.4 million gain from the sale of idevices , llc and the gains of $ 7.3 million related to legal entity liquidations in our asia pacific region discussed above , as well as decreased net periodic pension and postretirement benefit cost , less service cost in 2017 compared to 2016 . provision for income taxes on december 22 , 2017 , the president of the united states signed comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the “ tax reform act ” ) . the tax reform act makes broad and complex changes to the u.s. tax code which impacted our years ended december 31 , 2018 and 2017 , including , but not limited to ( 1 ) reducing the u.s. federal corporate tax rate , ( 2 ) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries , and ( 3 ) requiring a review of the future realizability of deferred tax balances . for the year ended december 31 , 2018 , our effective tax rate was 8.4 % compared to 30.1 % for the year ended december 31 , 2017 . the effective income tax rate for the year ended december 31 , 2018 was positively impacted by a $ 21.9 million tax benefit related to the tax reform act and the reduction in the us statutory tax rate from 35 % to 21 % . the effective income tax rate for the year ended december 31 , 2017 was negatively impacted by a $ 53.5 million tax charge related to the tax reform act , which was partially offset by the release of $ 10.4 million of valuation allowances . for the year ended december 31 , 2017 , our effective tax rate was 30.1 % compared to 21.6 % for the year ended december 31 , 2016 . the effective income tax rate for the year ended december 31 , 2017 was negatively impacted by a $ 53.5 million tax charge related to the tax reform act , which was partially offset by the release of $ 10.4 million of valuation allowances . the effective income tax rate for the year ended december 31 , 2016 was negatively impacted by $ 84.4 million ( before and after tax ) of charges related to the divestiture of our systems integration business in china during 2015 . 34 story_separator_special_tag style= '' padding-left:0px ; text-indent:0px ; line-height : normal ; padding-top:10px ; '' > replace_table_token_10_th operating income increased primarily due to pricing improvements and productivity in excess of inflation , favorable volume/product mix , favorable foreign currency exchange rate movements , lower environmental remediation charges in 2017 due to a 2016 charge for a change in approach for environmental remediation related to two sites in the u.s. and the impact of acquisitions . these increases were partially offset by increased investment spending primarily for new product development and channel development and restructuring and acquisition costs .
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review of business segments we operate in and report financial results for three segments : americas , emeia , and asia pacific . these segments represent the level at which our chief operating decision maker reviews company financial performance and makes operating decisions . segment operating income is the measure of profit and loss that our chief operating decision maker uses to evaluate the financial performance of the business and as the basis for resource allocation , performance reviews and compensation . for these reasons , we believe that segment operating income represents the most relevant measure of segment profit and loss . our chief operating decision maker may exclude certain charges or gains , such as corporate charges and other special charges , to arrive at a segment operating income that is a more meaningful measure of profit and loss upon which to base our operating decisions . we define segment operating margin as segment operating income as a percentage of the segment 's net revenues . the segment discussions that follow describe the significant factors contributing to the changes in results for each segment included in net earnings . segment results of operations - for the years ended december 31 replace_table_token_8_th americas our americas segment is a leading provider of security products and solutions in approximately 30 countries throughout north america , central america , the caribbean and south america . the segment sells a broad range of products and solutions including , locks , locksets , portable locks , key systems , door closers , exit devices , doors and door systems , electronic products and access control systems to end-users in commercial , institutional and residential facilities , including the education , healthcare , government , commercial office and single and multi-family residential markets . this segment 's primary brands are lcn , schlage , steelcraft and von duprin . 2018 vs 2017 net revenues net revenues for the year ended december 31 , 2018 increased by 12.5
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replace_table_token_18_th as of december 31 , 2018 , the company 's long-term debt repayments for the next five years were as follows : replace_table_token_19_th on april 16 , 2014 , the company entered into a loan agreement with the rural credit union of xushui district for a term of 5 years , which is payable in various installments from story_separator_special_tag the following discussion of the financial condition and results of operations of the company should be read in conjunction with the selected financial data , the financial statements , and the notes to those statements that are included elsewhere in this annual report . story_separator_special_tag changes ( in us dollars ) represent a year-over-year increase of 27.76 % for the recycled paper board and a year-over-year increase of 7.58 % for the recycled white scrap paper . we use domestic recycled paper ( sourced mainly from the beijing-tianjin metropolitan area ) exclusively . although we do not rely on imported recycled paper , the pricing of which tends to be more volatile than domestic recycled paper , our experience suggests that the pricing of domestic recycled paper bears some correlation to the pricing of imported recycled paper . 31 the pricing trends of our major raw materials for the 24-month period from january 2017 to december 2018 are shown below : electricity and gas are our two main energy sources . in order to reduce carbon emissions , we had been required to reduce coal consumption by the local government . after replacing all of the coal burning boilers with gas boilers , we stopped using coal in the fourth quarter of 2017 , which accounted for approximately 3 % of total sales in 2017. electricity and gas accounted for approximately 6 % and 9.5 % of total sales in 2018 , respectively , compared to 7 % and 4 % of total sales 2017.the monthly energy cost ( electricity , coal and gas ) as a percentage of total monthly sales of our main paper products for the 24 months ended december 31 , 2018 are summarized as follows : gross profit gross profit for december 31 , 2018 was $ 5,820,401 ( 6.71 % of the total revenue ) , representing a decrease of $ 14,135,550 , or 70.83 % , from the gross profit of $ 19,955,951 ( 17.05 % of the total revenue ) for the year ended december 31 , 2017. the decrease was mainly due to ( i ) the decrease in quantities sold and ( ii ) the increase of material purchase price of cmp and offset printing paper , partially offset by the increase of asp of these products . 32 corrugating medium paper , offset printing paper and tissue paper products gross profit for offset printing paper , cmp and tissue paper products for the year ended december 31 , 2018 was $ 5,823,724 , a decrease of $ 14,132,227 , or 70.82 % , from the gross profit of $ 19,955,951 for the year ended december 31 , 2017. the decrease was mainly the result of the factors discussed above . the overall gross profit margin for offset printing paper , cmp and tissue paper products decreased by 10.34 percentage points , from 17.05 % for the year ended december 31 , 2017 , to 6.71 % for the year ended december 31 , 2018. gross profit margin for regular cmp for the year ended december 31 , 2018 was 7.68 % , or 9.26 percentage points lower , as compared to gross profit margin of 16.94 % for the year ended december 31 , 2017. such decrease was primarily due to the increase of material purchase price , partially offset by the increase in asp of regular cmp . gross profit margin for light-weight cmp for the year ended december 31 , 2018 was 5.04 % , or 13.88 percentage points lower , as compared to gross profit margin of 18.92 % for the year ended december 31 , 2017. gross profit margin for offset printing paper was 0.77 % for the year ended december 31 , 2018 , a decrease of 16.55 percentage points , as compared to 17.32 % for the year ended december 31 , 2017. gross profit margin for tissue paper products was 0 % for the year ended december 31 , 2018 , a decrease of 6.45 percentage points , as compared to 6.45 % for the year ended december 31 , 2017. monthly gross profit margins for our corrugating medium paper and offset printing paper for the 24-month period ended december 31 , 2018 are as follows : selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2018 were $ 13,098,373 , an increase of $ 1,790,978 , or 15.84 % from $ 11,307,395 for the year ended december 31 , 2017. the increase was mainly due to ( i ) compensation expenses resulting from the issuance of 534,500 shares of common stock under our compensatory incentive plans in the year ended december 31 , 2018 , valued at $ 470,360 and ( ii ) the depreciation of idle equipment during the suspension of production in the first quarter and third quarter of 2018 . ( loss ) income from operations operating loss for the year ended december 31 , 2018 was $ 11,182,314 , a decrease of $ 15,862,581 , or 338.93 % , from income from operations of $ 4,680,267 for the year ended december 31 , 2017. the decrease in operating income was primarily due to the decrease in gross profit and increase in selling , general and administrative expenses . other income and expenses interest expense for the year ended december 31 , 2018 decreased by $ 941,651 , from $ 2,433,770 in the year ended december 31 , 2017 , to $ 1,492,119. the company had short-term and long-term interest-bearing loans and related party loans that aggregated $ 21,185,452 as of december 31 , 2018 , as compared to $ 25,466,009 as of december 31 , 2017 . story_separator_special_tag renewal of operating lease on august 7 , 2013 , the company 's audit committee and the board of directors approved the sale of the land use right of the headquarters compound ( the “ lur ” ) , the office building and essentially all industrial-use buildings in the headquarters compound ( the “ industrial buildings ” ) , and three employee dormitory buildings located within the headquarters compound ( the “ dormitories ” ) to hebei fangsheng for cash prices of approximately $ 2.77 million , $ 1.15 million , and $ 4.31 million respectively . in connection with the sale of the industrial buildings , hebei fangsheng agreed to lease the industrial buildings back to the company for its original use for a term of up to three years , with an annual rental payment of approximately $ 150,743 ( rmb1,000,000 ) . the lease agreement expired in august 2016. on august 6 , 2016 and august 6 , 2018 , the company entered into two supplementary agreements with hebei fangsheng , who agreed to extend the lease term for another four years in total , with the same rental payment as original lease agreement . the accrued rental owed to hebei fangsheng was approximately $ 203,188 and $ 60,378 which was recorded as part of the current liabilities as of december 31 , 2018 and december 31 , 2017 , respectively . capital expenditure commitment as of december 31 , 2018 we finance our daily operations mainly by cash flows generated from our business operations and loans from banking institutions . major capital expenditures in year ended december 31 , 2018 were primarily financed by cash from operations . as of december 31 , 2018 , we had approximately $ 2 million in capital expenditure commitments that were mainly related to improvement of industrial buildings . these commitments are expected to be financed by bank loans and cash flows generated from our business operations . 35 capital expenditures new production lines at the wei county industrial park in november 2012 , we entered into a 15-year land lease with a land investment company in wei county for the purpose of developing the 49.4 acres of land into the base of our next capacity expansion . in december 2012 , we signed a contract with an equipment contractor in shanghai to build the first of our two tissue paper production lines in wei county . the two production lines , each having production capacity of 15,000 tonnes/year , will be designated as pm8 and pm9 upon completion . on december 14 , 2018 , the company announced the commercial launch of tissue paper production , following the completion of construction and equipment installation , the receipt of proper approvals , including wastewater discharge permit , from local authorities , and the success of trial production of pm8 . we plan to build a second 15,000 tonnes/year tissue paper production line ( designated as pm9 ) at an estimated cost of $ 7.8 million in the next several months . relocation of digital photo paper pm4 and pm5 production lines in august 2015 , we completed the relocation of our digital photo paper production lines ( pm4 and pm5 ) , as well as related chemical and packaging equipment , from the workshops located in our headquarters compound to a new location that is across the street from our xushui paper mill , the xushui mill annex . total cost of the relocation of the pm4 and pm5 production lines and building construction costs incurred was approximately $ 4.5 million . we acquired the land use rights of the 58,566 square meters at xushui mill annex for approximately $ 7.7 million in april 2012 and constructed three industrial buildings for the digital photo paper operations , a dormitory for factory workers and offices to hold our consolidated xushui district operations . we completed the relocation and resumed commercial production of digital photo paper at the new location in august 2015. in june 2016 , we suspended the production of digital photo paper due to low market demand for our products . cash , cash equivalents and restricted cash our cash , cash equivalents and restricted cash as of december 31 , 2018 was $ 12,117,425 , an increase of $ 3,099,998 , from $ 9,017,427 as of december 31 , 2017. the increase of cash and cash equivalents for the year ended december 31 , 2018 was attributable to a number of factors : i. net cash provided by operating activities net cash provided by operating activities was $ 9,790,713 for the year ended december 31 , 2018. the balance represented a decrease of cash of $ 8,361,075 , or 46.06 % , from $ 18,151,788 provided for the year ended december 31 , 2017. net loss for the year ended december 31 , 2018 was $ 10,545,684 , representing a decrease of $ 12,205,472 , or 735.36 % , from a net income of $ 1,659,788 for the year ended december 31 , 2017. changes in various asset and liability account balances throughout the year ended december 31 , 2018 also contributed to the net change in cash from operating activities in year ended december 31 , 2018. chief among such changes is the increase of accounts receivable in the amount of $ 1,183,782 during the year of 2018 and the decrease of notes payable in the amount of $ 2,261,147. there was also a decrease of $ 5,322,320 in the ending inventory balance as of december 31 , 2018 ( an increase to net cash for the year ended december 31 , 2018 cash flow purposes ) .
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results of operations revenue for the year ended december 31 , 2018 was $ 86,746,758 , a decrease of $ 30,276,820 , or 25.87 % , from $ 117,023,578 for the previous year . revenue of offset printing paper , corrugating medium paper and tissue paper products revenue from sales of offset printing paper , cmp and tissue paper products for the year ended december 31 , 2018 was $ 86,733,136 , a decrease of $ 30,290,442 , or 25.88 % , from $ 117,023,578 for the year ended december 31 , 2017. this was mainly due to the decrease in sales volume of regular cmp and offset printing paper , which was partially offset by the increase in asp of these products . total quantities of offset printing paper , cmp and tissue paper products sold during the year ended december 31 , 2018 amounted to 156,849 tonnes , a decrease of 78,654 tonnes , or 33.40 % , compared to 235,503 tonnes sold during the year ended december 31 , 2017. total quantities of cmp and offset printing paper sold decreased by 76,850 tonnes in the year of 2018 as compared to 2017. production was suspended from late january 2018 to march 13 , 2018 due to a government-mandated restriction on the natural gas supply . production of regular cmp was suspended in september 2018 due to equipment maintenance . production of offset printing paper was suspended from august 2018 to december 2018 due to equipment maintenance and restriction on production volume by the government due to environmental concerns .
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as of march 28 , 2015 , the changes in the recognized amounts of goodwill resulting from the acquisition are as follows ( in thousands ) : replace_table_token_25_th page 56 of 80 the acquired intangible assets and related weighted average amortization periods are detailed below ( in thousands ) : replace_table_token_26_th the ipr & d intangible assets included the following research and development projects acquired through the acquisition ( in thousands ) : ( 1 ) intellectual property ( ip ) migration and product development at 152 nm process technology ( 152 nm ) ; ( 2 ) ip migration and product development at 55 and 65 nm process technology ( 55/65 nm ) ; ( 3 ) mems transducer development ( mem ) ; and ( 4 ) single die monolithic integration of mems structures and asics ( integrated mems ) . story_separator_special_tag please read the following discussion in conjunction with our audited historical consolidated financial statements and notes thereto , which are included elsewhere in this form 10-k. management 's discussion and analysis of financial condition and results of operations contains statements that are forward-looking . these statements are based on current expectations and assumptions that are subject to risk , uncertainties and other factors . actual results could differ materially because of the factors discussed in part i , item 1a . risk factors of this form 10-k. critical accounting policies our discussion and analysis of the company 's financial condition and results of operations are based upon the consolidated financial statements included in this report , which have been prepared in accordance with u. s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts . we evaluate the estimates on an on-going basis . we base these 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 . actual results may differ from these estimates under different assumptions and conditions . we believe the following critical accounting policies involve significant judgments and estimates that are used in the preparation of the consolidated financial statements : ¡ we provide for the recognition of deferred tax assets if realization of such assets is more likely than not . the company evaluates the ability to realize its deferred tax assets based on all the facts and circumstances , including projections of future taxable income and expiration dates of carryover attributes . the calculation of our tax liabilities involves assessing uncertainties with respect to the application of complex tax rules and the potential for future adjustment of our uncertain tax positions by the internal page 26 of 80 revenue service or other taxing jurisdiction . if our estimates of these taxes are greater or less than actual results , an additional tax benefit or charge will result . see note 17 income taxes of the notes to consolidated financial statements contained in item 8 for additional details . ¡ we recognize revenue when all of the following criteria are met : persuasive evidence that an arrangement exists , delivery of goods has occurred , the sales price is fixed or determinable and collectability is reasonably assured . we evaluate our distributor arrangements , on a distributor by distributor basis , with respect to each of the four criteria above . for a majority of our distributor arrangements , we provide rights of price protection and stock rotation . revenue is deferred at the time of shipment to our domestic distributors and certain international distributors due to the determination that the ultimate sales price to the distributor is not fixed or determinable . once the distributor has resold the product , and our final sales price is fixed or determinable , we recognize revenue for the final sales price and record the related costs of sales . for certain of our smaller international distributors , we do not grant price protection rights and provide minimal stock rotation rights . for these distributors , revenue is recognized upon delivery to the distributor , less an allowance for estimated returns , as the revenue recognition criteria have been met upon shipment . further , the company defers the associated cost of goods sold on our consolidated balance sheet , net within the deferred income caption . the company routinely evaluates the products held by our distributors for impairment to the extent such products may be returned by the distributor within these limited rights and such products would be considered excess or obsolete if included within our own inventory . products returned by distributors and subsequently scrapped have historically been immaterial to the company . ¡ inventories are recorded at the lower of cost or market , with cost being determined on a first-in , first-out basis . we write down inventories to net realizable value based on forecasted demand , product release schedules , product life cycles , management judgment , and the age of inventory . actual demand and market conditions may be different from those projected by management , which could have a material effect on our operating results and financial position . see note 2 summary of significant accounting policies of the notes to consolidated financial statements contained in item 8 . ¡ we evaluate the recoverability of property , plant , and equipment and intangible assets by testing for impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets ' carrying amounts . an impairment loss is recognized in the event the carrying value of these assets exceeds the fair value of the applicable assets . impairment evaluations involve management estimates of asset useful lives and future cash flows . story_separator_special_tag the core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . the amendments in this asu are effective for interim and annual reporting periods beginning after december 15 , 2016 , with early adoption not permitted by the fasb ; however , in april 2015 the fasb issued for public comment a proposal to delay the effective date of this asu to annual reporting periods beginning after december 15 , 2017. the company is currently evaluating the impact of this asu on its consolidated financial position , results of operations and cash flows . page 28 of 80 in april 2015 , the fasb issued asu no . 2015-03 , interestimputation of interest ( subtopic 835-30 ) : simplifying the presentation of debt issuance costs . the amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability . asu 2015-03 is to be applied retrospectively and represents a change in accounting principle . this asu is effective for fiscal years beginning after december 15 , 2015 , including interim periods within those fiscal years . earlier adoption is permitted for financial statements that have not been previously issued . the company is currently evaluating the effect that the adoption of this asu will have on its financial statements . overview cirrus logic develops high-precision analog and mixed-signal ics for a broad range of innovative customers . we track operating results in one reportable segment , but report revenue performance by product line , currently portable audio and non-portable audio and other products . in fiscal year 2015 , the company grew its diverse analog and mixed-signal product portfolio , delivering optimized products for a variety of audio , industrial and energy-related applications . the company continued to target fast-growing markets and develop innovative products . we acquired wolfson in the current year , and with it , the company reported a revenue increase of 28 percent from the prior fiscal year , including a contribution from wolfson of approximately $ 98.3 million and an increase in the investment in research and development of $ 71.7 million , discussed below . fiscal year 2015 fiscal year 2015 net sales of $ 916.6 million represented a 28 percent increase over fiscal year 2014 net sales of $ 714.3 million . portable audio product line sales of $ 740.3 million in fiscal year 2015 represented a 32 percent increase over fiscal year 2014 sales of $ 562.7 million , attributable primarily to wolfson contributions and significant increases in the sales of certain portable audio products for the period . non-portable audio and other product line sales of $ 176.3 million represented a 16 percent increase from fiscal year 2014 sales of $ 151.6 million , which was primarily attributable to wolfson contributions for the current fiscal year , as well as increases in certain computer and dac products . overall , gross margin for fiscal year 2015 was 46 percent . the decrease in gross margin for fiscal year 2015 was primarily due to the increase in inventory write-downs compared to fiscal year 2014 , which had a 1.5 % negative impact on fiscal year 2015 margin . additionally , gross margin was negatively affected by approximately 1 % due to the fair value adjustments made to inventory in the current year as a result of the acquisition . the company 's number of employees increased to 1,104 as of march 28 , 2015. the company achieved net income of $ 55.2 million in fiscal year 2015 , which included an income tax provision in the amount of $ 36.4 million . fiscal year 2014 fiscal year 2014 was a year focused on developing innovative new products , strengthening existing customer relationships and establishing new relationships with key players in the markets we serve . with the addition of the embedded soundclear ® technology and existing hardware , the company leveraged its engineering expertise to develop custom and general market audio subsystems that intelligently solve system design issues . also in fiscal year 2014 , we expanded our footprint in portable audio with the addition of several new top tier smartphone customers , while reducing investment in led lighting . fiscal year 2014 net sales of $ 714.3 million represented a 12 percent decrease over fiscal year 2013 net sales of $ 809.8 million . portable audio product line sales of $ 562.7 million in fiscal year 2014 represented a 14 percent decrease over fiscal year 2013 sales of $ 652.0 million , attributable to lower sales of portable audio products due to reduced average selling prices ( asps ) to certain customers . non-portable audio and other product line sales of $ 151.6 million in fiscal year 2014 represented a 4 percent decrease from fiscal year 2013 sales of $ 157.8 million , which was attributable , primarily to the absence of revenue related to the products associated with our tucson office asset sale . overall , gross margin for fiscal year 2014 was 50 percent . the increase in gross margin for fiscal year 2014 was primarily due to the absence of the significant inventory write-down , including scrapped inventory , page 29 of 80 experienced in the prior fiscal year , which had a 3.1 % negative impact on fiscal year 2013 margin . the company achieved net income of $ 108.1 million in fiscal year 2014 , which included an income tax provision in the amount of $ 47.6 million .
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results of operations the following table summarizes the results of our operations for each of the past three fiscal years as a percentage of net sales . all percentage amounts were calculated using the underlying data , in thousands : replace_table_token_4_th page 30 of 80 net sales we report sales in two product categories : portable audio products and non-portable audio and other products . our sales by product line are as follows ( in thousands ) : replace_table_token_5_th net sales for fiscal year 2015 increased 28 percent , to $ 916.6 million from $ 714.3 million in fiscal year 2014. the increase in net sales reflects a $ 177.6 million increase in portable audio product sales and a $ 24.7 million increase in non-portable audio and other product sales . the portable audio products group experienced an increase in net sales attributable to wolfson contributions of $ 83.9 million , as well as significant increases in the sales of certain portable audio products for the current fiscal year . non-portable audio and other product line sales of $ 176.3 million represented a 16 percent increase from fiscal year 2014 sales of $ 151.6 million , which was attributable to wolfson contributions of $ 14.4 million , a $ 5.6 million increase in custom computer products and a $ 4.6 million increase in dac products for the period . net sales for fiscal year 2014 decreased 12 percent , to $ 714.3 million from $ 809.8 million in fiscal year 2013. the decrease in net sales reflects an $ 89.3 million decrease in portable audio product sales and a $ 6.2 million decrease in non-portable audio and other product sales . the portable audio products group experienced a decline in sales , primarily due to anticipated declines in asps .
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the tax benefit that has been previously reserved because of a failure to meet the `` more likely than not `` recognition threshold would be recognized in our income tax expense in the first interim period when the uncertainty disappears under any one of the following conditions : ( 1 ) the tax position is `` more likely than not `` to be sustained , ( 2 ) the tax position , amount , and or timing is ultimately settled through negotiation or litigation , or ( 3 ) the statute of limitations for the tax position has expired . refer to note 11 and note 14 . translation and remeasurement we translate the assets and liabilities of our foreign subsidiaries from their respective functional currencies to u.s. dollars at the story_separator_special_tag overview the following management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) is intended to help the reader understand the coca-cola company , our operations and our present business environment . md & a is provided as a supplement to — and should be read in conjunction with — our consolidated financial statements and the accompanying notes thereto contained in `` item 8. financial statements and supplementary data '' of this report . this overview summarizes the md & a , which includes the following sections : our business — a general description of our business and the nonalcoholic beverage segment of the commercial beverage industry ; our objective ; our strategic priorities ; our core capabilities ; and challenges and risks of our business . critical accounting policies and estimates — a discussion of accounting policies that require critical judgments and estimates . story_separator_special_tag style= '' line-height:120 % ; padding-bottom:4px ; text-align : center ; font-size:10pt ; '' > replace_table_token_6_th 1 includes concentrates sold by the company to authorized bottling partners for the manufacture of fountain syrups . the bottlers then typically sell the fountain syrups to wholesalers or directly to fountain retailers . 2 includes fountain syrups manufactured by the company , including consolidated bottling operations , and sold to fountain retailers or to authorized fountain wholesalers or bottling partners who resell the fountain syrups to fountain retailers . the following table sets forth the percentage of total worldwide unit case volume related to concentrate operations and finished product operations : replace_table_token_7_th 1 includes unit case volume related to concentrates sold by the company to authorized bottling partners for the manufacture of fountain syrups . the bottlers then typically sell the fountain syrups to wholesalers or directly to fountain retailers . 2 includes unit case volume related to fountain syrups manufactured by the company , including consolidated bottling operations , and sold to fountain retailers or to authorized fountain wholesalers or bottling partners who resell the fountain syrups to fountain retailers . the nonalcoholic beverage segment of the commercial beverage industry we operate in the highly competitive nonalcoholic beverage segment of the commercial beverage industry . we face strong competition from numerous other general and specialty beverage companies . we , along with other beverage companies , are affected by a number of factors , including , but not limited to , cost to manufacture and distribute products , consumer spending , economic conditions , availability and quality of water , consumer preferences , inflation , political climate , local and national laws and regulations , foreign currency fluctuations , fuel prices and weather patterns . our objective our objective is to use our formidable assets — our brands , financial strength , unrivaled distribution system , global reach , and the talent and strong commitment of our management and associates — to achieve long-term sustainable growth . our vision for sustainable growth includes the following : people : being a great place to work where people are inspired to be the best they can be . portfolio : bringing to the world a portfolio of beverage brands that anticipates and satisfies people 's desires and needs . partners : nurturing a winning network of partners and building mutual loyalty . planet : being a responsible global citizen that makes a difference . profit : maximizing return to shareowners while being mindful of our overall responsibilities . productivity : managing our people , time and money for greatest effectiveness . to enable us to achieve our objective , we must further enhance our core capabilities of consumer marketing ; commercial leadership ; franchise leadership ; and bottling and distribution operations . 33 core capabilities consumer marketing marketing investments are designed to enhance consumer awareness of , and increase consumer preference for , our brands . successful marketing investments produce long-term growth in unit case volume , per capita consumption and our share of worldwide nonalcoholic beverage sales . through our relationships with our bottling partners and those who sell our products in the marketplace , we create and implement integrated marketing programs , both globally and locally , that are designed to heighten consumer awareness of and product appeal for our brands . in developing a strategy for a company brand , we conduct product and packaging research , establish brand positioning , develop precise consumer communications and solicit consumer feedback . our integrated marketing activities include , but are not limited to , advertising , point-of-sale merchandising and sales promotions . we are focusing on marketing strategies to drive volume growth in emerging markets , increasing our brand value in developing markets and growing profit in our developed markets . in emerging markets , we are investing in infrastructure programs that drive volume through increased access to consumers . in developing markets , where consumer access has largely been established , our focus is on differentiating our brands . in our developed markets , we continue to invest in brands and infrastructure programs but generally at a slower rate than gross profit growth . commercial leadership the coca-cola system has millions of customers around the world who sell or serve our products directly to consumers . story_separator_special_tag our company has a robust water stewardship and management program and continues to work to improve water use efficiency , treat wastewater prior to discharge and achieve our goal of replenishing the water that we and our bottling partners source and use in our finished products . we regularly assess the specific water-related risks that we and many of our bottling partners face and have implemented a formal water risk management program . we are actively collaborating with other companies , governments , nongovernmental organizations and communities to advocate for needed water policy reforms and action to protect water availability and quality around the world . we are working with our global partners to develop and implement sustainability-related water projects that address local needs . we are encouraging improved water efficiency and conservation efforts throughout our system . through these integrated programs , we believe that our company is in an excellent position to leverage the water-related knowledge we have developed in the communities we serve — through source water availability assessments and planning , water resource management , water treatment , wastewater treatment systems and models for working with communities and partners in addressing water and sanitation needs . as demand for water continues to increase around the world , we expect commitment and continued action on our part will be crucial to the successful long-term stewardship of this critical natural resource . evolving consumer preferences we are impacted by shifting consumer demographics and needs , on-the-go lifestyles , aging populations and consumers who are empowered with more information than ever . as a consequence of these changes , consumers want more choices . we are committed to meeting their needs and to generating new growth through our portfolio of more than 500 brands and more than 3,800 beverage products , including more than 1,100 low- and no-calorie products , new product offerings , innovative packaging and ingredient education efforts . we are also committed to continuing to expand the variety of choices we provide to consumers to meet their ever-changing needs , desires and lifestyles . 35 increased competition and capabilities in the marketplace our company is facing strong competition from some well-established global companies and many local participants . we must continue to strengthen our capabilities in marketing and innovation in order to maintain our brand loyalty and market share while we strategically expand into other profitable categories of the nonalcoholic beverage segment of the commercial beverage industry . product safety and quality as the world 's largest beverage company , we strive to meet the highest of standards in both product safety and product quality . we are aware that some consumers have concerns and negative viewpoints regarding certain ingredients used in our products . our system works every day to share safe and refreshing beverages with the world . we have rigorous product and ingredient safety and quality standards designed to ensure safety and quality in each of our products , and we drive innovation that provides new beverage options to meet consumers ' evolving needs and preferences . across the coca-cola system , we take great care in an effort to ensure that every one of our beverages meets the highest standards for safety and quality . we work to ensure consistent safety and quality through strong governance and compliance with applicable regulations and standards . we stay current with new regulations , industry best practices and marketplace conditions and engage with standard-setting and industry organizations . additionally , we manufacture and distribute our products according to strict policies , requirements and specifications set forth in an integrated quality management program that continually measures all operations within the coca-cola system against the same stringent standards . our quality management system also identifies and mitigates risks and drives improvement . in our quality laboratories , we stringently measure the quality attributes of ingredients as well as samples of finished products collected from the marketplace . we perform due diligence to ensure that product and ingredient safety and quality standards are maintained in the more than 200 countries where our products are sold . we consistently reassess the relevance of our requirements and standards and continually work to improve and refine them across our entire supply chain . food security increased demand for commodities and decreased agricultural productivity in certain regions of the world as a result of changing weather patterns may limit the availability or increase the cost of key agricultural commodities , such as sugarcane , corn , sugar beets , citrus , coffee and tea , which are important sources of ingredients for our products and could impact the food security of communities around the world . we are dedicated to implementing our sustainable sourcing commitment , which is founded on principles that protect the environment , uphold workplace rights and help build more sustainable communities . to support this commitment , our programs focus on economic opportunity , with an emphasis on female farmers , and environmental sustainability designed to help address these agricultural challenges . through joint efforts with farmers , communities , bottlers , suppliers and key partners , as well as our increased and continued investment in sustainable agriculture , we can together help make a positive strategic impact on food security . all of these challenges and risks — obesity ; water quality and quantity ; evolving consumer preferences ; increased competition and capabilities in the marketplace ; product safety and quality ; and food security — have the potential to have a material adverse effect on the nonalcoholic beverage segment of the commercial beverage industry and on our company ; however , we believe our company is well positioned to appropriately address these challenges and risks . see also `` item 1a . risk factors '' in part i of this report for additional information about risks and uncertainties facing our company .
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operations review — an analysis of our company 's consolidated results of operations for the three years presented in our consolidated financial statements . except to the extent that differences among our operating segments are material to an understanding of our business as a whole , we present the discussion on a consolidated basis . liquidity , capital resources and financial position — an analysis of cash flows ; off-balance sheet arrangements and aggregate contractual obligations ; foreign exchange ; the impact of inflation and changing prices ; and an overview of financial position . 31 our business general the coca-cola company is the world 's largest beverage company . we own or license and market more than 500 nonalcoholic beverage brands , primarily sparkling beverages but also a variety of still beverages such as waters , enhanced waters , juices and juice drinks , ready-to-drink teas and coffees , and energy and sports drinks . we own and market four of the world 's top five nonalcoholic sparkling beverage brands : coca-cola , diet coke , fanta and sprite . finished beverage products bearing our trademarks , sold in the united states since 1886 , are now sold in more than 200 countries . we make our branded beverage products available to consumers throughout the world through our network of company-owned or -controlled bottling and distribution operations , bottling partners , distributors , wholesalers and retailers — the world 's largest beverage distribution system . beverages bearing trademarks owned by or licensed to us account for more than 1.9 billion of the approximately 58 billion servings of all beverages consumed worldwide every day . we believe our success depends on our ability to connect with consumers by providing them with a wide variety of choices to meet their desires , needs and lifestyle choices . our success further depends on the ability of our people to execute effectively , every day .
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our policy is to amortize capitalized costs by the greater of ( a ) the ratio that current gross revenue for a product bear to the total of current and anticipated future gross revenue for that product or ( b ) the straight-line method over the remaining estimated economic life of the product , generally two to five years , including the period being reported on . no software development costs were capitalized in any of the years ending december 31 , 2015 , 2014 , or 2013. income taxes we account for income taxes under the asset and liability method . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit f-11 vasco data security international , inc. notes to consolidated financial statements - ( continued ) ( amounts in thousands , except per share data ) carryforwards . we measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . we recognize the effect of a change in tax rates on deferred tax assets and liabilities and in income in the period that includes the enactment date . we monitor our potential income tax exposures as required by asc 740 , income taxes . we have significant net operating loss and other deductible carryforwards in certain jurisdictions available to story_separator_special_tag ( in thousands , except head count , ratios , time periods and percents ) unless otherwise noted , references in this annual report on form 10-k to vasco , company , we , our , and us refer to vasco data security international , inc. and its subsidiaries . cautionary note regarding forward-looking statements this annual report on form 10-k , including management 's discussion and analysis of financial condition and results of operations and quantitative and qualitative disclosures about market risk contains forward-looking statements within the meaning of section 21e of the securities exchange act of 1934 , as amended and section 27a of the securities act of 1933 , as amended concerning , among other things , our expectations regarding the prospects of , and developments and business strategies for , vasco and our operations , including the development and marketing of certain new products and services and the anticipated future growth in certain markets in which we currently market and sell our products and services or anticipate selling and marketing our products or services in the future . these forward-looking statements ( 1 ) are identified by use of terms and phrases such as expect , believe , will , anticipate , emerging , intend , plan , could , may , estimate , should , objective , goal , possible , potential , projected and similar words and expressions , but such words and phrases are not the exclusive means of identifying them , and ( 2 ) are subject to risks and uncertainties and represent our present expectations or beliefs concerning future events . vasco cautions that the forward-looking statements are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements . these additional risks , uncertainties and other factors have been described in greater detail in this annual report on form 10-k and include , but are not limited to , ( a ) risks specific to vasco , including , demand for our products and services , competition from more established firms and others , pressures on price levels and our historical dependence on relatively few products , certain suppliers and certain key customers , ( b ) risks inherent to the computer and network security industry , including rapidly changing technology , evolving industry standards , increasingly sophisticated hacking attempts , increasing numbers of patent infringement claims , changes in customer requirements , price competitive bidding , and changing government regulations , and ( c ) risks of general market conditions , including currency fluctuations and the uncertainties resulting from turmoil in world economic and financial markets . thus , the results that we actually achieve may differ materially from any anticipated results included in , or implied by these statements . except for our ongoing obligations to disclose material information as required by the u.s. federal securities laws , we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events . general the following discussion is based upon our consolidated results of operations for the years ended december 31 , 2015 , 2014 and 2013 ( percentages in the discussion , except for returns on average net cash balances , are rounded to the closest full percentage point ) and should be read in conjunction with our consolidated financial statements included elsewhere in this annual report on form 10-k. we design , develop , market and support both propriety and open standards-based hardware and software security systems that manage and secure access to information assets . we also design , develop , market , and support patented multi-factor user authentication products and services for e-business and e-commerce . our products enable secure financial transactions to be made over private enterprise networks and public networks , such as the internet . our multi-factor user authentication is delivered via our hardware and software digipass security products ( collectively digipasses ) , many of which incorporate an electronic and digital signature capability , which further protects the integrity of electronic transactions and data transmissions . many of our software digipasses are focused on the mobile platform and can be downloaded directly to mobile devices , such as digipass for mobile , while others are integrated directly into mobile applications ( using digipass for apps ) that are downloaded onto mobile devices . story_separator_special_tag cybersecurity : our use of technology is increasing and is critical in three primary areas of our business : 1. software and information systems that we use to help us run our business more efficiently and cost effectively ; 2. the products we have traditionally sold and continue to sell to our customers for integration into their software applications contain technology that incorporates the use of secret numbers and encryption technology ; and 3. new products and services that we introduced to the market , such as dpaas/mdp , are focused on processing information through our servers ( or in the cloud from our customers ' perspective ) . we believe that the risks and consequences of potential incidents in each of the above areas are different . in the case of the information systems we use to help us run our business , we believe that an incident could disrupt our ability to take orders or deliver product to our customers , but such a delay in these activities would not have a material impact on our overall results . to minimize this risk , we actively use various forms of security and monitor the use of our systems regularly to detect potential incidents as soon as possible . in the case of products that we have traditionally sold , we believe that the risk of a potential cyber incident is minimal . we offer our customers the ability to either create the secret numbers themselves or have us create the numbers on their behalf . when asked to create the numbers , we do so in a secure environment with limited physical access and store the numbers on a system that is not connected to any other network , including other vasco networks , and similarly , is not connected to the internet . in the case of our new products and services , which involve the active daily processing of the secret numbers on our servers or servers managed by others in a hosted environment , we believe a cyber incident could have a material impact on our future business . we also believe that these products may be more susceptible to cyber attacks than our traditional products since it involves the active processing of transactions using the secret numbers . while we do not have a significant amount of revenue from these products today , we believe that these products have the potential to provide substantial future growth . a cyber incident involving these products in the future could substantially impair our ability to grow the business and we could suffer significant monetary and other losses and significant reputational harm . to minimize the risk , we review our security procedures on a regular basis . our reviews include the processes and software programs we are currently using as well as new forms of cyber incidents and new or 37 updated software programs that may be available in the market that would help mitigate the risk of incidents . while we do not insure against cyber incidents today , we would likely review insurance policies related to our new product offering in the future . overall , we expect the cost of securing our networks will increase in future periods , whether through increased staff , systems or insurance coverage . while we did not experience any cyber incident in 2015 , 2014 , or 2013 that had a significant impact on our business , it is possible that we could experience an incident in 2016 or future years , which could result in unanticipated costs . see part i , item 3 - legal proceedings for a description of legal proceedings related to the cyber security incident in 2011. income taxes : our effective tax rate reflects our global structure related to the ownership of our intellectual property ( ip ) . all our ip in our traditional authentication business is owned by two subsidiaries , one in the u.s. and one in switzerland . these two subsidiaries have entered into agreements with most of the other vasco entities under which those other entities provide services to our u.s. and swiss subsidiaries on either a percentage of revenue or on a cost plus basis or both . under this structure , the earnings of our service provider subsidiaries are relatively constant . these service provider companies tend to be in jurisdictions with higher effective tax rates . fluctuations in earnings tend to flow to the u.s. company and swiss company . earnings flowing to the u.s. company are expected to be taxed at a rate of 35 % to 40 % , while earnings flowing to the swiss company are expected to be taxed at a rate ranging from 10 % to 12 % . with the majority of our revenues being generated outside of the u.s. , our consolidated effective tax rate is strongly influenced by the effective tax rate of our foreign operations . changes in the effective rate related to foreign operations reflect changes in the geographic mix of where the earnings are realized and the tax rates in each of the countries in which it is earned . the statutory tax rate for the primary foreign tax jurisdictions ranges from 8 % to 35 % . the geographic mix of earnings of our foreign subsidiaries will primarily depend on the level of our service provider subsidiaries ' pretax income , which is recorded as an expense by the u.s. and swiss subsidiaries and the benefit that is realized in switzerland through the sales of product . the level of pretax income in our service provider subsidiaries is expected to vary based on : 1. the staff , programs and services offered on a yearly basis by the various subsidiaries as determined by management , or 2. the changes in exchange rates related to the currencies in the service provider subsidiaries , or 3. the amount of revenues that the service provider subsidiaries generate .
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general and administrative expenses 2015 compared to 2014 consolidated general and administrative expenses for the year ended december 31 , 2015 were $ 32,489 , an increase of $ 10,202 or 46 % , from $ 22,287 reported for 2014. the increase in general and administrative expenses is primarily attributable to : increased compensation expenses of $ 3,332 , resulting from increased long-term incentive and non-cash compensation and an increase in our average full-year headcount in 2015 from 2014 ; professional fees increased approximately $ 5,389 compared to 2014. the increase primarily reflected an increase in legal expenses related to our internal investigation of the possible sale of our products by a distributor into iran and the acquisition of silanis ; accrued penalty of $ 900 related to the internal investigation related to the possible sale of our products by a distributor into iran ; partially offset by : stronger us dollar generating a $ 1,100 decrease in general and administrative expenses compared to 2014. the average full-time general and administrative employee headcount increased approximately 7 % to 62 persons in 2015 from 58 persons in 2014. at year-end 2015 , 2014 and 2013 , we employed 77 ( including 15 from the silanis acquisition ) , 56 and 60 general and administrative employees , respectively . 47 2014 compared to 2013 consolidated general and administrative expenses for the year ended december 31 , 2014 were $ 22,287 , an increase of $ 1,091 or 5 % , from $ 21,196 reported for 2013. the increase in general and administrative expense was primarily attributable to increases in incentive-based compensation , including $ 442 of long-term incentive compensation expenses for administrative staff . the average full-time general and administrative employee headcount decreased approximately 3 % to 58 persons in 2014 from 59 persons 2013. at year-end 2014 , 2013 and 2012 , we employed 56 , 60 and 59 general and administrative employees , respectively .
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pension plan , restoration of retirement income plan and postretirement plans the amounts in accumulated other comprehensive loss at december 31 story_separator_special_tag introduction the company is an energy and energy services provider offering physical delivery and related services for both electricity and natural gas primarily in the south central united states . the company conducts these activities through four business segments : ( i ) electric utility , ( ii ) natural gas transportation and storage , ( iii ) natural gas gathering and processing and ( iv ) natural gas marketing . the electric utility segment generates , transmits , distributes and sells electric energy in oklahoma and western arkansas . its operations are conducted through og & e and are subject to regulation by the occ , the apsc and the ferc . og & e was incorporated in 1902 under the laws of the oklahoma territory . og & e is the largest electric utility in oklahoma and its franchised service territory includes the fort smith , arkansas area . og & e sold its retail natural gas business in 1928 and is no longer engaged in the natural gas distribution business . enogex is a provider of integrated natural gas midstream services . enogex is engaged in the business of gathering , processing , transporting , storing and marketing natural gas . most of enogex 's natural gas gathering , processing , transportation and storage assets are strategically located in the arkoma and anadarko basins of oklahoma and the texas panhandle . enogex 's operations are organized into three business segments : ( i ) natural gas transportation and storage , ( ii ) natural gas gathering and processing and ( iii ) natural gas marketing . at december 31 , 2011 , the company indirectly owns an 81.3 percent membership interest in enogex holdings , which in turn owns all of the membership interests in enogex llc . overview company strategy the company 's mission is to fulfill its critical role in the nation 's electric utility and natural gas midstream pipeline infrastructure and meet individual customers ' needs for energy and related services in a safe , reliable and efficient manner . the company 's corporate strategy is to continue to maintain its existing business mix and diversified asset position of its regulated electric utility business and unregulated natural gas midstream business while providing competitive energy products and services to customers primarily in the south central united states as well as seeking growth opportunities in both businesses . additionally , the company wants to achieve a premium valuation of its businesses relative to its peers , grow earnings per share with a stable earnings pattern , create a high performance culture and achieve desired outcomes with target stakeholders . og & e is focused on increased investment to preserve system reliability and meet load growth by adding and maintaining infrastructure equipment and replacing aging transmission and distribution systems . og & e is focused on maintaining strong regulatory and legislative relationships for the long-term benefit of its customers . in an effort to encourage more efficient use of electricity , og & e is also providing energy management solutions to its customers through the smart grid program that utilizes newer technology to improve operational and environmental performance and promote demand-side management programs . if these initiatives are successful , og & e believes it may be able to defer the construction or acquisition of any incremental fossil fuel generation capacity until 2020. as the smart grid platform matures , og & e anticipates providing new products and services to its customers . in addition , og & e is also pursuing additional transmission-related opportunities within the spp . og & e is customer focused and strives to provide excellent customer service . enogex 's business plan entails growing its businesses and providing attractive financial returns through efficient operations and effective commercial management of its assets , capturing growth opportunities through expansion projects , increased utilization of existing assets and through acquisitions in and around its footprint . in addition , enogex is seeking to geographically diversify its gathering , processing and transportation businesses principally by expanding into other areas that are complementary with the company 's capabilities . enogex expects to accomplish this diversification by undertaking organic growth projects and through acquisitions . the company 's financial objectives include a long-term annual earnings growth rate of five to seven percent on a weather-normalized basis , maintaining a strong credit rating as well as increasing the dividend to meet the company 's dividend payout objectives . the company 's target payout ratio is to pay out dividends no more than 60 percent of its normalized earnings on an annual basis . the target payout ratio has been determined after consideration of numerous factors , including the largely retail composition of the company 's shareholder base , the company 's financial position , the company 's growth targets , the composition of the company 's assets and investment opportunities . the company believes it can accomplish these financial objectives by , among other things , pursuing multiple avenues to build its business , maintaining a diversified asset position , continuing to develop a wide range of skills to succeed with changes in its industries , providing products and services to customers efficiently , managing 47 risks effectively and maintaining strong regulatory and legislative relationships . story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:10pt ; '' > global climate change , environmental concerns and related opportunities it is uncertain at this time whether , and in what form , congress will adopt legislation to restrict greenhouse gas emissions . in the absence of such legislation , the epa has taken steps to regulate greenhouse gas emissions . future legislation or rules could require reductions of carbon dioxide and other greenhouse gas emissions from generation facilities . story_separator_special_tag enogex made the statement of operating conditions filing on february 27 , 2009. enogex began offering firm east zone section 311 transportation service on april 1 , 2009. the revised east and west zone zonal rates for the section 311 interruptible transportation service became effective june 1 , 2009. the rates for the firm east zone section 311 transportation service and the increase in the rates for east and west zone and interruptible section 311 service were collected , subject to refund , pending the ferc approval of the proposed rates . a number of parties intervened in both the rate case and the statement of operating conditions filing and some additionally filed protests . on january 4 , 2010 , the ferc staff submitted an offer proposing various adjustments to enogex 's filed cost of service . on april 27 , 2010 , enogex submitted comments to the ferc staff stating that it would agree to the offer , contingent upon all parties agreeing to support or not oppose . on october 4 , 2011 , enogex filed a settlement agreement with the ferc which included a proposed refund to shippers of $ 2.1 million related to the increase in the rates for east and west zone and interruptible section 311 service which were collected , subject to refund , pending the ferc approval of the proposed rates . this refund was made to shippers in january 2012. on december 16 , 2011 , the ferc issued an order approving the settlement agreement . see note 17 of notes to consolidated financial statements for a further discussion . enogex cox city plant fire on december 8 , 2010 , a fire occurred at enogex 's cox city natural gas processing plant destroying major components of one of the four processing trains , representing 120 mmcf/d of the total 180 mmcf/d of capacity , at that facility . gas volumes normally processed at the cox city plant were diverted to other facilities or bypassed around enogex 's system to accommodate production and all of the impacted gathered volumes were back online in december 2010. the damaged train was replaced and the facility was returned to full service in september 2011. the total cost necessary to return the facility back to full service was $ 29.6 million . while enogex believes that the costs in excess of the $ 10 million deductible should be reimbursed by insurance , the matter is currently being negotiated with the insurance company and enogex can not predict the precise outcome of these negotiations or the timing associated with the recovery . in the fourth quarter of 2011 , enogex received a partial insurance reimbursement of $ 7.4 million and recognized a gain of $ 3.0 million on insurance proceeds . enogex expects to receive additional reimbursement of portions of the costs in 2012. enogex will recognize insurance recoveries in earnings as the insurance claims are resolved . enogex contract conversion in august 2011 , enogex and one of its five largest customers entered into new agreements , effective july 1 , 2011 , relating to the customer 's gathering and processing volumes on the oklahoma portion of enogex 's system . the effect of this new arrangement is that ( i ) the acreage dedicated by the customer to enogex for gathering and processing in oklahoma has been increased for an extended term and ( ii ) the processing arrangement has been converted from keep-whole to fixed fee . this customer 's converted volumes represented 8.4 percent of total inlet volumes from july 1 , 2011 to december 31 , 2011. also , as a result of this transaction and as part of the new agreements , enogex recorded $ 6.4 million in deferred revenues on the company 's consolidated balance sheet at december 31 , 2011. processing revenues under the agreements are recognized based on the estimated average fee per mmbtu processed over the life of the agreements . enogex expects to record additional deferred revenues during 2012. enogex western oklahoma / texas panhandle gathering and processing system expansions as previously reported , gathering and processing volumes grew at a slower pace during the fourth quarter of 2011 than enogex had anticipated . enogex currently expects that this slower growth will continue during 2012. despite this slower volume growth , enogex still anticipates the need for additional processing capacity . enogex constructed a new 200 mmcf/d cryogenic processing plant in canadian county , oklahoma . the new plant , which has inlet and residue compression and is supported by the installation of 31 miles of 20-inch gathering pipeline , as well as 11 miles of 24-inch transmission pipeline providing takeaway capacity from the plant tailgate , was placed in service in december 2011. the total capital expenditures associated with this project were $ 140 million . enogex expects to expand its cryogenic processing plant currently under construction in wheeler county , texas from a processing capacity of 120 mmcf/d to 200 mmcf/d with the installation of additional residue compression facilities . the initial processing capacity of 120 mmcf/d is expected to be in service at the beginning of the third quarter of 2012 , and the additional 50 processing capacity is expected to be in service by the end of the third quarter of 2012. the new plant will be supported by the installation of 9,400 horsepower of field compression . the total capital expenditures associated with this project are expected to be $ 140 million . in support of significant long-term acreage dedications from its customers in the area , enogex continues to expand its gathering infrastructure in four counties of western oklahoma . these expansions are planned to occur in phases , with the initial phase calling for the installation of 47,980 horsepower of low pressure compression and over 300 miles of gathering pipe across the area . this infrastructure is expected to be constructed throughout 2012 and 2013. the total capital expenditures associated with these expansions projects are expected to be $ 240 million .
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summary of operating results 2011 compared to 2010 . net income attributable to oge energy was $ 342.9 million , or $ 3.45 per diluted share , in 2011 as compared to $ 295.3 million , or $ 2.99 per diluted share , in 2010 . included in net income attributable to oge energy in 2010 was a one-time , non-cash charge of $ 11.4 million , or $ 0.11 per diluted share , related to the elimination of the tax deduction for the medicare part d subsidy ( as previously reported in the company 's form 10-q for the quarter ended march 31 , 2011 ) . the increase in net income attributable to oge energy of $ 47.6 million , or 16.1 percent , or $ 0.46 per diluted share , in 2011 as compared to 2010 was primarily due to : an increase in net income at og & e of $ 47.6 million , or 22.1 percent , or $ 0.47 per diluted share of the company 's common stock , primarily due to a higher gross margin primarily from warmer weather in og & e 's service territory partially offset by higher other operation and maintenance expense , higher interest expense and higher income tax expense .
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quarterly evaluation of changes in internal control over financial reporting our management , with the participation of our chief executive officer and chief financial officer , also conducted an evaluation of our internal control over financial reporting to determine whether any change occurred during the fourth fiscal quarter of 2012 that has materially affected , or is reasonably likely to materially affect , our internal control over financial reporting . based on that evaluation , our management concluded that there was no story_separator_special_tag operations overview ross stores , inc. operates two brands of off-price retail apparel and home fashion stores–-ross dress for less® ( “ ross ” ) and dd 's discounts® . ross is the largest off-price apparel and home fashion chain in the united states with 1,091 locations in 33 states , the district of columbia and guam as of february 2 , 2013 . ross offers first-quality , in-season , name brand and designer apparel , accessories , footwear , and home fashions for the entire family at everyday savings of 20 % to 60 % off department and specialty store regular prices . as of february 2 , 2013 , we also operate 108 dd 's discounts stores in eight states that feature a more moderately-priced assortment of first-quality , in-season , name brand apparel , accessories , footwear , and home fashions for the entire family at everyday savings of 20 % to 70 % off moderate department and discount store regular prices . our primary objective is to pursue and refine our existing off-price strategies to maintain or improve both profitability and financial returns over the long term . in establishing appropriate growth targets for our business , we closely monitor market share trends for the off-price industry . total aggregate sales for the five largest off-price retailers in the united states increased 11 % during 2012 on top of a 6 % increase in 2011 . this compares to total national apparel sales which increased 4 % during 2012 compared to a 3 % increase in 2011 , according to data published by the npd group , inc. , a leading provider of global information and advisory services company . we believe that the stronger relative sales gains of the off-price retailers during 2012 and 2011 were driven mainly by continued focus on value by consumers over the past few years . our sales and earnings gains in 2012 continued to benefit from efficient execution of our off-price model throughout all areas of our business . our merchandise and operational strategies are designed to take advantage of the expanding market share of the off-price industry as well as the ongoing customer demand for name brand fashions for the family and home at compelling everyday discounts . looking ahead to 2013 , we are planning further reductions in average store inventory levels while continuing to maintain strict controls on operating expenses as part of our strategy to maximize our profitability . we refer to our fiscal years ended february 2 , 2013 , january 28 , 2012 , and january 29 , 2011 as fiscal 2012 , fiscal 2011 , and fiscal 2010 , respectively . fiscal 2012 was a 53-week year . fiscal 2011 and 2010 were each 52 weeks . story_separator_special_tag > replace_table_token_7_th taxes on earnings . our effective tax rate for fiscal 2012 , 2011 and 2010 was approximately 38 % in each year , which represents the applicable combined federal and state statutory rates reduced by the federal benefit of state taxes deductible on federal returns . the effective rate is impacted by changes in laws , location of new stores , level of earnings , and the resolution of tax positions with various taxing authorities . we anticipate that our effective tax rate for fiscal 2013 will be about 38 % . net earnings . net earnings as a percentage of sales for fiscal 2012 were higher compared to fiscal 2011 primarily due to both lower cost of goods sold and lower sg & a expenses as a percentage of sales . net earnings as a percentage of sales for fiscal 2011 were higher compared to fiscal 2010 primarily due to both lower cost of goods sold and lower sg & a expenses as a percentage of sales . earnings per share . diluted earnings per share in fiscal 2012 was $ 3.53 compared to $ 2.86 in the prior year period . the 23 % increase in diluted earnings per share is attributable to an approximate 20 % increase in net earnings and a 3 % reduction in weighted average diluted shares outstanding , largely due to the repurchase of common stock under our stock repurchase program . diluted earnings per share in fiscal 2011 was $ 2.86 compared to $ 2.31 in fiscal 2010 . the 24 % increase in diluted earnings per share is attributable to an 18 % increase in net earnings and a 4 % reduction in weighted average diluted shares outstanding , largely due to the stock repurchase program . financial condition liquidity and capital resources our primary sources of funds for our business activities are cash flows from operations and short-term trade credit . our primary ongoing cash requirements are for merchandise inventory purchases , payroll , rent , taxes , and capital expenditures in connection with new and existing stores , and investments in distribution centers , information systems , and buying and corporate offices . we also use cash to repurchase stock under our stock repurchase program and to pay dividends . 18 replace_table_token_8_th operating activities net cash provided by operating activities was $ 979.6 million , $ 820.1 million , and $ 673.0 million in fiscal 2012 , 2011 , and 2010 respectively . cash provided by operating activities in fiscal 2012 , 2011 , and 2010 was primarily driven by net earnings excluding non-cash expenses for depreciation and amortization . our primary source of operating cash flow is the sale of our merchandise inventory . story_separator_special_tag during fiscal 2012 , 2011 , and 2010 , we paid dividends of $ 125.7 million , $ 102.0 million , and $ 77.3 million , respectively . short-term trade credit represents a significant source of financing for merchandise inventory . trade credit arises from customary payment terms and trade practices with our vendors . we regularly review the adequacy of credit available to us from all sources and expect to be able to maintain adequate trade , bank , and other credit lines to meet our capital and liquidity requirements , including lease payment obligations in 2013 . in june 2012 , we amended our existing $ 600 million unsecured revolving credit facility . the amended credit facility expires in june 2017 and contains a $ 300 million sublimit for issuance of standby letters of credit . interest on this facility is based on libor plus an applicable margin ( currently 112.5 basis points ) and is payable upon maturity but not less than quarterly . as of february 2 , 2013 , we had no borrowings or standby letters of credit outstanding on this facility and our $ 600 million credit facility remains in place and available . we estimate that existing cash balances , cash flows from operations , bank credit lines , and trade credit are adequate to meet our operating cash needs and to fund our planned capital investments , common stock repurchases , and quarterly dividend payments for at least the next twelve months . 20 contractual obligations the table below presents our significant contractual obligations as of february 2 , 2013 : replace_table_token_10_th 1 we have an $ 82.5 million liability for unrecognized tax benefits that is included in other long-term liabilities on our consolidated balance sheet . this liability is excluded from the schedule above as the timing of payments can not be reasonably estimated . senior notes . we have two series of unsecured senior notes with various institutional investors for $ 150 million . the series a notes totaling $ 85 million are due in december 2018 and bear interest at a rate of 6.38 % . the series b notes totaling $ 65 million are due in december 2021 and bear interest at a rate of 6.53 % . interest on these notes is included in interest payment obligations in the table above . these notes are subject to prepayment penalties for early payment of principal . borrowings under these notes are subject to certain operating and financial covenants , including interest coverage and other financial ratios . as of february 2 , 2013 , we were in compliance with these covenants . off-balance sheet arrangements operating leases . we lease our buying offices , corporate headquarters , one distribution center , one trailer parking lot , three warehouse facilities , and all but three of our store locations . except for certain leasehold improvements and equipment , these leased locations do not represent long-term capital investments . we have lease arrangements for certain equipment in our stores for our point-of-sale ( “ pos ” ) hardware and software systems . these leases are accounted for as operating leases for financial reporting purposes . the initial terms of these leases are either two or three years , and we typically have options to renew the leases for two to three one-year periods . alternatively , we may purchase or return the equipment at the end of the initial or each renewal term . we have guaranteed the value of the equipment of $ 0.6 million at the end of the respective initial lease terms , which is included in other synthetic lease obligations in the table above . we lease a 1.3 million square foot distribution center in perris , california . the land and building for this distribution center are financed by the lessor under a $ 70 million , ten-year synthetic lease that expires in july 2013. rent expense on this center is payable monthly at a fixed annual rate of 5.8 % on the lease balance of $ 70 million . at the end of the lease term , we have the option to either refinance the $ 70 million synthetic lease facility , purchase the distribution center at the amount of the then-outstanding lease obligation , or arrange a sale of the distribution center to a third party . if the distribution center is sold to a third party for less than $ 70 million , we have agreed under a residual value guarantee to pay the lessor any shortfall amount up to $ 56 million . the synthetic lease agreement includes a prepayment penalty for early payoff of the lease . we intend to purchase this distribution center at the expiration of the lease in 2013. our $ 70 million obligation is included in other synthetic lease obligations in the above table . we have also recognized a liability and corresponding asset for the inception date estimated fair values of the distribution center and pos synthetic lease residual value guarantees . as of february 2 , 2013 , we have approximately $ 0.5 million of residual value guarantee asset and liability . these residual value guarantees are amortized on a straight-line basis over the original terms of the leases . the current portion of the related asset and liability is recorded in prepaid expenses and accrued expenses , respectively , and the long-term portion of the related assets and liabilities is recorded in other long-term assets and other long-term liabilities , respectively , in the accompanying consolidated balance sheets . 21 we lease three warehouses . two of the warehouses are in carlisle , pennsylvania with leases expiring in 2014 and 2016. the third warehouse is in fort mill , south carolina , with a lease expiring in 2016. the leases for all three of these warehouses contain renewal provisions . we also own a 423,000 square foot warehouse in fort mill , south carolina and a 449,000 square foot warehouse in riverside , california .
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results of operations the following table summarizes the financial results for fiscal 2012 , 2011 , and 2010 : replace_table_token_4_th 16 stores . total stores open at the end of fiscal 2012 , 2011 , and 2010 were 1,199 , 1,125 , and 1,055 , respectively . the number of stores at the end of fiscal 2012 , 2011 , and 2010 increased by 7 % , 7 % , and 5 % from the respective prior years . our expansion strategy is to open additional stores based on market penetration , local demographic characteristics , competition , expected store profitability , and the ability to leverage overhead expenses . we continually evaluate opportunistic real estate acquisitions and opportunities for potential new store locations . we also evaluate our current store locations and determine store closures based on similar criteria . replace_table_token_5_th sales . sales for fiscal 2012 increased $ 1.1 billion , or 12.9 % , compared to the prior year due to the opening of 74 net new stores during 2012 and a 6 % increase in comparable store sales ( defined as stores that have been open for more than 14 complete months ) . sales for fiscal 2011 increased $ 742.2 million , or 9.4 % , compared to the prior year due to the opening of 70 net new stores during 2011 and a 5 % increase in sales from comparable stores . our sales mix is shown below for fiscal 2012 , 2011 , and 2010 : replace_table_token_6_th we intend to address the competitive climate for off-price apparel and home goods by pursuing and refining our existing strategies and by continuing to strengthen our organization , diversify our merchandise mix , and more fully develop our organization and systems to improve regional and local merchandise offerings .
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first federal is a community-oriented financial institution serving clallam , jefferson , kitsap , whatcom , and king counties in washington state , through its seattle lending center and ten full service branches . we offer a wide range of products and services focused on the financial security and payment needs of the communities we serve . while we have a concentration of first lien one- to four-family mortgage loans , we have increased our origination of commercial real estate , multi-family real estate , construction , and commercial business loans , and have increased our auto and consumer loans through originations , indirect auto lending , and purchased auto loan programs , in order to diversify our portfolio and increase interest income . we continue to originate one- to four-family residential mortgage loans and regularly sell conforming loans into the secondary market to increase noninterest income and manage interest rate risk or retain select loans in our portfolio to enhance interest income . we offer traditional consumer and business deposit products , including transaction accounts , savings and money market accounts and certificates of deposit for individuals , businesses and nonprofit organizations . deposits are our primary source of funding for our lending and investing activities first federal is impacted by prevailing economic conditions as well as government policies and regulations concerning , among other things , monetary and fiscal affairs , including fiscal stimulus , interest rate policy and open market operations , housing and financial institutions . deposit flows are influenced by various factors , including sales and marketing efforts , interest rates paid on competing deposits , available alternative investments such as the stock market , account maturities , government stimulus and unemployment programs , and the overall level of personal income and savings . lending activities are influenced by prevailing interest rates and property values in our markets , the demand for funds , the number and quality of lenders employed by first federal , and regional economic cycles . our primary source of pre-tax income is net interest income . net interest income is the difference between interest income earned on our loans and investments and interest expense paid on our deposits and borrowings . changes in levels of interest rates can affect our net interest income . a secondary source of income is noninterest income , which includes revenue we receive from providing products and services , including service charges on deposit accounts , debit card interchange income , mortgage banking income , treasury and other commercial banking related fees , earnings from bank-owned life insurance , and gains and losses from sales of securities . an offset to net interest income is the provision for loan losses , which represents the periodic charge to operations which is required to adequately provide for probable losses inherent in our loan portfolio through our allowance for loan losses . as a loan 's risk rating improves , property values increase , or recoveries of amounts previously charged off are received , a recapture of previously recognized provision for loan losses may be added to net interest income . the noninterest expenses we incur in operating our business consist of salaries and employee benefit costs , occupancy and equipment expenses , federal deposit insurance premiums and regulatory assessments , digital delivery and data processing expenses , advertising and promotion expenses , expenses related to real estate and personal property owned , state and local taxes , federal income tax , and other miscellaneous expenses . 75 our business and operating strategy our operating strategy is focused on diversifying our loan portfolio , expanding our deposit product offerings , and enhancing our infrastructure . certain highlights of our operations in recent years are as follows : expanding our market presence . we hired several experienced and talented bankers with connections throughout western washington . we opened four full-service branches in silverdale , bellingham , and bainbridge island , washington and a lending center in seattle , washington . through these new locations , we have realized growth in deposits and expanded our ability to secure customer relationships and lending opportunities outside of our historic market areas in the north olympic peninsula . we also utilize technology to expand our market presence and to service new and existing businesses and consumers . enhancing the loan portfolio . we have significantly increased the origination of commercial real estate , multi-family real estate , and construction and land loans as well as increased our portfolio of commercial business loans . this helped to increase overall net interest income . adding new servicing capabilities . in addition to traditional consumer and business deposit products , we offer remote deposit capture , consumer and small business digital banking , and commercial digital banking capabilities . at our branch locations in forks , port angeles-eastside , silverdale , bainbridge island , and bellingham , washington , and at our main administrative building and downtown locations in port angeles , washington , we have implemented interactive teller machines , allowing our customers to conduct business with a teller through a video monitor . enhancing our infrastructure . we have focused on upgrading our infrastructure , both in terms of equipment and personnel , in order to support our changing lending and deposit capabilities and position ourselves for growth . our objective is to be an independent , high performing bank focused on meeting the needs of individuals , small businesses and community organizations throughout our market areas with exceptional service and competitive products . we intend to implement these strategies to achieve our objective : increasing our portfolio of higher yielding commercial loans . through increased loan originations , we intend to increase our loan to deposit ratio and the percentage of our loan portfolio consisting of higher-yielding commercial real estate and commercial business loans . these loan categories offer higher risk-adjusted returns , shorter maturities and more sensitivity to interest rate fluctuations than traditional fixed-rate , one- to four-family residential loans . story_separator_special_tag 77 critical accounting policies we have certain accounting policies that are important to the assessment of our financial condition , since they require management to make difficult , complex or subjective judgments , some of which may relate to matters that are inherently uncertain . estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances . facts and circumstances which could affect these judgments include , but are not limited to , changes in interest rates , changes in the performance of the economy and changes in the financial condition of borrowers . our accounting policies are discussed in detail in note 1 of the notes to consolidated financial statements included in item 8 , `` financial statements and supplementary data '' of this form 10-k. the following represent our critical accounting policies : allowance for loan losses . the allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio as of balance sheet date . the allowance is established through the provision for loan losses , which is charged to income . determining the amount of the allowance for loan losses necessarily involves a high degree of judgment . among the material estimates required to establish the allowance are : the likelihood of default ; the loss exposure at default ; the amount and timing of future cash flows on impaired loans ; the value of collateral ; and the determination of loss factors to be applied to the various elements of the portfolio . all of these estimates are susceptible to significant change . management reviews , and the board of directors approves , at least quarterly , the level of the allowance and the provision for loan losses based on past loss experience , current economic conditions and other factors related to the collectability of the loan portfolio . although we believe that we use the best information available to establish the allowance for loan losses , future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation . in addition , the fdic and the dfi , as an integral part of their examination process , periodically review our allowance for loan losses and may require us to recognize adjustments to the allowance based on their judgment about information available at the time of their examination . a large loss could deplete the allowance and require increased provisions for loan losses to replenish the allowance , which would adversely affect earnings . see note 3 of the notes to consolidated financial statements included in item 8 , `` financial statements and supplementary data '' of this form 10-k. mortgage servicing rights . we record mortgage servicing rights on loans originated and subsequently sold into the secondary market . we stratify our capitalized mortgage servicing rights based on the type , term and interest rates of the underlying loans . mortgage servicing rights are initially recognized at fair value . the value is determined through a discounted cash flow analysis , which uses interest rates , prepayment speeds and delinquency rate assumptions as inputs . all of these assumptions require a significant degree of management judgment . if our assumptions prove to be incorrect , the value of our mortgage servicing rights could be negatively affected . see notes 1 and 7 to the notes to consolidated financial statements included in item 8 , `` financial statements and supplementary data '' of this form 10-k. income taxes . management makes estimates and judgments to calculate certain tax liabilities and to determine the recoverability of certain deferred tax assets , which arise from temporary differences between the tax and financial statement recognition of revenues and expenses . we also estimate a valuation allowance for deferred tax assets if , based on the available evidence , it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods . these estimates and judgments are inherently subjective . in evaluating the recoverability of deferred tax assets , management considers all available positive and negative evidence , including past operating results , recent cumulative losses - both capital and operating - and the forecast of future taxable income , both capital gains and operating . in determining future taxable income , management makes assumptions for the amount of taxable income , the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies . these assumptions require judgments about future taxable income and are consistent with the plans and estimates to manage our business . any reduction in estimated future taxable income may require us to record a valuation allowance against deferred tax assets . an increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on future earnings . 78 fair value . fair values of financial instruments are estimated using relevant market information and other assumptions . fair value estimates involve uncertainties and matters of significant judgment regarding interest rates , credit risk , prepayments , and other factors , especially in the absence of broad markets for particular items . changes in assumptions or in market conditions could significantly affect these estimates . new accounting pronouncements for a discussion of new accounting pronouncements and their impact on the company , see note 1 of the notes to consolidated financial statements included in item 8 , `` financial statements and supplementary data '' of this form 10-k. comparison of financial condition at december 31 , 2020 and december 31 , 2019 assets . total assets increased $ 347.0 million , or 26.5 % , to $ 1.65 billion at december 31 , 2020 , from $ 1.31 billion at december 31 , 2019 , primarily due to an increase in new deposits .
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general . the company had net income for the year ended december 31 , 2020 of $ 10.3 million , compared to net income of $ 9.0 million for the year ended december 31 , 2019 , an increase of $ 1.3 million , or 14.7 % . the increase in net income was primarily due to increases in net interest income and noninterest income . we earned $ 1.11 per common share and $ 1.10 per diluted share for the year ended december 31 , 2020 , compared to $ 0.92 per common share and $ 0.91 per diluted share for the year ended december 31 , 2019. the increase in earnings per share year-over-year was the result of an increase in net income combined with lower weighted-average common shares outstanding of 9,348,874 basic and 9,380,294 diluted shares in 2020 , compared to 9,845,021 basic and 9,923,110 diluted shares for the same period in 2019. the decrease in average shares year-over-year is due to our share repurchase program coupled with changes to our share-based compensation plans . net interest income . net interest income increased $ 6.1 million , or 16.1 % , to $ 44.0 million for the year ended december 31 , 2020 , from $ 37.9 million for the year ended december 31 , 2019 , mainly as the result of additional interest income related to the increase in the average balances of loans receivable and investment securities .
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the merger agreement contains normal conditions to closing including obtaining the audited financial statements of gnh , as required by regulation s-x of the securities exchange act of 1934. additionally , the merger agreement sets forth conditions that the company shall have obtained a cancellation of 45,000,000 shares of common stock held by its majority shareholder . the merger with gnh , upon closing , will provide the company with the ownership of 100 % of giggles ‘ n ' hugs , llc , which owns one operating giggles ‘ n ' hugs restaurant in brentwood , california and another giggles ‘ n ' hugs restaurant in century city , california . note 10 – reclassification : stock split adjustment certain reclassifications have been made in the current year 's financial statements . on july 30 , 2010 , the company executed a forward stock split , effected as a stock dividend , which was originally recorded as a debit to additional paid-in capital and a corresponding credit to common stock , in the amount of $ 40,200 . during the quarter , the company recorded an adjustment , whereby the company recorded a debit to retained earnings and a credit to additional paid-in capital , in the amount of $ 40,200 . this adjustment did not change total stockholders ' deficit . ( see note 7 for more information regarding the stock split ) . note 11 – related party transactions from our inception to december 31 , 2010 , an officer and director of the company contributed cash in the amount of $ 18,800 . the entire amount was contributed , is not expected to be repaid and has been recorded as additional paid-in capital . f-16 giggles n ' hugs , inc. ( formerly teacher 's pet , inc. ) ( an development stage company ) notes to financial statements note 11 – related party transactions ( continued ) the company does not lease or rent any property . office services are provided without charge by an officer and director of the company . such costs are immaterial to the financial statements and , accordingly , have not been reflected therein . the officers and directors of the company are involved in other business activities and may , in the future , become involved in other business opportunities . if a specific business opportunity becomes available , such persons may face a conflict in selecting between the company and their other business interests . the company has not formulated a policy for the resolution of such conflicts . note 12 – subsequent events during the three months ended march 31 , 2011 , the company received a total of $ 1,456,000 for the sale of 416,000 shares of common stock . f-17 story_separator_special_tag except for the historical information , the following discussion contains forward-looking statements that are subject to risks and uncertainties . we caution you not to put undue reliance on any forward-looking statements , which speak only as of the date of this report . our actual results or actions may differ materially from these forward-looking statements for many reasons , including the risks described in “ risk factors ” and elsewhere in this annual report . our discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes and with the understanding that our actual future results may be materially different from what we currently expect . overview and outlook background and recent developments we were originally incorporated under the laws of the state of nevada on september 17 , 2004 , under the name teacher 's pet , inc. ( “ tpet ” ) . our prior stated business objective was to sell products and provide services to assist teachers and parents further the education of children aged between kindergarten through sixth grade . as of the date of this report , we generated minimal revenues from that line of business . due to our lack of sufficient financial resources and inability to establish our educational supply business , we sought business opportunities with established companies and financing from third party sources . in august , 2010 , we identified an opportunity to enter into a relationship with a child-friendly restaurant in the brentwood region of los angeles , california . 14 we are focused exclusively on successfully consummating the merger with gnh . if we are unable to effect the proposed transaction , we have limited capital resources and no saleable inventory with which to operate our educational supply business . additionally , our ability to fund our operating expenses and debt service requirements are in doubt , and we can not guarantee that we will be able to satisfy such . as such , we would require a significant infusion of cash through sales of our debt or equity securities . there are no formal or informal agreements to attain such financing . we can not assure you that any financing can be obtained or , if obtained , that it will be on reasonable terms . without realization of additional capital , it would be unlikely for us to continue as a going concern . our management does not anticipate the need to hire additional full- or part- time employees over the next 12 months , as the services provided by our current officers and directors appear sufficient at this time . our officers and directors work for us on a part-time basis , and are prepared to devote additional time , as necessary . we do not expect to hire any additional employees over the next 12 months . however , in the normal course of our business , we expect to contract non-salaried third-party consultants to provide various professional services to our clients on our behalf . these consultants are considered independent and will be paid on a per-project basis and are not considered employees . story_separator_special_tag the merger agreement contains normal conditions to closing including obtaining the audited financial statements of gnh , as required by regulation s-x of the securities exchange act of 1934. additionally , the merger agreement sets forth conditions that the company shall have obtained a cancellation of 45,000,000 shares of common stock held by its majority shareholder . the merger with gnh , upon closing , will provide the company with the ownership of 100 % of giggles ‘ n ' hugs , llc , which owns one operating giggles ‘ n ' hugs restaurant in brentwood , california and another giggles ‘ n ' hugs restaurant in century city , california . note 10 – reclassification : stock split adjustment certain reclassifications have been made in the current year 's financial statements . on july 30 , 2010 , the company executed a forward stock split , effected as a stock dividend , which was originally recorded as a debit to additional paid-in capital and a corresponding credit to common stock , in the amount of $ 40,200 . during the quarter , the company recorded an adjustment , whereby the company recorded a debit to retained earnings and a credit to additional paid-in capital , in the amount of $ 40,200 . this adjustment did not change total stockholders ' deficit . ( see note 7 for more information regarding the stock split ) . note 11 – related party transactions from our inception to december 31 , 2010 , an officer and director of the company contributed cash in the amount of $ 18,800 . the entire amount was contributed , is not expected to be repaid and has been recorded as additional paid-in capital . f-16 giggles n ' hugs , inc. ( formerly teacher 's pet , inc. ) ( an development stage company ) notes to financial statements note 11 – related party transactions ( continued ) the company does not lease or rent any property . office services are provided without charge by an officer and director of the company . such costs are immaterial to the financial statements and , accordingly , have not been reflected therein . the officers and directors of the company are involved in other business activities and may , in the future , become involved in other business opportunities . if a specific business opportunity becomes available , such persons may face a conflict in selecting between the company and their other business interests . the company has not formulated a policy for the resolution of such conflicts . note 12 – subsequent events during the three months ended march 31 , 2011 , the company received a total of $ 1,456,000 for the sale of 416,000 shares of common stock . f-17 story_separator_special_tag except for the historical information , the following discussion contains forward-looking statements that are subject to risks and uncertainties . we caution you not to put undue reliance on any forward-looking statements , which speak only as of the date of this report . our actual results or actions may differ materially from these forward-looking statements for many reasons , including the risks described in “ risk factors ” and elsewhere in this annual report . our discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes and with the understanding that our actual future results may be materially different from what we currently expect . overview and outlook background and recent developments we were originally incorporated under the laws of the state of nevada on september 17 , 2004 , under the name teacher 's pet , inc. ( “ tpet ” ) . our prior stated business objective was to sell products and provide services to assist teachers and parents further the education of children aged between kindergarten through sixth grade . as of the date of this report , we generated minimal revenues from that line of business . due to our lack of sufficient financial resources and inability to establish our educational supply business , we sought business opportunities with established companies and financing from third party sources . in august , 2010 , we identified an opportunity to enter into a relationship with a child-friendly restaurant in the brentwood region of los angeles , california . 14 we are focused exclusively on successfully consummating the merger with gnh . if we are unable to effect the proposed transaction , we have limited capital resources and no saleable inventory with which to operate our educational supply business . additionally , our ability to fund our operating expenses and debt service requirements are in doubt , and we can not guarantee that we will be able to satisfy such . as such , we would require a significant infusion of cash through sales of our debt or equity securities . there are no formal or informal agreements to attain such financing . we can not assure you that any financing can be obtained or , if obtained , that it will be on reasonable terms . without realization of additional capital , it would be unlikely for us to continue as a going concern . our management does not anticipate the need to hire additional full- or part- time employees over the next 12 months , as the services provided by our current officers and directors appear sufficient at this time . our officers and directors work for us on a part-time basis , and are prepared to devote additional time , as necessary . we do not expect to hire any additional employees over the next 12 months . however , in the normal course of our business , we expect to contract non-salaried third-party consultants to provide various professional services to our clients on our behalf . these consultants are considered independent and will be paid on a per-project basis and are not considered employees .
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results of operations during the year ended december 31 , 2010 , we generated $ 200 in revenue and during the year ended december 31 , 2009 , we did not generate any revenues . operating expenses during the year ended december 31 , 2010 were $ 86,764 , consisting of $ 614 in depreciation expense related to our computer equipment and $ 86,150 in general and administrative expenses such as accounting , professional and miscellaneous office expenditures . in comparison , operating expenses in the year ended december 31 , 2009 were $ 13,416 , of which $ 1,116 is attributable to depreciation expense and $ 12,300 in general and administrative costs . the increase in total expenses from 2009 to 2010 is primarily attributable to an increase in legal fees , as well as an increase in accounting fees . we have not been profitable from our inception in 2004 through december 31 , 2010 , and our accumulated deficit amounts to $ 164,781. there is significant uncertainty projecting future profitability due to our history of losses and lack of revenues . we are materially dependent upon the successful closing of the september 23 , 2010 merger agreement to be able to continue to operate as a going concern . in our current state , without merging with gnh , we have no recurring or guaranteed source of revenues and can not predict when , if ever , we will become profitable . there is significant uncertainty projecting future profitability due to our minimal operating history and lack of guaranteed ongoing revenue streams . liquidity and capital resources as of december 31 , 2010 , we had $ 769 in cash and did not have any other cash equivalents . the following table provides detailed information about our net cash flow for all financial statement periods presented in this annual report .
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we determine a specific impairment allowance based on the difference between the carrying value of the receivable story_separator_special_tag consolidated results of operations and financial condition overview we are a global market leader in the design , development , manufacture , sale , service and support of commercial jetliners , military aircraft , satellites , missile defense , human space flight and launch systems and services . we are one of the two major manufacturers of 100+ seat airplanes for the worldwide commercial airline industry and one of the largest defense contractors in the u.s. while our principal operations are in the u.s. , we conduct operations in an expanding number of countries and rely on an extensive network of non-u.s. partners , key suppliers and subcontractors . our strategy is centered on successful execution in healthy core businesses – commercial airplanes ( bca ) , defense , space & security ( bds ) , and global services ( bgs ) – supplemented and supported by boeing capital ( bcc ) . taken together , these core businesses have historically generated substantial earnings and cash flow that permit us to invest in new products and services . we focus on producing the products and providing the services that the market demands , and continue to find new ways to improve efficiency and quality to provide a fair return for our shareholders . bca is committed to being the leader in commercial aviation by offering airplanes and services that deliver superior design , safety , efficiency and value to customers around the world . bds integrates its resources in defense , intelligence , communications , security , space and services to deliver capability-driven solutions to customers at reduced costs . our bds strategy is to leverage our core businesses to capture key next-generation programs while expanding our presence in adjacent and international markets , underscored by an intense focus on growth and productivity . bgs provides support for commercial and defense through innovative , comprehensive , and cost-competitive product and service solutions . bcc facilitates , arranges , structures and provides selective financing solutions for our boeing customers . on march 13 , 2019 , the federal aviation administration ( faa ) issued an order to suspend operations of all 737 max aircraft in the u.s. and by u.s. aircraft operators following two fatal 737 max accidents . non-u.s. civil aviation authorities have issued directives to the same effect . deliveries of the 737 max have been suspended until clearance is granted by the appropriate regulatory authorities . the grounding is having a significant adverse impact on our operations and creates significant uncertainty . we are focused on safely returning the 737 max to service . 19 consolidated results of operations the following table summarizes key indicators of consolidated results of operations : replace_table_token_4_th ( 1 ) these measures exclude certain components of pension and other postretirement benefit expense . see page 42 - 43 for important information about these non-gaap measures and reconciliations to the most comparable gaap measures . revenues the following table summarizes revenues : replace_table_token_5_th revenues decreased by $ 24,568 million in 2019 compared with 2018 primarily due to lower revenues at bca , partially offset by higher revenues at bgs . lower bca revenues are primarily driven by lower 737 max deliveries and a revenue reduction of $ 8,259 million recorded in 2019 for estimated potential concessions and other considerations to customers for disruptions and associated delivery delays related to the 737 max grounding , net of insurance recoveries . revenues increased by $ 7,122 million in 2018 compared with 2017 due to higher revenues at bca , bds , and bgs . bca revenues increased by $ 2,887 million due to higher 737 and 787 deliveries and favorable 737 and 787 model mix , which more than offset lower 777 and 747 deliveries . bds revenues increased by $ 2,454 million primarily due to non-us contract awards for fighters , higher weapons revenue , the final c-17 aircraft sale and higher satellites revenue . bgs revenues increased by $ 2,445 million due to higher parts revenue , including the acquisition of klx , inc. ( klx ) in the fourth quarter of 2018 . 20 the changes in unallocated items , eliminations and other in 2019 , 2018 and 2017 primarily reflect the timing of eliminations for intercompany aircraft deliveries and the sale of aircraft previously leased to customers . earnings from operations the following table summarizes earnings from operations : replace_table_token_6_th * the fas/cas service cost adjustment represents the difference between the fas pension and postretirement service costs calculated under gaap and costs allocated to the business segments . * * core operating earnings is a non-gaap measure that excludes the fas/cas service cost adjustment . see page 42 . loss from operations was $ 1,975 million in 2019 compared with earnings from operations of $ 11,987 million in 2018 . the decrease of $ 13,962 million is primarily due to a loss from operations at bca of $ 6,657 million in 2019 compared to earnings from operations of $ 7,830 million in 2018 , partially offset by higher earnings at bds and bgs in 2019 compared with 2018. bca decreased by $ 14,487 million due to lower 737 deliveries and the earnings charge for the 737 max grounding of $ 8,259 million , net of insurance recoveries . bds earnings from operations increased by $ 951 million primarily due to lower charges in 2019 for development programs . bgs earnings from operations increased by $ 161 million primarily due to higher revenues , which was partially offset by less favorable performance and mix . earnings from operations increased by $ 1,643 million in 2018 compared with 2017 primarily due to higher earnings at bca and bgs , which more than offset the decrease at bds and the change in unallocated items , eliminations and other . bca earnings from operations increased by $ 2,545 million due to higher revenues and improved operating margins . story_separator_special_tag research and development expense increased by $ 90 million in 2018 compared with 2017 due to investment in product development , partially offset by lower spending on 777x and 787-10. backlog our backlog at december 31 was as follows : replace_table_token_12_th contractual backlog of unfilled orders excludes purchase options , announced orders for which definitive contracts have not been executed , and unobligated u.s. and non-u.s. government contract funding . the decrease in contractual backlog during 2019 was primarily due to bca deliveries in excess of new orders and a reduction in backlog related to orders from a customer that experienced liquidity issues , partially offset by bds current year contract awards in excess of revenue recognized on contracts awarded in prior years unobligated backlog includes u.s. and non-u.s. government definitive contracts for which funding has not been authorized . the decrease in unobligated backlog in 2019 was primarily due to reclassifications to contractual backlog related to bds and bgs contracts partially offset by contract awards . additional considerations export-import bank of the united states many of our non-u.s. customers finance purchases through the export-import bank of the united states . the bank is authorized through december 31 , 2026 . 24 global trade we continually monitor the global trade environment for changes in tariffs , trade agreements , sanctions or other potential geopolitical economic developments that may impact the company . beginning in june 2018 , the u.s. government has imposed tariffs on steel and aluminum imports . in response to these tariffs , several major u.s. trading partners have imposed , or announced their intention to impose , tariffs on u.s. goods . in may 2019 , the u.s. government , mexico and canada reached an agreement to end the steel and aluminum tariffs between these countries . passage of the u.s./mexico/canada free trade agreement ( usmca ) will also result in lower tariffs . we continue to monitor the potential for any extra costs that may result from the remaining global tariffs . since 2018 , the u.s. and china imposed tariffs on approximately $ 34 billion of each other 's exports in july 2018. certain aircraft parts and components that boeing procures are subject to these tariffs . subsequently , the u.s. imposed tariffs on an additional $ 216 billion in chinese goods , and china imposed tariffs on an additional $ 76 billion worth of u.s goods . the u.s. and china phase i agreement in january 2020 is a positive development for overall trade with china . negotiations to resolve remaining trade issues continue . overall global trade tensions and increased market uncertainty have resulted in fewer orders than anticipated for our commercial aircraft . the u.s. government continues to impose and or consider imposing sanctions on certain businesses and individuals in russia . although our operations or sales in russia have not been impacted to date , we continue to monitor additional sanctions that may be imposed by the u.s. government and any responses from russia that could affect our supply chain , business partners or customers . segment results of operations and financial condition commercial airplanes business environment and trends airline industry environment global economic growth , a primary driver for air travel , was 2.6 % in 2019 , slightly below the long-term average of approximately 3 % . passenger traffic is estimated to grow by 4 % to 5 % in 2019 , close to the long-term average of approximately 5 % . the grounding of the 737 max and suspension of 737 max deliveries has slowed growth at certain airlines . while growth was solid across most major world regions , there continues to be variation between regions and airline business models . despite some moderation in the growth rates , airlines operating in asia pacific and europe , as well as low-cost-carriers globally , are leading the 2019 growth in passenger traffic . air cargo traffic growth is expected to contract this year due to weak global trade growth . airline financial performance also plays a role in the demand for new capacity . airlines continue to focus on increasing revenue through alliances , partnerships , new marketing initiatives , and effective leveraging of ancillary services and related revenues . airlines are also focusing on reducing costs and renewing fleets to leverage more efficient airplanes . net profits in 2019 are expected to approximate $ 26 billion . the long-term outlook for the industry continues to remain positive due to the fundamental drivers of air travel demand : economic growth and the increasing propensity to travel due to increased trade , globalization , and improved airline services driven by liberalization of air traffic rights between countries . our 20-year forecast projects a long-term average growth rate of 4.6 % per year for passenger traffic and 4.2 % for cargo traffic . based on long-term global economic growth projections of 2.7 % average annual gdp growth , we project a $ 6.8 trillion market for approximately 44,000 new airplanes over the next 20 years . the industry remains vulnerable to exogenous developments including fuel price spikes , credit market shocks , acts of terrorism , natural disasters , conflicts , epidemics and increased global environmental regulations . 25 industry competitiveness the commercial jet airplane market and the airline industry remain extremely competitive . market liberalization in europe , the middle east and asia is enabling low-cost airlines to continue gaining market share . these airlines are increasing the pressure on airfares . this results in continued cost pressures for all airlines and price pressure on our products . major productivity gains are essential to ensure a favorable market position at acceptable profit margins . continued access to global markets remains vital to our ability to fully realize our sales potential and long-term investment returns . approximately 80 % of commercial airplanes ' total backlog , in dollar terms , is with non-u.s. airlines . we face aggressive international competitors who are intent on increasing their market share .
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cash flow summary replace_table_token_23_th operating activities net cash used by operating activities was $ 2.4 billion during 2019 , compared with net cash provided by operating activities of $ 15.3 billion during 2018 and $ 13.3 billion in 2017 . the decrease in operating cash flows in 2019 primarily reflects the impacts of the 737 max grounding that is resulting 37 in lower earnings , higher inventory and lower advances and progress payments . in addition , compensation payments to 737 max customers of $ 1.2 billion for disruption to their operations also reduced 2019 cash from operating activities . cash used to fund inventory was $ 12.4 billion during 2019 as we continued to produce aircraft while deliveries were suspended . cash provided by advances and progress billings was $ 0.7 billion in 2019 , as compared with $ 2.6 billion in 2018. in december 2019 , we announced plans to temporarily suspend production of the 737 max beginning in january 2020. this will enable us to prioritize the delivery of stored aircraft . net cash from operating activities in future quarters is expected to continue to be adversely impacted by the 737 max grounding . discretionary contributions to our pension plans were insignificant in 2019 and 2018 . during 2017 , our discretionary contributions to our pension plans included 14.4 million shares of our common stock with an aggregate value of $ 3.5 billion and $ 0.5 billion in cash . investing activities cash used by investing activities during 2019 , 2018 and 2017 was $ 1.5 billion , $ 4.6 billion and $ 2.1 billion . the reduction in 2019 compared with 2018 is primarily due to acquisitions completed in the second half of 2018 and the timing of investments . acquisitions net of cash acquired were $ 0.5 billion in 2019 , compared with $ 3.2
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revenue related to the alimera agreement totaled $ 192,000 for fiscal 2011 , $ 22.3 million for fiscal 2010 and $ 11.8 million for fiscal 2009. these revenues represented substantially all of the company 's collaborative research and development revenue for each of fiscal 2010 and fiscal 2009. there was no deferred revenue balance at june 30 , 2011 and 2010. pfizer in april 2007 , the company entered story_separator_special_tag the following discussion and analysis of financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes beginning on page f-1 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 significantly from those anticipated or implied in these forward-looking statements as a result of many important factors , including , but not limited to , those set forth under item 1a , risk factors , and elsewhere in this report . overview we develop tiny , sustained release , drug delivery products designed to deliver drugs at a controlled and steady rate for months or years . we are currently focused on treatment of chronic diseases of the back of the eye utilizing our core technology systems , durasert and biosilicon . iluvien for the treatment of dme , our most advanced product candidate , is currently under review by the fda . an investigator-sponsored ind opened for an injectable insert designed to treat uveitis affecting the posterior segment of the eye ( posterior uveitis ) of the same design as iluvien and an investigator-sponsored trial is ongoing for an injectable bioerodible insert designed to treat glaucoma and ocular hypertension . our two fda-approved products provide long-term , sustained drug delivery to treat two other chronic diseases of the retina . iluvien . we licensed the third generation injectable durasert insert that delivers fac over a period of up to 3 years to alimera for the treatment and prevention of eye diseases in humans ( other than uveitis ) . this insert is being developed by alimera under its brand name iluvien . alimera completed two phase iii clinical trials ( fame study ) of iluvien for the treatment of dme , a leading cause of vision loss for people under the age of 65 estimated to affect over 1,000,000 people in the united states . alimera submitted an nda for iluvien for dme to the fda in june 2010 based on month 24 data from the fame study , received a crl in december 2010 and resubmitted an nda to the fda to respond to the crl in may 2011. alimera expects a response from the fda in november 2011. alimera stated that if approved , it plans to commercialize iluvien for dme in the u.s. as soon as early 2012. in july 2010 , alimera submitted a marketing authorization application for iluvien for dme to the mhra in the united kingdom and to other regulatory authorities in europe . alimera reports that it anticipates submitting the final response to the mhra and the other european regulatory authorities by december 31 , 2011. under our collaboration agreement with alimera , in addition to treating dme , iluvien is also being studied in three phase ii clinical trials for the treatment of the dry form of amd , the wet form of amd and rvo . other product development . in september 2011 , an investigator-sponsored ind opened for a phase i/ii study of the safety and efficacy of our injectable , sustained release insert delivering fac for the treatment of uveitis affecting the posterior segment of the eye ( posterior uveitis ) . the insert is the same design as the insert being developed by alimera for the treatment of dme and delivers the high and low dose of fac used in the fame study . we did not license alimera the rights to use the insert for uveitis . if successful , we plan to advance this product candidate into pivotal multi-center phase iii trials and reference the nda for iluvien for dme ( including the clinical data from the fame study and the manufacturing and stability data ) in potential posterior uveitis regulatory filings . we also plan to use a new inserter , with a smaller gauge needle than that used in the fame study , in any future posterior uveitis phase iii trials . under our restated pfizer agreement , we granted pfizer an exclusive option under various circumstances to license the development and commercialization worldwide of an injectable , bioerodible sustained release insert delivering latanoprost ( latanoprost product ) for the treatment of human ophthalmic disease or conditions other than uveitis . an investigator-sponsored phase i/ii dose-escalation study has been initiated to assess the safety and efficacy of this insert , which utilizes a fourth generation of our durasert technology , in patients with elevated iop . we are currently developing a prototype of this implant that contains biosilicon to assist in the delivery of latanoprost . if successful , we plan to advance the new prototype into a multi-center phase ii trial . 45 in august 2011 , we entered into an evaluation agreement with ( hss ) to investigate our durasert drug delivery technologies in orthopedics . approved products . our two fda-approved products utilize two earlier generations of our durasert technology system , second-generation retisert for the treatment of posterior uveitis , and first-generation vitrasert for the treatment of aids-related cytomegalovirus ( cmv ) retinitis . we have licensed both of these products and the technologies underlying them to bausch & lomb . retisert delivers fac to provide sustained release treatment for approximately two and a half years , and vitrasert delivers ganciclovir to provide sustained release treatment for six to nine months . biosilicon . biosilicon , the second key technology system we are targeting for sustained drug delivery , utilizes fully-erodible , nanostructured , porous material . story_separator_special_tag we concluded that the pfizer exercise option for the worldwide exclusive license is not a deliverable of the arrangement , due to it being a substantive option and not being priced at a significant and incremental discount . we determined that the jsc does not have standalone value from the r & d program and therefore we have combined these deliverables into a single unit of accounting . the performance period is the expected period over which the services of the combined unit are performed , and we have estimated that period to be 3 years . the total arrangement consideration of the restated pfizer agreement totaled $ 10.05 million , which consisted of the $ 7.75 million of deferred revenue on the company 's balance at the effective date plus the $ 2.3 million upfront payment . the difference between the total arrangement consideration and the estimated selling price of the combined deliverables , or $ 3.3 million , has been recognized as collaborative research and development revenue in the quarter ended june 30 , 2011 , the period of the modification . to determine the estimated selling price of the combined deliverable , we applied an acceptable margin to our cost projections for the combined deliverable . the estimated selling price of $ 6.7 million will be recognized as collaborative research and development revenue over the expected 3-year performance period using the proportional performance method . the costs associated with conducting the research program for the latanoprost product will be reflected in operating expenses in the period in which they are incurred . to the extent that any subsequent payment is received from pfizer , including exercise option , milestone and sales-based royalty consideration , which would occur after completion of our performance period under the restated pfizer agreement , such amount would be recognized as revenue when all the revenue criteria are met . bausch & lomb bausch & lomb sells vitrasert and retisert . our collaboration agreement with bausch & lomb provides for royalties on such sales . in june 2005 we received a $ 3.0 million advance from bausch & lomb in consideration 47 of $ 6.25 million of future retisert royalties that otherwise would be payable to us . bausch & lomb retained $ 1.2 million in fiscal 2010 , and $ 1.6 million in fiscal 2009 of retisert royalties that otherwise would have been payable to us . during the quarter ended june 30 , 2010 , bausch & lomb retained the final portion of these royalties otherwise payable and we recorded an incremental $ 342,000 of royalty income , which was paid by bausch & lomb . subsequent to june 30 , 2010 , we were entitled to receive 100 % of the retisert royalties pursuant to the collaboration agreement , and retisert royalty income was $ 1.2 million in fiscal 2011. vitrasert royalties were $ 112,000 in fiscal 2011 , $ 141,000 in fiscal 2010 and $ 160,000 in fiscal 2009. intrinsiq in january 2008 intrinsiq acquired an exclusive field of use license for nutraceutical and food science applications of biosilicon , and certain related assets , for which we received aggregate license fee payments of $ 1.2 million through fiscal 2009. during fiscal 2010 , we received the first contractual minimum royalty payment of $ 450,000. subject to continuation of the license agreement , which was cancellable by intrinsiq on 90 days advance notice , we were entitled to receive additional scheduled minimum royalty payments totaling approximately $ 3.1 million from january 2012 through april 2014 , creditable against quarterly royalties earned , if any . in february 2009 , we entered into a 2-year manufacture and supply agreement , pursuant to which we leased certain equipment to intrinsiq for use in manufacturing biosilicon material , and title to the equipment passed upon our receipt of lease payments totaling $ 122,000. on july 22 , 2011 , we consummated an asset purchase agreement pursuant to which we acquired porous biosilicon-related capital equipment and intellectual property assets of intrinsiq for $ 223,000 , and assumed four intrinsiq employees . as part of the transaction , intrinsiq terminated the agreements underlying its original 2008 exclusive field-of-use license . the license termination will result in the recognition of collaborative research and development revenue of $ 1.1 million in the quarter ending september 30 , 2011 , representing the total intrinsiq deferred revenue balance at june 30 , 2011 , which is classified as a current liability . summary of critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with united states generally accepted accounting principles , or u.s. gaap . the preparation of these financial statements requires that we make certain estimates , judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . we base our estimates on historical experience , anticipated results and trends and various other factors 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 available from other sources . by their nature , these estimates , judgments and assumptions are subject to an inherent degree of uncertainty and management evaluates them on an ongoing basis for changes in facts and circumstances . changes in estimates are recorded in the period in which they become known . actual results may differ from our estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 to the accompanying consolidated financial statements , we believe that the following accounting policies are critical to understanding the judgments and estimates used in the preparation of our financial statements .
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results of operations years ended june 30 , 2011 and 2010 replace_table_token_16_th revenues we recognized total revenue of $ 5.0 million for fiscal 2011 as compared to $ 23.1 million for fiscal 2010. the decrease in revenue was primarily due to a $ 19.0 million decrease in collaborative research and development revenue , partially offset by an $ 870,000 increase in royalty income . collaborative research and development revenue for fiscal 2011 of $ 3.6 million was predominantly related to the june 2011 restated pfizer agreement . at the effective date of the restated pfizer agreement , we had $ 7.75 million of deferred revenue from the original pfizer agreement on our balance sheet , and we received $ 2.3 million of upfront consideration upon execution of the restated pfizer agreement . the $ 6.7 million balance of pfizer deferred revenue at june 30 , 2011 , after revenue recognition of $ 3.3 million , will be recognized as revenue using the proportional performance method over the 3-year estimated period of our performance obligations under the restated pfizer agreement . of that total , approximately $ 2.1 million is currently expected to be recognized as revenue during fiscal 2012. collaborative research and development revenue for fiscal 2010 was predominantly attributable to $ 22.3 million recognized in connection with our restated alimera agreement . the alimera revenue consisted of ( i ) the payment in full by alimera of a $ 15.0 million conditional note plus interest in april 2010 and ( ii ) $ 7.1 million of revenue related to recognition of up-front license consideration , reimbursement of our development costs and receipt of conditional note interest payments through the december 31 , 2009 end date of our performance obligations under the agreement . we are entitled to receive a $ 25 million milestone payment from alimera within 30 days following an fda approval of iluvien for dme .
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our success depends upon , among other factors , trends of the global , national and local economies , the financial condition and operating results of current and prospective tenants and customers , the availability and cost of capital , construction and renovation costs , taxes , governmental regulations , legislation , population and employment trends , zoning laws , and our ability to lease , sublease or sell our properties , at profitable levels . our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due . year ended december 31 , 2018 financial results summary net income for the year ended december 31 , 2018 was $ 32,844,000 or $ 6.42 per diluted share , compared to $ 80,509,000 , or $ 15.74 per diluted share for the year ended december 31 , 2017 . net income for the year ended december 31 , 2018 included ( i ) $ 23,797,000 , or $ 4.65 per diluted share , of expense for potential additional new york city real property transfer taxes on the 2012 sale of kings plaza regional shopping center ( “ kings plaza ” ) which is being contested and ( ii ) $ 11,990,000 , or $ 2.34 per diluted share , from the decrease in the fair value of marketable securities resulting from a new gaap accounting standard effective january 1 , 2018. previously , changes in the fair value of marketable securities were recognized through “ accumulated other comprehensive ( loss ) income ” on our consolidated balance sheets and did not impact our consolidated statements of income . funds from operations ( “ ffo ” ) ( non-gaap ) for the year ended december 31 , 2018 was $ 77,429,000 , or $ 15.13 per diluted share , compared to $ 114,908,000 , or $ 22.46 per diluted share for the year ended december 31 , 2017 . ffo ( non-gaap ) for the year ended december 31 , 2018 included $ 23,797,000 , or $ 4.65 per diluted share , of expense for the contested kings plaza transfer taxes . quarter ended december 31 , 2018 financial results summary net income for the quarter ended december 31 , 2018 was $ 9,971,000 , or $ 1.95 per diluted share , compared to $ 17,883,000 , or $ 3.50 per diluted share for the quarter ended december 31 , 2017 . net income for the quarter ended december 31 , 2018 included $ 6,429,000 , or $ 1.26 per diluted share , from the decrease in the fair value of marketable securities . ffo ( non-gaap ) for the quarter ended december 31 , 2018 was $ 24,158,000 , or $ 4.72 per diluted share , compared to $ 28,062,000 , or $ 5.49 per diluted share for the quarter ended december 31 , 2017 . square footage , occupancy and leasing activity as of december 31 , 2018 , our portfolio was comprised of seven properties aggregating 2,437,000 square feet . as of december 31 , 2018 , our properties had an occupancy rate of 91.4 % . 25 overview - continued real property transfer tax litigation in 2012 , we sold kings plaza and paid real property transfer taxes to new york city in connection with the sale . in 2015 , the new york city department of finance ( “ nyc dof ” ) issued a notice of determination to us assessing an additional new york city real property transfer tax amount , including interest , which we are contesting . in 2014 , in a case with similar facts , the nyc dof issued a notice of determination to a vornado joint venture assessing an additional new york city real property transfer tax amount , including interest . in january 2017 , a new york city administrative law judge made a determination upholding the vornado joint venture 's position that such additional real property transfer taxes were not due . on february 16 , 2018 , the new york city tax appeals tribunal ( the “ tribunal ” ) overturned the january 2017 determination . the vornado joint venture is appealing the tribunal 's decision to the appellate division of the supreme court of the state of new york which is scheduled to be heard in the first half of 2019. in 2018 , based on the precedent of the tribunal 's decision , we recorded an expense for the potential additional real property transfer taxes of $ 23,797,000 ( $ 15,874,000 of real property transfer tax and $ 7,923,000 of interest ) and paid this amount in order to stop the interest from accruing . our case is on hold pending the outcome of the vornado joint venture 's appeal . tenant matters on april 4 , 2017 , sears closed its 195,000 square foot store at our rego park i shopping center ( $ 10,300,000 of annual revenue ) . on october 15 , 2018 , sears filed for chapter 11 bankruptcy relief and rejected its lease . consequently , we wrote off the remaining balance of the sears receivable arising from the straight-lining of rent of $ 2,973,000 during the year ended december 31 , 2018. in addition , we accelerated depreciation and amortization of the remaining balance of $ 312,000 of deferred leasing costs during the year ended december 31 , 2018 . on september 18 , 2017 , toys filed for chapter 11 bankruptcy relief . on june 30 , 2018 , toys rejected its 47,000 square foot lease at our rego park ii shopping center ( $ 2,600,000 of annual revenue ) and possession of the space was returned to us . consequently , we accelerated depreciation and amortization of the remaining balances of $ 588,000 of tenant improvements and $ 215,000 of deferred leasing costs during the year ended december 31 , 2018. we also wrote off the toys receivable arising from the straight-lining of rent of $ 500,000 during the year ended december 31 , 2018 . story_separator_special_tag income , net was $ 12,546,000 in the year ended december 31 , 2018 , compared to $ 6,716,000 in the prior year , an increase of $ 5,830,000. this increase was primarily due to ( i ) $ 4,673,000 of higher interest income from the rego park ii loan participation entered into in july 2017 and ( ii ) $ 3,693,000 of higher interest income due to an increase in average interest rates , partially offset by ( iii ) $ 1,600,000 of expense from a litigation settlement and ( iv ) $ 760,000 of lower interest income due to lower average investment balances . interest and debt expense interest and debt expense was $ 44,533,000 in the year ended december 31 , 2018 , compared to $ 31,474,000 in the prior year , an increase of $ 13,059,000. this increase was primarily due to ( i ) $ 8,482,000 resulting from an increase in average libor , ( ii ) $ 2,620,000 resulting from the refinancing of the office portion of 731 lexington avenue on june 1 , 2017 for $ 500,000,000 at libor plus 0.90 % ( previously a $ 300,000,000 loan at libor plus 0.95 % ) and ( iii ) $ 1,641,000 of higher amortization of debt issuance costs . change in fair value of marketable securities change in fair value of marketable securities was an expense of $ 11,990,000 in the year ended december 31 , 2018 , resulting from macerich 's closing share prices of $ 43.28 and $ 65.68 as of december 31 , 2018 and 2017 , respectively , on 535,265 shares owned . see note 5 – marketable securities , to our consolidated financial statements in this annual report on form 10-k. income taxes income tax expense was $ 4,000 in the year ended december 31 , 2018 , compared to $ 3,000 in the prior year . loss from discontinued operations loss from discontinued operations was $ 23,797,000 in the year ended december 31 , 2018. the loss was due to a payment of potential additional real property transfer taxes from the 2012 sale of kings plaza which is being contested . see note 6 – discontinued operations , to our consolidated financial statements in this annual report on form 10-k. 29 results of operations – year ended december 31 , 2017 compared to december 31 , 2016 property rentals property rentals were $ 152,857,000 in the year ended december 31 , 2017 , compared to $ 151,444,000 in the prior year , an increase of $ 1,413,000. this increase was primarily due to higher rental income of $ 3,730,000 from the alexander apartment tower , which was placed in service in phases beginning july 2015 and leased up to stabilization in september 2016 , partially offset by income of $ 2,257,000 in 2016 resulting from a tenant lease termination at our rego park ii property . expense reimbursements tenant expense reimbursements were $ 77,717,000 in the year ended december 31 , 2017 , compared to $ 75,492,000 in the prior year , an increase of $ 2,225,000. this increase was primarily due to higher real estate taxes and higher operating expenses . operating expenses operating expenses were $ 85,127,000 in the year ended december 31 , 2017 , compared to $ 82,232,000 in the prior year , an increase of $ 2,895,000. this increase was primarily due to ( i ) higher real estate taxes of $ 3,267,000 and ( ii ) higher operating expenses of $ 903,000 , partially offset by ( iii ) lower marketing costs for the alexander apartment tower of $ 1,098,000 and ( iv ) lower bad debt expense of $ 504,000. depreciation and amortization depreciation and amortization was $ 34,925,000 in the year ended december 31 , 2017 , compared to $ 33,807,000 in the prior year , an increase of $ 1,118,000. this increase was primarily due to additional depreciation and amortization of tenant improvements and deferred leasing costs of $ 2,444,000 related to a tenant lease termination at our 731 lexington avenue property in 2017 , partially offset by additional depreciation and amortization of tenant improvements and deferred leasing costs of $ 1,077,000 in 2016 related to a tenant lease termination at our rego park ii property . general and administrative expenses general and administrative expenses were $ 5,252,000 in the year ended december 31 , 2017 , compared to $ 5,436,000 in the prior year , a decrease of $ 184,000. this decrease was primarily due to lower director 's fees and stock-based compensation expense as a result of having one less member on our board of directors in 2017. interest and other income , net interest and other income , net was $ 6,716,000 in the year ended december 31 , 2017 , compared to $ 3,305,000 in the prior year , an increase of $ 3,411,000. this increase was primarily due to higher interest income of ( i ) $ 2,453,000 from the rego park ii loan participation , ( ii ) $ 1,418,000 from an increase in the average interest rates and ( iii ) $ 216,000 from an increase in the average investment balances , partially offset by ( iv ) lower income of $ 429,000 in connection with bankruptcy recoveries and ( v ) income of $ 367,000 in 2016 from a cost reimbursement settlement with a retail tenant at our 731 lexington avenue property . interest and debt expense interest and debt expense was $ 31,474,000 in the year ended december 31 , 2017 , compared to $ 22,241,000 in the prior year , an increase of $ 9,233,000. this increase was primarily due to ( i ) $ 5,289,000 resulting from an increase in average libor , ( ii ) $ 2,658,000 resulting from the refinancing of the office portion of 731 lexington avenue on june 1 , 2017 for $ 500,000,000 at libor plus 0.90 % ( previously a $ 300,000,000 loan at libor plus 0.95 % ) and ( iii ) $ 1,188,000 of higher amortization of debt issuance costs .
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summary of significant accounting policies , to the consolidated financial statements in this annual report on form 10-k. real estate real estate is carried at cost , net of accumulated depreciation and amortization . as of december 31 , 2018 and 2017 , the carrying amount of our real estate , net of accumulated depreciation and amortization , was $ 730,270,000 and $ 754,324,000 , respectively . maintenance and repairs are expensed as incurred . depreciation requires an estimate by management of the useful life of each property and improvement as well as an allocation of the costs associated with a property to its various components . if we do not allocate these costs appropriately or incorrectly estimate the useful lives of our real estate , depreciation expense may be misstated . we capitalize all property operating expenses directly associated with and attributable to , the development and construction of a project , including interest expense . the capitalization period begins when development activities are underway and ends when it is determined that the asset is substantially complete and ready for its intended use , which is typically evidenced by the receipt of a temporary certificate of occupancy . general and administrative costs are expensed as incurred . our properties and related intangible assets , including properties to be developed in the future , are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable . an impairment exists when the carrying amount of an asset exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset . estimates of future cash flows are based on our current plans , intended holding periods and available market information at the time the analyses are prepared .
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overview company description nep is a growth-oriented limited partnership formed to acquire , manage and own contracted clean energy projects with stable long-term cash flows . nep consolidates the results of nep opco and its subsidiaries through its controlling interest in the general partner of nep opco . at december 31 , 2020 , nep owned an approximately 42.8 % limited partner interest in nep opco and nee equity owned a noncontrolling 57.2 % limited partner interest in nep opco . through nep opco , nep has ownership interests in a portfolio of contracted renewable generation assets consisting of wind and solar projects and a portfolio of contracted natural gas pipeline assets . nep 's financial results are shown on a consolidated basis with financial results attributable to nee equity reflected in noncontrolling interests . during 2020 , 2019 and 2018 , nep acquired various projects from neer as discussed in note 3. in addition , in november 2019 , a subsidiary of nep acquired an equity method investment in a natural gas pipeline located in pennsylvania from third parties . see note 3. in june 2018 , a subsidiary of nep completed the sale of canadian holdings which owned four wind generation facilities and two solar generation facilities located in ontario , canada with a generating capacity totaling approximately 396 mw . see note 2 - disposal of canadian holdings . nep is closely monitoring the global outbreak of covid-19 and is taking steps intended to mitigate the potential risks to nep posed by covid-19 . see note 15 - coronavirus pandemic . story_separator_special_tag style= '' color : # 000000 ; font-family : 'arial ' , sans-serif ; font-size:9pt ; font-weight:400 ; line-height:120 % '' > for the year ended december 31 , 2019 , nep recorded income tax benefit of $ 26 million on loss before income taxes of $ 430 million , resulting in an effective tax rate of approximately 6 % . the income tax benefit is primarily comprised of income tax benefit of approximately $ 90 million at the statutory rate of 21 % and $ 5 million of state income tax benefit , partly offset by income tax expense of $ 70 million related to income tax attributable to noncontrolling interests . see note 7. net loss ( income ) attributable to noncontrolling interests net loss ( income ) attributable to noncontrolling interests reflects the net income or loss attributable to nee equity 's noncontrolling interest in nep opco , a non-affiliated party 's interest in one of the texas pipelines , the loss allocated to differential membership interest investors , the income allocated to class b noncontrolling ownership interests and neer 's noncontrolling ownership interest in silver state . the decrease in losses attributable to noncontrolling interests of $ 145 million in 2020 is primarily related to additional class b noncontrolling interests sold in 2019 and 2020. see note 2 - noncontrolling interests and note 13 - class b noncontrolling interests . 2019 compared to 2018 the comparison of the results of operations for the years ended december 31 , 2019 and 2018 is included in management 's discussion in nep 's annual report on form 10-k for the year ended december 31 , 2019. liquidity and capital resources nep 's ongoing operations use cash to fund o & m expenses including related party fees discussed in note 14 , maintenance capital expenditures , debt service payments ( see note 12 ) and distributions to common unitholders and holders of noncontrolling interests ( see note 13 ) . nep expects to satisfy these requirements primarily with internally generated cash flow . in addition , as a growth-oriented limited partnership , nep expects from time to time to make acquisitions and other investments ( see note 15 - development , engineering and construction commitments ) . these acquisitions and investments are expected to be funded with borrowings under credit facilities or term loans , issuances of indebtedness , issuances of additional nep common units or preferred units , capital raised pursuant to other financing structures , cash on hand and cash generated from operations . these sources of funds are expected to be adequate to provide for nep 's short-term and long-term liquidity and capital needs , although its ability to make future acquisitions , fund additional expansion or repowering of existing projects and increase its distributions to common unitholders will depend on its ability to access capital on acceptable terms . as a normal part of its business , depending on market conditions , nep expects from time to time to consider opportunities to repay , redeem , repurchase or refinance its indebtedness . in addition , nep expects from time to time to consider potential investments in new acquisitions and the expansion or repowering of existing projects . these events may cause nep to seek additional debt or equity financing , which may not be available on acceptable terms or at all . additional debt financing , if available , could impose operating restrictions , additional cash payment obligations and additional covenants . nep opco has agreed to allow neer or one of its affiliates to withdraw funds received by nep opco or its subsidiaries and to hold those funds in accounts of neer or one of its affiliates to the extent the funds are not required to pay project costs or otherwise required to be maintained by nep 's subsidiaries , until the financing agreements permit distributions to be made , or , in the case of nep opco , until such funds are required to make distributions or to pay expenses or other operating costs . nep opco will have a claim for any funds that neer fails to return : when required by its subsidiaries ' financings ; when its subsidiaries ' financings otherwise permit distributions to be made to nep opco ; when funds are required to be returned to nep opco ; or when otherwise demanded by nep opco . story_separator_special_tag nep has buyout rights , subject to certain limitations and or extensions , under which nep has the right to pay a portion of the buyout price in nep non-voting common units or nep common units , as specified in the related agreement . the class b investors receive a specified allocation of the related subsidiaries ' distributable cash , which could increase if certain minimum buyout rights are not exercised or are not exercised during a certain period . see note 13 - class b noncontrolling interests . nep has an at-the-market equity issuance program ( atm program ) pursuant to which nep may issue , from time to time , up to $ 150 million of its common units . at december 31 , 2020 , nep may issue up to approximately $ 64 million in additional common units under the atm program . in july 2018 , nep filed a shelf registration statement with the sec , which became effective upon filing , for an unspecified amount of securities . the amount of securities issuable by nep is established from time to time by the board . securities that may be issued under the registration statement include common units , preferred units , warrants , rights , debt securities , equity purchase contracts and equity purchase units . capital expenditures annual capital spending plans are developed based on projected requirements for the projects . capital expenditures primarily represent the estimated cost of capital improvements , including construction expenditures that are expected to increase nep opco 's operating income or operating capacity over the long term . capital expenditures for projects that have already commenced commercial operations are generally not significant because most expenditures relate to repairs and maintenance and are expensed when incurred . for the years ended december 31 , 2020 and 2019 , nep had capital expenditures , excluding the purchase prices of acquired projects , of approximately $ 334 million and $ 93 million , respectively , primarily reflecting costs associated with the repowering of certain wind facilities and expansion projects at certain pipelines . in the third and fourth quarters of 2020 , an expansion investment at one of the texas pipelines and the repowered wind generation facilities were placed in service . nep expects to make additional investments in cpl related to an expansion scheduled for commercial operation by mid-2022 . see note 15 - development , engineering and construction commitments . these estimates are subject to continuing review and adjustments and actual capital expenditures may vary significantly from these estimates . cash distributions to unitholders nep 's partnership agreement requires it to distribute available cash quarterly . generally , available cash is all cash on hand at the date of determination relating to that quarter ( including any expected distributions from nep opco ) , less the amount of cash reserves established by the board . nep currently expects that cash reserves would be established solely to provide for the payment of income taxes by nep , if any . cash flow is generated from distributions nep receives from nep opco each quarter . although , as described above , nep currently expects that cash reserves would be established by the board solely to provide for the payment of nep 's income taxes , if any , nep expects nep opco to establish cash reserves prior to making distributions to nep to pay costs and expenses of nep 's subsidiaries , in addition to nep 's expenses , as well as any debt service requirements and future capital expenditures . nep opco 's partnership agreement requires it to distribute all of its available cash to its common and preferred unitholders , including nep , each quarter . generally , nep opco 's available cash is all cash on hand at the date of determination relating to that quarter , plus any funds borrowed , less the amount of cash reserves established by nep opco gp . the majority of such available cash is expected to be derived from the operations of the projects . the cash available for distribution is likely to fluctuate from quarter to quarter , and in some cases significantly , as a result of the performance of the projects , seasonality , fluctuating wind and solar resource , maintenance and outage schedules , timing of debt service and other factors . during 2020 and 2019 , nep distributed approximately $ 154 million and $ 115 million , respectively , to its common unitholders . in addition , nep paid approximately $ 47 million in distributions to its common unitholders in february 2021 . 32 credit ratings nep 's liquidity , ability to access credit and capital markets and cost of borrowings is dependent on its credit ratings . as of february 16 , 2021 , moody 's investors service , inc. ( moody 's ) , s & p global ratings ( s & p ) and fitch ratings , inc. ( fitch ) continue to assign the following credit ratings to nep : moody 's ( a ) s & p ( a ) fitch ( a ) nep corporate credit rating ( b ) ba1 bb bb+ _ ( a ) a security rating is not a recommendation to buy , sell or hold securities and should be evaluated independently of any other rating . the rating is subject to revision or withdrawal at any time by the assigning rating organization . ( b ) the outlook indicated by each of moody 's , s & p and fitch is stable .
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results of operations replace_table_token_5_th 28 2020 compared to 2019 operating revenues operating revenues primarily consist of income from the sale of energy under nep 's ppas and services provided under natural gas transportation agreements , partly offset by the amortization of intangible assets - ppas ( see note 2 - intangible assets - ppas ) . operating revenues increased $ 62 million during the year ended december 31 , 2020. the increase in renewable energy sales reflects an increase of approximately $ 39 million related to the projects acquired in june 2019 and an increase of $ 19 million primarily related to higher wind and solar resource . wind and solar resource levels , weather conditions and the performance of nep 's renewable energy portfolio represent significant factors that could affect its operating results because these variables impact energy sales . additionally , project acquisitions or expansion opportunities could impact future revenues . operating expenses operations and maintenance o & m expenses include interconnection costs , labor expenses , turbine servicing costs , land payments , insurance , materials , supplies , shared services and administrative expenses attributable to nep 's projects , and costs and expenses under the msa , asas and o & m agreements ( see note 14 ) . o & m expenses also include the cost of maintaining and replacing certain parts for the projects in the portfolio to maintain , over the long term , operating income or operating capacity . o & m expenses increased $ 27 million during the year ended december 31 , 2020 primarily due to increases of approximately $ 15 million in higher other corporate expenses , including higher idr fees related to growth in nep 's distributions to its common unitholders , and $ 6 million related to the projects acquired in june 2019. o & m expenses related to the existing portfolio are expected to remain relatively stable from year to year .
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orbitz rewards allows travelers to earn orbuckssm , the currency of orbitz rewards , on flights , hotels and vacation packages and instantly redeem those orbucks on future bookings at various hotels worldwide . as travelers accumulate points towards free travel products , we defer the relative standalone selling price of earned points , net of expected breakage , as deferred loyalty rewards within story_separator_special_tag overview expedia group is one of the world 's largest travel companies . we help reduce the barriers to travel , making it easier , more enjoyable , more attainable and more accessible . we bring the world within reach for customers and partners around the globe . we leverage our platform and technology capabilities across an extensive portfolio of businesses and brands to orchestrate the movement of people and the delivery of travel experiences on both a local and global basis . we make available , on a stand-alone and package basis , travel services provided by numerous lodging properties , airlines , car rental companies , activities and experiences providers , cruise lines , alternative accommodations property owners and managers , and other travel product and service companies . we also offer travel and non-travel advertisers access to a potential source of incremental traffic and transactions through our various media and advertising offerings on our websites . for additional information about our portfolio of brands , see the disclosure set forth in part i , item 1 , business , under the caption “ management overview. ” this section of this form 10-k generally discusses the years ended december 31 , 2019 and 2018 items and year over year comparisons between 2019 and 2018. discussions of the year ended december 31 , 2017 items and the year over year comparisons between 2018 and 2017 that are not included in this form 10-k can be found in `` management 's discussion and analysis of financial condition and results of operations '' in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2018. all percentages within this section are calculated on actual , unrounded numbers . trends the travel industry , including offline agencies , online agencies and other suppliers of travel products and services , has historically been characterized by intense competition , as well as rapid and significant change . generally , 2017 and 2018 represented years of continuing growth for the travel industry . while 2019 has seen continued growth for the industry , it has been at a slower pace than in prior years . additionally , political instability , geopolitical conflicts , acts of terrorism , significant fluctuations in currency values , sovereign debt issues , natural disasters , macroeconomic concerns and particularly the impact of the 2019 novel coronavirus outbreak are examples of events that contribute to a somewhat uncertain environment , which could have a negative impact on the travel industry in the future . with respect to the 2019 novel coronavirus outbreak specifically , we currently expect that our first quarter 2020 financial results will be negatively impacted , potentially to a material degree . in addition , as of the time of this annual report on form 10-k , we expect that the 2019 novel coronavirus will continue to negatively impact our businesses beyond the first quarter of 2020 , but the extent and duration of such impacts over the longer term remain uncertain and dependent on future developments that can not be accurately predicted at this time , such as the severity and transmission rate of the coronavirus , the extent and effectiveness of containment actions taken , including mobility restrictions , and the impact of these and other factors on travel behavior . for additional information about our growth strategy for expedia group , see the disclosure set forth in part i , item 1 , business , under the caption “ growth strategy. ” online travel increased usage and familiarity with the internet are driving rapid growth in online penetration of travel expenditures . according to phocuswright , an independent travel , tourism and hospitality research firm , in 2020 , approximately 50 % of u.s. and european leisure and unmanaged corporate travel expenditures are expected to occur online . online penetration rates in the emerging markets , such as asia pacific and latin american regions , are lagging behind that of the united states and europe . these penetration rates increased over the past few years , and are expected to continue growing , which presents an attractive growth opportunity for our business , while also attracting many competitors to online travel . this competition intensified in recent years , and the industry is expected to remain highly competitive for the foreseeable future . in addition to the growth of online travel agencies , we see increased interest in the online travel industry from search engine companies such as google , evidenced by continued product enhancements , including new trip planning features for users and the integration of its various travel products into the google travel offering , as well as further prioritizing its own products in search results . competitive entrants such as “ metasearch ” companies , including kayak.com ( owned by booking holdings ) , trivago ( in which expedia group owns a majority interest ) as well as tripadvisor , introduced differentiated features , pricing and content compared with the legacy online travel agency companies , as well as various forms of direct or assisted booking tools . further , airlines and lodging companies are aggressively pursuing direct online distribution of their products and services . in addition , the increasing popularity of the “ sharing economy , ” accelerated by online penetration , has had a direct impact on the travel and lodging industry . story_separator_special_tag with our acquisition of vrbo ( previously homeaway ) and all of its brands in december 2015 , we expanded into the fast growing alternative accommodations market . vrbo is a leader in this market and represents an attractive growth opportunity for expedia group . vrbo has been undergoing a transition from a listings-based classified advertising model to an online transactional model that optimizes for both travelers and homeowner and property manager partners , with a goal of increasing monetization and driving growth through investments in marketing as well as in product and technology . vrbo offers hosts subscription-based listing or pay-per-booking service models . it also generates revenue from a traveler service fee for bookings . as of december 31 , 2019 , there are over 2.1 million online bookable listings available on vrbo . in addition , we have actively moved to integrate vrbo listings into our global ota services , as well as directly add 38 alternative accommodation listings to our offerings , to position our key global brands to offer a full range of lodging options for consumers . air significant airline sector consolidation in the united states in recent years generally resulted in lower overall capacity and higher fares , which combined with the significant declines in fuel prices led to record levels of profitability for the u.s. air carriers , further strengthening their position . however , in 2017 and into 2018 , there was evidence of discounting by the u.s. carriers while currency headwinds and weaker macroeconomic trends put pressure on international results . starting in the second half of 2018 , there has been evidence of modest fare increases . the airline industry experienced more constrained supply , particularly in the second half of 2019 , which was also a factor . it remains unclear if this trend will continue . ticket prices on expedia group websites declined 1 % in 2017 , increased 2 % in 2018 , and were flat in 2019. based on airline reports , demand for airline tickets seems to be strong , helping increase air revenue globally . there is significant correlation between airline revenue and fuel prices , and fluctuations in fuel prices generally take time to be reflected in air revenue . given current volatility , it is uncertain how fuel prices could impact airfares . we could encounter pressure on air remuneration as air carriers combine , certain supply agreements renew , and as we continue to add airlines to ensure local coverage in new markets . air ticket volumes increased 4 % in 2017 , 5 % in 2018 , and 7 % in 2019. as a percentage of our total worldwide revenue in 2019 , air accounted for 7 % . advertising & media our advertising and media business is principally driven by revenue generated by trivago , a leading hotel metasearch website , in addition to expedia group media solutions , which is responsible for generating advertising revenue on our global online travel brands . in 2019 , we generated a total of $ 1.1 billion of advertising and media revenue , a slight increase from 2018 , representing 9 % of our total worldwide revenue . in 2018 , trivago shifted its operational focus , reducing marketing spend to better balance revenue and profit growth . the lower marketing spend negatively impacted revenue growth , while benefiting profitability . this trend continued in 2019. seasonality we generally experience seasonal fluctuations in the demand for our travel services . for example , traditional leisure travel bookings are generally the highest in the first three quarters as travelers plan and book their spring , summer and winter holiday travel . the number of bookings typically decreases in the fourth quarter . because revenue for most of our travel services , including merchant and agency hotel , is recognized as the travel takes place rather than when it is booked , revenue typically lags bookings by several weeks for our hotel business and can be several months or more for our alternative accommodations business . historically , vrbo has seen seasonally stronger bookings in the first quarter of the year , with the relevant stays occurring during the peak summer travel months . the seasonal revenue impact is exacerbated with respect to income by the nature of our variable cost of revenue and direct sales and marketing costs , which we typically realize in closer alignment to booking volumes , and the more stable nature of our fixed costs . furthermore , operating profits for our primary advertising business , trivago , have typically been experienced in the second half of the year , particularly the fourth quarter , as selling and marketing costs offset revenue in the first half of the year as we typically increase marketing during the busy booking period for spring , summer and winter holiday travel . as a result on a consolidated basis , revenue and income are typically the lowest in the first quarter and highest in the third quarter . the continued growth of our international operations , advertising business or a change in our product mix , including the growth of vrbo , may influence the typical trend of the seasonality in the future , and there may also be business or market driven dynamics that result in short-term impacts to revenue or profitability that differ from the typical seasonal trends . as vrbo has further shifted to a predominately transaction-based business model for alternative accommodations listings and due to its elongated booking window , its seasonal trends are more pronounced than our other traditional leisure businesses . critical accounting policies and estimates critical accounting policies and estimates are those that we believe are important in the preparation of our consolidated financial statements because they require that we use judgment and estimates in applying those policies . we prepare our consolidated financial statements and accompanying notes in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) .
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results of operations revenue replace_table_token_4_th in 2019 , revenue increased primarily driven by growth in the core ota segment , including growth at expedia partner solutions , hotels.com and brand expedia , as well as growth at vrbo . replace_table_token_5_th _ ( 1 ) includes third-party revenue from trivago as well as our transaction-based websites . lodging revenue increased 10 % in 2019 on an 11 % increase in room nights stayed driven by growth in hotels.com , expedia partner solutions and brand expedia , partially offset by a 1 % decrease in revenue per room night . air revenue decreased 1 % in 2019 on an 8 % decrease in revenue per ticket , mostly offset by a 7 % increase in air tickets sold . the decrease in revenue per ticket was primarily related to changes in classification of certain fees , a shift in product mix and a negative impact from foreign exchange . the increase in air tickets sold was driven by growth at expedia partner solutions , largely related to enterprise deals launched in late 2018. advertising and media revenue increased 1 % in 2019 due to growth at expedia group media solutions , largely offset by declines in local currency revenue at trivago as well as negative impacts from foreign exchange . all other revenue , which includes car rental , insurance , destination services , fees related to our corporate travel business and revenue related to bodybuilding.com , increased by 6 % in 2019 benefiting from the inorganic impact related to the acquisition of bodybuilding.com and the reclassification of certain partner fees from air revenue . in addition to the above segment and product revenue discussion , our revenue by business model is as follows : replace_table_token_6_th 45 the increase in merchant revenue in 2019 was primarily due to an increase in room nights stayed . the increase in agency revenue in 2019 was primarily due to the growth in agency hotel .
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% ; revenues in our financial services business segment grew 7.3 % as demand from our banking customers was negatively affected by the current macroeconomic conditions ; revenues in our healthcare business segment grew 5.5 % as demand was affected by uncertainty in the regulatory environment as well as potential consolidation within the healthcare industry ; sustained strength in the north american market where revenues grew 8.1 % ; continued penetration of the european and rest of world ( primarily the asia pacific ) markets . revenues from our customers outside the united states were negatively affected by the recent strength of the u.s. dollar against the british pound : ◦ in europe , we experienced revenue growth of 6.8 % , after a negative currency impact of 6.5 % . our revenues from customers in the united kingdom declined 1.0 % , af ter a negative currency impact of 10.0 % , and was negatively affected by the weakening of the british pound due to the result of the june 2016 united kingdom referendum to exit the european union , or brexit refe rendum . revenues from our rest of europe customers increased 18.2 % after a negative currency impact of 1.4 % ; ◦ revenues from our rest of world customers increased 22.7 % , after a negative currency impact of 2.5 % ; increased customer spending on discretionary projects ; expansion of our service offerings , including consulting and digital services , next-generation it solutions and platform-based solutions ; continued expansion of the market for global delivery of technology and business process services ; and increased penetration at existing customers , including strategic customers . our customers seek to meet a dual mandate of achieving more efficient and effective operations , while investing in digital technologies that are reshaping their business models . increasingly , the relative emphasis among our customers is shifting towards investment and innovation , as reflected in accelerated demand for our digital services . we also saw an increase in demand for larger , more complex projects that are transformational for our customers , including managed services contracts . such contracts may have longer sales cycles and ramp-up periods and could lead to greater variability in our period to period operating results . we increased the number of strategic customers by 29 during the year , bringing the total number of our strategic customers to 329 . we define a strategic customer as one offering the potential to generate at least $ 5 million to $ 50 million or more in annual revenues at maturity . _ 2 non-gaap income from operations and non-gaap diluted earnings per share are not measurements of financial performance prepared in accordance with gaap . see “ non-gaap financial measures ” for more information and a reconciliation to the most directly comparable gaap financial measures . 36 in 2016 , our operating margin decreased to 17.0 % from 17.3 % in 2015 , while our non-gaap operating margin decreased to 19.5 % 3 from 19.7 % 3 in 2015 . the decreases in both our gaap and non-gaap operating margins were due to increases in compensation and benefit costs ( excluding incentive-based compensation ) and increases in certain professional service costs , partially offset by the impact of lower incentive-based compensation in 2016 , the depreciation of the indian rupee against the u.s. dollar , and realized gains on settlement of cash flow hedges in 2016 as compared to losses in 2015. in may 2016 , india enacted the finance bill 2016 that , among other things , expanded the applicability of india 's buyback distribution tax to certain share buyback transactions occurring after june 1 , 2016. in mid-may , prior to the june 1 effective date of the enactment , our principal operating subsidiary in india repurchased shares from its shareholders , which are non-indian cognizant entities , valued at $ 2.8 billion . this transaction , or the india cash remittance , was undertaken pursuant to a plan approved by the high court of madras and simplified the shareholding structure of our principal operating subsidiary in india . pursuant to the transaction , our principal indian operating subsidiary repurchased approximately $ 1.2 billion of the total $ 2.8 billion of shares from its u.s. shareholders , resulting in incremental tax expense , while the remaining $ 1.6 billion was repurchased from its shareholder outside the united states . net of taxes , the transaction resulted in a remittance of cash to the united states in the amount of $ 1.0 billion . as a result of this transaction , we incurred an incremental 2016 income tax expense of $ 238 million . as previously disclosed , the company is conducting an internal investigation focused on whether certain payments relating to company-owned facilities in india were made improperly and in possible violation of the u.s. foreign corrupt practices act , or fcpa , and other applicable laws . in september 2016 , we voluntarily notified the department of justice , or doj , and the securities and exchange commission , or sec , and are cooperating fully with both agencies . the investigation is being conducted under the oversight of the audit committee , with the assistance of outside counsel . to date , the investigation has identified a total of approximately $ 6 million in payments made between 2010 and 2015 that may have been recorded improperly . in 2016 , we recorded an out-of-period correction related to $ 4 million of such payments that were previously capitalized that should have been expensed . the recorded correction resulted in an increase of selling , general and administrative expenses of $ 4 million , a reduction in depreciation and amortization expense of $ 1 million , and a reduction in property and equipment , net of $ 3 million . story_separator_special_tag business segments our four reportable business segments are : financial services , which includes customers providing banking/transaction processing , capital markets and insurance services ; healthcare , which includes healthcare providers and payers as well as life sciences customers including pharmaceutical , biotech and medical device companies ; manufacturing/retail/logistics , which includes consumer goods manufacturers , retailers , travel and other hospitality customers , as well as customers providing logistics services ; and other , which is an aggregation of industry operating segments each of which , individually , represents less than 10.0 % of consolidated revenues and segment operating profit . the other segment includes information , media and entertainment services , communications , and high technology operating customers . our chief operating decision maker evaluates cognizant 's performance and allocates resources based on segment revenues and operating profit . segment operating profit is defined as income from operations before unallocated costs . generally , operating expenses for each operating segment have similar characteristics and are subject to the same factors , 38 pressures and challenges . however , the economic environment and its effects on industries served by our operating groups may affect revenues and operating expenses to different degrees . expenses included in segment operating profit consist principally of direct selling and delivery costs as well as a per seat charge for use of the global delivery centers . certain selling , general and administrative expenses , excess or shortfall of incentive compensation for delivery personnel as compared to target , stock-based compensation expense , a portion of depreciation and amortization and the impact of the settlements of our cash flow hedges are not allocated to individual segments in internal management reports used by the chief operating decision maker . accordingly , such expenses are excluded from segment operating profit . we provide a significant volume of services to many customers in each of our business segments . therefore , a loss of a significant customer or a few significant customers in a particular segment could materially reduce revenues for that segment . however , no individual customer accounted for sales in excess of 10 % of our consolidated revenues during 2016 , 2015 or 2014 . in addition , the services we provide to our larger customers are often critical to the operations of such customers and we believe that a termination of our services would require an extended transition period with gradually declining revenues . results of operations for the three years ended december 31 , 2016 the following table sets forth certain financial data for the three years ended december 31 , 2016 : replace_table_token_8_th _ ( 1 ) exclusive of depreciation and amortization expense . ( 2 ) non-gaap income from operations , non-gaap operating margin and non-gaap diluted earnings per share are not measurements of financial performance prepared in accordance with gaap . see “ non-gaap financial measures ” for more information and a reconciliation to the most directly comparable gaap financial measure . revenues - overall . revenues increased by 8.6 % to $ 13,487 million during 2016 as compared to an increase of 21.0 % to $ 12,416 million in 2015 . the increase in revenues in 2016 was primarily attributed to services related to the integration of digital technologies that are reshaping our customers ' business and operating models , increased customer spending on discretionary projects , continued interest in using our global delivery model as a means to reduce overall technology and operations costs and continued penetration in all our geographic markets . in 2015 , revenues included $ 724 million from tz us parent , inc. , or trizetto , which we acquired in the fourth quarter of 2014 , as compared to $ 80 million in 2014. the increase in trizetto revenues represented 29.9 % of the year over year revenue growth in 2015. the remaining 2015 increase was primarily attributed to greater acceptance of our global delivery model among an increasing number of industries , continued interest in using our global delivery model as a means to reduce overall technology and operations costs , increased customer spending on 39 discretionary projects , and continued penetration in all our geographic markets . revenues from new customers contributed $ 220 million and $ 195 million , representing 20.5 % and 9.1 % of the year-over-year revenue growth for 2016 and 2015 , respectively . in 2016 , our consulting and technology services revenues increased by 8.6 % and represented 57.5 % of total 2016 revenues , while our outsourcing services revenues increased by 8.7 % and constituted 42.5 % of total revenues . in 2015 , consulting and technology services revenues increased by 31.8 % and represented 57.6 % of total 2015 revenues , while our outsourcing services revenues increased by 8.9 % and constituted 42.4 % of total 2015 revenues . we increased the number of strategic customers by 29 during the year , bringing the total number of our strategic customers to 329 . we define a strategic customer as one offering the potential to generate at least $ 5 million to $ 50 million or more in annual revenues at maturity . revenues from our top customers were as follows : replace_table_token_9_th as we continue to add new customers and increase our penetration at existing customers , we expect the percentage of revenues from our top five and top ten customers to continue to decline over time . revenues - reportable segments . revenues by reportable business segment were as follows : replace_table_token_10_th revenues from our financial services segment grew 7.3 % or $ 363 million in 2016 , as compared to 2015 . growth was stronger among our insurance customers , where revenues increased by $ 202 million as compared to an increase of $ 161 million from our banking customers . in this segment , revenues from customers added during 2016 were $ 64 million and represented 17.6 % of the year over year revenues increase in this segment .
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executive summary we are one of the world 's leading professional services companies , transforming customers ' business , operating and technology models for the digital era . our unique industry-based , consultative approach helps customers envision , build and run more innovative and efficient businesses . our core competencies include : business , process , operations and technology consulting , application development and systems integration , enterprise information management , application testing , application maintenance , information technology , or it , infrastructure services , and business process services . we tailor our services to specific industries and utilize an integrated global delivery model with customer service teams typically based on site at customer locations and delivery teams located at dedicated global delivery centers . our objective is to create value for both our customers and stockholders by enhancing our position as a leading professional services company in the digital era . digital services is work we do to help our customers win in the digital economy by applying technology and analytics to change consumer experiences to drive sustainable growth , deploying systems of intelligence to automate and improve core business processes , and improving technology systems by deploying cloud and cyber security solutions and as-a-service models to make them simpler , more modern and secure . to accelerate our shift to digital services and solutions , we are deploying the following strategies : aligning our digital services into three digital practice areas - digital business , digital operations and digital systems and technology - to address the needs of our customers as they transform their business and technology models .
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these five resorts , which we refer to as our gaylord hotels properties , consist of the gaylord opryland resort & convention center in nashville , tennessee ( “ gaylord opryland ” ) , the gaylord palms resort & convention center near orlando , florida ( “ gaylord palms ” ) , the gaylord texan resort & convention center near dallas , texas ( “ gaylord texan ” ) , the gaylord national resort & convention center near washington d.c. ( “ gaylord national ” ) , and the gaylord rockies resort & convention center near denver , colorado ( “ gaylord rockies ” ) , which is owned by the gaylord rockies joint venture , in which we own a 65 % interest . our other owned hotel assets managed by marriott include the inn at opryland , an overflow hotel adjacent to gaylord opryland , and the ac hotel at national harbor , washington d.c. ( “ ac hotel ” ) , an overflow hotel adjacent to gaylord national . we also own and operate media and entertainment assets including the grand ole opry , the legendary weekly showcase of country music 's finest performers for 95 years ; the ryman auditorium , the storied live music venue and former home of the grand ole opry located in downtown nashville ; wsm-am , the opry 's radio home ; ole red , a brand of blake shelton-themed bar , music venue and event spaces ; and three nashville-based assets managed by marriott – gaylord springs golf links ( “ gaylord springs ” ) , the wildhorse saloon , and the general jackson showboat ( “ general jackson ” ) . we also own a 50 % interest in a joint venture intended to create and distribute a linear multicast and over-the-top channel dedicated to the country music lifestyle ( “ circle ” ) . each of our award-winning gaylord hotels properties incorporates not only high quality lodging , but also at least 400,000 square feet of meeting , convention and exhibition space , superb food and beverage options and retail and spa facilities within a single self-contained property . as a result , our gaylord hotels properties provide a convenient and entertaining environment for convention guests . our gaylord hotels properties focus on the large group meetings market in the united states . our goal is to be the nation 's premier hospitality reit for group-oriented , destination hotel assets in urban and resort markets . see “ forward-looking statements ” and “ risk factors ” under part i of this annual report on form 10-k for important information regarding forward-looking statements made in this report and risks and uncertainties we face . impact of covid-19 pandemic the novel coronavirus disease ( covid-19 ) pandemic continues to spread throughout the united states and is having an unprecedented impact on the u.s. economy . due to the covid-19 pandemic , we have experienced disruption of our business and in march 2020 temporarily suspended operations of most of our assets , as further described below . while most of our assets are operating at some capacity , there is significant uncertainty surrounding the full extent of the impact of the covid-19 pandemic on our future results of operations and financial position . in late february 2020 , when the gravity of the covid-19 pandemic became apparent , we formed an internal task force , which included members of management and our board of directors , to formulate and implement responses to covid- 42 19. the task force , in consultation with local governmental authorities , first determined to close our nashville-based entertainment venues in mid-march 2020. as cancellations at our gaylord hotels properties began to increase , we , with our hotel manager , marriott , implemented a series of operational changes , culminating with the suspension of operations at our gaylord hotels properties in late-march 2020. gaylord texan reopened june 8 , 2020 , and gaylord opryland , gaylord palms and gaylord rockies reopened june 25 , 2020. gaylord national remains closed . in our entertainment segment , in addition to the temporary closure of our entertainment assets in spring 2020 , we have taken steps to reduce operating costs in all areas . many of our tennessee-based attractions reopened at reduced capacities in may and june 2020. the grand ole opry and ryman auditorium began offering limited-capacity tours in june 2020 , and in september 2020 , they reopened for limited-capacity publicly attended performances . our decision to offer publicly attended performances with additional capacity will be based on a number of factors and made in consultation with local health authorities . actions to preserve liquidity . we are also taking actions to preserve liquidity in order to weather the covid-19 pandemic . we continue to pay all required debt service payments on our indebtedness , lease payments , taxes and other payables . at december 31 , 2020 , we had $ 593.2 million available for borrowing under our revolving credit facility and $ 56.7 million in unrestricted cash on hand . in 2020 , we took steps to preserve our liquidity as follows : ● suspension of dividend . following the payment of our first quarter 2020 dividend on april 15 , 2020 to stockholders of record on march 31 , 2020 , we suspended our regular quarterly cash dividend payments to stockholders . our board of directors will consider a future dividend as permitted by our credit agreement . our credit facility amendments described below permits payment of dividends as necessary to maintain our reit status and permits us to pay a dividend of $ 0.01 per share each quarter . any future dividend is subject to our board of director 's determinations as to the amount of distributions and the timing thereof . ● deferral of capital expenditures . story_separator_special_tag based on our evaluation of the cares act , we qualify for certain employer payroll tax credits , which we have accounted for as government subsidies to offset related operating expenses , as well as the deferral of payroll and other tax payments in the future . during 2020 , qualified payroll tax credits reduced our operating expenses by $ 10.2 million . we are deferring qualified payroll and other tax payments as permitted by the cares act . marriott 's hotel employees that were laid off or furloughed were generally paid the equivalent of one week of compensation , and certain benefits for non-union hotel employees have been maintained throughout the individual properties ' closures . we paid all full-time and part-time employees for temporarily closed properties in our entertainment segment through june 27 , 2020. our results for 2020 include approximately $ 39.7 million of operating costs specifically related to the covid-19 pandemic , which is primarily comprised of employment costs , and is net of $ 10.2 million in payroll tax credits provided by the cares act . the payroll credits provided by the cares act are included in other hotel expenses , entertainment expenses and corporate expenses , as applicable , in the accompanying consolidated statement of operations for 2020 included herein . for additional discussion of the impact of the covid-19 pandemic on our business and associated risk , see “ risk factors ” under part i , item 1a of this annual report on form 10-k. 44 gaylord rockies joint venture we own a 65 % interest in the gaylord rockies joint venture . our management has concluded that the company is the primary beneficiary of this variable interest entity ( “ vie ” ) and the financial position and results of operations of the vie have been consolidated in the accompanying consolidated financial statements included herein , beginning on december 31 , 2018 with respect to the balance sheet and january 1 , 2019 with respect to statements of operations and comprehensive income ( loss ) and statements of cash flows . gaylord rockies opened on a limited basis in december 2018 and on a fully operational basis in first quarter 2019 and is managed by marriott . gaylord palms expansion in 2018 , we began construction of a $ 158 million expansion of gaylord palms , which will include an additional 302 guest rooms and 96,000 square feet of meeting space , an expanded resort pool and events lawn , and a new multi-level parking structure . the expansion is expected to be completed in april 2021. gaylord rockies expansion in february 2020 , we and our joint venture partner in the gaylord rockies joint venture announced an $ 80 million expansion of gaylord rockies , which was intended to include an additional 317 guest rooms . the expansion was expected to begin in the second quarter of 2020 , but , as discussed under “ impact of covid-19 pandemic ” above , the expansion was deferred in response to the covid-19 pandemic . soundwaves at gaylord opryland in december 2018 , we opened the indoor portion of a $ 90 million investment to create a luxury indoor/outdoor waterpark adjacent to gaylord opryland , soundwaves . the project includes approximately 111,000 square feet of indoor water attractions and activities over three levels and approximately 106,000 square feet of outdoor water amenities . the project includes areas for adults , children and families , as well as dining options and bars . the outdoor portion of the project opened in second quarter 2019. circle in 2019 , we acquired a 50 % equity interest in circle and we have made $ 12.5 million in capital contributions through december 31 , 2020. the joint venture agreement requires us to contribute up to an additional $ 2.5 million through december 31 , 2021 , and we made such contribution in january 2021. circle launched its broadcast network on january 1 , 2020 , with sixteen original shows and two major distribution partnerships . as of february 2021 , circle is available to more than 60 % of u.s. television households via over-the-air and cable television and is available through multiple online streaming services covering over 100 million monthly average users . termination of block 21 acquisition in december 2019 , we entered into an agreement ( the “ block 21 agreement ” ) to purchase block 21 , a mixed-use entertainment , lodging , office and retail complex located in austin , texas , for $ 275 million , which included the assumption of approximately $ 141 million of existing mortgage debt . in may 2020 , in response to the then-existing capital markets and economic environment caused by the covid-19 pandemic , we determined it was not in the best interest of our shareholders to focus resources and capital on the project and terminated the related purchase agreement . we forfeited a nonrefundable deposit of $ 15.0 million , which is included in other gains and ( losses ) , net in the accompanying consolidated statement of operations for 2020. dividend policy ; suspension of dividend on february 25 , 2020 , our board of directors declared our first quarter 2020 cash dividend in the amount of $ 0.95 per share of common stock , or an aggregate of approximately $ 52.2 million in cash , which was paid on april 15 , 2020 to stockholders of record as of the close of business on march 31 , 2020. following payment of our first quarter 2020 cash 45 dividend , we suspended our regular quarterly dividend payments , and our board of directors will consider a future dividend as permitted by our credit agreement . our credit facility amendment described below under “ principal debt agreements ” permits payment of dividends as necessary to maintain our reit status and permits us to pay a dividend of $ 0.01 per share each quarter .
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summary financial results the following table summarizes our financial results for the years ended december 31 , 2020 , 2019 and 2018 ( in thousands , except percentages and per share data ) : replace_table_token_3_th 2020 results as compared to 2019 results the decrease in our total revenues during 2020 , as compared to 2019 , is attributable to decreases in our hospitality segment and entertainment segment revenues of $ 955.4 million and $ 124.7 million , respectively , as discussed more fully below . the decrease in total operating expenses during 2020 , as compared to 2019 , is primarily the result of decreases in hospitality segment , entertainment segment and corporate segment expenses of $ 484.3 million , $ 48.3 million and $ 7.5 million respectively , partially offset by a credit loss on held-to-maturity investments that did not occur in the prior year of $ 32.8 million . the above factors resulted in a $ 571.4 million decrease in operating income for 2020 , as compared to 2019. our net loss of $ 460.8 million in 2020 , as compared to net income of $ 128.3 million in 2019 , was due to the change in our operating income described above , and the following factors , each as described more fully below : ● a $ 15.8 million decrease in interest expense in 2020 . ● a $ 15.7 million increase in other losses , net in 2020 , primarily due to the forfeiture of the $ 15.0 million deposit on the proposed block 21 acquisition . ● an $ 8.6 million increase in the provision for income taxes in 2020 . ● a $ 5.3 million increase in loss from unconsolidated joint ventures in 2020 . 49 operating results – detailed segment financial information hospitality segment total segment results .
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the company agreed to reserve an initial 10,800,000 shares of common stock for conversions under the note ( the “ share reserve ” ) . we also agreed to adjust the share reserve to ensure that it always equals at least three times the total number of shares of common stock that is actually issuable if the entire note were to be converted . the oid interest of $ 18,000 and related loan costs of $ 6,000 was recorded as a discount to the note and was being amortized over the life of the loan as interest expense the note has an embedded conversion option which qualifies for derivative accounting and bifurcation under asc 815-15 , derivatives and hedging . pursuant to asc 815 , the company recognized the fair value of the embedded conversion feature as a derivative liability on july 25 , 2016 of $ 238,479 with $ 167,898 recorded as a discount to the note and $ 70,581 recorded as a day one derivative loss . on august 8 , 2016 , the investor converted the principal balance of $ 180,000 and accrued interest of $ 6,662 into 9,506,619 shares of restricted common stock . for the year ended september 30 , 2016 , the discount amortization was $ 191,898. march 16 , 2016 purchase agreement and registration rights agreement ; december 9 , 2016 amendment on march 16 , 2016 , we entered into a purchase agreement with river north , which was subsequently amended on december 9 , 2016 by amendment no . 1 thereto ( the “ amendment ” ) . pursuant to the purchase agreement we may from time to time , in our discretion , sell shares of our common stock to river north for aggregate gross proceeds of up to $ 5,000,000. unless terminated earlier , river north 's purchase commitment will automatically terminate on the earlier of the date on which river north shall have purchased company shares pursuant to the purchase agreement for an aggregate purchase price of $ 5,000,000 or march 16 , 2018. we have no obligation to sell any shares under the purchase agreement . 29 index to financial statements as provided in the purchase agreement , the company may require river north to purchase shares of common stock from time to time by delivering a put notice to river north specifying the total purchase price for the shares to be purchased ( the “ investment amount ” ) ; provided there must be a minimum of 10 trading days between deliveries of each put notice . the minimum trading days between deliveries of put notices may be adjusted downward at the discretion of river north from time to time . currently the minimum time between the put notices is five ( 5 ) days . this arrangement is also sometimes referred to herein as the “ equity line. ” we may determine the investment amount , provided that such amount may not be more than the average daily trading volume in dollar amount for the company 's common stock during the 10 trading days preceding the date on which the company delivers the applicable put notice . additionally , such amount may not be lower than $ 5,000 or higher than $ 150,000 without prior approval of river north . the number of shares issuable in connection with each put notice will be computed by dividing the applicable investment amount by the purchase price for such common stock . river north will have no obligation to purchase shares under the purchase agreement to the extent that such purchase would cause river north to own more than 9.99 % of the company 's common stock . prior to the amendment , for each share of our common stock purchased under the purchase agreement , river north paid a purchase price equal to 85 % of the market price , which was defined as the average of the two lowest closing bid prices on the otcqb marketplace , as reported by bloomberg finance l.p. , during the five consecutive trading days including and immediately prior to the date on which the applicable put notice is delivered to river north ( the “ pricing period ” ) . if , at the time of a sale , we were not deposit/withdrawal at custodian ( “ dwac ” ) eligible , or if we were under depository trust company ( “ dtc ” ) “ chill ” status , an additional 5.0 % and 10 % discount to the market price , respectively , applied . on december 9 , 2016 , the company and river north entered into the amendment in order to amend the formula pursuant to which the purchase price for the company 's shares is calculated and to make certain other amendments to the terms of the purchase agreement . as amended , the pricing period now includes the five consecutive trading days including and immediately prior to the settlement date of the sale , which in most circumstances will be the trading day immediately following the date that a put notice is delivered to river north ( a “ put date ” ) . in addition , the amendment provides that if either ( i ) the closing bid price the common stock is less than $ 0.10 per share on the put date , or ( ii ) the average daily trading volume in dollar amount for the common stock during the ten trading days including and immediately preceding a put date is less than $ 50,000 , then an additional 10 % discount to the market price will be taken when calculating the purchase price for the shares . story_separator_special_tag the prior discounts for dwac ineligibility and dtc chill status remain . river north 's obligation to purchase shares under the purchase agreement is subject to customary closing conditions , including without limitation a requirement that a registration statement remain effective registering the resale by river north of the shares to be issued pursuant to the purchase agreement as contemplated by the registration rights agreement described below . the purchase agreement contains covenants , representations and warranties of the company and river north that are typical for transactions of this type . in addition , the company and river north have granted each other customary indemnification rights in connection with the purchase agreement . the purchase agreement may be terminated by the company at any time . the purchase agreement is not transferable and any benefits attached thereto may not be assigned . the foregoing description of the purchase agreement ( including the amendment ) does not purport to be complete and is subject to and qualified in its entirety by reference to the purchase agreement itself ( including the amendment ) . during the fiscal years ended september 30 , 2017 and 2016 , we issued a total of 7,684,671 and 13,072,636 shares of common stock , respectively , to river north under the purchase agreement for aggregate proceeds of $ 344,575 and $ 871,679 , respectively . also on march 16 , 2016 , in connection with the purchase agreement , we entered into a registration rights agreement with river north requiring the company to prepare and file , within 45 days of the effective date of the registration rights agreement , a registration statement registering the resale by river north of the shares to be issued under the purchase agreement , and to use commercially reasonable efforts to cause such registration statement to become effective , and to keep such registration statement effective until ( i ) three months after the last closing of a sale of shares under the purchase agreement , ( ii ) the date when river north may sell all the shares under rule 144 without volume limitations , or ( iii ) the date on which river north no longer owns any of the shares . on april 11 , 2016 , we filed a registration statement on form s-1 ( sec file no . 333-210686 ) with the sec registering the resale of up to 25,000,000 shares of the company 's common stock that may be issued and sold to river north pursuant to the purchase agreement . such registration statement was declared effective by the sec on april 20 , 2016. as partial consideration for the above-mentioned agreements , on march 16 , 2016 , we issued to river north a “ commitment ” convertible promissory note ( the “ commitment note ” ) in the principal amount of $ 35,000. the commitment note accrued interest at a rate of 10 % per annum and was scheduled to mature on march 16 , 2017. upon the registration statement contemplated by the registration rights agreement being declared effective , $ 10,000 of the principal balance of the commitment note and accrued interest thereon was extinguished and deemed to have been repaid . 30 index to financial statements after 180 days following the date of the commitment note , or earlier upon the occurrence of an event of default that remains uncured , the commitment note may be converted into shares of the company 's common stock at the election of river north at a conversion price per share equal 60 % of the current market price , which is defined as the lowest closing bid price for the common stock as reported by bloomberg , lp for the 10 trading days ending on the trading day immediately before the conversion . the loan principal and accrued interest were paid in full prior to the note conversion date . on march 16 , 2016 , we entered into a securities purchase agreement with river north pursuant to which the company issued a convertible promissory note ( the “ bridge note ” ) to river north , in the original principal amount of $ 90,000 , in consideration of the payment by river north of a purchase price equal to $ 73,800 , with $ 9,000 retained by river north as original issue discount and $ 7,200 for related legal and due diligence costs and these costs were recorded as discount to the note . the company issued the bridge note on march 16 , 2016. the bridge note accrues interest at a rate of 10 % per annum and matures on march 16 , 2017.the bridge note provides for conversion rights and events of default on substantially the same terms and conditions as the commitment note ; provided however that an event of default under the bridge note will also be triggered if the company fails to use at least 15 % of the proceeds from each sale of shares under the purchase agreement to prepay a portion of the bridge note after it becomes convertible . the loan principal and accrued interest were paid in full prior to the note conversion date and for the fiscal year ended september 30 , 2016 , we recorded a discount expense of $ 16,200. on february 21 , 2017 , the company and river north terminated the river north purchase agreement and a related registration rights agreement and the company entered into a new equity purchase agreement with l2 capital , llc , as described below . february 21 , 2017 termination of river north purchase agreement ; entry into l2 purchase agreement on february 21 , 2017 , the company and river north terminated the river north purchase agreement and a related registration rights agreement and the company entered into a new equity purchase agreement ( the “ l2 purchase agreement ” ) with l2 capital , llc ( ” l2 capital ”
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overview of business the company is an exploration stage company as defined by the sec 's industry guide 7 as the company has no established reserves as required under industry guide 7. we are principally engaged in the exploration of precious metals and other minerals on the el capitan property located near capitan , new mexico ( the “ el capitan property ” ) . we have recorded nominal miscellaneous income in the fiscal years ended september 30 , 2016 and 2017 , resulting from the sale of test loads of iron ore to a construction contractor in fiscal 2016 and the sale of two test smelts on concentrates processed at a pilot plant located in phoenix , arizona in fiscal 2017. the 2016 and 2017 sales have been recorded as net miscellaneous income for accounting purposes . we commenced mineral exploration activity in the quarter ended december 2015 under our modified mining permit . in november 2016 we completed certain mining activity at the el capitan property and developed a plan for a pilot plant in phoenix , arizona to work on concentrating the processed head ore produced in our fiscal year 2016. the quarter ended march 31 , 2017 marked the beginning of operations at the pilot plant established in phoenix , arizona by a company vendor to house equipment that processes concentrates recovered at the el capitan property . although the pilot plant , including the equipment , are owned by its operator and not by the company , its establishment brought the company a significant step closer to recognizing revenue from the sale of concentrates . however , we have not yet demonstrated the existence of proven or probable reserves at our el capitan property .
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in 2016 , the company entered into a real estate capital lease with ing asset finance belgium s.a. ( “ ing ” ) to purchase a property located in belgium for 1.12 million euros . as of december 31 , 2018 , the balance payable was $ 698,845 . on august 20 , 2018 , the company entered into a capital lease with bnp paribas leasing solutions to purchase a freezer for the belgium facility for 25,000 euros . the leased equipment is amortized on a straight-line basis over 5 years . as of december 31 , 2018 , the balance payable was $ 28,804 . the following is a schedule showing the future minimum lease payments under capital leases by years and the present value of the minimum payments as of december 31 , 2018 : replace_table_token_14_th b ) operating lease obligations the company also leases premises and facilities under operating leases with terms ranging from 12 to 36 months . as of december 31 , 2018 , the annual non-cancelable operating lease payments on these leases are as follows : replace_table_token_15_th c ) grants repayable in 2010 , the company entered into an agreement with the walloon region government in belgium for a colorectal cancer research grant for 1.05 million euros . per the terms of the agreement , 314,406 euros of the grant is to be repaid by installments over the period from june 30 , 2014 to june 30 , 2023. the company has recorded the balance of 733,614 euros to other income in previous years as there is no obligation to repay this amount . in the event that the company receives revenue from products or services as defined in the agreement , it is due to pay a 6 % royalty on such revenue to the walloon region . the maximum amount payable to the walloon region , in respect of the aggregate of the amount repayable of 314,406 euros and the 6 % royalty on revenue , is twice the amount of funding received . as of december 31 , 2018 , the grant balance repayable was $ 180,316 . on july 2 , 2018 , the company entered into an agreement with the walloon region government in belgium for a colorectal cancer research grant for 605,000 euros . per the terms of the agreement , 181,500 euros of the grant is to be repaid by installments over 12 years commencing in 2020. in the event that the company receives revenue from products or services as defined in the agreement , it is due to pay a 3.53 % royalty on such revenue to the walloon region . the maximum amount payable to the walloon region , in respect of the aggregate of the amount repayable of 181,500 euros and the 3.53 % royalty on revenue , is equal to the amount of funding received . as of december 31 , 2018 , the grant balance repayable was $ 170,819 . f-18 volitionrx limited notes to consolidated financial statements for years ended december 31 , 2018 and 2017 ( $ expressed in united states dollars ) note 10 – commitments and contingencies ( continued ) as of december 31 , 2018 , the balance repayable was $ 351,136 and the annual payments remaining were as follows : replace_table_token_16_th d ) long-term debt in 2016 , the company entered into a 7-year loan agreement with namur invest for 440,000 euros with a fixed interest rate of 4.85 % . as of december 31 , 2018 , the principal balance payable was $ 401,382 . in 2016 , the company entered into a 15-year loan agreement with ing for 270,000 euros with a fixed interest rate of 2.62 % . as of december 31 , 2018 , the principal balance payable was $ 275,450 . in 2017 , the company entered into a 4-year loan agreement with namur invest for 350,000 euros with a fixed interest rate of 4.00 % . as of december 31 , 2018 , the principal balance payable was $ 292,046 . in 2017 , the company entered into a 7-year loan agreement with sofinex for up to 1 million euros with a fixed interest rate of 4.50 % . as of december 31 , 2018 , 750,000 euros has been drawn down under this agreement and the principal balance payable was $ 859,162 . on june 27 , 2018 , story_separator_special_tag overview we have identified the specific processes and resources required to achieve the near and medium-term objectives of our business plan , including personnel , facilities , equipment , research and testing materials including antibodies and clinical samples , and the protection of intellectual property . to date , operations have proceeded satisfactorily in relation to our business plan . however , it is possible that some resources will not readily become available in a suitable form or on a timely basis or at an acceptable cost . it is also possible that the results of some processes may not be as expected , and that modifications of procedures and materials may be required . such events could result in delays to the achievement of the near and medium-term objectives of our business plan , in particular the progression of clinical validation studies and regulatory approval processes for the purpose of bringing products to the ivd market . our future as an operating business will depend on our ability to obtain sufficient capital contributions , financing and or generate revenues as may be required to sustain our operations . story_separator_special_tag management plans to address the above as needed by : ( a ) securing additional grant funds ; ( b ) obtaining additional equity or debt financing ; ( c ) granting licenses to third parties in exchange for specified up-front and or back end payments ; and ( d ) developing and commercializing our products on an accelerated timeline . management continues to exercise tight cost controls to conserve cash . our ability to continue as a going concern is dependent upon our accomplishment of the plans described in the preceding paragraph and eventually to attain profitable operations . the accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern . if we are unable to obtain adequate capital , we could be forced to cease operations . liquidity and capital resources we have financed our operations since inception primarily through private placements and public offerings of our common stock . as of december 31 , 2018 , we had cash and cash equivalents of approximately $ 13.4 million . net cash used in operating activities was approximately $ 14.7 million and $ 12.2 million for the years ended december 31 , 2018 and december 31 , 2017 , respectively . the increase in cash used in operating activities for the period ended december 31 , 2018 when compared to same period in 2017 was primarily due to increased expenditures on research and development activities , and sales and marketing activities . net cash used in investing activities was approximately $ 0.3 million and $ 1.4 million for the years ended december 31 , 2018 and december 31 , 2017 , respectively . the decrease in cash used in investing activities for the period ended december 31 , 2018 when compared to same period in 2017 was primarily a result of the purchase of equipment and facility improvements for the new research and development facility in belgium in 2017. net cash provided by financing activities was approximately $ 18.0 million and $ 2.0 million for the years ended december 31 , 2018 and december 31 , 2017 , respectively . the increase in cash provided by financing activities for the period ended december 31 , 2018 when compared to same period in 2017 was primarily the result of $ 7.6 million in net cash proceeds raised in march 2018 through the sale and issuance of 3.5 million shares of common stock in a public offering , $ 8.9 million in net cash proceeds raised in august 2018 through a private placement of 5.0 million shares of common stock and the purchase of 0.3 million shares of common stock by warrant holders which resulted in $ 0.7 million in gross cash proceeds to the company . during 2018 , the company also received debt funding of $ 1.4 million from the walloon region , offset by debt payments of $ 0.6 million . 19 the following table summarizes our approximate contractual payments due by period as of december 31 , 2018 : replace_table_token_0_th ( 1 ) long-term debt includes the total value of the sofinex line of credit of 1.0 million euros , although only 750,000 euros had been drawn down as of december 31 , 2018 , and 250,000 euros remain available to draw . see note 10 ( d ) to the consolidated financial statements for further details . we intend to use our cash reserves to predominantly fund further research and development activities . we do not currently have any substantial source of revenues and expect to rely on additional future financing , through the sale of equity or debt securities , or the sale of licensing rights , to provide sufficient funding to execute our strategic plan . there is no assurance that we will be successful in raising further funds . in the event that additional financing is delayed , we will prioritize the maintenance of our research and development personnel and facilities , primarily in belgium , and the maintenance of our patent rights . in such instance , the completion of clinical validation studies and regulatory approval processes for the purpose of bringing products to the ivd market would be delayed . in the event of an ongoing lack of financing , it may be necessary to discontinue operations , which will adversely affect the value of our common stock . we have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive activities . for these reasons , our auditors stated in their report on our audited financial statements for the fiscal year ended december 31 , 2018 an explanatory paragraph regarding factors that raise substantial doubt that we will be able to continue as a going concern . story_separator_special_tag roman ; margin:0 ; margin-left:18pt '' > stock-based compensation the company records stock-based compensation in accordance with asc 718 , compensation – stock compensation and asc 505-50 , equity-based payments to non-employees . all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued , whichever is more reliably measurable . equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued and are recognized over the employees required service period , which is generally the vesting period . impairment of long-lived assets in accordance with asc 360 , property plant and equipment , the company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable . circumstances which could trigger a review include , but are not limited to : significant decreases in the market price of the asset ; significant adverse changes in the business climate
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results of operations comparison of the years ended december 31 , 2018 and december 31 , 2017 the following table sets forth our results of operations for the years ended on december 31 , 2018 and december 31 , 2017 , respectively : replace_table_token_1_th 20 revenues our operations are still predominantly in the research and development stage and we had no revenues during the years ended december 31 , 2018 and december 31 , 2017 , respectively . operating expenses for the reasons set forth below , total operating expenses increased to $ 17.9 million for the year ended december 31 , 2018 from $ 14.7 million for the year ended december 31 , 2017. research and development expenses research and development expenses increased to $ 10.9 million for the year ended december 31 , 2018 from $ 8.0 million for the year ended december 31 , 2017. this increase in overall research and development expenditures during the 2018 period was primarily related to increased headcount , higher laboratory consumable costs , additional antibody purchases and increased expenses associated with the 13,500 patient trial with the national cancer institute 's early detection research network in collaboration with the university of michigan . replace_table_token_2_th general and administrative expenses general and administrative expenses were flat at $ 5.8 million for the years ended december 31 , 2018 and december 31 , 2017 , respectively . while overall general and administrative expenses for the comparative periods were flat , during the 2018 period the company experienced higher foreign exchange costs , offset by reduced legal costs in relation to the capital raises during such period . replace_table_token_3_th 21 sales and marketing expenses sales and marketing expenses increased to $ 1.2 million for the year ended december 31 , 2018 , from the $ 0.8 million for the year ended december 31 , 2017. this increase in overall sales and marketing expenditures was primarily due to increased stock-based compensation costs and personnel fees during the 2018 period .
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reimbursements received for out-of-pocket expenses incurred are characterized as revenue and an identical amount is included as cost of services in the consolidated statements of operations . for the years ended december 31 , 2009 story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes appearing elsewhere in this form 10-k. overview we are a leading provider of outsourced promotional services in the united states to pharmaceutical companies . additionally , we provide marketing research and physician interaction programs to the same customer base . our services offer customers a range of promotional options for the commercialization of their products throughout those products ' lifecycles , from development through maturity . our business depends in large part on demand from the pharmaceutical and healthcare industries for outsourced sales and marketing services . in recent years , this demand has been adversely impacted by certain industry-wide factors affecting pharmaceutical companies , including , among other things , pressures on pricing and access , successful challenges to intellectual property rights ( including the introduction of competitive generic products ) , a strict regulatory environment and decreased pipeline productivity . recently , there has been a slow-down in the rate of approval of new products by the fda and this trend may continue . additionally , a number of pharmaceutical companies have recently made changes to their commercial models by reducing the number of sales representatives employed internally and through outside organizations like pdi . a very significant portion of our revenue is derived from our sales force arrangements with large pharmaceutical companies , and we have therefore been significantly impacted by cost control measures implemented by these companies , including a substantial reduction in the number of sales representatives deployed . these trends culminated in the expiration or termination of a number of our significant sales force contracts during the past three years , which resulted in a significant decrease in our revenue . this reduction in demand for outsourced pharmaceutical sales and marketing services has been further exacerbated by the recent economic and financial crisis occurring worldwide . for example , during 2008 and 2009 , certain marketing services customers delayed the implementation or reduced the scope of a number of marketing initiatives . in addition , we continue to experience a high degree of customer concentration , and this trend may continue as a result of recent and continuing consolidation within the pharmaceutical industry . if companies in the life sciences industries significantly reduce their promotional , marketing and sales expenditures or significantly reduce or eliminate the role of pharmaceutical sales representatives in the promotion of their products , our business , financial condition and results of operations would be materially and adversely affected . while we recognize that there is currently significant volatility in the markets in which we provide services , we believe there are opportunities for growth of our sales services and marketing services businesses , which provide our pharmaceutical company customers with the flexibility to successfully respond to a constantly changing market and a means of controlling costs through promotional outsourcing partnerships . in particular , we believe that the significant reduction in the number of pharmaceutical sales representatives within the industry during the past few years is placing increasing demands on our customers ' product portfolios and therefore we expect the market share penetration of outsourced sales organizations to increase in order to address these needs . we have recently intensified our focus on strengthening all aspects of the core outsourced pharmaceutical sales teams business that we believe will most favorably position pdi as the best-in-class outsourced promotional services organization in the united states . in addition , we also continue to focus on enhancing our commercialization capabilities by aggressively promoting and broadening the depth of the value-added service offerings of our existing marketing services segment . description of reporting segments for the year ended december 31 , 2009 , our three reporting segments were as follows : ¨ sales services , which is comprised of the following business units : · dedicated sales teams ; and · shared sales teams . ¨ marketing services , which is comprised of the following business units : · pharmakon ; and · tvg marketing research and consulting ( tvg ) . ¨ product commercialization services ( pc services ) . selected financial information for each of these segments is contained in note 19 , segment information , to the consolidated financial statements and in the discussion under “ consolidated results of operations. ” 20 pdi , inc. annual report on form 10-k ( continued ) critical accounting policies we prepare our financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) . the preparation of financial statements and related disclosures in conformity with gaap requires management to make judgments , estimates and assumptions at a specific point in time that affect the amounts reported in the consolidated financial statements and disclosed in the accompanying notes . these assumptions and estimates are inherently uncertain . outlined below are accounting policies , which are important to our financial position and results of operations , and require the most significant judgments on the part of our management in their application . some of those judgments can be subjective and complex . management 's estimates are based on historical experience , information from third-party professionals , facts and circumstances available at the time and various other assumptions that are believed to be reasonable . actual results could differ from those estimates . additionally , changes in estimates could have a material impact on our consolidated results of operations in any one period . for a summary of all of our significant accounting policies , including the accounting policies discussed below , see note 1 , nature of business and significant account policies , to our consolidated financial statements . story_separator_special_tag all personnel costs and initial direct program costs , other than training costs , are expensed as incurred for service offerings . reimbursable out-of-pocket expenses include those relating to travel and other similar costs , for which we are reimbursed at cost by our customers . reimbursements received for out-of-pocket expenses incurred are characterized as revenue and an identical amount is included as cost of services in the consolidated statements of operations . training costs include the costs of training the sales representatives and managers on a particular product detailing program so that they are qualified to properly perform the services specified in the related contract . for the majority of our contracts , training costs are reimbursable out-of-pocket expenses . for contracts where we are responsible for training costs , these costs are deferred and amortized on a straight-line basis over the shorter of the life of the contract to which they relate or 12 months . contract loss provisions provisions for losses to be incurred on contracts are recognized in full in the period in which it is determined that a loss will result from performance of the contractual arrangement . goodwill , intangibles and other long-lived assets we allocate the cost of acquired companies to the identifiable tangible and intangible assets and liabilities acquired , with the remaining amount being classified as goodwill . since the entities we have acquired do not have significant tangible assets , a significant portion of the purchase price has been allocated to intangible assets and goodwill . the identification and valuation of these intangible assets and the determination of the estimated useful lives at the time of acquisition , as well as the completion of annual impairment tests require significant management judgments and estimates . these estimates are made based on , among other factors , consultations with an accredited independent valuation consultant , reviews of projected future operating results and business plans , economic projections , anticipated future cash flows and the cost of capital . the use of alternative estimates and assumptions could increase or decrease the estimated fair value of goodwill and other intangible assets , and potentially result in a different impact to our results of operations . further , changes in business strategy and or market conditions may significantly impact these judgments thereby impacting the fair value of these assets , which could result in an impairment of the goodwill and acquired intangible assets . we test goodwill for impairment at least annually ( as of december 31 ) and whenever events or circumstances change that indicate impairment may have occurred . these events or circumstances could include a significant long-term adverse change in the business climate , poor indicators of operating performance or a sale or disposition of a significant portion of a reporting unit . we test goodwill for impairment at the reporting unit level , which is one level below its operating segments . goodwill has been assigned to the reporting units to which the value of the goodwill relates . we currently have five reporting units ; however , only one reporting unit , pharmakon , includes goodwill . we tested goodwill by estimating the fair value of the reporting unit using a discounted cash flow model and a market multiple approach . the estimated fair value of the reporting unit is then compared with its carrying value including goodwill , to determine if any impairment exists . in assessing the recoverability of goodwill , projections regarding the highest and best use of estimated future cash flows and other factors are made to determine the fair value of the respective reporting units . the key estimates and factors used in the discounted cash flow valuation include revenue growth rates and profit margins based on internal forecasts , terminal value and a market participant 's weighted-average cost of capital used to discount future cash flows . during our 2009 annual impairment testing as of december 31 , 2009 , we recognized an $ 8.5 million impairment charge . 22 pdi , inc. annual report on form 10-k ( continued ) we review the recoverability of long-lived assets and finite-lived intangible assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable . if the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset , an impairment loss is recognized by reducing the recorded value of the asset to its fair value measured by future discounted cash flows . this analysis requires estimates of the amount and timing of projected cash flows and , where applicable , judgments associated with , among other factors , the appropriate discount rate . such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be necessary . during the fourth quarter of 2009 , we recognized an impairment charge of $ 9.6 million related to our customer relationships and tradename . in addition , future events impacting cash flows for existing assets could render a write-down or write-off necessary that was not previously required . while we use available information to prepare our estimates and to perform impairment evaluations , actual results could differ significantly from these estimates or related projections , resulting in additional impairment and losses related to recorded goodwill or long-lived asse t balances . contingencies in the normal course of business , we are subject to various contingencies . loss contingencies are recorded in the consolidated financial statements when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated . we are currently involved in certain legal proceedings and , as required , we have accrued our estimate of the probable costs for the resolution of these claims . these estimates are developed in consultation with outside counsel and are based upon an analysis of potential results , assuming a combination of litigation and settlement strategies .
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consolidated results of operations the following table sets forth for the periods indicated below selected statement of continuing operations data as a percentage of revenue . the trends illustrated in this table may not be indicative of future operating results . 25 pdi , inc. annual report on form 10-k ( continued ) replace_table_token_2_th comparison of 2009 and 2008 replace_table_token_3_th revenue , net revenue for the year ended december 31 , 2009 was $ 84.9 million , or 24.6 % less than revenue of $ 112.5 million for the year ended december 31 , 2008. sales services ' revenue for the year ended december 31 , 2009 decreased by approximately $ 16.4 million , or 18.3 % , as compared to the year ended december 31 , 2008 primarily due to a reduction in sales force engagements . sales services ' revenue from new contracts and expansions of existing contracts was more than offset by lost revenue from the internalization of our contract sales force by one of our long-term customers and the expiration or termination of certain sales force arrangements in effect during 2008. marketing services ' revenue for the year ended december 31 , 2009 decreased by approximately $ 7.1 million , or 29.8 % , as compared to the year ended december 31 , 2008. this was primarily attributable to a decrease in revenue within our tvg business unit of $ 2.8 million due to fewer projects in 2009 , and a decrease in our pharmakon business unit of $ 2.0 million due to a reduction in the number of projects performed for its two largest customers due to delays in the implementation or reduced scope of a number of marketing initiatives in the first six months of 2009. the segment was also affected by a decrease in revenue of approximately $ 2.3 million in our vital issues in medicine business unit which closed in 2009 .
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the number of shares available for issuance is increased by any shares of common stock which were previously reserved for issuance under our preceding stock option plan , and were not subject to grant on june 6 , 2005 , or as to which the stock-based compensation award is forfeited on or after june 6 , 2005. the number of shares available for issuance is reduced by ( i ) two shares for each share delivered in settlement of any stock appreciation rights , for each share of restricted stock , and for each stock unit or performance unit story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included in part ii , item 8 of this form 10-k. this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties . our results of operations may vary significantly from period-to-period . our revenues typically fluctuate due to the seasonality of our industry , customer buying patterns , product innovation , the nature and level of competition for health and fitness products , our ability to procure products to meet customer demand , the level of spending on , and effectiveness of , our media and advertising programs and our ability to attract new customers and maintain existing sales relationships . in addition , our revenues are highly susceptible to economic factors , including , among other things , the overall condition of the economy and the availability of consumer credit in both the united states and canada . our profit margins may vary in response to the aforementioned factors and our ability to manage product costs . profit margins may also be affected by fluctuations in the costs or availability of materials used to manufacture our products , product warranty costs , the cost of fuel , and changes in costs of other distribution or manufacturing-related services . our operating profits or losses may also be affected by the efficiency and effectiveness of our organization . historically , our operating expenses have been influenced by media costs to produce and distribute advertisements of our products on television , the internet and other media , facility costs , operating costs of our information and communications systems , product supply chain management , customer support and new product development activities . in addition , our operating expenses have been affected from time-to-time by asset impairment charges , restructuring charges and other significant unusual or infrequent expenses . as a result of the above and other factors , our period-to-period operating results may not be indicative of future performance . you should not place undue reliance on our operating results and should consider our prospects in light of the risks , expenses and difficulties typically encountered by us and other companies , both within and outside our industry . we may not be able to successfully address these risks and difficulties and , consequently , we can not assure you any future growth or profitability . for more information , see our discussion of risk factors located at part i , item 1a of this form 10-k. overview we are committed to providing innovative , quality solutions to help people achieve a fit and healthy lifestyle . our principal business activities include designing , developing , sourcing and marketing high-quality cardio and strength fitness products and related accessories for consumer use , primarily in the united states and canada . our products are sold under some of the most-recognized brand names in the fitness industry : nautilus ® , bowflex ® , schwinn ® and universal ® . we market our products through two distinct distribution channels , direct and retail , which we consider to be separate business segments . our direct business offers products directly to consumers through television advertising , catalogs and the internet . our retail business offers our products through a network of independent retail companies with stores and websites located in the united states and internationally . we also derive a portion of our revenue from the licensing of our brands and intellectual property . our net sales in 2014 were $ 274.4 million , an increase of $ 55.6 million , or 25.4 % , compared to net sales of $ 218.8 million in 2013 . net sales of our direct segment increased $ 38.9 million , or 28.5 % , compared to 2013 , primarily due to increased consumer demand for our cardio products , especially the bowflex max trainer ® . net sales of our retail segment increased by $ 16.4 million , or 21.4 % in 2014 , compared to 2013 , primarily due to growth in recently launched cardio products . income from continuing operations was $ 20.4 million , or $ 0.64 per diluted share , in 2014 , compared to $ 48.1 million , or $ 1.53 per diluted share , in 2013 . income from continuing operations in 2014 and 2013 included a $ 1.2 million and a $ 38.9 million credit related to the reversal of our deferred tax asset valuation allowance , respectively . without consideration of the reversal of our deferred tax asset valuation allowance , the improvement in our results from continuing operations in 2014 , compared to 2013 , was driven primarily by higher sales and increased operating income in both our direct and retail segments . net income was $ 18.8 million , or $ 0.59 per diluted share , in 2014 , compared to $ 48.0 million , or $ 1.52 per diluted share , in 2013 . net income in 2014 and 2013 included a $ 1.2 million and a $ 38.9 million credit related to the reversal of our deferred tax asset valuation allowance , respectively . story_separator_special_tag such matters involve uncertainty as to the eventual outcomes and any losses or gains we may ultimately realize when one or more future events occur or fail to occur . we record expenses for litigation and loss contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated . we estimate the probability of such losses based on the advice of internal and external counsel , outcomes from similar litigation , status of the lawsuits ( including settlement initiatives ) , legislative developments and other factors . due to the numerous variables associated with these judgments and assumptions , both the precision and reliability of the resulting estimates of the related loss contingencies are subject to substantial uncertainties . we regularly monitor our estimated exposure to these contingencies and , as additional information becomes known , we may change our estimates accordingly . deferred tax assets - valuation allowance we account for income taxes based on the asset and liability method , whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities . deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the temporary differences are expected to be included , as income or expense , in the applicable tax return . the effect of a change in tax rates on our deferred tax assets and liabilities is recognized in the period of the enactment . we have recorded a valuation allowance to reduce our deferred income tax assets to the amount we believe is more likely than not to be realized . each quarter , we assess the total weight of positive and negative evidence including cumulative income or loss for the past three years and forecasted taxable income and re-evaluate whether any adjustments or release of all or any portion of valuation allowance is appropriate . as a result of this evaluation , for example , in the second quarter of 2013 , we concluded that a majority of the existing valuation allowance on our domestic deferred income tax assets was no longer required . further , in the fourth quarter of 2014 , after re-evaluating the potential realization of the remainder of our deferred income tax assets , we concluded that , as of december 31 , 2014 , a portion of the existing valuation allowance against state net operating loss deferred tax assets was no longer necessary . accordingly , an income tax benefit of $ 1.2 million was recorded in the fourth quarter of 2014 related to the reduction of our existing valuation allowance . as of december 31 , 2014 , we have a valuation allowance against net deferred income tax assets of $ 6.2 million . if our assumptions change and we determine we will be able to realize these deferred income tax assets , the tax benefits related to any reversal of the valuation allowance will be accounted for in the period in which we make such determination . likewise , should we determine that we would not be able to realize our deferred income tax assets in the future , an adjustment to the valuation allowance to reserve for the deferred income tax assets would increase expense in the period such determination was made . unrecognized tax benefits significant judgments are required in determining tax provisions and evaluating tax positions . such judgments require us to interpret existing tax law and other published guidance as applied to our circumstances . if our financial results or other relevant facts change , thereby impacting the likelihood of realizing the tax benefit of an uncertain tax position , significant judgment would be applied in determining the effect of the change . a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained based on the technical merits of the position upon examination , including resolutions of any related appeals or litigation . 18 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > royalty income 5,631 5,365 266 5.0 % $ 274,447 $ 218,803 $ 55,644 25.4 % ( 1 ) cardio products include : treadclimber ® , max trainer ® , treadmills , exercise bikes , ellipticals , bowflex boost ® , bowflex body tm and dvds . ( 2 ) strength products include : home gyms , selectorized dumbbells , kettlebell weights , uppercut and accessories . year ended december 31 , 2013 2012 change % change direct net sales : cardio products ( 1 ) $ 114,846 $ 100,677 $ 14,169 14.1 % strength products ( 2 ) 21,817 24,301 ( 2,484 ) ( 10.2 ) % 136,663 124,978 11,685 9.3 % retail net sales : cardio products ( 1 ) 36,692 36,209 483 1.3 % strength products ( 2 ) 40,083 27,682 12,401 44.8 % 76,775 63,891 12,884 20.2 % royalty income 5,365 5,057 308 6.1 % $ 218,803 $ 193,926 $ 24,877 12.8 % ( 1 ) cardio products include : treadclimber ® , max trainer ® , treadmills , exercise bikes , ellipticals , bowflex boost ® , bowflex body tm and dvds . ( 2 ) strength products include : home gyms , selectorized dumbbells , kettlebell weights , uppercut and accessories . net sales and cost of sales direct the 28.5 % increase in direct net sales in 2014 compared to 2013 was primarily related to a 39.5 % increase in direct sales of our cardio products that was due primarily to growth of the bowflex max trainer ® , which started shipping in january 2014 , partially offset by a decline in the bowflex treadclimber ® . the business also benefited from higher u.s. consumer credit approval rates .
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results of operations the discussion that follows should be read in conjunction with our consolidated financial statements and the related notes in this report . all comparisons to prior year results are in reference to continuing operations only in each period , unless otherwise indicated . results of operations information was as follows ( in thousands ) : replace_table_token_3_th replace_table_token_4_th 19 results of operations information by segment was as follows ( in thousands ) : replace_table_token_5_th replace_table_token_6_th 20 the following tables compare the net sales of our major product lines within each business segment ( in thousands ) : year ended december 31 , 2014 2013 change % change direct net sales : cardio products ( 1 ) $ 160,249 $ 114,846 $ 45,403 39.5 % strength products ( 2 ) 15,344 21,817 ( 6,473 ) ( 29.7 ) % 175,593 136,663 38,930 28.5 % retail net sales : cardio products ( 1 ) 56,262 36,692 19,570 53.3 % strength products ( 2 ) 36,961 40,083 ( 3,122 ) ( 7.8 ) % 93,223 76,775 16,448 21.4 % < font
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the cliffstar acquisition was financed through the issuance of $ 375.0 million aggregate principal amount of 8.125 % senior notes due 2018 ( the 2018 notes ) , the underwritten public offering of 13.4 million of our common shares ( the equity offering ) and borrowings under our credit facility , which we refinanced in connection with the cliffstar acquisition , to increase the amount available for borrowings to $ 275.0 million . story_separator_special_tag overview we are one of the world 's largest beverage companies focusing on private-label products and contract manufacturing . our objective of creating sustainable long-term growth in revenue and profitability is predicated on working closely with our retailer partners and our customers for whom we produce beverages on a contract basis , to provide proven profitable products . as a fast follower of innovative products , our goal is to identify which new products are succeeding in the marketplace and develop similar private-label products to provide our retail partners and their consumers with high quality products at a better value . this objective is increasingly relevant in more difficult economic times . the beverage market is subject to some seasonal variations . our beverage sales are generally higher during the warmer months and also can be influenced by the timing of holidays and weather fluctuations . this seasonality also causes our working capital needs to fluctuate with inventory being higher in the first half of the year to meet the peak summer demand and accounts receivable declining in the fall as customers pay their higher-than-average outstanding balances from the summer deliveries . we typically operate at low margins and therefore relatively small changes in cost structures can materially impact results . in 2009 , 2010 and 2011 , industry carbonated soft drink ( csd ) sales continued to decline , and ingredient and packaging costs remained volatile . ingredient and packaging costs represent a significant portion of our cost of sales . these costs are subject to global and regional commodity price trends . our largest commodities are aluminum , polyethylene terephthalate ( pet ) resin , corn , fruit and fruit concentrates . we attempt to manage our exposure to fluctuations in ingredient and packaging costs of our products by entering into fixed price commitments for a portion of our ingredient and packaging requirements and implementing price increases as needed . in 2011 , we had fixed price commitments for a majority of our forecasted aluminum , and fruit concentrate and fruit requirements for 2011 and entered into fixed price commitments for over half of our aluminum requirements and a portion of our fruit concentrate and fruit requirements for 2012 , as well as a portion of our aluminum requirements for 2013. in 2011 , we had fixed price commitments for all of our high fructose corn syrup ( hfcs ) requirements for 2011 and entered into fixed price commitments for all of our hfcs requirements for 2012. on august 17 , 2010 , we completed the acquisition of substantially all of the assets and liabilities of cliffstar corporation ( cliffstar ) and its affiliated companies for approximately $ 503.0 million in cash , $ 14.0 million in deferred consideration to be paid over three years and contingent consideration of up to $ 55.0 million ( the cliffstar acquisition ) . the first $ 15.0 million of the contingent consideration was based upon the achievement of milestones in certain expansion projects in 2010 , which were achieved in 2010. the remainder of the contingent consideration was based on the achievement of certain performance measures during the fiscal year ending january 1 , 2011. as discussed in the notes to the consolidated financial statements , the seller of cliffstar notified us of certain objections to the performance measures used to calculate the contingent consideration and such objections to the calculation of the contingent consideration are subject to an ongoing binding arbitration process under the terms of the asset purchase agreement . the seller is seeking up to $ 12.1 million in additional contingent consideration . the final resolution of these matters may result in amounts payable to the seller that vary materially from our current estimated fair value which consists of payments to the seller amounting to $ 34.3 million . we are currently unable to predict the ultimate outcome of this action . the cliffstar acquisition was financed through the closing of a private placement offering by cott beverages inc. of $ 375.0 million aggregate principal amount of 8.125 % senior notes due 2018 ( the 2018 notes ) , the underwritten public offering of 13.4 million of our common shares ( the equity offering ) and borrowings under our asset based lending ( abl ) facility , which we refinanced in connection with the cliffstar acquisition , to increase the amount available for borrowings to $ 275.0 million . 29 our financial liquidity , as of december 31 , 2011 , improved from 2010 , due to significant cash outflow related to the cliffstar acquisition and the repurchase of our senior subordinated notes due in 2011 ( the 2011 notes ) in 2010. we supply walmart and its affiliated companies , under annual non-exclusive supply agreements , with a variety of products in the united states , canada , u.k. and mexico , including csds , clear , still and sparkling flavored waters , juice , juice-based products , bottled water , energy drinks and ready-to-drink teas . in 2011 we supplied walmart with all of its private label csds in the united states . in the event walmart were to utilize additional suppliers to fulfill a portion of its requirements for such products , our operating results could be materially adversely affected . sales to walmart in 2011 , 2010 and 2009 , accounted for 31.6 % , 31.0 % and 33.5 % respectively , of total revenue . story_separator_special_tag to determine fair value , we use a relief from royalty method which calculates a fair value royalty rate that is applied to a forecast of future volume shipments of concentrate that is used to produce csds . the forecast of future volumes is based on the estimated inter-plant shipments and rci shipments . the relief from royalty method is used since the rights were purchased in part to avoid making future royalty payments for concentrate to the royal crown company . the resulting cash flows are discounted using a discount rate of 16 % and estimated volume changes between 4.6 % and 10.6 % . no impairment was calculated for the year ended december 31 , 2011. absent any other changes , if our inter-plant concentrate volume declines by 1.0 % from our estimated volume , the value of our rights would decline by approximately $ 1.1 million . if our rci volume declines by 1.0 % from our estimated volume , the value of the rights would decline by approximately $ 1.9 million . if our discounted borrowing rate increases by 100 basis points , the value of the rights would decline by approximately $ 3.6 million . other intangible assets as of december 31 , 2011 , other intangible assets were $ 296.1 million , which consisted principally of $ 248.4 million of customer relationships that arose from acquisitions , $ 15.7 million of financing costs , $ 10.7 million of information technology assets , and trademarks of $ 5.9 million . customer relationships are amortized on a straight-line basis for the period over which we expect to receive economic benefits . we review the estimated useful life of these intangible assets annually , taking into consideration the specific net cash flows related to the intangible asset , unless a review is required more frequently due to a triggering event such as the loss of a customer . the permanent loss or significant decline in sales to any customer included in the intangible asset would result in impairment in the value of the intangible asset or accelerated amortization and could lead to an impairment of fixed assets that were used to service that customer . in 2010 , we recorded $ 216.9 million of customer relationships acquired in connection with the cliffstar acquisition . in 2011 , we recorded an asset impairment charge of $ 1.4 million related primarily to customer relationships . impairment of long-lived assets when adverse events occur , we compare the carrying amount of long-lived assets to the estimated undiscounted future cash flows at the lowest level of independent cash flows for the group of long-lived assets and recognize any impairment loss in the consolidated statements of operations , taking into consideration the timing of testing and the asset 's remaining useful life . the expected life and value of these long-lived assets is based on an evaluation of the competitive environment , history and future prospects as appropriate . in 2011 , we recorded an impairment of long-lived assets of $ 0.6 million related to a production plant in mexico that ceased operations . we did not record any impairments of long-lived assets in 2010 or 2009 . 33 inventory costs inventories are stated at the lower of cost , determined on the first-in , first-out method , or net realizable value . finished goods and work-in-process include the cost of raw materials , direct labor and manufacturing overhead costs . as a result , we use an inventory reserve to adjust our costs down to a net realizable value and to reserve for estimated obsolescence of both raw and finished goods . our accounting policy for the inventory reserve requires us to reserve an amount based on the evaluation of the aging of inventory and a detailed analysis of finished goods for high-risk customers . income taxes we are subject to income taxes in canada as well as in numerous foreign jurisdictions . significant judgments and estimates are required in determining the income tax expense in these jurisdictions . our income tax expense , deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management 's best assessment of estimated future taxes to be paid in the jurisdictions in which we operate . deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense . in evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise we consider all available positive and negative evidence , including scheduled reversals of deferred tax liabilities , projected future taxable income , tax planning strategies and recent financial operations . in projecting future taxable income , we begin with historical results adjusted for the results of discontinued operations and changes in accounting policies and incorporate assumptions including the amount of future canadian and foreign pretax operating income , the reversal of temporary differences , and the implementation of feasible and prudent tax planning strategies . these assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses . changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future . management is not aware of any such changes that would have a material effect on our results of operations , cash flows or financial position . the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations . fasb asc topic 740 , income taxes ( asc 740 ) provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination , including resolutions of any related appeals or litigation processes , based on the technical merits . asc 740 also provides guidance on measurement , derecognition , classification , interest and penalties , accounting in interim periods , disclosure and transition .
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summary financial results our net income in 2011 was $ 37.6 million or $ 0.40 per diluted share , compared with net income of $ 54.7 million or $ 0.63 per diluted share in 2010. the following items of significance impacted our 2011 financial results : our filled beverage case volume increased 15.3 % driven by a 17.6 % increase in the north america reporting segment , due primarily to the cliffstar acquisition ; our revenue increased 29.5 % in 2011 compared to 2010 due primarily to the cliffstar acquisition . excluding the impact of the cliffstar acquisition and foreign exchange , revenue increased 6.7 % ; the cliffstar acquisition contributed $ 385.6 million of the increase in revenue , and $ 19.6 million of the increase in operating income ; our gross profit as a percentage of revenue declined to 11.8 % in 2011 from 14.8 % in 2010. gross profit in 2011 was adversely impacted by higher commodity costs ; our selling , general and administrative ( sg & a ) expenses increased to $ 172.7 million from $ 166.7 million , due primarily to the full year inclusion of cliffstar ; our interest expense increased 54.7 % due primarily to the issuance of the 2018 notes in the third quarter of 2010 ; and a year-to-date tax benefit of $ 0.7 million in 2011 compared to income tax expense of $ 18.6 million in 2010 due primarily to lower pre-tax income in the united states , the reorganization of our legal entity structure and refinancing of intercompany debt . the following items of significance impacted our 2010 financial results : our filled beverage case volume increased 7.3 % driven by a 7.7 % increase in the north america reporting segment , due primarily to the cliffstar acquisition ; our revenue increased 12.9 % in 2010 compared to 2009. absent foreign exchange impact , revenue increased 12.2 % in 2010 , due primarily to the cliffstar acquisition ; the cliffstar acquisition contributed $ 232.2
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the following tables present information about the company by geographic area as of december 31 , 2016 and 2017 and for each of the three years in the period ended december 31 , 2017 ( in thousands ) : replace_table_token_24_th replace_table_token_25_th major customers net sales to major customers were as follows ( in thousands , except for percentages ) : replace_table_token_26_th no other customer accounted for more than 10 % of the company 's total net sales . as of december 31 , 2016 and 2017 , the toys “ r ” us , inc. ( “ tru ” ) consolidated accounts receivable balance represented 23.5 % and 26.4 % , respectively , of the company 's gross accounts receivable . when combined with wal-mart and target , the company 's other two most significant customers , these customers represent 59.6 % and 60.6 % , respectively , of gross accounts receivable at december 31 , 2016 and 2017. on september 18 , 2017 , tru and certain of its u.s. subsidiaries and its canadian subsidiary voluntarily filed for relief under chapter 11 of the bankruptcy code in the u.s. the canadian subsidiary also began parallel proceedings under story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors . you should read this section in conjunction with our consolidated financial statements and the related notes ( included in item 8 ) . critical accounting policies the accompanying consolidated financial statements and supplementary information were prepared in accordance with accounting principles generally accepted in the united states of america . significant accounting policies are discussed in note 2 to the consolidated financial statements , item 8. inherent in the application of many of these accounting policies is the need for management to make estimates and judgments in the determination of certain revenues , expenses , assets and liabilities . as such , materially different financial results can occur as circumstances change and additional information becomes known . the policies with the greatest potential effect on our results of operations and financial position include : allowance for doubtful accounts . our allowance for doubtful accounts is based upon management 's assessment of the business environment , customers ' financial condition , historical collection experience , accounts receivable aging , customer disputes and the collectability of specific customer accounts . if there were a deterioration of a major customer 's creditworthiness , or actual defaults were higher than our historical experience , our estimates of the recoverability of amounts due to us could be overstated , which could have an adverse impact on our operating results . our allowance for doubtful accounts is also affected by the time at which uncollectible accounts receivable balances are actually written off . major customers ' accounts are monitored on an ongoing basis ; more in-depth reviews are performed based upon changes in a customer 's financial condition and or the level of credit being extended . when a significant event occurs , such as a bankruptcy filing by a specific customer , and on a quarterly basis , the allowance is reviewed for adequacy and the balance or accrual rate is adjusted to reflect current risk prospects . revenue recognition . our revenue recognition policy is to recognize revenue when persuasive evidence of an arrangement exists , title transfer has occurred ( product shipment ) , the price is fixed or determinable and collectability is reasonably assured . sales are recorded net of sales returns and discounts , which are estimated at the time of shipment based upon historical data . jakks routinely enters into arrangements with its customers to provide sales incentives and support customer promotions and we provide allowances for returns and defective merchandise . such programs are primarily based upon customer purchases , customer performance of specified promotional activities and other specified factors such as sales to consumers . accruals for these programs are recorded as sales adjustments that reduce gross revenue in the period the related revenue is recognized . goodwill and other indefinite-lived intangible assets . goodwill and indefinite-lived intangible assets are not amortized , but are tested for impairment at least annually at the reporting unit level . factors we consider important that could trigger an impairment review include the following : ● significant underperformance relative to expected historical or projected future operating results ; ● significant changes in the manner of our use of the acquired assets or the strategy for our overall business ; and ● significant negative industry or economic trends . due to the subjective nature of the impairment analysis , significant changes in the assumptions used to develop the estimate could materially affect the conclusion regarding the future cash flows necessary to support the valuation of long-lived assets , including goodwill . the valuation of goodwill involves a high degree of judgment and uncertainty related to our key assumptions . any changes in our key projections or estimates could result in a reporting unit either passing or failing the first step of the impairment model , which could significantly change the amount of any impairment ultimately recorded . based upon the assumptions underlying the valuation , impairment is determined by estimating the fair value of a reporting unit and comparing that value to the reporting unit 's book value . goodwill is tested for impairment annually , and on an interim basis if certain events or circumstances indicate that an impairment loss may have been incurred . if the fair value is more than the carrying value of the reporting unit , an impairment loss is not indicated . if a reporting unit 's carrying value exceeds its fair value , an impairment charge would be recognized for the excess amount , not to exceed the carrying amount of goodwill . story_separator_special_tag statutory tax rate from 35 % to 21 % and creates new taxes on certain foreign-sourced earnings and related-party payments , which are referred to as the global intangible low-taxed income and the base erosion and anti-abuse tax , respectively . in addition , the act includes a one-time transition tax as of december 31 , 2017 on accumulated foreign subsidiary earnings that were previously tax deferred . due to the timing of the enactment and the complexity involved in applying the provisions of the act , the sec issued guidance on december 22 , 2017 to address the application of us gaap in situations when a registrant does not have the necessary information available , prepared , or analyzed in reasonable detail to complete the accounting for certain income tax effects of the act . in accordance with this guidance , we have made reasonable estimates of the effects of the act and recorded provisional amounts in our financial statements as of december 31 , 2017. for the items for which we determined a reasonable estimate , we recognized a provisional amount of $ 34.3 million , which is included as a component of income tax expense from continuing operations and partially reduced by fully-valued tax attribute carryforwards . as we collect and prepare necessary data , and interpret the act and any additional guidance issued by the u.s. treasury department , the irs , and other standard-setting bodies , we may make adjustments to the provisional amounts . those adjustments may materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are made . the accounting for the tax effects of the act will be completed in 2018 . 27 share-based compensation . we grant restricted stock and options to purchase our common stock to our employees ( including officers ) and non-employee directors under our 2002 stock award and incentive plan ( the “ plan ” ) , which incorporated the shares remaining under our third amended and restated 1995 stock option plan . the benefits provided under the plan are share-based payments . related to the stock option grants , we estimate the value of share-based awards on the date of grant using the black-scholes option-pricing model . the determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price , as well as assumptions regarding a number of complex and subjective variables . these variables include our expected stock price volatility over the term of the awards , actual and projected employee stock option exercise behaviors , cancellations , terminations , risk-free interest rates and expected dividends . related to the restricted stock award grants , we determine the value of each award based on the market value of the underlying common stock at the date of each grant and expense each award over the stipulated service period . recent accounting pronouncements . in may 2014 , the fasb issued accounting standards update ( “ asu ” ) 2014-09 , “ revenue from contracts with customers ( topic 606 ) ” , which supersedes the revenue recognition requirements in accounting standard codification ( “ asc ” ) 605 , ( topic 605 ) , and most industry-specific guidance . under the new model , recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . in addition , the new standard requires that reporting companies disclose the nature , amount , timing , and uncertainty of revenue and cash flows arising from contracts with customers . in august 2015 , the fasb issued asu 2015-14 , “ revenue from contracts with customers – deferral of the effective date ” , which defers the effective date of asu 2014-09 to annual reporting periods beginning after december 15 , 2017 , and interim periods therein . in 2016 , the fasb issued asu 2016-08 , “ principal versus agent considerations ( reporting revenue gross versus net ) ” , asu 2016-10 , “ identifying performance obligations and licensing ” , and asu 2016-12 , “ revenue from contracts with customers - narrow-scope improvements and practical expedients ” . entities have the choice to adopt these updates using either of the following transition methods : ( i ) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients , or ( ii ) a modified retrospective approach with the cumulative effect of these standards recognized at the date of the adoption . our approach to analyze the impact of the standard on our revenue contracts included a review of existing contracts with customers , an evaluation of the specific terms of those contracts and the appropriate treatment under the new standards , and a comparison of that new treatment to our existing accounting policies to identify differences . we will adopt the requirements of the new standard on january 1 , 2018 using the modified retrospective approach . we identified the same performance obligation ( sale of our products ) under topic 606 as compared with deliverables and separate units of account previously identified under topic 605. we do offer certain types of variable consideration to customers such as discounts , pricing allowances and collaborative marketing arrangements . the standard requires us to estimate these amounts . we anticipate that the timing and measurement of revenue will be consistent with our current revenue recognition although our approach to revenue recognition will now be based on the transfer of control .
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results of operations the following table sets forth , for the periods indicated , certain statement of operations data as a percentage of net sales . replace_table_token_7_th the following table summarizes , for the periods indicated , certain income statement data by segment ( in thousands ) . replace_table_token_8_th 29 comparison of the years ended december 31 , 2017 and 2016 net sales u.s. and canada . net sales of our u.s. and canada segment were $ 406.4 million in 2017 , compared to $ 478.6 million in 2016 , representing a decrease of $ 72.2 million , or 15.1 % . the decrease in net sales was primarily due to decreases in unit sales in our disney tsum tsum , disney frozen , xpv radio controlled vehicles , graco , and star wars product lines partially offset by higher unit sales in our moana , squish-dee-lish , beauty and the beast live action , tangled – the series , and real workin ' buddies – mr. dusty product lines . international . net sales of our international segment were $ 107.2 million in 2017 , compared to $ 131.2 million in 2016 , representing a decrease of $ 24.0 million , or 18.3 % . the decrease in net sales was primarily driven by declines in unit sales in our disney frozen , star wars , and sofia the first product lines , partially offset by higher unit sales in our moana , elena of avalor , beauty & the beast live action product lines . halloween . net sales of our halloween segment were $ 99.5 million in 2017 , compared to $ 96.8 million in 2016 , representing an increase of $ 2.7 million , or 2.8 % . the increase in net sales was due to an increase in unit sales of a variety of products in 2017. cost of sales u.s. and canada . cost of sales of our u.s. and canada segment was $ 297.1 million , or 73.1 % of related net sales in 2017 compared to $ 322.7
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while the pace of change was unprecedented and the resulting impacts are still being determined , our noble purpose , “ we connect people to work in ways that enrich their lives , ” will continue to guide our strategy and actions . kelly remains committed to being a leading talent solutions provider among the talent with whom we choose to specialize and in the global markets in which we choose to compete . as we navigate the continued uncertainty , we will continue to demonstrate our expected behaviors and actions : employ a talent-first mentality relentlessly deliver for customers grow through discipline and focus deliver efficiency and effectiveness in everything we do by aligning ourselves with our noble purpose and executing against these behaviors , we intend to weather the current situation and emerge as a more agile and focused organization , prepared to achieve new levels of growth and profitability as we further develop our portfolio of businesses . the talent solutions industry prior to the covid-19 pandemic , labor markets were in the midst of change due to automation , secular shifts in labor supply and demand and skills gaps , and we expect the current economic situation to further accelerate that change . global demographic trends are reshaping and redefining the way in which companies find and use talent and the covid-19 pandemic is changing where and how companies expect work to be performed . in response , the talent solutions industry is adjusting how it sources , recruits , trains and places talent . our industry is evolving to meet businesses ' growing demand for specialized talent , whether delivered as a single individual or as part of a total workforce solution . companies in our industry are using novel sourcing approaches—including gig platforms , independent contractors and other talent pools—to create customized workforce solutions that are flexible and responsive to the labor market . in addition , today 's companies are elevating their commitment to talent , with the growing realization that meeting the changing needs and requirements of talent is essential to remain competitive . the ways in which people view , find and conduct work are undergoing fundamental shifts . and as the demand for skilled talent continues to climb , workers ' changing ideas about the integration of work into life are becoming more important . in this increasingly talent-driven market , a diverse set of workers , empowered by technology , is seeking to take greater control over their career trajectories and kelly 's talent promise confirms our responsibility to workers in search of a better way to work . our business kelly is a talent and global workforce solutions company serving customers of all sizes in a variety of industries . we offer innovative outsourcing and consulting services , as well as staffing on a temporary and direct-hire basis . at the beginning of the third quarter , we adopted our new kelly operating model and realigned our business into five specialty business units which are also our reportable segments . professional & industrial – delivers staffing , outcome-based and direct-hire services focused on office , professional , light industrial and contact center specialties in the u.s. and canada , including our kellyconnect product science , engineering & technology – delivers staffing , outcome-based and direct-hire services focused on science and clinical research , engineering , information technology and telecommunications specialties predominately in the u.s. and canada and includes our nextgen and global technology associates subsidiaries education – delivers staffing , direct-hire and executive search services to the k-12 , early childhood and higher education markets in the u.s. , and includes several acquisitions : teachers on call , insight workforce solutions and greenwood/asher & associates 22 outsourcing & consulting – delivers master service provider ( `` msp '' ) , recruitment process outsourcing ( `` rpo '' ) , business process outsourcing ( `` bpo '' ) and advisory services to customers on a global basis international – delivers staffing and direct-hire services in fifteen countries in europe , as well as mexico in addition , we provide staffing services to customers in the asia-pacific region through persolkelly pte . ltd. , our joint venture with persol asia pacific pte . ltd , a wholly owned subsidiary of persol holdings , a leading provider of hr solutions in japan . we earn revenues from customers that procure the services of our temporary employees on a time and materials basis , that use us to recruit permanent employees , and that rely on our talent advisory and outsourcing services . our working capital requirements are primarily generated from temporary employee payroll and customer accounts receivable . the nature of our business is such that trade accounts receivable are our most significant asset . average days sales outstanding varies within and outside the u.s. and was 64 days on a global basis as of the end of 2020 and 58 days as of the end of 2019. since receipts from customers generally lag temporary employee payroll , working capital requirements increase substantially in periods of growth and decline in periods of economic contraction . our perspective short term while far from certain , the impacts of covid-19 on the global economy , the talent solutions industry , our customers and our talent have become more clear since the beginning of the pandemic . year-over-year revenue declines have been substantial and recent trends have pointed to a gradual recovery in demand . in response to the crisis , in april 2020 we took a series of proactive actions . these actions were designed to reduce spending , minimize layoffs , and bolster the strength and flexibility of kelly 's finances . story_separator_special_tag and we have affirmed our commitment to that talent , recently introducing our five-point talent promise and reallocating resources to be solely focused on the temporary worker experience . using our unique position in the middle of the supply and demand equation , we are stepping up with a new platform called equity @ work to break down long-standing , systemic barriers that make it difficult for many people to secure enriching work . this powerful extension of our noble purpose will help more people flow into kelly 's talent pools , while also helping families , communities and economies thrive . while the covid-19 pandemic has resulted in uncertainty in the economy and the labor markets that will affect our near-term financial performance , we have determined long-term measures to gauge our progress , including : revenue growth ( both organic and inorganic ) gross profit rate improvement conversion rate and ebitda margin improvement 24 financial measures the constant currency ( “ cc ” ) change amounts in the following tables refer to the year-over-year percentage changes resulting from translating 2020 financial data into u.s. dollars using the same foreign currency exchange rates used to translate financial data for 2019. we believe that cc measurements are a useful measure , indicating the actual trends of our operations without distortion due to currency fluctuations . we use cc results when analyzing the performance of our segments and measuring our results against those of our competitors . additionally , substantially all of our foreign subsidiaries derive revenues and incur cost of services and selling , general and administrative ( “ sg & a ” ) expenses within a single country and currency which , as a result , provides a natural hedge against transactional currency risks in connection with their normal business operations . cc measures are non-gaap ( generally accepted accounting principles ) measures and are used to supplement measures in accordance with gaap . our non-gaap measures may be calculated differently from those provided by other companies , limiting their usefulness for comparison purposes . non-gaap measures should not be considered a substitute for , or superior to , measures of financial performance prepared in accordance with gaap . reported and cc percentage changes in the following tables were computed based on actual amounts in thousands of dollars . return on sales ( earnings from operations divided by revenue from services ) and conversion rate ( earnings from operations divided by gross profit ) in the following tables are ratios used to measure the company 's operating efficiency . not meaningful ( `` nm '' ) in the following tables is used in place of percentage changes where : the change is in excess of 500 % , the change involves a comparison between earnings and loss amounts , or the comparison amount is zero . days sales outstanding ( “ dso ” ) represents the number of days that sales remain unpaid for the period being reported . dso is calculated by dividing average net sales per day ( based on a rolling three-month period ) into trade accounts receivable , net of allowances at the period end . although secondary supplier revenues are recorded on a net basis ( net of secondary supplier expense ) , secondary supplier revenue is included in the daily sales calculation in order to properly reflect the gross revenue amounts billed to the customer . 25 results of operations total company ( dollars in millions ) replace_table_token_2_th 2020 vs. 2019 revenue from services for 2020 declined in all segments , reflecting the impact of covid-19 , and resulting in a decline in demand for both our staffing and permanent placement services across a broad range of industries and geographies . revenue from staffing services declined 20 % compared to 2019. permanent placement revenue , which is included in revenue from services , decreased 34 % year-over-year as the impact of economic uncertainty depressed full-time hiring in all operating segments . these declines were partially offset by a 9 % increase in outcome-based services as demand from customers utilizing these services increased during the year . the 2020 fiscal year included a 53rd week . this fiscal leap year occurs every five or six years and is necessary to align the fiscal and calendar periods . the 53rd week added approximately 1 % to 2020 reported and cc revenue . gross profit declined as a result of lower revenue volume , partially offset by an increase in the gross profit rate . the gross profit rate increased 20 basis points in comparison to 2019. with the exception of education and international , the gross profit rate increased in all other operating segments , primarily reflecting improved product mix and lower employee-related costs . the gross profit rate for education declined primarily as a result of increased pricing pressures . international 's gross profit rate was negatively impacted by the decrease in permanent placement revenue . the total company 2020 gross profit rate includes approximately 20 basis points related to covid-19 government subsidies . total sg & a expenses decreased 8.8 % in comparison to 2019. this decrease was due primarily to lower administrative salaries and performance-based compensation , including short-term cost reductions implemented to further align costs with revenue volume trends . included in total sg & a expenses are restructuring charges of $ 12.8 million in 2020. actions were taken in the first quarter of 2020 to position the company to adopt the new operating model and to align the u.s. branch network facilities footprint with a more technology-enabled service delivery methodology . actions were taken in the fourth quarter of 2020 to 26 align costs with expected revenue levels . restructuring charges of $ 5.5 million in 2019 represent severance costs primarily related to position eliminations within professional & industrial staffing operations . during 2020 , the negative reaction to the pandemic by the global equity markets also resulted in a decline in the company 's common stock price .
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results of operations financial condition historically , we have financed our operations through cash generated by operating activities and access to credit markets . our working capital requirements are primarily generated from temporary employee payroll , which is generally paid weekly or monthly , and customer accounts receivable , which is generally outstanding for longer periods . since receipts from customers lag payroll paid to temporary employees , working capital requirements increase substantially in periods of growth . conversely , when economic activity slows , working capital requirements may substantially decrease . this may result in an increase in our operating cash flows ; however , any such increase would not be sustainable in the event that an economic downturn continued for an extended period . the impact of the current economic slow-down resulting from the covid-19 crisis began in march 2020 and continued through the fourth quarter . consistent with our historical results , the impact of the current economic conditions resulted in declines in working capital requirements , primarily trade accounts receivable , and increases in cash flows from operations as revenues slowed . as highlighted in the consolidated statements of cash flows , our liquidity and available capital resources are impacted by four key components : cash , cash equivalents and restricted cash , operating activities , investing activities and financing activities . cash , cash equivalents and restricted cash cash , cash equivalents and restricted cash totaled $ 228.1 million at year-end 2020 , compared to $ 31.0 million at year-end 2019. as further described below , during 2020 , we generated $ 186.0 million of cash from operating activities , generated $ 9.8 million of cash from investing activities and used $ 8.1 million of cash for financing activities .
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derivatives designated as hedging instruments the company has entered into three interest rate swap contracts which were designated as cash flow hedges . the interest rate swaps have a total notional amount of $ 150.0 million , $ 35.0 million with an original maturity of three years and $ 115.0 million with an original maturity of four years . the company 's risk management objective for these hedges is to reduce its exposure to variability in expected future cash flows related to interest payments on commercial loans benchmarked to the 1-month libor rate . therefore , the interest rate swaps convert the interest payments on the first $ 150.0 million of 1-month libor based commercial loans into fixed rate payments . story_separator_special_tag the following discussion and analysis represents an overview of the financial condition and the results of operations of first commonwealth and its subsidiaries , fcb , first commonwealth insurance agency , inc. ( “ fcia ” ) , framal and first commonwealth financial advisors , inc. ( “ fcfa ” ) , as of and for the years ended december 31 , 2017 , 2016 and 2015 . the purpose of this discussion is to focus on information concerning our financial condition and results of operations that is not readily apparent from the consolidated financial statements . in order to obtain a more thorough understanding of this discussion , you should refer to the consolidated financial statements , the notes thereto and other financial information presented in this annual report . company overview first commonwealth provides a diversified array of consumer and commercial banking services through our bank subsidiary , fcb . we also provide trust and wealth management services through fcb and insurance products through fcia . at december 31 , 2017 , fcb operated 133 community banking offices throughout western pennsylvania and central and northern ohio , as well as loan production offices in pittsburgh , pennsylvania , and cleveland , columbus , dublin and hudson , ohio . our consumer services include internet , mobile and telephone banking , an automated teller machine network , personal checking accounts , interest-earning checking accounts , savings accounts , health savings accounts , insured money market accounts , debit cards , investment certificates , fixed and variable rate certificates of deposit , mortgage loans , secured and unsecured installment loans , construction and real estate loans , safe deposit facilities , credit cards , credit lines with overdraft checking protection and ira accounts . commercial banking services include commercial lending , small and high-volume business checking accounts , on-line account management services , ach origination , payroll direct deposit , commercial cash management services and repurchase agreements . we also provide a variety of trust and asset management services and a full complement of auto , home and business insurance as well as term life insurance . we offer annuities , mutual funds and stock and bond brokerage services through an arrangement with a broker-dealer and insurance brokers . most of our commercial customers are small and mid-sized businesses in central and western pennsylvania . as a financial institution with a focus on traditional banking activities , we earn the majority of our revenue through net interest income , which is the difference between interest earned on loans and investments and interest paid on deposits and borrowings . growth in net interest income is dependent upon balance sheet growth and maintaining or increasing our net interest margin , which is net interest income ( on a fully taxable-equivalent basis ) as a percentage of our average interest-earning assets . we also generate revenue through fees earned on various services and products that we offer to our customers and , less frequently , through sales of assets , such as loans , investments or properties . these revenue sources are offset by provisions for credit losses on loans , operating expenses , income taxes and , less frequently , loss on sale or other-than-temporary impairments on investment securities . general economic conditions also affect our business by impacting our customers ' need for financing , thus affecting loan growth , as well as impacting the credit strength of existing and potential borrowers . critical accounting policies and significant accounting estimates first commonwealth 's accounting and reporting policies conform to accounting principles generally accepted in the united states of america ( “ gaap ” ) and predominant practice in the banking industry . the preparation of financial statements in accordance with gaap requires management to make estimates , assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes . over time , these estimates , assumptions and judgments may prove to be inaccurate or vary from actual results and may significantly affect our reported results and financial position for the period presented or in future periods . we currently view the determination of the allowance for credit losses , fair value of financial instruments and income taxes to be critical because they are highly dependent on subjective or complex judgments , assumptions and estimates made by management . allowance for credit losses we account for the credit risk associated with our lending activities through the allowance and provision for credit losses . the allowance represents management 's best estimate of probable losses that have been incurred in our existing loan portfolio as of the balance sheet date . the provision is a periodic charge to earnings in an amount necessary to maintain the allowance at a level that is appropriate based on management 's assessment of probable estimated losses . management determines and reviews with the board of directors the adequacy of the allowance on a quarterly basis in accordance with the methodology described below . 25 individual loans are selected for review in accordance with financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 310 , “ receivables. ” these are generally large balance commercial loans and commercial mortgages that are rated less than “ satisfactory ” based on our internal credit-rating process . story_separator_special_tag if current available information raises doubt as to the realization of the deferred tax assets , a valuation allowance is established . deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled . management assesses all available positive and negative evidence on a quarterly basis to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets . the amount of future taxable income used in management 's valuation is based upon management approved forecasts , evaluation of historical earnings levels , proven ability to raise capital to support growth or during times of economic stress and consideration of prudent and feasible potential tax strategies . if future events differ from our current forecasts , a valuation allowance may be required , which could have a material impact on our financial condition and results of operations . accrued taxes represent the net estimated amount due to taxing jurisdictions and are reported in other liabilities in the consolidated statements of financial condition . management evaluates and assesses the relative risks and appropriate tax treatment of transactions and filing positions after considering statutes , regulations , judicial precedent and other information and maintains tax accruals consistent with its evaluation of these relative risks and merits . changes to the estimate of accrued taxes occur periodically due to changes in tax rates , interpretations of tax laws , the status of examinations being conducted by taxing authorities and changes to statutory , judicial and regulatory guidance . these changes , when they occur , can affect deferred taxes and accrued taxes , as well as the current period 's income tax expense and can be significant to our operating results . results of operations— 2017 compared to 2016 net income net income for 2017 was $ 55.2 million , or $ 0.58 per diluted share , as compared to net income of $ 59.6 million , or $ 0.67 per diluted share , in 2016 . the decline in net income can be attributed to a $ 16.7 million non-cash charge for the revaluation of deferred tax assets recorded in connection with the passage of the tax cuts and jobs act and an increase of $ 7.0 million in merger and acquisition related expense as a result of the acquisition of dcb financial in april 2017. also impacting net income for 2017 was an increase in net interest income of $ 29.7 million , growth in noninterest income of $ 15.7 million and a decrease in provision for credit losses of $ 13.4 million . these changes were partially offset by an increase in noninterest expense , including merger and acquisition expense , of $ 40.4 million . our return on average equity was 6.5 % and our return on average assets was 0.77 % for 2017 , compared to 8.0 % and 0.89 % , respectively , for 2016 . the previously mentioned charge related to the revaluation of deferred tax assets impacted 2017 return on average equity and return on average assets by 195 and 23 basis points , respectively . average diluted shares for the year 2017 were 7 % more than the comparable period in 2016 primarily due to the issuance of 8.4 million shares of common stock as a result of the acquisition of dcb financial . net interest income net interest income , which is our primary source of revenue , is the difference between interest income from earning assets ( loans and securities ) and interest expense paid on liabilities ( deposits , short-term borrowings and long-term debt ) . the amount of net interest income is affected by both changes in the level of interest rates and the amount and composition of interest-earning assets and interest-bearing liabilities . the net interest margin is expressed as the percentage of net interest income , on a fully taxable equivalent basis , to average interest-earning assets . to compare the tax exempt asset yields to taxable yields , amounts are adjusted to the pretax equivalent amounts based on the marginal corporate federal income tax rate of 35 % . the taxable equivalent adjustment to net interest income for 2017 was $ 4.2 million compared to $ 3.8 million in 2016 . net interest income comprises a majority of our operating revenue ( net interest income before provision expense plus noninterest income ) at 74 % and 75 % for the years ended december 31 , 2017 and 2016 , respectively . 27 net interest income , on a fully taxable equivalent basis , was $ 233.0 million for the year-ended december 31 , 2017 , a $ 30.1 million , or 15 % , increase compared to $ 202.9 million for the same period in 2016 . the net interest margin , on a fully taxable equivalent basis , increased 25 basis points to 3.57 % in 2017 from 3.32 % in 2016 . the net interest margin is affected by both changes in the level of interest rates and the amount and composition of interest-earning assets and interest-bearing liabilities . growth in both the level of interest-earning assets and the rates earned on those assets contributed to the increase in the net interest margin for the year ended december 31 , 2017 . average earning assets for the year ended december 31 , 2017 increased $ 422.1 million , or 7 % , compared to the year ended december 31 , 2016 . interest-sensitive assets totaling $ 3.5 billion will either reprice or mature over the next twelve months . the taxable equivalent yield on interest-earning assets was 3.90 % for the year ended december 31 , 2017 , an increase of 27 basis points from the 3.63 % yield for the same period in 2016 . this increase is largely due to the loan portfolio yield which improved by 29 basis points when compared to the prior year .
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summary of 2016 results net income for 2016 was $ 59.6 million , or $ 0.67 per diluted share , as compared to a net income of $ 50.1 million , or $ 0.56 per diluted share , in 2015 . net income in 2016 was positively impacted by an increase in net interest income of $ 10.6 million , offset by decreases in noninterest expense of $ 3.9 million and noninterest income of $ 3.3 million . our return on average equity was 8.02 % and our return on average assets was 0.89 % for 2016 , compared to 6.98 % and 0.78 % , respectively , for 2015 . average diluted shares for the year 2016 were 1 % less than the comparable period in 2015 primarily due to the common stock buyback program authorized during 2015. net interest income , on a fully taxable equivalent basis , for 2016 was $ 10.9 million , or 6 % , higher than 2015 , primarily due to growth in interest earning assets as well as growth in rates on interest earning assets . positively affecting net interest income in 2016 was a $ 116.2 million increase in average net free funds . average net free funds are the excess of demand deposits , other noninterest-bearing liabilities and shareholders ' equity over nonearning assets . the net interest margin , on a fully taxable equivalent basis , was 3.32 % in 2016 compared to 3.28 % in 2015 . during the year-ended december 31 , 2016 , growth in both the level of interest-earning assets and the rates on those assets positively impacted the net interest margin .
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leases will be classified as finance or operating , with classification affecting the pattern and classification of expense recognition in the statement of story_separator_special_tag overview and outlook for business overview and developments during the year ended december 31 , 2018 , refer to part i , item 1 of this annual report on form 10-k. in the following discussion , “ backlog ” refers to homes under sales contracts that have not yet closed at the end of the relevant period , “ cancellation rate ” refers to sales contracts canceled divided by sales contracts executed during the relevant period , “ net new home orders ” refers to new home sales contracts reduced by the number of sales contracts canceled during the relevant period , and “ overall absorption rate ” refers to the rate at which net new home orders are contracted per selling community during the relevant period . sales contracts relating to homes in backlog may be canceled by the prospective purchaser for a number of reasons , such as the prospective purchaser 's inability to obtain suitable mortgage financing . upon a cancellation , the escrow deposit may be returned to the prospective purchaser . accordingly , backlog may not be indicative of our future revenue . the following were our key operating metrics for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 : home deliveries increased by 30.0 % , home closings revenue increased by 31.7 % , average sales price of homes delivered increased by 0.9 % , backlog units increased by 87.7 % , backlog units sales value increased by 74.5 % , average sales price of homes in backlog decreased by 7.1 % and net new home orders increased by 31.4 % . from october 2017 to october 2018 , homes in the dallas and atlanta markets appreciated by 3.9 % and 6.0 % , respectively ( source : s & p/case-shiller 20-city composite home price index , october 2018 ) . during the year ended december 31 , 2018 , the housing market continued to show strength , which we believe is driven by consumer confidence , interest rates that are at the lower end of the historical spectrum , high affordability metrics , and a reduction in home inventory levels . we believe that we operate in two of the most desirable housing markets in the nation . among the 12 largest metropolitan areas in the country , the dallas area ranked third in the annual rate of job growth from november 2017 to november 2018 ( source : us bureau of labor statistics , november 2018 ) . the atlanta area ranked fifth in the annual rate of job growth from october 2017 to october 2018 ( source : us bureau of labor statistics , october 2018 ) . story_separator_special_tag corporate and other non-operating segment for the year ended december 31 , 2018 was $ 4.5 million , compared to $ 5.6 million for the year ended december 31 , 2017 . the decrease was primarily due to higher share-based compensation expense during the year ended december 31 , 2017 driven by a higher amount of restricted stock awards ( “ rsas ” ) granted under the 2014 omnibus equity incentive plan to certain named executive officers . 24 equity in income of unconsolidated entities equity in income of unconsolidated entities increased to $ 7.3 million for the year ended december 31 , 2018 , compared to $ 2.7 million during the year ended december 31 , 2017 , due primarily to our purchase of 49.9 % interest in gb challenger , llc ( “ challenger ” ) in august 2017. in addition , the formation of providence title in march 2018 had a positive impact on earnings . other income , net other income , net , increased to $ 2.6 million for the year ended december 31 , 2018 , compared to $ 1.5 million for the year ended december 31 , 2017 . the increase was primarily due to an increase in title closing and settlement services provided by green brick title , llc . income tax expense income tax expense decreased $ 21.9 million , or 56.1 % , to $ 17.1 million for the year ended december 31 , 2018 , from an expense of $ 39.0 million for the year ended december 31 , 2017 . the decrease was primarily due to the impact from a change in the federal statutory tax rate that was partially offset by the impact from an increase in pre-tax income . as of december 31 , 2018 , the company had federal net operating loss carryforwards of $ 2.0 million that will expire beginning with the year ending december 31 , 2029. our ability to utilize our net operating loss carryforwards depends on the amount of taxable income we generate in future periods . based on our historical taxable income results through december 31 , 2018 , as well as forecasted income , management expects that the company will generate sufficient taxable income to utilize all of the federal net operating loss carryforwards before they expire . as of december 31 , 2018 , the company had gross state net operating loss carryforwards in minnesota of $ 13.7 million which will begin to expire beginning with the year ending december 31 , 2023 . management believes on a more-likely-than-not basis that the minnesota net operating loss carryforwards will not be utilized . the company maintains a gross deferred income tax asset in the amount of $ 1.1 million for the minnesota state net operating loss carryforwards and a related valuation allowance in the amount of $ 1.1 million . as of december 31 , 2018 , all colorado state net operating loss carryforwards were fully utilized and all nebraska state net operating loss carryforwards expired . story_separator_special_tag selling , general and administrative expense as a percentage of related revenue decreased by 8.8 % for the year ended december 31 , 2017 as a result of internal cost efficiencies , as many of our selling , general and administrative expenses did not increase as we increased home sales through organic growth . land development selling , general and administrative expense for land development decreased from $ 1.5 million for the year ended december 31 , 2016 to $ 1.1 million for the year ended december 31 , 2017 . the decrease is primarily the result of a decrease in property tax expense due to a decrease in the number of finished lots in inventory as of december 31 , 2017 . 27 corporate and other selling , general and administrative expense for the corporate and other non-operating segment for the year ended december 31 , 2017 was $ 5.6 million , compared to $ 7.1 million for the year ended december 31 , 2016 . the decrease was primarily driven by increase of expenses subject to capitalization and a decrease in inventory turnover . equity in income of unconsolidated entities equity in income of unconsolidated entities increased to $ 2.7 million , or 100 % , for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016 , due to our purchase of 49.9 % of the membership and ownership interests in challenger in august 2017. other income , net other income , net , increased slightly to $ 1.5 million for the year ended december 31 , 2017 , compared to $ 1.4 million for the year ended december 31 , 2016 . income tax expense income tax expense increased $ 23.7 million , or 153.8 % , to $ 39.0 million for the year ended december 31 , 2017 , from an expense of $ 15.4 million for the year ended december 31 , 2016 . the increase is due to multiple factors including an increase in pre-tax income , a change in the federal statutory tax rate and a decrease in noncontrolled earnings . we remeasured our deferred tax assets due to the change in federal statutory tax rate according to the tax act which resulted in additional tax expense of $ 19.0 million . as of december 31 , 2017 , we had federal net operating loss carryforwards of $ 67.0 million , which will begin to expire beginning with the year ending december 31 , 2029. our ability to utilize our net operating loss carryforwards depends on the amount of taxable income we generate in future periods . based on our historical taxable income results through december 31 , 2017 , as well as forecasted income , management expects that the company will generate sufficient taxable income to utilize all of the federal net operating loss carryforwards before they expire . the company also had $ 20.2 million of gross state net operating loss carryforwards in minnesota and nebraska as of december 31 , 2017 with varying periods of expiration which the company believes on a more-likely-than-not basis will not be utilized . the company had approximately $ 0.2 million of gross colorado state net operating loss carryforwards as of december 31 , 2017 which will begin to expire beginning with the year ending december 31 , 2018. management expects that the company will generate sufficient colorado taxable income to utilize all of the colorado state net operating loss carryforwards before they expire . the company maintains a gross deferred income tax asset in the amount of $ 1.3 million for the state loss carryforwards and a related valuation allowance in the amount of $ 1.3 million . in the company 's assessment of the need for a valuation allowance , both positive and negative information was considered , including any available income tax planning . as of december 31 , 2017 , we had deferred tax assets of $ 31.2 million , which was net of a valuation allowance in the amount of $ 1.3 million relating to minnesota and nebraska state net operating loss carryforwards . the deferred tax assets primarily consisted of $ 14.1 million for federal net operating loss carryforwards and $ 13.4 million for basis in partnerships as of december 31 , 2017 . we evaluate the appropriateness of a valuation allowance in future periods based on the consideration of all available evidence , including the generation of taxable income , using the more-likely-than-not standard . a valuation allowance is required to reduce our deferred tax assets if it is determined that it is more-likely-than-not that all or some portion of such assets will not be realized due to the lack of sufficient taxable income . as of december 31 , 2017 , management concluded that it was more-likely-than-not that the net deferred tax assets , except for the minnesota and nebraska state net operating loss carryforwards noted above , will be realized . 28 lots owned and controlled the following table presents the lots we owned or controlled , including lot option contracts , as of december 31 , 2018 and 2017 . owned lots are those for which we hold title , while controlled lots are those for which we have the contractual right to acquire title but we do not currently own . replace_table_token_15_th ( 1 ) total lots excludes lots with homes under construction . the increase in the number of lots owned is primarily related to the development of lots in the dallas market while the increase in lots controlled is primarily related to increased development activity in the atlanta market and the acquisition of grbk gho , offset by a reduction of the number of optioned lots in the dallas market . liquidity and capital resources overview as of december 31 , 2018 and 2017 , we had $ 38.3 million and $ 36.7 million of unrestricted cash , respectively .
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results of operations year ended december 31 , 2018 compared to the year ended december 31 , 2017 residential units revenue and new homes delivered the table below represents residential units revenue and new homes delivered for the years ended december 31 , 2018 and december 31 , 2017 , respectively . replace_table_token_5_th the $ 139.4 million increase in residential units revenue was driven by the increase in the number of homes delivered , the increase in the average sales price of homes delivered , the increase in mechanic 's lien contracts revenue , and the acquisition of grbk gho with home closings revenue of $ 57.8 million during the year ended december 31 , 2018 . the 30.0 % increase in new homes delivered was driven by an increase in the number of selling communities , the acquisition of grbk gho , and a 40.2 % increase in the value of backlog of units sold entering the year , from $ 108.0 million as of december 31 , 2016 to $ 151.5 million as of december 31 , 2017 . 22 the slight increase in the average sales price of homes delivered for the year ended december 31 , 2018 is the result of local market appreciation and the mix of homes delivered , partially offset by the impact from the acquisition of grbk gho , whose homes are at lower price points than our other controlled builders . the average sales price of homes may increase or decrease depending on the mix of homes delivered and sold during such period and local market conditions . these changes in the average sales price of homes are part of our natural business cycle .
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58 the following table summarizes information about stock options outstanding and exercisable as of december 31 , 2014 : replace_table_token_17_th restricted stock units the company began granting restricted stock units ( rsus ) to employees during 2013 in conjunction with the adoption of its 2013 equity incentive plan . the fair value of rsu awards is the closing price of the company 's common stock on the date of grant and is recognized as compensation expense on a straight-line basis over the respective vesting period . the stock awards granted have a requisite service period of three or four years with annual vesting on the grant anniversary date . a summary of rsu activity for the years ended december 31 , 2014 and 2013 is presented below : replace_table_token_18_th as of december 31 , 2014 , the total unrecognized compensation cost related to unvested stock awards was approximately $ 629,000 . this cost will be recognized on a straight-line basis over the next 2.4 years and will be adjusted for estimated forfeitures . non-cash stock-based compensation for the years ended december 31 , 2014 and 2013 , the company recognized the following non-cash , share-based compensation expense ( in thousands ) : replace_table_token_19_th stock-based compensation expense related to non-employees was negligible in 2014 and 2013. arca did not recognize any tax benefit related to employee stock-based compensation cost as a result of the full valuation allowance on its net deferred tax assets . 59 ( 9 ) employee benefit plans the company has a 401 ( k ) plan and makes a matching contribution equal to 100 % of the employee 's first 3 % of the employee 's contributions and 50 % of the employee 's next 2 % of contributions . the company adopted the plan in 2006 and contributed $ 108,000 and $ 70,000 for the years ended december 31 , 2014 and 2013 , respectively . ( 10 ) income taxes effective june 1 , 2005 , the company changed from an s-corporation to a c-corporation . as an s-corporation , the net operating loss carryforwards were distributed to the company 's stockholders ; such amounts were not significant . since june 2005 through december 31 , 2014 , for federal income tax purposes , the company has net operating loss carryforwards of approximately $ 113.7 million , and approximately $ 991,000 of research and development credits that may be used to offset future taxable income . the net operating loss carryforwards will expire beginning 2025 through 2034. utilization of net operating losses and tax credits , including those acquired as a result of the merger , will be subject to an annual limitation due to ownership change limitations provided by irc section 382. the annual story_separator_special_tag we have included or incorporated by reference into this management 's discussion and analysis of financial condition and results of operations and elsewhere in this annual report on form 10-k , and from time to time our management may make , statements that constitute “ forward-looking statements ” within the meaning of section 27a of the securities act and section 21e of the exchange act . forward-looking statements may be identified by words including “ anticipate , ” “ plan , ” “ believe , ” “ intend , ” “ estimate , ” “ expect , ” “ should , ” “ may , ” “ potential ” and similar expressions . these statements involve known and unknown risks , uncertainties and other 36 factors that may cause our actual results , levels of activity , performance or achievements to be materially different from the information expressed or implied by these forward-looking statements . while we believe that we have a reasonable basis for each forward-looking statement contained in this annual report , we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future , about which we can not be certain . we undertake no obligation to publicly update any forward-looking statements , whether as a result of new information , future events or otherwise . you are advised , however , to consult any further disclosures we make on related subjects in our quarterly reports on form 10-q , current reports on form 8-k , and our website . overview we are a biopharmaceutical company principally focused on developing genetically-targeted therapies for cardiovascular diseases . our lead product candidate , gencaro ( bucindolol hydrochloride ) , is a pharmacologically unique beta-blocker and mild vasodilator that we are evaluating in a clinical trial for the treatment of atrial fibrillation , or af , in patients with heart failure and left ventricular systolic dysfunction , or hfref . we have identified common genetic variations in receptors in the cardiovascular system that we believe interact with gencaro 's pharmacology and may predict patient response to the drug . we are testing this hypothesis in a phase 2b/3 clinical trial of gencaro , known as genetic-af . we are pursuing this indication for gencaro because data from the previously conducted phase 3 hf trial of gencaro in 2,708 heart failure , or hf , patients , or the best trial , which suggested that gencaro may be successful in reducing or preventing af . af is a disorder in which the normally regular and coordinated contraction pattern of the heart 's two small upper chambers , or the atria , becomes irregular and uncoordinated . the irregular contraction pattern associated with af causes blood to pool in the atria , predisposing the formation of clots potentially resulting in stroke . story_separator_special_tag we have been granted patents in the united states , europe , and other jurisdictions for methods of treating af and hf patients with gencaro based on genetic testing , which , if we are granted patent term extension , may provide market exclusivity for these uses of gencaro into approximately 2030 in the united states and europe . to support the continued development of gencaro , we completed public equity offerings during 2013 that raised approximately $ 19.3 million in net proceeds . in february 2014 , we completed a public equity offering of approximately $ 7.9 million in net proceeds as additional funds for the phase 2b portion of the trial and to support our ongoing operations . in light of the significant uncertainties regarding clinical development timelines and costs for developing drugs such as gencaro , we will need to raise a significant amount of additional capital to finance the completion of genetic-af and our ongoing operations . we are seeking to enroll approximately 200 hfref patients in the phase 2b portion of the genetic-af trial , and we anticipate that our current cash and cash equivalents will be sufficient to fund our operations , at our projected cost structure , through the end of 2015. however , changing circumstances may cause us to consume capital significantly faster or slower than we currently anticipate . we have based these estimates on assumptions that may prove to be wrong , and we could exhaust our available financial resources sooner than we currently anticipate . we will be required to raise additional funds prior to completion of the phase 2b portion of genetic-af . story_separator_special_tag roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > on february 3 , 2014 , we agreed to sell to certain investors an aggregate of 5,116,228 shares of our common stock and warrants to purchase an aggregate of 1,279,057 shares of our common stock at a purchase price of $ 1.70 per share of common stock , for aggregate 39 gross proceeds of approximately $ 8.7 million , before deducting placement agent fees and other offering related expenses . the offering closed on february 7 , 2014 , and the net proceeds to us were approximately $ 7.9 million . the common stock and warrants were sold in combination consisting of one share of common stock and a warrant to purchase 0.25 shares of common stock . the warrants were exercisable upon issuance , expire five years from the date of issuance , and have an exercise price of $ 2.125 per share , equal to 125 % of the closing bid price of our common stock on the nasdaq capital market on february 3 , 2014. the offering was effected as a takedown off our registration statement on form s-3 , as amended , which became effective on april 4 , 2011 , pursuant to a prospectus supplement filed with the securities and exchange commission on february 4 , 2014. the warrants provide for cashless exercise and settlement in unregistered shares if there is no effective registration statement registering , or the prospectus contained therein is not available for , the issuance of the shares of common stock underlying the warrants at the time of exercise . the common stock and warrants were sold pursuant to a placement agency agreement dated january 21 , 2014 , as amended . in addition to the cash compensation paid to the placement agent in conjunction with the transaction , and pursuant to the placement agency agreement , we issued warrants to the placement agent to purchase 153,486 shares of our common stock , which have not been registered under the securities act of 1933 , as amended . the warrants issued to the placement agent have substantially the same terms as the warrants issued to the purchasers in the offering , except that such warrants expire on april 4 , 2016 , and were restricted from transfer for a period of 180 days from the date of commencement of sales in connection with the offering . we completed three equity-financing transactions in 2013 and raised approximately $ 19.3 million , net of offering costs . on january 22 , 2013 , we sold approximately $ 1 million of our common stock and warrants for common stock in a private placement transaction with accredited investors including our chief executive officer . we issued 356,430 shares of common stock together with warrants to purchase 249,501 shares of common stock . the net proceeds , after deducting placement agent fees and other offering expenses , were approximately $ 805,000. each unit , consisting of a share of common stock and a warrant to purchase 0.70 shares of common stock , was sold at a purchase price of $ 2.81 per unit . the warrants were exercisable upon issuance , expire seven years from the date of issuance , and have an exercise price of $ 2.28 per share . pursuant to the terms of the registration rights agreements ( the rights agreements ) entered into as part of this and prior private placement transactions , we filed a registration statement for the resale of the shares underlying the units sold in these private placements . that registration statement was declared effective by the securities and exchange commission on february 14 , 2013. on january 31 , 2013 , we sold approximately $ 730,000 of common stock and warrants for common stock in a registered direct offering in which we issued 164,636 shares of common stock and warrants to purchase 65,855 shares of common stock .
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results of operations research and development expenses research and development , or r & d , expense is comprised of clinical , regulatory , and manufacturing process development activities and costs . our research and development expenses totaled $ 5.6 million for the year ended december 31 , 2014 as compared to $ 2.9 million for 2013. the $ 2.7 million increase in research and development expenses in 2014 as compared to 2013 was primarily due to a $ 2.1 million increase in costs related to our genetic-af clinical trial , including cro costs , clinical site initiation and monitoring activities , which began patient screening and enrollment during 2014 ; and a $ 0.6 million increase in personnel costs . during 2013 , we had minimal clinical development activities and costs as our genetic-af clinical trial was being initiated . during the third quarter of 2014 , we reduced the scope of work of our primary contract research organization , or cro , hired additional clinical personnel , and assumed greater managerial responsibility for certain aspects of the genetic-af clinical trial . these changes will reduce the anticipated amounts paid to our primary cro , but will increase our personnel and other costs as we perform those project responsibilities . we do not expect this reorganization of responsibilities to materially change the overall projected cost of the clinical trial . we expect r & d expense in 2015 to be higher than 2014 as we activate new clinical sites and enroll additional patients in our genetic-af clinical trial and incur incremental costs associated with transitioning to the protocol amended in the first quarter of 2015. general and administrative expenses general and administrative expenses , or g & a , primarily consist of personnel costs , consulting and professional fees , insurance , facilities and depreciation expenses , and various other administrative costs .
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we calculate constant currency by converting our current-period financial results for transactions recorded in currencies other than u.s. dollars using the prior-period monthly average exchange rates rather than the current-period monthly average exchange rates . overview we help people experience the world by providing consumers , travel service providers and restaurants with leading travel and restaurant reservation and related services . through our online travel companies ( `` otcs '' ) , we connect consumers wishing to make travel reservations with providers of travel services around the world . we are the leader in the worldwide online accommodation reservation market based on room nights booked . we offer consumers a broad array of accommodation reservations ( including hotels , bed and breakfasts , hostels , apartments , vacation rentals and other properties ) through our booking.com , priceline.com and agoda.com brands . our priceline.com brand also offers consumers reservations for rental cars , airline tickets , vacation packages and cruises . we offer rental car reservations worldwide through rentalcars.com . we also allow consumers to easily compare airline ticket , hotel reservation and rental car reservation information from hundreds of travel websites at once through kayak . we provide restaurants with reservation management services and consumers with the ability to make restaurant reservations at participating restaurants through opentable , a leading provider of online restaurant reservations . we refer to our company and all of our subsidiaries and brands , including booking.com , priceline.com , kayak , agoda.com , rentalcars.com , opentable and various smaller brands , collectively as `` the priceline group , '' the `` company , '' `` we , '' `` our '' or `` us . '' we launched our business in the united states in 1998 under the priceline.com brand and have since expanded our operations to include five other primary , independently operated brands : booking.com , kayak , agoda.com , rentalcars.com and opentable . our principal goal is to help people experience the world by serving both consumers and our travel service provider and restaurant partners with worldwide leadership in online reservation and related services . our business is driven primarily by international results , which consist of the results of booking.com , agoda.com and rentalcars.com and the results of the internationally-based websites of kayak and opentable ( in each case regardless of where the consumer resides , where the consumer is physically located while making a reservation or the location of the travel service provider or restaurant ) . during the year ended december 31 , 2015 , our international business ( the substantial majority of which is generated by booking.com ) represented approximately 88 % of our gross bookings ( an operating and statistical metric referring to the total dollar value , generally inclusive of all taxes and fees , of all travel services booked by our customers , net of cancellations ) , approximately 86 % of our consolidated gross profit and approximately 94 % of our consolidated operating income . a significant majority of our gross profit is earned in connection with facilitating accommodation reservations . see note 17 to the consolidated financial statements for more geographic information . we derive substantially all of our gross profit from the following sources : commissions earned from facilitating reservations of accommodations , rental cars , cruises and other travel services ; transaction gross profit and customer processing fees from our accommodation , rental car , airline ticket and vacation package reservation services ; beginning on may 21 , 2013 , advertising revenues primarily earned by kayak from sending referrals to otcs and travel service providers , as well as from advertising placements on kayak 's websites and mobile apps ; beginning on july 24 , 2014 , revenues recognized by opentable , which consist of reservation revenues ( reservation fees paid by restaurants for diners seated through opentable 's online reservation service ) , subscription fees for restaurant reservation management services and other revenues ; and damage excess waiver fees , travel insurance fees and global distribution system ( `` gds '' ) reservation booking fees , in each case related to certain of our travel services . 40 our priceline.com brand offers merchant name your own price ® opaque travel services , which are recorded in revenue on a `` gross '' basis and have associated cost of revenue . all of our other services are recorded in revenue on a `` net '' basis and have no associated cost of revenue . therefore , revenue increases and decreases are impacted by changes in the mix of our revenues between name your own price ® travel services and other services . gross profit reflects the commission or net margin earned for all of our services . consequently , gross profit is an important measure to evaluate growth in our business because , in contrast to our revenues , it is not affected by the different methods of recording revenue and cost of revenue between our name your own price ® travel reservation services and our other services . trends over the last several years we have experienced strong growth in our accommodation reservation services . we believe this growth is the result of , among other things , the broader shift of travel purchases from offline to online , the widespread adoption of mobile devices , the high growth of travel overall in emerging markets such as asia-pacific and south america , and the continued innovation and execution by our teams around the world to build accommodation supply , content and distribution and to improve the consumer experience on our websites and mobile apps . these year-over-year growth rates have generally decelerated in recent years . for example , for the year ended december 31 , 2015 , our accommodation room night reservation growth was 25 % , a deceleration from 28 % in 2014 , 37 % in 2013 and 40 % in 2012. given the size of our hotel reservation business , we expect that our year-over-year growth rates will continue to decelerate , though the rate of deceleration may fluctuate . story_separator_special_tag at times , we have experienced volatility in transaction growth rates and cancellation rates and weaker trends in hotel adrs across many regions of the world , particularly in those european countries that appear to be most affected by economic uncertainties . we believe that these business trends are likely impacted by weak economic conditions and sovereign debt concerns . similarly , while china 's economy experienced rapid growth over the past 20 years , growth of the chinese economy slowed in 2015 and concerns about its future growth have had an adverse impact on financial markets , currency exchange rates and other economies . disruptions in the economies of such countries could cause , contribute to or be indicative of deteriorating macro-economic conditions , which in turn could negatively affect travel to or from such countries or the travel industry in general and therefore have an adverse impact on our results of operations . greece , in particular , has recently faced and continues to face significant economic challenges , in large part due to its high levels of sovereign debt and difficulties refinancing that debt . this may increase the likelihood that greece , and in turn other countries , could exit the european union , which could lead to added economic uncertainty and further devaluation or eventual abandonment of the euro common currency . these and other macro-economic uncertainties , such as sovereign default risk becoming more widespread , declining oil prices and geopolitical tensions , have led to significant volatility in the exchange rate between the euro , the u.s. dollar and other currencies . in march 2015 , the european central bank , in an effort to stimulate the european economy , launched a quantitative easing program to purchase public debt . as noted earlier , our international business represents a substantial majority of our financial results . therefore , because we report our results in u.s. dollars , we face exposure to adverse movements in currency exchange rates as the financial results of our international businesses are translated from local currency ( principally euros and british pounds sterling ) into u.s. dollars . the u.s. dollar significantly strengthened against the euro during 2014 , moving from an exchange rate of 1.38 u.s. dollars per euro as of january 1 , 2014 to 1.21 u.s. dollars per euro as of december 31 , 2014. the u.s. dollar strengthened further in 2015 to an exchange rate of 1.09 u.s. dollars per euro as of december 31 , 2015 . the u.s. dollar also strengthened significantly during this time frame as compared to many other currencies . as a result , our foreign currency denominated net assets , gross bookings , gross profit , operating expenses and net income have been negatively impacted as expressed in u.s. dollars . since our expenses are generally denominated in foreign currencies on a basis similar to our revenues , our operating margins are not significantly impacted by currency fluctuations . the aggregate principal value of our euro-denominated 2022 notes , 2024 notes and 2027 notes , and accrued interest thereon , provide a natural hedge of the net assets of certain of our euro functional currency subsidiaries . gross profit from our international operations grew year-over-year on a constant currency basis by approximately 28 % for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , but , as a result of the impact of changes in currency exchange rates , grew 11.6 % for the year ended december 31 , 2015 , as reported in u.s. dollars . we generally enter into derivative instruments to minimize the impact of short-term currency fluctuations on our consolidated operating results . however , such derivative instruments are short term in nature and not designed to hedge against currency fluctuations that could impact our gross bookings , revenues or gross profit ( see note 5 to the consolidated financial statements for additional information on our derivative contracts ) . significant fluctuations in currency exchange rates , stock markets and oil prices can also impact consumer travel behavior . consumers traveling from a country whose currency has weakened against other currencies may book lower adr accommodations , choose to shorten or cancel their international travel plans or choose to travel domestically rather than internationally , any of which could adversely affect our gross bookings , revenues and results of operations , in particular when expressed in u.s. dollars . for example , the strengthening of the u.s. dollar relative to the euro in 2015 resulted in it 42 becoming more expensive for europeans to travel to the united states . similarly , dramatic depreciation of the russian ruble in 2014 and 2015 resulted in it becoming more expensive for russians to travel to europe and most other non-ruble destinations . in addition , although lower oil prices may lead to increased travel activity as consumers have more discretionary funds and airline fares decrease , recent declines in oil prices and stock market volatility may be indicative of broader macro-economic weakness , which in turn could negatively affect the travel industry and our business . the uncertainty of macro-economic factors , the volatility in foreign exchange rates and their impact on consumer behavior , which may differ across regions , makes it more difficult to forecast industry and consumer trends and the timing and degree of their impact on our markets and business , which in turn could adversely affect our ability to effectively manage our business and adversely affect our results of operations . we compete with both online and traditional travel and restaurant reservation and related services . the market for the services we offer is intensely competitive , a trend we expect to continue , and current and new competitors can launch new services at a relatively low cost .
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results of operations year ended december 31 , 2014 compared to year ended december 31 , 2013 operating and statistical metrics gross bookings resulting from accommodation room nights , rental car days and airline tickets reserved through our international and u.s. operations for the years ended december 31 , 2014 and 2013 were as follows ( numbers may not total due to rounding ) : replace_table_token_16_th gross bookings increased by 28.4 % for the year ended december 31 , 2014 , compared to the year ended december 31 , 2013 ( growth on a constant currency basis was approximately 30 % ) , principally due to growth of 27.9 % in accommodation room night reservations , 3 % growth on a constant currency basis in adrs , growth of 18.1 % in rental car day reservations and 12.0 % growth in airline ticket reservations . international gross bookings grew by 31.0 % ( growth on a constant currency basis was approximately 33 % ) for the year ended december 31 , 2014 , compared to the year ended december 31 , 2013 , primarily as a result of growth in accommodation room night reservations for our booking.com and agoda.com businesses , as well as growth in rental car day reservations for our rentalcars.com business . the u.s. dollar significantly strengthened against the euro during 2014 , moving from an exchange rate of 1.38 u.s. dollars per euro as of january 1 , 2014 to 1.21 u.s. dollars per euro as of december 31 , 2014. the u.s. dollar has also strengthened against many other currencies since january 1 , 2014. we therefore believe that unit growth rates and total gross bookings , international gross bookings and gross profit growth on a constant currency basis , excluding the impact of foreign exchange rate fluctuations , are important measures to understand the fundamental performance of the business .
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future results could differ materially from the discussion that follows for many reasons , including the factors described in part i , item 1a “ risk factors ” in this annual report on form 10-k , as well as those described in future reports filed with the sec . general we are engaged in the marketing , sales and distribution of well-recognized , brand name otc healthcare and household cleaning products to mass merchandisers , drug stores , supermarkets , and club , convenience , and dollar stores in north america ( the united states and canada ) and in australia and certain other international markets . we use the strength of our brands , our established retail distribution network , a low-cost operating model and our experienced management team to our competitive advantage . we have grown our brand portfolio both organically and through acquisitions . we develop our existing brands by investing in new product lines , brand extensions and strong advertising support . acquisitions of otc brands have also been an important part of our growth strategy . we have acquired strong and well-recognized brands from consumer products , pharmaceutical and private equity companies . while many of these brands have long histories of brand development and investment , we believe that , at the time we acquired them , most were considered “ non-core ” by their previous owners . as a result , these acquired brands did not benefit from adequate management focus and marketing support during the period prior to their acquisition , which created opportunities for us to reinvigorate these brands and improve their performance post-acquisition . after adding a core brand to our portfolio , we seek to increase its sales , market share and distribution in both existing and new channels through our established retail distribution network . we pursue this growth through increased spending on advertising and promotional support , new sales and marketing strategies , improved packaging and formulations , and innovative development of brand extensions . acquisitions acquisition of dentek on february 5 , 2016 , the company completed the acquisition of dentek , a privately-held marketer and distributor of specialty oral care products . the closing was finalized pursuant to the terms of the merger agreement , announced november 23 , 2015 , under which the company agreed to acquire dentek from its stockholders , including tsg consumer partners , for a purchase price of $ 228.3 million . the acquisition expands the company 's portfolio of brands , strengthens its existing oral care platform and increases its geographic reach in parts of europe . the company financed the transaction with a combination of available cash on hand , available cash from its abl revolver , and financing of an additional unsecured bridge loan . the dentek brands are primarily included in our north american and international otc healthcare segments . the dentek acquisition was accounted for in accordance with the business combinations topic of the fasb asc 805 , which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition . we prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition . the following table summarizes our preliminary allocation of the assets acquired and liabilities assumed as of the february 5 , 2016 acquisition date . 37 replace_table_token_8_th based on this preliminary analysis , we allocated $ 179.8 million to non-amortizable intangible assets and $ 26.9 million to amortizable intangible assets . we are amortizing the purchased amortizable intangible assets on a straight-line basis over an estimated weighted average useful life of 18.5 years . the weighted average remaining life for amortizable intangible assets at march 31 , 2016 was 18.4 years . we also recorded goodwill of $ 76.5 million based on the amount by which the purchase price exceeded the fair value of the net assets acquired . goodwill is not deductible for income tax purposes . the pro forma effect of this acquisition on revenues and earnings was not material . however , revenues recorded during the period ended march 31 , 2016 were $ 10.7 million since the date of the acquisition . acquisition of insight pharmaceuticals on september 3 , 2014 , the company completed the acquisition of insight , a marketer and distributor of feminine care and other otc healthcare products , for $ 745.9 million in cash after receiving a return of approximately $ 7.2 million from escrow related to an arbitrator 's ruling . the closing followed the ftc approval of the acquisition and was finalized pursuant to the terms of the purchase agreement announced on april 25 , 2014. pursuant to the insight purchase agreement , the company acquired 27 otc brands sold in north america ( including related trademarks , contracts and inventory ) , which extended the company 's portfolio of otc brands to include a leading feminine care platform in the united states and canada anchored by monistat , the leading north american brand in otc yeast infection treatment . the acquisition also added brands to the company 's cough & cold , pain relief , ear care and dermatological platforms . in connection with the ftc 's approval of the insight acquisition , we sold one of the competing brands that we acquired from insight on the same day as the insight closing . insight is primarily included in our north american otc healthcare segment . the insight acquisition was accounted for in accordance with the business combinations topic of the fasb asc 805 , which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition . we prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition . story_separator_special_tag the pro forma effect of this acquisition on revenues and earnings was not material . critical accounting policies and estimates our significant accounting policies are described in the notes to the consolidated financial statements included elsewhere in this annual report on form 10-k. while all significant accounting policies are important to our consolidated financial statements , certain of these policies may be viewed as being critical . such policies are those that are both most important to the portrayal of our financial condition and results from operations and require our most difficult , subjective and complex estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses or the related disclosure of contingent assets and liabilities . these estimates are based on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results may differ materially from these estimates . the most critical accounting policies are as follows : revenue recognition we recognize revenue when the following revenue recognition criteria are met : ( i ) persuasive evidence of an arrangement exists ; ( ii ) the selling price is fixed or determinable ; ( iii ) the product has been shipped and the customer takes ownership and assumes the risk of loss ; and ( iv ) collection of the resulting receivable is reasonably assured . we have determined that these criteria are met and the transfer of risk of loss generally occurs when product is received by the customer , and , accordingly we recognize revenue at that time . provisions are made for estimated discounts related to customer payment terms and estimated product returns at the time of sale based on our historical experience . as is customary in the consumer products industry , we participate in the promotional programs of our customers to enhance the sale of our products . the cost of these promotional programs varies based on the actual number of units sold during a finite period of time . these promotional programs consist of direct-to-consumer incentives , such as coupons and temporary price reductions , as well as incentives to our customers , such as allowances for new distribution , including slotting fees , and cooperative advertising . estimates of the costs of these promotional programs are based on ( i ) historical sales experience , ( ii ) the current promotional offering , ( iii ) forecasted data , ( iv ) current market conditions , and ( v ) communication with customer purchasing/marketing personnel . we recognize the cost of such sales incentives by recording an estimate of such cost as a reduction of revenue , at the 41 later of ( a ) the date the related revenue is recognized , or ( b ) the date when a particular sales incentive is offered . at the completion of the promotional program , these estimated amounts are adjusted to actual amounts . our related promotional expense for 2016 , 2015 , and 2014 was $ 56.4 million , $ 53.2 million , and $ 33.4 million , respectively . in 2016 , 2015 , and 2014 , we participated in over 26,000 , 14,000 , and 10,000 promotional campaigns , respectively . of those campaigns , approximately 1,300 , 1,900 , and 1,700 payments were in excess of $ 5,000 in 2016 , 2015 , and 2014 , respectively . for all three years , the average cost per campaign was less than $ 5,000. we believe that the estimation methodologies employed , combined with the nature of the promotional campaigns , make the likelihood remote that our obligation would be misstated by a material amount . however , for illustrative purposes , had we underestimated the promotional program rate by 10 % for each of 2016 , 2015 , and 2014 , our operating income would have been reduced by approximately $ 5.6 million , $ 5.3 million , and $ 3.3 million , respectively . net income would have been adversely affected by approximately $ 3.6 million , $ 3.4 million , and $ 2.1 million , respectively . we also periodically run coupon programs in sunday newspaper inserts , on our product websites , or as on-package instant redeemable coupons . we utilize a national clearing house to process coupons redeemed by customers . at the time a coupon is distributed , a provision is made based upon historical redemption rates for that particular product , information provided as a result of the clearing house 's experience with coupons of similar dollar value , the length of time the coupon is valid , and the seasonality of the coupon drop , among other factors . during 2016 , we had 395 coupon events . the amount recorded against revenues and accrued for these events during the year was $ 5.6 million . cash settlement of coupon redemptions during the year was $ 3.5 million . allowances for product returns due to the nature of the consumer products industry , we are required to estimate future product returns . accordingly , we record an estimate of product returns concurrent with recording sales . such estimates are made after analyzing ( i ) historical return rates , ( ii ) current economic trends , ( iii ) changes in customer demand , ( iv ) product acceptance , ( v ) seasonality of our product offerings , and ( vi ) the impact of changes in product formulation , packaging and advertising . we construct our returns analysis by looking at the previous year 's return history for each brand . subsequently , each month , we estimate our current return rate based upon an average of the previous twelve months ' return rate and review that calculated rate for reasonableness , giving consideration to the other factors described above .
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results of operations 2015 compared to 2014 total segment revenues the following table represents total revenue by segment , including product groups , for each of the fiscal years ended march 31 , 2015 and 2014. replace_table_token_19_th ( * ) size of % not meaningful revenues for 2015 were $ 714.6 million , an increase of $ 117.2 million , or 19.6 % , versus 2014. this increase was primarily related to an increase in the north american otc healthcare segment due to the acquisition of insight and an increase in the international otc healthcare segment due to the acquisition of the hydralyte brand . the increase was partially offset by a decline in some of the product groups within the north american otc healthcare segment . north american otc healthcare segment revenues for the north american otc healthcare segment increased $ 84.0 million , or 17.4 % , during 2015 versus 2014. this increase was primarily due to the acquisition of insight , which contributed $ 96.9 million to the segment overall , and included increases of $ 69.9 million , $ 15.4 million , and $ 5.0 million to the women 's health , dermatologicals , and cough & cold product groups , respectively . these increases were partially offset by declines of $ 7.1 million and $ 5.1 million in the dermatologicals and gastrointestinal product groups ( exclusive of insight ) , respectively , due to lower revenues for certain of our products in those product groups . additionally , in our women 's health product group , a third-party manufacturer had failed to keep up with demand , leading to product being temporarily out of stock .
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the company plans to repurchase the $ 200 million of its common stock from time to time or on an accelerated basis through open market transactions or privately negotiated transactions as determined by the company 's management . the amount and timing of stock repurchases under the program will depend on business and market conditions , stock price , trading restrictions , acquisition activity and other factors . as of june 30 , 2013 , the company has repurchased $ 46,620,000 of shares under the current $ 200 million share repurchase authorization . the company uses the par value method of accounting for its stock repurchases . as a result of the stock repurchases , the company reduced common stock and additional paid-in capital and recorded charges to accumulated deficit . the shares retired , aggregate common stock and story_separator_special_tag overview we are a leading molecular diagnostic company dedicated to making a difference in patients ' lives through the discovery and commercialization of transformative tests which assess a person 's risk of developing disease , guide treatment decisions and assess risk of disease progression and recurrence . we believe in improving healthcare for patients by providing physicians with critical information to solve unmet medical needs . by understanding the underlying genetic basis of disease , we believe that individuals who have a greater risk of developing disease can be identified and physicians may be able to use this information to improve patient outcomes and better manage patient healthcare . in addition , by understanding the rna expression levels of certain genes , we believe that we can improve patient healthcare by providing information on the aggressiveness of their disease . further , we believe that the analysis of the expression of groups of proteins may provide a physician with life-saving information to guide treatment decisions for their patients with cancer and other major diseases . our goal is to provide physicians with this critical information that may guide the healthcare management of their patients to prevent disease , diagnose the disease at an earlier stage , determine the most appropriate therapy , or assess the aggressiveness of their disease . we employ a number of proprietary technologies , including dna , rna and protein analysis , that help us to understand the genetic basis of human disease and the role that genes and their related proteins may play in the onset and progression of disease . we use this information to guide the development of new molecular diagnostic tests that are designed to assess an individual 's risk for developing disease later in life ( predictive medicine ) , identify a patient 's likelihood of responding to drug therapy and guide a patient 's dosing to ensure optimal treatment ( personalized medicine ) , or assess a patient 's risk of disease progression and disease recurrence ( prognostic medicine ) . our business strategy for future growth is focused on three key initiatives . first , we are working to grow and expand our existing products and markets . second , we are developing our business internationally and have recently established operations in europe . finally , we intend to launch new transformative products across a diverse set of disease indications , complementing our current businesses in oncology , women 's health and urology . on may 31 , 2011 , we completed the acquisition of the privately-held molecular diagnostic company , rules-based medicine , inc. of austin , texas , for a cash purchase price of approximately $ 80.0 million . the acquired company has been consolidated into our operations as myriad rbm . the acquisition expanded our product pipeline into new disease states , including neuroscience disorders , infectious diseases and inflammatory diseases , and added eight new molecular diagnostic test candidates to our current product pipeline . during the fiscal year ended june 30 , 2013 , we devoted our resources to supporting and growing our transformative molecular diagnostic and companion diagnostic businesses , as well as to the research and development of future molecular diagnostic and companion diagnostic candidates . see note 10 segment and related information in the notes to our consolidated financial statements for information regarding our operating segments . our consolidated revenues primarily consisted of sales of molecular diagnostic tests through our wholly-owned myriad genetic laboratories subsidiary and companion diagnostic services through our wholly-owned myriad rbm subsidiary . during the year ended june 30 , 2013 , we reported net income of $ 147.1 million and diluted earnings per share of $ 1.77 that included income tax expense of $ 86.1 million . we incurred research and development expenses of $ 53.7 million , $ 42.6 million , and $ 27.8 million for the years ended june 30 , 2013 , 2012 and 2011 , respectively . our research and development expenses include costs incurred in maintaining and improving our nine current molecular diagnostic test offerings and costs incurred for the discovery , development and validation of our pipeline of molecular diagnostic and companion diagnostic test candidates . 45 our selling , general and administrative expenses include costs associated with building our molecular diagnostic and companion diagnostic businesses domestically and internationally . selling , general and administrative expenses consist primarily of salaries , commissions and related personnel costs for sales , marketing , customer service , billing and collection , executive , legal , finance and accounting , information technology , human resources , and allocated facilities expenses . we expect that our selling , general and administrative expenses will increase from quarter to quarter and that such increases may be substantial , depending on the number and scope of any new molecular diagnostic and companion diagnostic launches , our efforts in support of our existing molecular diagnostic tests and companion diagnostic services as well as our continued international expansion efforts . between may 2010 and january 2013 , we repurchased $ 500 million of our outstanding common stock . in february 2013 , our board of directors authorized us to repurchase an additional $ 200 million of our outstanding common stock . story_separator_special_tag our income tax provision is based on income before taxes and is computed using the liability method in accordance with accounting standards codification ( asc ) 740 income taxes . deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using tax rates projected to be in effect for the year in which the differences are expected to reverse . significant estimates are required in determining our provision for income taxes . some of these estimates are based on interpretations of existing tax laws or regulations , or the expected results from any future tax examinations . various internal and external factors may have favorable or unfavorable effects on our future provision for income taxes . those factors include , but are not limited to , changes in tax laws , regulations and or rates , the results of any future tax examinations , changing interpretations of existing tax laws or regulations , changes in estimates of prior years ' items , past levels of r & d spending , acquisitions , changes in our corporate structure , and changes in overall levels of income before taxes all of which may result in periodic revisions to our provision for income taxes . developing our provision for income taxes , including our effective tax rate and analysis of potential uncertain tax positions , if any , requires significant judgment and expertise in federal and state income tax laws , regulations and strategies , including the determination of deferred tax assets and liabilities and any estimated valuation allowance we deem necessary to offset deferred tax assets . if we do not maintain taxable income from operations in future periods , we may increase the valuation allowance for our deferred tax assets and record material adjustments to our income tax expense . our judgment and tax strategies are subject to audit by various taxing authorities . while we believe we have provided adequately for our uncertain income tax positions in our consolidated financial statements , adverse determination by these taxing authorities could have a material adverse effect on our consolidated financial condition , results of operations or cash flows . interest and penalties on income tax items are included as a component of overall income tax expense . 47 recent accounting pronouncements in february 2013 , the fasb issued an amendment to the accounting guidance for the reporting of amounts reclassified out of accumulated other comprehensive income ( aoci ) . the amendment expands the existing disclosure requirements by requiring entities to present information about significant items reclassified out of aoci by component . in addition , an entity is required to provide information about the effects on net income of significant amounts reclassified out of each component of aoci to net income either on the face of the statement where net income is presented or as a separate disclosure in the notes of the financial statements . the amendment is effective prospectively for annual or interim reporting periods beginning after december 15 , 2012. the adoption of this accounting pronouncement did not have a material impact on our financial statements . story_separator_special_tag s new roman '' > an increase of approximately $ 8.5 million in bad debt expense , a portion of which was associated with the 24 % increase in revenues ; and an increase of approximately $ 5.2 million in costs from our international operations . 49 we expect that our selling , general and administrative expenses will continue to increase and that such increases may be substantial , depending on the number and scope of any new molecular diagnostic and companion diagnostic product launches , our efforts in support of our existing molecular diagnostic tests and companion diagnostic services as well as our continued international expansion efforts . interest income for the fiscal year ended june 30 , 2013 was $ 5.5 million , compared to $ 4.6 million for the prior fiscal year . interest income consists primarily of interest income recorded from our note receivable from crescendo bioscience , inc. , or crescendo . income tax expense for the fiscal year ended june 30 , 2013 was $ 86.1 million , for an effective rate of approximately 37 % , compared to income tax expense of $ 72.4 million and an effective rate of approximately 39 % in the 2012 period . our tax rate is a product of a u.s. federal effective rate of 35 % and a blended state income tax rate of 2 % . certain significant or unusual items are separately recognized during the period in which they occur and can be a source of variability in the effective tax rates from period to period . for the year ended june 30 , 2013 we realized $ 7.9 million of excess tax benefits from stock-based compensation as a reduction of taxes payable . excess tax benefits from stock-based compensation are credited directly to additional paid-in-capital and are not included in income tax expense . accordingly , they do not impact our effective income tax rate . due to the realization of these excess tax benefits that offset our taxes payable , our current income tax expense in fiscal 2013 is higher than our actual cash paid . ( see note 8 in the fiscal 2013 notes to consolidated financial statements . ) net income for the fiscal year ended june 30 , 2013 was $ 147.1 million compared to $ 112.2 million in the prior fiscal year . this 31 % increase was primarily due to an increase in revenues partially offset by higher research and development expenses and sales general and administrative expenses . earnings per diluted share was $ 1.77 for the fiscal year ended june 30 , 2013 as compared to $ 1.30 for the prior fiscal year , an increase of 36 % . this increase was due to increased net income and a reduced number of weighted shares outstanding during the 2013 fiscal year from our share repurchase program .
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results of operations years ended june 30 , 2013 and 2012 revenue is comprised of sales of our molecular diagnostic tests and companion diagnostic services . total revenue for the fiscal year ended june 30 , 2013 was $ 613.2 million compared to $ 496.0 million for the prior fiscal year , an increase of 24 % . this 24 % increase in revenue is primarily due to increased molecular diagnostic testing volume for our bracanalysis , colaris and colaris ap , a significant increase in bart testing volume as a result of revised medical guidelines , and a significant increase in companion diagnostic services due to increased research collaborations , as disclosed in the table below . sales of our brac analysis test accounted for 75.1 % of our total revenues in fiscal 2013 compared to 81.7 % in the prior year . we believe that our increased sales , marketing , and education efforts resulted in wider acceptance of our molecular diagnostic tests by the medical community and increased patient testing volumes . however , there can be no assurance that our revenue will continue to increase or remain at current levels or that we will be successful in expanding the sale of our tests outside the united states . total revenue of our molecular diagnostic tests and companion diagnostic services and revenue by product as a percent of total revenue for the year ended june 30 , 2013 and 2012 were as follows : replace_table_token_8_th our molecular diagnostic sales force is focused on two major markets , oncology and women 's health . sales of molecular diagnostic tests in each market for the fiscal years ended june 30 , 2013 and 2012 were as follows : replace_table_token_9_th 48 certain prior period reclassifications to oncology and women 's health revenue have been made to conform to current period presentation .
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2. summary of significant accounting policies basis of presentation the accompanying consolidated financial statements at december 31 , 2016 and 2015 and for each of the years ended december 31 , 2016 , 2015 and 2014 include the accounts and operating results of the company and the operating partnership . such financial statements present noncontrolling equity interests in joint ventures under the equity method of accounting . all intercompany transactions have been eliminated in consolidation . use of estimates in order to conform with generally accepted accounting principles ( `` gaap `` ) , in preparation story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the sections of this form 10-k titled `` forward-looking statements '' and `` selected financial data '' and the consolidated financial statements and notes thereto appearing elsewhere in this form 10-k. business overview the company is a self-administered and fully integrated real estate company which owns , manages , acquires , sells , develops and redevelops industrial real estate . the company is a maryland corporation organized on august 10 , 1993 and a real estate investment trust as defined in the code . we believe our financial condition and results of operations are , primarily , a function of our performance in four key areas : leasing of industrial properties , acquisition and development of additional industrial properties , disposition of industrial properties and access to external capital . we generate revenue primarily from rental income and tenant recoveries from operating leases of our industrial properties . such revenue is offset by certain property specific operating expenses , such as real estate taxes , repairs and maintenance , property management , utilities and insurance expenses , along with certain other costs and expenses , such as depreciation and amortization costs and general and administrative and interest expenses . our revenue growth is dependent , in part , on our ability to : ( i ) increase rental income , through increasing either or both occupancy rates and rental rates at our properties ; ( ii ) maximize tenant recoveries ; and ( iii ) minimize operating and certain other expenses . revenues generated from rental income and tenant recoveries are a significant source of funds , in addition to income generated from gains on the sale of our properties ( as discussed below ) , for our liquidity . the leasing of property , in general , and occupancy rates , rental rates , operating expenses and certain non-operating expenses , in particular , are impacted , variously , by property specific , market specific , general economic and other conditions , many of which are beyond our control . the leasing of property also entails various risks , including the risk of tenant default . if we were unable to maintain or increase occupancy rates and rental rates at our properties or to maintain tenant recoveries and operating and certain other expenses consistent with historical levels and proportions , our revenue would decline . further , if a significant number of our tenants were unable to pay rent ( including tenant recoveries ) or if we were unable to rent our properties on favorable terms , our financial condition , results of operations , cash flow and ability to make distributions to our stockholders and unitholders , the market price of the company 's common stock and the market value of the units would be adversely affected . our revenue growth is also dependent , in part , on our ability to acquire existing , and develop new industrial properties on favorable terms . we seek to identify opportunities to acquire existing industrial properties on favorable terms , and , when conditions permit , also seek to acquire and develop new industrial properties on favorable terms . existing properties , as they are acquired , and acquired and developed properties , as they are leased , generate revenue from rental income , tenant recoveries and fees , income from which , as discussed above , is a source of funds for our distributions to our stockholders and unitholders . the acquisition and development of properties is impacted , variously , by property specific , market specific , general economic and other conditions , many of which are beyond our control . the acquisition and development of properties also entails various risks , including the risk that our investments may not perform as expected . for example , acquired existing and acquired and developed new properties may not sustain and or achieve anticipated occupancy and rental rate levels . with respect to acquired and developed new properties , we may not be able to complete construction on schedule or within budget , resulting in increased debt service expense and construction costs and delays in leasing the properties . also , we face significant competition for attractive acquisition and development opportunities from other well-capitalized real estate investors , including publicly-traded reits and private investors . further , as discussed below , we may not be able to finance the acquisition and development opportunities we identify . if we were unable to acquire and develop sufficient additional properties on favorable terms , or if such investments did not perform as expected , our revenue growth would be limited and our financial condition , results of operations , cash flow and ability to make distributions to our stockholders and unitholders , the market price of the company 's common stock and the market value of the units would be adversely affected . 27 we also generate income from the sale of our properties ( including existing buildings , buildings which we have developed or re-developed on a merchant basis and land ) . the gain or loss on , and fees from , the sale of such properties are included in our income and can be a significant source of funds , in addition to revenues generated from rental income and tenant recoveries . story_separator_special_tag during the year ended december 31 , 2015 , we settled the interest rate protection agreements and reclassified the fair market value loss recorded in other comprehensive income relating to the three interest rate protection agreements to earnings as a result of determining the forecasted offering of unsecured debt was no longer probable to occur within the time period stated in the respective hedge designation memos . for the year ended december 31 , 2015 , we recorded $ 11.5 million in mark-to-market and settlement loss on the three interest rate protection agreements . equity in income of joint ventures is not significant . the income tax provision increased $ 1.0 million during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 primarily due to an increase in taxable gain from the sales of real estate from one of our trss . 31 comparison of year ended december 31 , 2015 to year ended december 31 , 2014 the company 's net income was $ 76.7 million and $ 51.0 million for the years ended december 31 , 2015 and 2014 , respectively . the operating partnership 's net income was $ 76.8 million and $ 51.3 million for the years ended december 31 , 2015 and 2014 , respectively . the tables below summarize our revenues , property expenses and depreciation and other amortization by various categories for the years ended december 31 , 2015 and 2014. same store properties are properties owned prior to january 1 , 2014 and held as an in-service property through december 31 , 2015 and developments and redevelopments that were placed in service prior to january 1 , 2014 or were substantially completed for the 12 months prior to january 1 , 2014. properties which are at least 75 % occupied at acquisition are placed in service . acquisitions that are less than 75 % occupied at the date of acquisition , developments and redevelopments are placed in service as they reach the earlier of a ) stabilized occupancy ( generally defined as 90 % occupied ) , or b ) one year subsequent to acquisition or development/redevelopment construction completion . properties are moved from the same store classification to the redevelopment classification when capital expenditures for a project are estimated to exceed 25 % of the undepreciated gross book value of the property . acquired properties are properties that were acquired subsequent to december 31 , 2013 and held as an operating property through december 31 , 2015. sold properties are properties that were sold subsequent to december 31 , 2013 . ( re ) developments include developments and redevelopments that were not : a ) substantially complete 12 months prior to january 1 , 2014 ; or b ) stabilized prior to january 1 , 2014. other revenues are derived from operations of properties not placed in service under one of the categories discussed above , the operations of our maintenance company , fees earned from our previous joint ventures and other miscellaneous revenues . other expenses are derived from the operations of properties not placed in service under one of the categories discussed above , operations of our maintenance company , vacant land expenses and other miscellaneous regional expenses . during the fourth quarter of 2015 , one industrial property previously classified within same store , comprising approximately 0.2 million square feet of gla , was taken out of service and reclassified to the other classification . we intend to demolish the existing industrial property and construct a new industrial property , at which time the results related to this property will be reclassified from other to the ( re ) developments classification . the newly constructed property will return to the same store classification following a complete calendar year of in service classification . our future financial condition and results of operations , including rental revenues , may be impacted by the future acquisition , ( re ) development and sale of properties . our future revenues and expenses may vary materially from historical rates . for the years ended december 31 , 2015 and 2014 , the average occupancy rates of our same store properties were 94.2 % and 93.2 % , respectively . replace_table_token_14_th revenues from same store properties increased $ 5.7 million primarily due to an increase in occupancy as well as an increase in rental rates during the year ended december 31 , 2015 as compared to december 31 , 2014 , partially offset by a decrease in restoration fees . revenues from acquired properties increased $ 5.9 million due to the 16 industrial properties acquired subsequent to december 31 , 2013 totaling approximately 3.0 million square feet of gla . revenues from sold properties decreased $ 10.5 million due to the 95 industrial properties sold subsequent to december 31 , 2013 totaling approximately 5.8 million square feet of gla . revenues from ( re ) developments increased $ 12.0 million due to an increase in occupancy . other revenues decreased $ 1.1 million due to a decrease in interest income related to the decrease in the weighted average note receivable balance outstanding , offset by an increase in occupancy related to a property acquired in 2013 that was placed in service during 2014 . 32 replace_table_token_15_th property expenses include real estate taxes , repairs and maintenance , property management , utilities , insurance and other property related expenses . property expenses from same store properties decreased $ 1.0 million primarily due to lower snow removal costs incurred during the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 due to the harsh 2014 winter . property expenses from acquired properties increased $ 1.6 million due to properties acquired subsequent to december 31 , 2013. property expenses from sold properties decreased $ 4.7 million due to properties sold subsequent to december 31 , 2013. property expenses from ( re ) developments increased $ 1.6 million primarily due to an increase in real estate tax expense related to the substantial completion of developments .
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results of operations comparison of year ended december 31 , 2016 to year ended december 31 , 2015 the company 's net income was $ 125.7 million and $ 76.7 million for the years ended december 31 , 2016 and 2015 , respectively . the operating partnership 's net income was $ 125.7 million and $ 76.8 million for the years ended december 31 , 2016 and 2015 , respectively . the tables below summarize our revenues , property expenses and depreciation and other amortization by various categories for the years ended december 31 , 2016 and 2015. same store properties are properties owned prior to january 1 , 2015 and held as an in-service property through december 31 , 2016 and developments and redevelopments that were placed in service prior to january 1 , 2015 or were substantially completed for the 12 months prior to january 1 , 2015. properties which are at least 75 % occupied at acquisition are placed in service . acquisitions that are less than 75 % occupied at the date of acquisition , developments and redevelopments are placed in service as they reach the earlier of a ) stabilized occupancy ( generally defined as 90 % occupied ) , or b ) one year subsequent to acquisition or development/redevelopment construction completion . properties are moved from the same store classification to the redevelopment classification when capital expenditures for a project are estimated to exceed 25 % of the undepreciated gross book value of the property . acquired properties are properties that were acquired subsequent to december 31 , 2014 and held as an operating property through december 31 , 2016. sold properties are properties that were sold subsequent to december 31 , 2014 .
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the update also changes the presentation and disclosure requirements for financial instruments including a requirement that public business entities use exit price when measuring the fair value of financial instruments measured at amortized cost for disclosure purposes . this update story_separator_special_tag results of operations general we are a bank holding company for plumas bank , a california state-chartered commercial bank . we derive our income primarily from interest received on real estate related , commercial , automobile and consumer loans and , to a lesser extent , interest on investment securities , fees received in connection with servicing deposit and loan customers and fees from the sale of government guaranteed loans . our major operating expenses are the interest we pay on deposits and borrowings and general operating expenses . we rely on locally-generated deposits to provide us with funds for making loans . we are subject to competition from other financial institutions and our operating results , like those of other financial institutions operating in california , are significantly influenced by economic conditions in california , including the strength of the real estate market . in addition , both the fiscal and regulatory policies of the federal and state government and regulatory authorities that govern financial institutions and market interest rates also impact the bank 's financial condition , results of operations and cash flows . critical accounting policies our accounting policies are integral to understanding the financial results reported . our most complex accounting policies require management 's judgment to ascertain the valuation of assets , liabilities , commitments and contingencies . we have established detailed policies and internal control procedures that are intended to ensure valuation methods are applied in an environment that is designed and operating effectively and applied consistently from period to period . the following is a brief description of our current accounting policies involving significant management valuation judgments . allowance for loan losses . the allowance for loan losses is an estimate of credit losses inherent in the company 's loan portfolio that have been incurred as of the balance-sheet date . the allowance is established through a provision for loan losses which is charged to expense . additions to the allowance are expected to maintain the adequacy of the total allowance after credit losses and loan growth . credit exposures determined to be uncollectible are charged against the allowance . cash received on previously charged off amounts is recorded as a recovery to the allowance . the overall allowance consists of two primary components , specific reserves related to impaired loans and general reserves for inherent losses related to loans that are collectively evaluated for impairment . we evaluate our allowance for loan losses quarterly . we believe that the allowance for loan losses is a “ critical accounting estimate ” because it is based upon management 's assessment of various factors affecting the collectability of the loans , including current economic conditions , past credit experience , delinquency status , the value of the underlying collateral , if any , and a continuing review of the portfolio of loans . we can not provide you with any assurance that economic difficulties or other circumstances which would adversely affect our borrowers and their ability to repay outstanding loans will not occur which would be reflected in increased losses in our loan portfolio , which could result in actual losses that exceed reserves previously established . other real estate owned . other real estate owned ( oreo ) represents properties acquired through foreclosure or physical possession . oreo is initially recorded at fair value less costs to sell when acquired . write-downs to fair value at the time of transfer to oreo is charged to allowance for loan losses . subsequent to foreclosure , we periodically evaluate the value of oreo held for sale and record a valuation allowance for any subsequent declines in fair value less selling costs . subsequent declines in value are charged to operations . fair value is based on our assessment of information available to us at the end of a reporting period and depends upon a number of factors , including our historical experience , economic conditions , and issues specific to individual properties . our evaluation of these factors involves subjective estimates and judgments that may change . 22 the following discussion is designed to provide a better understanding of significant trends related to the company 's financial condition , results of operations , liquidity and capital . it pertains to the company 's financial condition , changes in financial condition and results of operations as of december 31 , 2015 and 2014 and for each of the three years in the period ended december 31 , 2015. the discussion should be read in conjunction with the company 's audited consolidated financial statements and notes thereto and the other financial information appearing elsewhere herein . overview the company recorded net income of $ 5.8 million for the year ended december 31 , 2015 , a 23 % increase over net income of $ 4.7 million during the year ended december 31 , 2014. pretax income increased by $ 1.7 million , or 22 % , from to $ 9.5 million in 2015 from $ 7.8 million during the year ended december 31 , 2014. net interest income increased by $ 2.0 million to $ 21.4 million during 2015 from $ 19.4 million for the year ended december 31 , 2014. this increase in net interest income resulted from an increase in interest income of $ 1.5 million and a decrease in interest expense of $ 489 thousand . interest on loans increased by $ 1.3 million and interest on investment securities increased by $ 179 thousand . an increase of $ 2 thousand in interest expense on deposits was offset by a decrease in interest expense on borrowings of $ 491 thousand . story_separator_special_tag interest and fees on loans was $ 19.5 million during 2014 and $ 18.2 million for the year ended december 31 , 2013. the average loan balances were $ 353.4 million for 2014 , up $ 32.2 million from the $ 321.2 million for 2013. the average yield on loans was 5.52 % for 2014 down from 5.66 % for 2013. we attribute much of the decrease in yield to price competition in our service area as well as an increase in lower yielding automobile loans as a percentage of total loans . interest on investment securities increased by $ 353 thousand as a result of an increase in yield of 32 basis points from 1.40 % during 2013 to 1.72 % during 2014 and an increase in average balance from $ 82.8 million in 2013 to $ 87.9 million in 2014. the increase in yield on investment securities incudes an increase in government sponsored agency residential mortgage backed securities and municipal securities as a percentage of total securities and an increase in market yields . interest income on other interest-earning assets , which totaled $ 137 thousand in 2014 and $ 124 thousand in 2013 , primarily relates to interest on cash balances held at the federal reserve . interest expense on deposits decreased by $ 84 thousand , or 14 % , to $ 516 thousand for the twelve months ended december 31 , 2014 , down from $ 600 thousand in 2013. interest expense on time deposits declined by $ 69 thousand from $ 281 thousand during 2013 to $ 212 thousand at during 2014. average time deposits declined by $ 6.9 million from $ 66.0 million during 2013 to $ 59.1 million for the year ended december 31 , 2014. we attribute much of this decline to migration into other types of deposits given the low rates and lack of liquidity associated with time deposits . the average rate paid on time deposits decreased from 0.43 % during 2013 to 0.36 % during the current twelve month period . this decrease primarily relates to a decline in market rates paid in the company 's service area and the maturity of higher rate time deposits . interest expense on now accounts declined by $ 14 thousand . rates paid on now accounts declined by 2 basis points from 0.11 % during 2013 to 0.09 % during 2014. average balances decreased by $ 568 thousand from 2013. interest expense on money market accounts decreased by $ 17 thousand related to a decrease in rate paid on these accounts of 3 basis points from 0.17 % during 2013 to 0.14 % during 2014 and a decline in average balances from $ 48.7 million during 2013 to $ 46.7 million in 2014. interest expense on savings accounts increased by $ 16 thousand as we continued to experience strong growth in this category of deposits . average savings deposits increased by $ 18.2 million from $ 84.5 million during 2013 to $ 102.7 million during 2014. the average rate paid on savings accounts during this same period declined from 17 basis points during 2013 to 16 basis points during 2014. the decline in rates paid on deposits is consistent with a decline in competitive market rates in our service area . interest expense on other interest-bearing liabilities increased by $ 243 thousand from $ 934 thousand during the twelve months ending december 31 , 2013 to $ 1.2 million during 2014. this increase was mostly related to an increase of $ 215 thousand in interest expense on the $ 7.5 million subordinated debenture which was only outstanding for 8.5 months during 2013. the effective yield on the debenture during 2014 was 10.3 % which was in excess of the 7.5 % rate due to amortization of a $ 75 thousand commitment fee and a discount recorded on issuance of $ 318 thousand . interest expense on the company 's note payable for 2013 totaled $ 23 thousand and for 2014 it totaled $ 111 thousand . the increase relates mostly to an increase in average balance from $ 567 thousand in 2013 to $ 2.3 million during 2014. interest expense on junior subordinated debentures , which decreased by $ 10 thousand from 2013 , fluctuates with changes in the 3-month libor rate . interest on other borrowings , which during 2014 relates to repurchase agreements , totaled $ 7 thousand in 2014 and $ 57 thousand in 2013. net interest margin is net interest income expressed as a percentage of average interest-earning assets . as a result of the changes noted above , the net interest margin for 2014 increased slightly to 4.05 % , from 4.03 % for 2013 . 27 provision for loan losses during the years ended december 31 , 2015 and 2014 we recorded a provision for loan losses of $ 1.1 million . see “ analysis of asset quality and allowance for loan losses ” for further discussion of loan quality trends and the provision for loan losses . the allowance for loan losses is maintained at a level that management believes will be appropriate to absorb inherent losses on existing loans based on an evaluation of the collectability of the loans and prior loan loss experience . the evaluations take into consideration such factors as changes in the nature and volume of the portfolio , overall portfolio quality , review of specific problem loans , and current economic conditions that may affect the borrower 's ability to repay their loan . the allowance for loan losses is based on estimates , and ultimate losses may vary from the current estimates . these estimates are reviewed periodically and , as adjustments become necessary , they are reported in earnings in the periods in which they become known . based on information currently available , management believes that the allowance for loan losses is appropriate to absorb potential risks in the portfolio .
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results of operations net interest income the following table presents , for the years indicated , the distribution of consolidated average assets , liabilities and shareholders ' equity . average balances are based on average daily balances . it also presents the amounts of interest income from interest-earning assets and the resultant yields expressed in both dollars and yield percentages , as well as the amounts of interest expense on interest-bearing liabilities and the resultant cost expressed in both dollars and rate percentages . nonaccrual loans are included in the calculation of average loans while nonaccrued interest thereon is excluded from the computation of yields earned : replace_table_token_5_th ( 1 ) interest income is reflected on an actual basis and is not computed on a tax-equivalent basis . ( 2 ) average nonaccrual loan balances of $ 5.6 million for 2015 , $ 6.7 million for 2014 and $ 9.3 million for 2013 are included in average loan balances for computational purposes . ( 3 ) loan origination fees and costs are included in interest income as adjustments of the loan yields over the life of the loan using the interest method . loan interest income includes net loan costs of $ 696,000 , $ 380,000 and $ 371,000 for 2015 , 2014 and 2013 , respectively . ( 4 ) net interest spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities . ( 5 ) net interest margin is computed by dividing net interest income by total average earning assets . 24 the following table sets forth changes in interest income and interest expense , for the years indicated and the amount of change attributable to variances in volume , rates and the combination of volume and rates based on the relative changes of volume and rates : replace_table_token_6_th ( 1 ) the volume change in net interest income represents the change in average balance multiplied by the previous year 's rate .
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these forward-looking statements are based on management 's beliefs and assumptions and on information currently available to our management and involve significant elements of subjective judgment and analysis . words such as “ expects , ” “ will , ” “ anticipates , ” “ targets , ” “ goals , ” “ projects , ” “ intends , ” “ plans , ” “ believes , ” “ seeks , ” “ estimates , ” “ potential , ” “ should , ” “ could , ” variations of such words , and similar expressions are intended to identify forward-looking statements . our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements . factors that might cause such a difference include those discussed under the caption “ special note regarding forward looking statements ” and in “ risk factors ” and elsewhere in this annual report on form 10-k. these and many other factors could affect our future financial and operating results . we undertake no obligation to update any forward-looking statement to reflect events after the date of this annual report . overview we are a pharmaceutical company committed to the discovery , development and commercialization of novel anti-infectives to address significant unmet therapeutic needs . we are developing our lead product candidate , scy-078 , as a novel oral and intravenous ( iv ) drug for the treatment of serious and life-threatening invasive fungal infections in humans . scy-078 has been shown to be effective in vitro and in vivo in animal models against a broad range of candida and aspergillus species , including drug resistant strains . these important pathogens account for approximately 85 % of invasive fungal infections in the united states and europe . scy-078 was shown to be sufficiently safe and well-tolerated in multiple phase 1 studies to support progression to phase 2 studies . we have opened multiple trial sites , are actively screening patients , and recently enrolled the first patient in march 2015 in a phase 2 study with the oral formulation of scy-078 for the treatment of invasive candida infection , a common and often fatal invasive fungal infection . we anticipate beginning phase 1 studies with an iv formulation of scy-078 in the second half of 2015. in addition to pursuing the development of scy-078 , we have additional compounds similar to scy-078 and related expertise that we may use to expand our antifungal portfolio . as a spinout from aventis s.a. , or aventis in 2000 , we began as a chemistry and animal health services company , providing contract research services to third parties . through the provision of these contract research and development services , we built significant expertise in parasitic infections and drug discovery . since our formation , we have expanded our animal health capabilities and have discovered a number of proprietary compounds primarily within our cyclophilin inhibitor platform . 55 our two lead compounds from our cyclophilin inhibitor platform include scy-641 , a compound licensed to dechra ltd. in 2012 for clinical development for the treatment of dog dry eye , and scy-635 , a compound licensed to waterstone in october 2014 for the treatment of viral diseases in humans . the successful monetization of these two lead compounds from our cyclophilin inhibitor platform will allow us to focus our resources on the development of scy-078 . in 2013 , we exclusively licensed scy-078 from merck sharp & dohme , or merck , in the field of human health , and merck transferred to us the investigational new drug application on file with the u.s. food and drug administration , or the fda , as well as all data merck had developed for the compound , plus active pharmaceutical ingredient and tablets . in 2014 , merck assigned the patents to us related to scy-078 that it had exclusively licensed to us . we are focusing our resources on the development of scy-078 . on may 7 , 2014 , we completed an initial public offering of our common stock , which we refer to as our ipo . we sold an aggregate of 6,200,000 shares of common stock under the registration statement on form s-1 declared effective by the sec on may 2 , 2014 , at a public offering price of $ 10.00 per share . net proceeds to us were $ 54.6 million , after deducting underwriting discounts and commissions and offering expenses . upon the completion of our ipo , all our outstanding shares of convertible preferred stock were automatically converted into 1,691,884 shares of common stock and substantially all outstanding common stock warrants were exercised for an additional 275,687 shares of common stock with net proceeds to us of $ 0.1 million . in connection with the consummation of the ipo , we repaid outstanding debt with a principal balance of $ 15 million , plus all accrued interest , to the holder of such debt , which was outstanding pursuant to a credit agreement referred to herein as the 2013 credit agreement . we are an emerging growth company . under the jumpstart our business startups act of 2012 , or jobs act , emerging growth companies can delay adopting new or revised accounting standards until such time of those standards apply to private companies . we have irrevocably elected not to adopt this exemption from new or revised accounting standards , and therefore , we will be subject to the same new or revised accounting standards as other public companies that are not “ emerging growth companies. ” recent developments scy-078 development we are currently conducting a randomized phase 2 study with the oral formulation of scy-078 . we have opened multiple trial sites , we are actively screening patients for enrollment , and we enrolled the first patient in march 2015. we amended the study protocol 's enrollment criteria in february 2015 in order to enhance and expedite recruitment and we are currently preparing further enhancements to the study 's protocol . story_separator_special_tag in 2014 , we recognized revenues of $ 7.3 million , or 38 % of our total revenue , from merial under the research services agreement that expired on december 31 , 2014. no other customer , except for elanco animal health , accounted for 10 % or more of our revenues during 2014. under the scope of the new agreement with merial effective december 2014 , we expect our annual revenue will be approximately $ 4.0 million , which is a reduction of approximately $ 3.3 million , or 45 % , compared to revenue recognized in 2014 under the previous agreement with merial . if we are not able to secure new research and development services contracts with other customers that allow us to utilize our resources that supported the previous merial agreement that expired on december 31 , 2014 , we may have to reduce our resources and incur related severance costs . also in 2014 , revenues related to discovery and drug metabolism and pharmacokinetics ( dmpk ) services declined by $ 1.4 million when compared to 2013. this decrease occurred because we made the strategic decision to stop actively pursuing business development efforts related to discovery and dmpk services . our 2014 discovery and dmpk services revenue included approximately $ 1.0 million of revenue related to services agreements that expired in 2014 and are not expected to be renewed or replaced in 2015. resources that previously supported these service agreements in 2014 are being utilized on other service agreements or are supporting our scy-078 research and development efforts and we do not currently expect any material effect on our operating costs in 2015. we expect the aforementioned developments pertaining to our contract research and development services business to have an adverse effect on our reported revenues in 2015 and may have an adverse effect on our net loss in 2015. cyclophilin inhibitor platform in october 2014 , we entered into a license agreement with waterstone , granting exclusive , worldwide rights to develop and commercialize scy-635 for the treatment of viral diseases in humans . in addition , under the same agreement , we granted waterstone an option for an exclusive , worldwide license to develop and commercialize two of our additional cyclophilin inhibitor compounds , scy-575 and scy-116 , for the treatment of viral diseases in humans . the key terms of our license agreement with waterstone are described within note 18 of our audited financial statements for the year ended december 31 , 2014 included in this annual report . in november 2014 , we received a $ 1.0 million non-refundable upfront payment from waterstone for the license of scy-635 . we recognized revenue of $ 1.0 million from this non-refundable upfront payment in the year ended december 31 , 2014 because all deliverables were satisfied and we have no continuing performance obligations under the agreement . with the successful monetization of scy-635 through the license agreement with waterstone , we are able to focus our efforts and resources on the development of scy-078 . story_separator_special_tag roman ; font-size:10pt ; color : # 000000 ; '' > interest paid on our outstanding bank debt composed substantially all of the remaining other ( income ) expense . in april 2010 , we entered into a $ 15.0 million credit facility agreement with hsbc bank usa , national association , or hsbc , which we refer to as the 2010 credit agreement . this 2010 credit agreement was guaranteed by a related party . we concluded that the guarantee represented a deemed contribution and recognized the value of the guarantee as deferred financing costs . the value of the guarantee was determined based on the difference between the 2010 credit agreement 's stated interest rate and the interest rate that would apply if there had been no guarantee from the related party . the value was determined to be $ 6.3 million at the time the 2010 credit agreement was established and was amortized over the life of the 2010 credit agreement . on march 8 , 2013 , the 2010 credit agreement and related party guarantee were extended through 2014 , under an amendment referred to as the 2013 credit agreement . at the time of the extension , we concluded that the value of the new guarantee was $ 3.9 million . this amount was recorded as deferred financing costs and was being amortized through the year 2014 . 59 upon completion of our ipo on may 7 , 2014 , the entire outstanding balance of the 2013 credit agreement , amounting to $ 15.0 million plus accrued interest , was paid in full using the proceeds from the ipo . we recorded a loss on the extinguishment of debt of $ 1.4 million in the three month period ended june 30 , 2014 , as the remaining deferred financing costs associated with the 2013 credit agreement were written off . we had no outstanding debt as of december 31 , 2014 . from december 2011 through june 2013 , we issued convertible promissory notes totaling $ 12.3 million to related parties . these notes accrued interest at a rate of 8 % per year . the purchasers of the convertible notes also received warrants to purchase common stock . the promissory notes , and accrued interest , were converted into preferred stock in december 2013. in connection with the conversion , the original conversion price on the promissory notes was reduced from $ 4.3125 to $ 1.40 , and as a result , we recorded additional interest expense of $ 10.8 million in december 2013 as a result of the beneficial conversion for the antidilution adjustment on the series d-1 convertible preferred stock and the series d-2 convertible preferred stock . the warrant fair values were accounted for as a debt discount and amortized over the stated term of the convertibles notes . we concluded that the warrants qualified as a derivative liability and the fair value of the warrants should be adjusted at each reporting period .
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components of operating results revenue 57 to date , we have derived substantially all of our revenue from the provision of our contract research and development services . in addition , we have received upfront and milestone payments in connection with our collaboration and licensing agreements . the developments described in the `` recent developments '' section above pertaining to our contract research and development services business are expected to have an adverse effect on our reported revenues in 2015. further , we expect that any revenue we generate will fluctuate from quarter to quarter as a result of the variability in the amount of our contract research and development services provided , the achievement of collaboration milestones , and the consummation of new licensing arrangements . we do not expect to generate revenue from product sales for at least the next several years . if we or our collaborators fail to complete the development of product candidates in a timely manner or obtain their regulatory approval , our ability to generate future revenue , and our results of operations and financial position , would be materially adversely affected . our revenue recognition policy is described within the `` critical accounting policies and significant judgments and estimates '' section below , as well as in note 2 to our audited financial statements for the year ended december 31 , 2014 included in this annual report . cost of revenue cost of revenue primarily consists of salaries and personnel-related costs , including employee benefits and any stock-based compensation . additional expenses include facilities and equipment costs directly associated with generating revenue , allocated overhead , materials , contracted consultants and other direct costs . we allocate expenses associated with our facilities , information technology costs , and depreciation and amortization , between cost of revenue and operating expenses . allocations are based on employee headcount or facility square footage utilization , and are determined by the nature of work performed .
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this change reduced taxable story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations should be read together with our consolidated financial statements , including the notes thereto , set forth herein . this discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance . actual results may differ materially from those anticipated in these forward-looking statements . see “ forward looking information ” below for additional discussion regarding risks associated with forward-looking statements . 32 liquidity and capital resources our net cash provided by ( used in ) operating activities , investing activities , and financing activities for the years ended december 31 , 2013 , 2012 , and 2011 are set forth in the following table . ( dollars in thousands ) replace_table_token_10_th operating activities cash provided by operating activities decreased from $ 64,888,000 in 2012 to $ 62,454,000 in 2013 , a net decrease of $ 2,434,000. this decrease was primarily attributed to : ( i ) the timing of collections of accounts receivable including those due from related parties ; ( ii ) changes in income tax receivable and income tax payable ; and ( iii ) deferred revenue . in 2013 , accounts receivable , including accounts receivable due from related parties , decreased cash provided by operating activities by $ 10,467,000. in 2012 , accounts receivable , including accounts receivable due from related parties , increased cash provided by operating activity by $ 12,895,000. this decrease was primarily due to the timing and amount of receipts of customer payments . additionally , an increase in our income taxes receivable balance combined with the decrease in our income taxes payable reduced cash provided by operating activities by $ 15,352,000 in 2013. in 2012 , income taxes payable reduced cash provided by operating activities by $ 503,000. this change was largely the result of changing our position with respect to the inclusion of the benefit from the $ 1 biodiesel blenders ' tax credit in taxable income . historically , we included the benefit in taxable income on our federal and state income tax returns . we changed our position in the fourth quarter of 2013 for tax years 2010 through the current year . the anticipated amendments to the income tax returns have given rise to an increased income tax receivable . lastly , deferred revenue decreased cash provided by operating activities by $ 14,734,000. in 2012 , deferred revenue increased cash provided by operating activities by $ 941,000. this change is primarily the result of our graphite anode material customer notifying us that they were terminating our contract effective august 9 , 2014. we assessed the carrying value of our fixed assets and deferred revenue associated with this product and recorded an impairment loss on the fixed assets and a reduction in the deferred revenue balance . mostly offsetting these reductions in cash from operating activities was : ( i ) accounts payable , including accounts payable to related parties ; ( ii ) accrued expenses and other current liabilities , including accrued expenses and other current liabilities for related parties ; and ( iii ) impairment of fixed assets . in 2013 , accounts payable , including accounts payable to related parties , decreased cash provided by operating activities by $ 692,000. in 2012 , accounts payable , including accounts payable to related parties , decreased cash provided by operating activities by $ 5,212,000. this change was primarily attributable to differences in the timing and amount of payments to suppliers . in 2013 , accrued expenses and other current liabilities , including accrued expenses and other current liabilities for related parties increased cash provided by operating activities by $ 4,212,000. in 2012 , accrued expenses and other current liabilities , including related parties increased cash provided by operating activities by $ 325,000. this change is a result of the timing and amount of services provided and not yet invoiced . in 2012 , there were no impairments of fixed assets that required an adjustment to net income from cash from operating activities . in 2013 , there were impairments of $ 18,102,000 primarily related to the graphite anode material plant and equipment . cash provided by operating activities increased from $ 50,429,000 in 2011 to $ 64,888,000 in 2012 , a net increase of $ 14,459,000. this increase was primarily attributable to : ( i ) the timing of collections of accounts receivable , including those due from related parties ; and ( ii ) changes in our inventory levels . in 2011 , accounts receivable , including accounts receivable due from related parties , decreased cash provided by operating activities by $ 512,000. in 2012 , accounts receivable , including accounts receivable due from related parties , increased cash provided by operating activity by $ 12,895,000. this increase was primarily due to the timing and amount of receipts of customer payments . additionally , a decrease in our inventory balance increased cash provided by operating activities by $ 15,447,000 in 2012. in 2011 , changes in our inventory balance reduced cash provided by operating activities by $ 20,067,000 . 33 partially offsetting these increases in cash provided by operating activities in 2012 were decreases attributable to : ( i ) accounts payable , including accounts payable to related parties ; ( ii ) income taxes payable ; and ( iii ) deferred revenue . in 2011 , accounts payable , including accounts payable to related parties , increased cash provided by operating activities by $ 6,592,000. in 2012 , accounts payable , including accounts payable to related parties , decreased cash provided by operating activities by $ 5,212,000. this change was primarily attributable to differences in the timing and amount of payments to suppliers . story_separator_special_tag we received grant monies on a cost share basis as we incurred construction-related expenditures . on july 29 , 2013 , futurefuel received notice from a chemicals segment customer for the intermediate anode powder that the customer will terminate the contract in accordance with its terms effective august 9 , 2014. futurefuel does not expect additional material to be produced or sold in 2013 or 2014 under that agreement . termination of this sales contract also may affect the terms of the grant received by futurefuel from the u.s. department of energy related to construction of the equipment utilized to produce the intermediate anode powder . as a result of this notice , futurefuel assessed the carrying values of its fixed assets and deferred revenue associated with this product and recorded an impairment loss of $ 17,580,000 for the equipment and recorded a reduction of deferred revenue as an element of cost of goods sold slightly offset by other expenses in the amount of $ 16,160 in the third quarter of 2013. the net impact of this impairment was recorded in cost of goods sold for $ 1,420,000. futurefuel 's customer remains liable for the payment of a minimum take or pay quantity per the terms of the sales agreement through the termination date . dividends in 2013 , we declared a special cash dividend aggregating $ 0.25 per share on our common stock , with a record date and payment date previously discussed . the special cash dividend amounted to $ 10,835,000. we also paid regular cash dividends aggregating $ 0.44 per share on our common stock , with record dates and payment dates as set forth above . the regular cash dividends amounted to $ 19,069,000 , for total dividends paid by us in 2013 of $ 29,904,000. in 2012 , we declared a special cash dividend aggregating $ 1.20 per share on our common stock , with a record date and payment date previously discussed . the special cash dividend amounted to $ 49,978,000. we also paid regular cash dividends aggregating $ 0.40 per share on our common stock , with record dates and payment dates as set forth above . the regular cash dividends amounted to $ 16,560,000 , for total dividends paid by us in 2012 of $ 66,538,000 . 35 capital management as a result of our initial equity offering , our subsequent positive operating results , the exercise of warrants , and the issuance of shares in our at-the-market offering , we accumulated excess working capital . some of this excess working capital was paid out in 2011 , 2012 , and 2013 as special cash dividends and as regular cash dividends . regular cash dividends will also be paid in 2014 as previously discussed . we intend to retain the remaining cash to fund infrastructure and capacity expansion at our batesville plant or to otherwise fund our future growth . third parties have not placed significant restrictions on our working capital management decisions . a significant portion of these funds were held in cash or cash equivalents at multiple financial institutions . in 2013 and 2012 , we also had investments in certain preferred stock , trust preferred securities and other equity instruments . in 2013 , we also had investments in exchange traded debt . we classify these investments as current assets in the accompanying consolidated balance sheets and designate them as being “ available-for-sale ” . accordingly , they are recorded at fair value , with the unrealized gains and losses , net of taxes , reported as a component of stockholders ' equity . the fair value of these preferred stock , trust preferred securities , exchange traded debt , and other equity instruments , including accrued dividends and interest , totaled $ 104,271,000 and $ 86,618,000 at december 31 , 2013 and 2012 , respectively . we also maintained a position in auction rate securities at december 31 , 2012. we have selectively made investments in certain auction rate securities that we believed offered sufficient yield along with sufficient liquidity . to date , all the auction rate securities in which we have invested have maintained a mechanism for liquidity , meaning that the respective auctions have not failed , the issuers have called the instruments , or a secondary market exists for liquidation of the securities . we have classified these instruments as current assets in the accompanying consolidated balance sheet and carried them at their estimated fair market value . the fair value of these instruments approximated their par value and , including accrued interest , totaled $ 1,150,000 at december 31 , 2012. no such investments were held at december 31 , 2013. auction rate securities are typically long term bonds issued by an entity for which there is a series of auctions over the life of the bond that serve to reset the interest rate on the bonds to a market rate . these auctions also serve as a mechanism to provide liquidity to the bond holders ; as long as there are sufficient purchasers of the auction rate securities , the then owners of the auction rate securities are able to liquidate their investment through a sale to the new purchasers . in the event of an auction failure , a situation when there are more sellers than buyers of a particular issue , the current owners of an auction rate security issue may not be able to liquidate their investment . as a result of an auction failure , a holder may be forced to hold the particular security either until maturity or until a willing buyer is found . even if a willing buyer is found , however , there is no guarantee that this willing buyer will purchase the security for its carrying value , which would result in a loss being realized on the sale . lastly , we maintain depository accounts such as checking accounts , money market accounts , and other similar accounts at selected financial institutions .
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results of operations in general we break our chemicals business into two main product groups : custom manufacturing and performance chemicals . custom manufacturing consists of products made for specific customers based upon specifications provided by such customers . major products in the custom manufacturing group include : ( i ) nonanoyloxybenzene-sulfonate , a bleach activator manufactured exclusively for a customer for use in a household detergent ; ( ii ) a proprietary herbicide ( and intermediates ) manufactured exclusively for a customer ; ( iii ) chlorinated polyolefin adhesion promoters ( or cpos ) and antioxidant precursors ( or dipb ) for a customer ; and ( iv ) a biocide intermediate for another customer . the custom manufacturing group also includes agrochemicals as well as industrial and consumer products ( cosmetics and personal care products , specialty polymers , photographic and imaging chemicals , and an intermediate anode powder to be used as a component of high-performance graphite anode materials for lithium-ion batteries ) . revenues generated from the bleach activator are based on a supply agreement with the customer . the supply agreement stipulates selling price per kilogram based on volume sold , with price moving up as volumes move down , and vice-versa . on august 28 , 2012 , we signed an amendment to our existing agreement with the bleach activator customer . among other things , the amendment : ( i ) extended the term of the agreement to december 31 , 2016 ( unless terminated earlier in accordance with the provisions of the agreement ) ; and ( ii ) allows us to sell certain formulations of the bleach activator to third parties as a performance chemical . we pay for raw materials required to produce the bleach activator . the contract with the customer provides that the price received by us for the bleach activator is indexed to changes in certain items , enabling us to pass along most inflationary increases in production costs to the customer .
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; why those net sales , earnings , gross margins and costs were different from the year before ; how all of this affects our overall financial condition ; what our expenditures for capital projects were in 2013 and 2012 and what we expect them to be in 2014 ; and where funds will come from to pay for future expenditures . as you read management 's discussion and analysis , please refer to our consolidated financial statements , included in item 8 of this form 10-k , which present the results of operations for the fiscal years ended february 1 , 2014 , february 2 , 2013 and january 28 , 2012 . in management 's discussion and analysis , we analyze and explain the annual changes in some specific line items in the consolidated financial statements for fiscal year 2013 compared to fiscal year 2012 and for fiscal year 2012 compared to fiscal year 2011 . 18 key events and recent developments several key events have had or are expected to have a significant effect on our operations . you should keep in mind that : on september 17 , 2013 , we entered into agreements with jp morgan chase bank to repurchase $ 1.0 billion of our common stock under a variable maturity accelerated share repurchase program , 50 % of which is collared and 50 % of which is uncollared . on september 16 , 2013 , we completed a private placement with institutional investors of $ 750 million aggregate principal amount of senior notes . the senior notes include three tranches with $ 300 million of 4.03 % senior notes due in september 2020 , $ 350 million of 4.63 % senior notes due in september 2023 and $ 100 million of 4.78 % senior notes due in september 2025. on september 13 , 2013 , our board of directors authorized the repurchase of an additional $ 2.0 billion of our common stock . this authorization replaced all previous authorizations . at february 1 , 2014 , we had $ 1.0 billion remaining under board repurchase authorization . in august 2013 , we completed a 401,000 square foot expansion of our distribution center in marietta , oklahoma . the marietta distribution center is now a 1,004,000 square foot , fully automated facility . in june 2013 , we completed construction on a new 1.0 million square foot distribution center in windsor , connecticut . in march 2013 , we leased an additional 0.4 million square feet at our distribution center in san bernardino , california . the san bernardino distribution center is now an 802,000 square foot facility . on june 6 , 2012 , we entered into a five-year $ 750.0 million unsecured credit agreement which provides for a $ 750.0 million revolving line of credit , including up to $ 150.0 million in available letters of credit . the interest rate on the facility is based , at our option , on a libor rate , plus a margin , or an alternate base rate , plus a margin . in october 2011 , we completed a 410,000 square foot expansion of our distribution center in savannah , georgia . the savannah distribution center is now a 1,014,000 square foot , fully automated facility . overview our net sales are derived from the sale of merchandise . two major factors tend to affect our net sales trends . first is our success at opening new stores or adding new stores through acquisitions . second , sales vary at our existing stores from one year to the next . we refer to this change as a change in comparable store net sales , because we compare only those stores that are open throughout both of the periods being compared . we include sales from stores expanded during the year in the calculation of comparable store net sales , which has the effect of increasing our comparable store net sales . the term 'expanded ' also includes stores that are relocated . at february 1 , 2014 , we operated 4,992 stores in 48 states and the district of columbia , and five canadian provinces , with 43.2 million selling square feet compared to 4,671 stores with 40.5 million selling square feet at february 2 , 2013 . during fiscal 2013 , we opened 343 stores , expanded 71 stores and closed 22 stores , compared to 345 new stores opened , 87 stores expanded and 25 stores closed during fiscal 2012 . in the current year we increased our selling square footage by 6.9 % . of the 2.7 million selling square foot increase in 2013 , 0.2 million was added by expanding existing stores . the average size of our stores opened in 2013 was approximately 8,020 selling square feet ( or about 9,800 gross square feet ) . for 2014 , we continue to plan to open stores that are approximately 8,000 - 10,000 selling square feet ( or about 10,000 - 12,000 gross square feet ) . we believe that this store size is our optimal size operationally and that this size also gives our customers an ideal shopping environment that invites them to shop longer and buy more . fiscal 2013 and fiscal 2011 which ended on february 1 , 2014 , and january 28 , 2012 , respectively , each included 52 weeks . fiscal 2012 ended on february 2 , 2013 and included 53 weeks , commensurate with the retail calendar . the 53rd week in 2012 added approximately $ 125 million in sales . in fiscal 2013 , comparable store net sales increased by 2.4 % . this increase was based on the comparable 52 weeks for both years . the comparable store net sales increase was the result of a 1.9 % increase in the number of transactions and a 0.5 % increase in average ticket . story_separator_special_tag interest on the notes is payable semi-annually on january 15 and july 15 of each year , beginning january 15 , 2014. the notes are unsecured and rank pari passu in right of repayment with our other senior unsecured indebtedness . we may prepay some or all of the notes at any time in an amount not less than 5 % of the original aggregate principal amount of the notes to be prepaid , at a price equal to the sum of ( a ) 100 % of the principal amount thereof , plus accrued and unpaid interest , and ( b ) the applicable make-whole amount . in the event of a change in control ( as defined in the note purchase agreement ) , we may be required to prepay the notes . the note purchase agreement contains customary affirmative and restrictive covenants . we used the net proceeds of the notes to finance share repurchases . in june 2012 , we entered into a five-year $ 750.0 million unsecured credit agreement ( the agreement ) . the agreement provides for a $ 750.0 million revolving line of credit , including up to $ 150.0 million in available letters of credit . the interest rate on the agreement is based , at our option , on a libor rate , plus a margin , or an alternate base rate , plus a margin . the agreement also bears a facilities fee , calculated as a percentage , as defined , of the amount available under the line of credit , payable quarterly . the agreement also bears an administrative fee payable annually . the agreement , among other things , requires the maintenance of certain specified financial ratios , restricts the payment of certain distributions and prohibits the incurrence of certain new indebtedness . as of february 1 , 2014 , no amount was outstanding under the $ 750.0 million revolving line of credit . in september 2013 , we amended the agreement to enable the issuance of the notes . we repurchased 17.4 million shares for $ 1,112.1 million in fiscal 2013 . subsequent to year end we received an additional 1.9 million shares due to the completion of the uncollared asr . we may receive additional shares in 2014 upon completion of 22 the collared asr . we repurchased 8.1 million shares for $ 340.2 million in fiscal 2012 . we repurchased 17.4 million shares for $ 645.9 million in fiscal 2011 . at february 1 , 2014 , we have $ 1.0 billion remaining under board repurchase authorization . funding requirements overview , including off-balance sheet arrangements we expect our cash needs for opening new stores and expanding existing stores in fiscal 2014 to total approximately $ 258.8 million , which includes capital expenditures , initial inventory and pre-opening costs . our estimated capital expenditures for fiscal 2014 are between $ 350.0 million and $ 360.0 million , including planned expenditures for our new and expanded stores , the addition of freezers and coolers to approximately 320 stores , the expansion of our joliet , illinois distribution center and the initial phases of work on our eleventh distribution center . we believe that we can adequately fund our working capital requirements and planned capital expenditures for the next few years from net cash provided by operations and potential borrowings under our existing credit facility . the following tables summarize our material contractual obligations at february 1 , 2014 , including both on- and off-balance sheet arrangements , and our commitments , including interest on long-term borrowings ( in millions ) : replace_table_token_11_th replace_table_token_12_th lease financing operating lease obligations . our operating lease obligations are primarily for payments under noncancelable store leases . the commitment includes amounts for leases that were signed prior to february 1 , 2014 for stores that were not yet open on february 1 , 2014 . long-term borrowings senior notes . in september 2013 , we entered into a note purchase agreement with institutional accredited investors in which we issued and sold $ 750.0 million of senior notes ( the `` notes '' ) in an offering exempt from the registration requirements of the securities act of 1933. the notes consist of three tranches : $ 300.0 million of 4.03 % senior notes due september 16 , 2020 ; $ 350.0 million of 4.63 % senior notes due september 16 , 2023 ; and $ 100.0 million of 4.78 % senior notes due september 16 , 2025 . interest on the notes is payable semi-annually on january 15 and july 15 of each year , beginning january 15 , 2014. for complete terms of the notes please see item 8. financial statements and supplementary data , `` note 5 - long-term debt '' beginning on page 44 of this form 10-k. demand revenue bonds . in may 1998 , we entered into an agreement with the mississippi business finance corporation under which it issued $ 19.0 million of variable-rate demand revenue bonds . we used the proceeds from the bonds to finance the acquisition , construction and installation of land , buildings , machinery and equipment for our distribution facility in olive branch , mississippi . at february 1 , 2014 , the balance outstanding on the bonds was $ 12.8 million . these bonds are due to be fully repaid in june 2018. the bonds do not have a prepayment penalty as long as the interest rate remains variable . the bonds 23 contain a demand provision and , therefore , outstanding amounts are classified as current liabilities . we pay interest monthly based on a variable interest rate , which was 0.19 % at february 1 , 2014 . on march 3 , 2014 , we paid the $ 12.8 million outstanding under the demand revenue bonds and the debt was retired . forgivable promissory note .
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results of operations replace_table_token_7_th fiscal year ended february 1 , 2014 compared to fiscal year ended february 2 , 2013 net sales . net sales increased 6.0 % , or $ 445.8 million , in 2013 compared to 2012 , resulting from sales in our new stores and a 2.4 % increase in comparable store net sales . excluding the 53rd week in 2012 , which accounted for approximately $ 125.0 million of sales , net sales increased 7.9 % , or $ 570.8 million . the comparable store net sales increase is based on the comparable 52 weeks for both years . comparable store net sales are positively affected by our expanded and relocated stores , which we include in the calculation , and , to a lesser extent , are negatively affected when we open new stores or expand stores near existing ones . the following table summarizes the components of the changes in our store count for fiscal years ended february 1 , 2014 and february 2 , 2013 . replace_table_token_8_th of the 2.7 million selling square foot increase in 2013 approximately 0.2 million was added by expanding existing stores . gross profit . gross profit margin was 35.6 % in 2013 compared to 35.9 % in 2012 due to loss of leverage in occupancy and distribution cost from the 53rd week of sales in 2012. selling , general and administrative expenses . selling , general and administrative expenses , as a percentage of net sales , decreased to 23.2 % for 2013 compared to 23.5 % for 2012. the decrease is primarily due to lower incentive compensation achievement in 2013 compared with 2012 and lower inventory service fees . operating income . operating income margin was 12.4 % in 2013 and 2012 due to the reasons noted above . interest expense , net .
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f- 13 hudson pacific properties , l.p. consolidated statements of comprehensive income ( loss ) ( in thousands ) replace_table_token_45_th the accompanying notes are an integral part of these consolidated financial statements . f- 14 hudson pacific properties , l.p. consolidated statements of capital ( in thousands , except unit data ) replace_table_token_46_th the accompanying notes are an integral part of these consolidated financial statements . f- 15 hudson pacific properties , l.p. consolidated statements of cash flows ( in thousands ) replace_table_token_47_th the accompanying notes are an integral part of these consolidated financial statements . f- 16 hudson pacific properties , l.p. consolidated statements of cash flows— ( continued ) ( in thousands ) replace_table_token_48_th _ ( 1 ) represents bad debt expense/recovery , amortization of discount and net origination fees on purchased and originated loans and unrealized loss/gain on ineffective portion of derivative instruments . the accompanying notes are an integral part of these consolidated financial statements . f- 17 hudson pacific properties , inc. and hudson pacific properties , l.p. notes to consolidated financial statements ( tabular amounts in thousands , except square footage and share/unit data ) 1. organization hudson pacific properties , inc. is a maryland corporation formed on november 9 , 2009 as a fully integrated , self-administered and self-managed real estate investment trust ( “ reit ” ) . through its controlling interest in the operating partnership and its subsidiaries , hudson pacific story_separator_special_tag the following discussion relates to our consolidated financial statements and should be read in conjunction with the consolidated financial statements and the related notes , see part iv , item 15 ( a ) “ financial statements and schedules. ” statements in this item 7 contain forward-looking statements . such statements are subject to risks , uncertainties and assumptions and may be affected by known and unknown risks , trends , uncertainties and factors that are beyond our control . should one or more of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , actual results may vary materially from those anticipated , estimated or projected . in particular , information concerning projected future occupancy rates , rental rate increases , property development timing and investment amounts contain forward-looking statements . furthermore , all of the statements regarding future financial performance ( including anticipated funds from operations ( “ ffo ” ) market conditions and demographics ) are forward-looking statements . numerous factors will affect our actual results , some of which are beyond our control . these include the breadth and duration of the current economic recession and its impact on our tenants , the strength of commercial and industrial real estate markets , market conditions affecting tenants , competitive market conditions , interest rate levels , volatility in our stock price and capital market conditions . accordingly , investors should use caution and not place undue reliance on this information , which speaks only as of the date of this report . we expressly disclaim any responsibility to update any forward-looking information , whether as a result of new information , future events , or otherwise , except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws to disclose material information . for a discussion of important risks related to our business , and related to investing in our securities , including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking statements see part i , item 1a “ risk factors. ” in light of these risks , uncertainties and assumptions , the forward-looking events discussed in this report might not occur . executive summary through our interest in hudson pacific properties , l.p. ( our operating partnership ) and its subsidiaries , at december 31 , 2017 , our consolidated office portfolio consisted of approximately 13.3 million square feet of in-service , redevelopment , development and held for sale properties . additionally , as of december 31 , 2017 , our media and entertainment portfolio consisted of 1.2 million square feet of in-service and redevelopment properties . as of december 31 , 2017 , our consolidated in-service office portfolio was 92.1 % leased ( including leases not yet commenced ) . our same-store media and entertainment properties were 90.7 % leased for the average percent leased for the 12 months ended december 31 , 2017 . our non-same-store media and entertainment property was 76.1 % leased for the average percent leased for the eight months ended december 31 , 2017 . current year highlights acquisitions during 2017 , we continued to focus on strategic acquisitions by investing across the risk-return spectrum , favoring opportunities where we can employ leasing , capital investments and management expertise to create additional value . we purchased sunset las palmas studios ( formerly hollywood center studios ) , a 373,150 square-foot media and entertainment campus with future development rights consisting of 13 stages , production offices and support space on 15 acres . additionally , we purchased the ground lease related to our 11601 wilshire property . the following table summarizes the properties acquired in 2017 : replace_table_token_16_th _ 45 ( 1 ) represents purchase price before certain credits , prorations and closing costs . ( 2 ) the purchase price above does not include equipment purchased by us for $ 2.8 million , which was transacted separately from the studio acquisition . in april 2017 , we drew $ 150.0 million under the unsecured revolving credit facility to fund the acquisition . ( 3 ) on july 1 , 2016 , we purchased a partial interest in land held as a tenancy in common in conjunction with our acquisition of the 11601 wilshire property . the land interest held as a tenancy in common was accounted for as an equity method investment . on june 15 , 2017 , we purchased the remaining interest , which was fair valued and allocated to land and building . story_separator_special_tag future economic downturns or regional downturns affecting our submarkets or downturns in our tenants ' industries that impair our ability to renew or re-let space and the ability of our tenants to fulfill their lease commitments , as in the case of tenant bankruptcies , could adversely affect our ability to maintain or increase rental rates at our properties . in addition , growth in rental revenue will also partially depend on our ability to acquire additional properties that meet our investment criteria . conditions in our markets the properties in our portfolio are all located in northern and southern california and the pacific northwest . positive or negative changes in economic or other conditions in northern and southern california or the pacific northwest , including state budgetary shortfalls , employment rates , natural hazards and other factors , may impact our overall performance . 47 operating expenses our operating expenses generally consist of utilities , property and ad valorem taxes , insurance and site maintenance costs . increases in these expenses over tenants ' base years are generally passed on to tenants in our full-service gross leased properties and are generally paid in full by tenants in our net lease properties . certain of our properties have been reassessed for property tax purposes as a result of our ipo or their subsequent acquisition and other reassessments remain pending . in the case of completed reassessments , the amount of property taxes we pay reflects the valuations established with the county assessors for the relevant locations of each property as of ipo or their subsequent acquisition . with respect to pending reassessments , we similarly expect the amount of property taxes we pay to reflect the valuations established with such county assessors . taxable reit subsidiary hudson pacific services , inc. , or our services company , is a maryland corporation that is wholly owned by our operating partnership . we have elected , together with our services company , to treat our services company as a taxable reit subsidiary for federal income tax purposes , and we may form additional taxable reit subsidiaries in the future . our services company generally may provide both customary and non-customary services to our tenants and engage in other activities that we may not engage in directly without adversely affecting our qualification as a reit . our services company and its wholly owned subsidiaries provide a number of services to certain tenants at our media and entertainment properties and , from time to time , one or more taxable reit subsidiaries may provide services to our tenants at these and other properties . in addition , our operating partnership has contributed some or all of its interests in certain wholly owned subsidiaries or their assets to our services company . we currently lease space to wholly owned subsidiaries of our services company at our media and entertainment properties and may , from time to time , enter into additional leases with one or more taxable reit subsidiaries . any income earned by our taxable reit subsidiaries will not be included in our taxable income for purposes of the 75 % or 95 % gross income tests , except to the extent such income is distributed to us as a dividend , in which case such dividend income will qualify under the 95 % , but not the 75 % , gross income test . because a taxable reit subsidiary is subject to federal income tax , and state and local income tax ( where applicable ) , as a regular c corporation , the income earned by our taxable reit subsidiaries generally will be subject to an additional level of tax as compared to the income earned by our other subsidiaries . critical accounting policies the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an ongoing basis , we evaluate our estimates , including those related to acquiring , developing and assessing the carrying values of our real estate properties , our accrued liabilities , and our performance-based equity compensation awards . we base our estimates on historical experience , current market conditions , and various other assumptions that are believed to be reasonable under the circumstances . actual results could materially differ from these estimates . the following critical accounting policies discussion reflect what we believe are the most significant estimates , assumptions and judgements used in the preparation of our consolidated financial statements . see part iv , item 15 “ financial statement and schedules—note 2 to the consolidated financial statements—summary of significant accounting policies ” for details on our significant accounting policies . investment in real estate properties acquisitions our acquisitions are accounted for using the acquisition method . the results of operations for each of these acquisitions are included in our consolidated statements of operations from the date of acquisition . during the fourth quarter of 2016 we early adopted asu 2017-01 , business combinations ( topic 805 ) : clarifying the definition of a business ( “ asu 2017-01 ” ) , which changes the definition of a business . acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as an asset acquisition . we evaluate each acquisition of real estate to determine if the integrated set of assets and activities acquired meet the definition of a business and need to be accounted for as a business combination in accordance with asc 805 , business combinations .
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results of operations the following table identifies the properties in our portfolio as of december 31 , 2017 : replace_table_token_19_th _ ( 1 ) we acquired this property in august 2007 and completed its development in june 2008 . ( 2 ) this property was classified as held for sale as of december 31 , 2017 and the sale is expected to close during the first quarter of 2018 . ( 3 ) we have a 55 % ownership interest in the consolidated joint venture that owns the 1455 market property . ( 4 ) this development was completed in the second quarter of 2017 . ( 5 ) we estimate this development will be completed in the fourth quarter of 2018 and stabilized in the second quarter of 2019. as a result of this development , the estimated rentable square footage increased to 99,090 . ( 6 ) we acquired the building and partial interest in the land on july 1 , 2016 and acquired the remaining interest in the land on june 15 , 2017 . ( 7 ) we have a 55 % ownership interest in the consolidated joint venture that owns the hill7 property . ( 8 ) properties that were related to acquisitions that were subsequently developed by us . 53 ( 9 ) the land related to this development was included in our acquisition of sunset bronson studios . we completed this development in the fourth quarter of 2016 . ( 10 ) the land related to this development was included in our acquisition of merrill place . we completed this development in the third quarter of 2017 . ( 11 ) the land related to this development was included in our acquisition of sunset bronson studios . we completed this development in the third quarter of 2017 and it is estimated to be stabilized in the second quarter of 2019 . ( 12 ) the land related to this development was included in our acquisition of merrill place .
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the forwardlooking statements speak only as of the date on which they are made , and , except as required by law , we undertake no obligation to update any forwardlooking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events . in addition , we can not assess the impact of each factor on our business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forwardlooking statements . overview historically , our business has focused on designing , developing and building specialty equipment for the automotive and heavy equipment industries . in october 2003 , our predecessor company was purchased by veri-tek international corp. , formerly known as quantum-veritek , inc. , an affiliate of quantum value partners , lp , pursuant to an asset purchase agreement . as a result of this transaction , we intend to implement a new growth strategy of expanding our testing services and launching manufacturing operations . while we will continue to sell specialty equipment , we intend to build on our experience in designing and building this equipment and our patented technology to provide axle testing services to automotive manufacturers . we also intend to become a manufacturer of precision driveshafts using a new manufacturing process that we have developed implementing our patented true vehicle running center shaft assembly system ( tvrc ) . sales of our assembly and testing equipment presently comprise most of our revenues . we have not derived material revenues to date from providing axle testing service or manufacturing precision driveshafts . 20 we derive most of our revenue under purchase orders from oems and tier 1 suppliers . the volume and timing of orders placed by our customers vary due to several factors , including variation in demand for our customers ' products , changes in our customers ' manufacturing strategies and general economic conditions . we recognize revenue from our specialty equipment using the percentage of completion method . we recognize revenue in our testing business when services are rendered . the testing business has not generated material revenue to date . the driveshaft manufacturing portion of our business will recognize revenue when products are shipped . to date , we have generated no revenue from selling our driveshaft manufacturing services . our operating profit for our specialty equipment depends on the mix between the cost of materials in the equipment and the cost of labor and manufacturing overhead allocated to the equipment . our driveshaft assembly products contain less sophisticated technology than our axle testing products , and therefore , have a lower cost of production . in addition , as we gain experience in manufacturing a certain kind of equipment , we usually achieve increased efficiencies , which result in lower labor costs and manufacturing overhead for that equipment . while we may achieve some level of increased efficiency with respect to manufacturing specialty equipment , our gross margins related thereto will likely continue to vary , as we must produce different kinds of equipment and each piece of equipment must meet certain specifications of our customers . as we implement our growth strategy of providing testing services and manufacturing precision driveshafts , we believe that our gross margins will stabilize , as the equipment that we produce will be less varied . on february 15 , 2005 we completed an initial public offering of 2,500,000 shares of our common stock at a price of $ 6.00 per share and on march 2 , 2005 we completed the sale of the underwriters ' over-allotment option of 375,000 shares of our common stock . net proceeds after underwriters ' discount and other expenses relating to the offering were approximately $ 15.1 million . story_separator_special_tag income tax expense ( benefit ) . our income tax benefit was $ 1.1 million for the period ended december 31 , 2005 compared to a tax benefit of $ 1.8 million for the prior year . net earnings ( loss ) . as a result of the foregoing factors , net loss from operations was $ 2.3 million for the period ended december 31 , 2005 compared to a net loss of $ 3.5 million in 2004. year ended december 31 , 2004 compared to year ended december 31 , 2003 revenue . our revenue decreased by $ 0.5 million , or 5.5 % , to $ 7.9 million for the period ended december 31 , 2004 from $ 8.4 million for the same period in 2003. this decrease was primarily the result of decreased orders for our specialty equipment . our main sources of revenue for the period ended december 31 , 2004 were our axle products , primarily virtual balancing equipment and vetag axle test equipment , and transmission products which accounted for 66 % and 17 % of total revenue , respectively . for the same period in 2003 , our axle , transmission , driveshaft and engine products accounted for 45 % , 21 % , 19 % and 10 % , respectively . during the 2004 period , we experienced a 50 % increase in orders for our axle products as compared to the same period in 2003. in particular , the introduction of our virtual balancing equipment has been well-received by the market . revenues from the sale of specific specialty equipment are affected by the needs and new platform launch schedules of our customer . in 2004 , we have experienced increased demand for our axle testing and balancing equipment , which we believe results from new platform launches by our customers . cost of sales . story_separator_special_tag cash provided by financing activities of $ 8.1 million for the year ended december 31 , 2005 , was the result of our successful initial public offering offset by the expenses of the offering and the repayment of our revolving credit facility with a portion of the net proceeds from the offering . 24 as of december 31 , 2005 the company maintained an $ 8.0 million revolving credit facility with comerica bank n.a . ( comerica ) with a maturity date of january 2 , 2007 ( the credit facility ) . the amount of the credit facility was $ 9.3 million at december 31 , 2004. our credit facility is secured by substantially all of our assets and provides for the issuance of up to $ 5.0 million in standby or documentary letters of credit . our credit facility may be utilized for general corporate purposes , including working capital , and provides us with borrowing options for multi-currency loans . borrowing options include a eurocurrency rate , or a base rate . as of the date of this report , there are no borrowings on the credit facility ; however , we have issued standby letters of credit totaling $ 0.5 million which reduces the availability under the credit facility by the same amount . as of december 31 , 2004 we had subordinated debt of approximately $ 7.2 million . on october 31 , 2003 , in connection with the acquisition of our predecessor company by veri-tek international corp. , formerly known as quantum-veritek , inc. , an affiliate of quantum value partners , lp , pursuant to an asset purchase agreement , we entered into a subordinated note with quantum value partners , lp , our principal shareholder . under this subordinated note , we borrowed $ 5.9 million . at the time we entered into the subordinated note , it accrued annual interest at a rate of 20 % , 8 % of which was to be paid in cash on a quarterly basis and 12 % of which was accrued quarterly and added to the principal . in april 2004 , the subordinated note was amended to accrue all interest quarterly and add this interest to the principal balance . the parties further amended the debt agreement in october 2004 so that simultaneously with the closing of our initial public offering , the debt will be converted into that number of shares of our common stock that is equal to the aggregate amount of principal and interest outstanding on the subordinated debt at such time divided by the offering price per share of our common stock in this offering , provided that the debt shall not accrue interest beyond october 30 , 2004. this debt was converted into 1,195,900 shares of our common stock on february 15 , 2005. off-balance sheet arrangements the company has no off-balance sheet arrangements as defined in regulation s-k 303 ( a ) ( 4 ) ( ii ) . contractual obligations the following is a schedule at december 31 , 2005 of our long-term contractual commitments , future minimum lease payments under non-cancelable operating lease arrangements and other long-term obligations . replace_table_token_5_th as of december 31 , 2005 the company is in compliance with all of its financial debt covenants under the credit facility . 25 critical accounting policies and estimates the preparation of our financial statements and related disclosures in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and judgments that affect our reported amounts of assets and liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on an on-going basis , we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances . management believes that our estimates and assumptions are reasonable under the circumstances ; however , actual results may vary from these estimates and assumptions under different future circumstances . we have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition . we have two main businesses the design and manufacture of specialty equipment and testing services ( primarily the testing of axles ) . the specialty equipment business recognizes revenue utilizing the percentage of completion method . the testing business recognizes revenue when services are rendered . the testing business has not generated material revenue to date . in addition , we intend to enter the business of manufacturing precision driveshafts in the future . this business will recognize revenue when products are shipped . the manufacturing process of our specialty equipment takes six to twelve months to complete per unit . each project has a purchase order from a customer prior to manufacture . on a monthly basis , management estimates the percentage of completion of each project utilizing input from the personnel responsible for individual phases of the project . this input includes the total hours of labor and material utilized to date and estimates of the labor and material necessary to complete the project . from this input the total percentage of completion is calculated . this percentage is then used to calculate the amount of revenue to be recognized . our project managers and department managers have significant experiences in the development and manufacture of specialty machine tools . the estimates employed are based on their experience in manufacturing products of the type we make . these are estimates and therefore contain a risk of change . in our experience , we have not experienced material adverse changes from period to period in calculating the percentage of completion .
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results of operations the following table sets forth certain financial data for the three years ended december 31 , 2003 , 2004 and 2005. replace_table_token_4_th ( 1 ) the predecessor company was a subchapter s corporation and therefore did not recognize income tax expense . ( 2 ) the combined financial information presented represents the sum of the january 1 , 2003 through october 31 , 2003 period for the predecessor and the november 1 , 2003 through december 31 , 2003 period for the successor . no adjustments have been made to this data . ( 3 ) the combined financial information presented represents the sum of the january 1 , 2003 through october 31 , 2003 period for the predecessor and the november 1 , 2003 through december 31 , 2003 period for the successor . no adjustments have been made to this data . ( 4 ) not applicable because the successor was created on october 18 , 2003 and has a different capital structure than the predecessor . year ended december 31 , 2005 compared to year ended december 31 , 2004 revenue . our revenue decreased by $ 0.3 million , or 3.6 % , to $ 7.6 million for the period ended december 31 , 2005 from $ 7.9 million for the same period in 2004. this decrease was primarily the result of decreased orders for our specialty equipment . the majority of our revenue for the year ended december 31 , 2005 was derived from our specialty equipment business which 21 accounted for 88 % of our revenue . during 2005 our driveshaft , diesel engine , and axle products accounted for 36 % , 33 % , and 19 % of total revenue , respectively . for the same period in 2004 , our axle and transmission products accounted for 66 % and 12 % , respectively .
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in march 2017 , the fasb issued an accounting standards update requiring that the service cost component of pension and postretirement benefit costs be presented in the same line item as other current employee story_separator_special_tag management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the information included under item 1. business , item 1a . risk factors , item 6. selected financial data and item 8. financial statements and supplementary data . management 's discussion and analysis of financial condition and results of operations includes various forward-looking statements concerning trends or events potentially affecting our business . you can identify our forward-looking statements by words such as “ anticipate , ” “ believe , ” “ could , ” “ design , ” “ estimate , ” “ expect , ” “ forecast , ” “ goal , ” “ guidance , ” “ imply , ” “ intend , ” “ may , ” “ objective , ” “ opportunity , ” “ outlook , ” “ plan , ” “ position , ” “ potential , ” “ predict , ” “ project , ” “ prospective , ” “ pursue , ” “ seek , ” “ should , ” “ strategy , ” “ target , ” “ will , ” “ would , ” or other similar expressions that convey the uncertainty of future events or outcomes . in accordance with “ safe harbor ” provisions of the private securities litigation reform act of 1995 , these statements are accompanied by cautionary language identifying important factors , though not necessarily all such factors , which could cause future outcomes to differ materially from those set forth in forward-looking statements . corporate overview we are an independent petroleum refining and marketing , retail and midstream company . overall , we are one of the largest independent petroleum product refining , marketing , retail and transportation businesses in the united states and the largest east of the mississippi . we currently own and operate six refineries , all located in the united states , with an aggregate crude oil refining capacity of approximately 1.9 mmbpcd . our refineries supply refined products to resellers and consumers within our market areas , including the midwest , northeast , east coast , southeast and gulf coast regions of the united states . we distribute refined products to our customers through pipeline and marine transportation , terminals and storage services provided by our midstream segment . we are one of the largest wholesale suppliers of gasoline and distillates to resellers within our market area . we have two strong retail brands : speedway ® and marathon ® . we believe that speedway llc , a wholly-owned subsidiary , operates the second largest chain of company-owned and operated retail gasoline and convenience stores in the united states , with approximately 2,740 convenience stores in 21 states throughout the midwest , east coast and southeast . the marathon brand is an established motor fuel brand in the midwest and southeast regions of the united states , and is available through approximately 5,600 retail outlets operated by independent entrepreneurs in 20 states and the district of columbia . through our ownership interests in mplx , we are one of the largest processors of natural gas in the united states and the largest processor and fractionator in the marcellus and utica shale regions . our integrated midstream energy asset network links producers of natural gas and ngls from some of the largest supply basins in the united states to domestic and international markets . our midstream gathering and processing operations include : natural gas gathering , processing and transportation ; and ngl gathering , transportation , fractionation , storage and marketing . our assets include approximately 5.9 bcf/d of gathering capacity , 8.0 bcf/d of natural gas processing capacity and 610 mbpd of fractionation capacity as of december 31 , 2017 . as of december 31 , 2017 , we owned , leased or had ownership interests in approximately 10,800 miles of crude oil and refined product pipelines to deliver crude oil to our refineries and other locations and refined products to wholesale and retail market areas . we distribute our refined products through one of the largest terminal operations in the united states and one of the largest private domestic fleets of inland petroleum product barges . in the first quarter of 2017 , we revised our segment reporting in connection with the contribution of certain terminal , pipeline and storage assets to mplx . the operating results for these assets are now reported in our midstream segment . previously , they were reported as part of our refining & marketing segment . comparable prior period information has been recast to reflect our revised presentation . the results for the pipeline and storage assets were recast effective january 1 , 2015 and the results for the terminal assets were recast effective april 1 , 2016. prior to these dates , these assets were not considered businesses for accounting purposes and , therefore , there are no financial results from which to recast segment results . our operations consist of three reportable operating segments : refining & marketing ; speedway ; and midstream . each of these segments is organized and managed based upon the nature of the products and services they offer . see item 1. business for additional information on our segments . refining & marketing – refines crude oil and other feedstocks at our six refineries in the gulf coast and midwest regions of the united states , purchases refined products and ethanol for resale and distributes refined products through various means , including pipeline and marine transportation , terminals and storage services provided by our midstream segment . we sell refined products to wholesale marketing customers domestically and internationally , buyers on the spot market , our speedway business segment and independent entrepreneurs who operate marathon ® retail outlets . story_separator_special_tag mplx lp mplx is a diversified , growth-oriented publicly traded master limited partnership originally formed by us to own , operate , develop and acquire midstream energy infrastructure assets . mplx is engaged in the gathering , processing and transportation of natural gas ; the gathering , transportation , fractionation , storage and marketing of ngls ; and the gathering , transportation and storage of crude oil and refined petroleum products . on december 4 , 2015 , we completed the markwest merger , whereby markwest became a wholly-owned subsidiary of mplx . as of december 31 , 2017 , we owned a 30.4 percent interest in mplx , including a two percent general partner interest . mplx is a vie because the limited partners of mplx do not have substantive kick-out or substantive participating rights over the general partner . we are the primary beneficiary of mplx because in addition to significant economic interest , we also have the power , through our 100 percent ownership of the general partner , to control the decisions that most significantly impact mplx . we therefore consolidate mplx and record a noncontrolling interest for the 69.6 percent interest owned by the public . the creditors of mplx do not have recourse to mpc 's general credit through guarantees or other financial arrangements . the assets of mplx are the property of mplx and can not be used to satisfy the obligations of mpc . mpc has effectively guaranteed certain indebtedness of loop and locap , in which mplx holds an interest . see item 8. financial statements and supplementary data – note 25 for more information . see the “ strategic actions to enhance shareholder value ” section for information on our ownership of mplx after the dropdown of certain assets and idr exchange on february 1 , 2018. story_separator_special_tag font style= '' font-family : inherit ; font-size:10pt ; '' > locations contributed by pilot flying j , all of which carry either the pilot or flying j brand and are operated by pilot flying j. our non-cash contribution was $ 273 million based on the book value of the assets we contributed to the joint venture . on september 1 , 2016 , enbridge energy partners announced that its affiliate , north dakota pipeline , would withdraw certain pending regulatory applications for the sandpiper pipeline project and that the project would be deferred indefinitely . these decisions were considered to indicate an impairment of the costs capitalized to date on the project . we made contributions of $ 14 million to north dakota pipeline during the year ended december 31 , 2016 and contributed $ 301 million since project inception to fund our share of the construction costs for the project . as the operator of north dakota pipeline , which owns the investments made to date in the sandpiper pipeline project , and the entity responsible for maintaining its financial records , enbridge energy partners completed a fixed asset impairment analysis as of august 31 , 2016 , in accordance with asc topic 360 , to determine the fixed asset impairment charge . based on the estimated liquidation value of the fixed assets , an impairment charge was recorded by north dakota pipeline . based on our 37.5 percent ownership of north dakota pipeline , we recognized approximately $ 267 million of this charge in the third quarter of 2016 through “ income ( loss ) from equity method investments ” on the accompanying consolidated statements of income . see item 8. financial statements and supplementary data – note 17 to the for information regarding the charge . in september 2015 , we acquired a 50 percent ownership interest in a joint venture , crowley ocean partners , with crowley . the joint venture owns and operates four new jones act product tankers , three of which are leased to mpc . we contributed a total of $ 141 million for the four vessels . in may 2016 , mpc and crowley formed a new ocean vessel joint venture , crowley coastal partners , in which mpc has a 50 percent ownership interest . mpc and crowley each contributed their 50 percent ownership in crowley ocean partners , discussed above , into crowley coastal partners . in addition , we contributed $ 48 million in cash and crowley contributed its 100 percent ownership interest in crowley blue water partners to crowley coastal partners . crowley blue water partners is an entity that owns and operates three 750 series atb vessels that are leased to mpc . on december 4 , 2015 , mplx completed the markwest merger . each common unit of markwest issued and outstanding immediately prior to the effective time of the markwest merger was converted into a right to receive 1.09 common units of mplx representing limited partner interests in mplx , plus a one-time cash payment of $ 6.20 per unit . we contributed approximately $ 1.28 billion of cash to mplx to pay the aggregate cash consideration to markwest unitholders , without receiving any new equity from mplx in exchange . at closing , we made a payment of $ 1.23 billion to markwest common unitholders and the remaining $ 50 million was paid in equal amounts , the first $ 25 million was paid in july 2016 and the second $ 25 million was paid in july 2017 , in connection with the conversion of the mplx class b units to mplx common units . mplx recorded impairment charges of approximately $ 130 million in 2016 to impair a portion of the $ 2.21 billion of goodwill , as adjusted , recorded in connection with the markwest merger . our financial results and operating statistics reflect the results of markwest from the date of the markwest merger .
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mplx highlights on february 8 , 2018 , mplx issued $ 5.5 billion in aggregate principal amount of senior notes in a public offering , consisting of $ 500 million aggregate principal amount of 3.375 percent unsecured senior notes due march 2023 , $ 1.25 billion aggregate principal amount of 4.000 percent unsecured senior notes due march 2028 , $ 1.75 billion aggregate principal amount of 4.500 percent unsecured senior notes due april 2038 , $ 1.5 billion aggregate principal amount of 4.700 percent unsecured senior notes due april 2048 , and $ 500 million aggregate principal amount of 4.900 percent unsecured senior notes due april 2058. on february 8 , 2018 , $ 4.1 billion of the net proceeds were used to repay the 364-day term-loan facility , which was drawn on february 1 , 2018 to fund the cash portion of the consideration mplx paid mpc for the dropdown of assets on february 1 , 2018. the remaining proceeds will be used to repay outstanding borrowings under mplx 's revolving credit facility and intercompany loan agreement with us and for general partnership purposes . on september 1 , 2017 , we contributed our joint-interest ownership in certain pipelines and storage facilities to mplx in exchange for total consideration of $ 1.05 billion . 49 on march 1 , 2017 , we contributed certain terminal , pipeline and storage assets to mplx in exchange for total consideration of $ 2.0 billion . on february 10 , 2017 , mplx completed a public offering of $ 1.25 billion aggregate principal amount of 4.125 % unsecured senior notes due march 2027 and $ 1.0 billion aggregate principal amount of 5.200 % unsecured senior notes due march 2047. mplx used the net proceeds from this offering to fund the $ 1.5 billion cash portion of the consideration mplx paid mpc for the dropdown of assets on march 1 , 2017 , as well as for general partnership purposes .
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when used in this report or elsewhere by management from time to time , the words “ believe , ” “ anticipate , ” “ intend , ” “ plan , ” “ estimate , ” “ expect ” and similar expressions are forward-looking statements . such forward-looking statements contained herein are based on current expectations . forward-looking statements made in this report include , for example , statements about : the clinical trial plans for dur-928 ; potential regulatory filings for or approval of rbp-7000 , remoxy er , posimir , dur-928 or any of our or any third parties ' other product candidates ; the progress of our third-party collaborations , including estimated milestones ; our intention to seek , and ability to enter into and maintain strategic alliances and collaborations ; the potential benefits and uses of our products ; responsibilities of our third-party collaborators , including the responsibility to make cost reimbursement , milestone , royalty and other payments to us , and our expectations regarding our collaborators ' plans with respect to our products and continued development of our products ; our responsibilities to our third-party collaborators , including our responsibilities to conduct research and development , clinical trials and manufacture products ; our ability to protect intellectual property , including intellectual property licensed to our collaborators ; market opportunities for products in our product pipeline ; the progress and results of our research and development programs and our evaluation of additional development programs ; requirements for us to purchase supplies and raw materials from third parties , and the ability of third parties to provide us with required supplies and raw materials ; the results and timing of clinical trials , including for posimir , dur-928 , and remoxy er , the possible commencement of future clinical trials and announcements of the findings of our clinical trials ; conditions for obtaining regulatory approval of our product candidates ; submission and timing of applications for regulatory approval ; the impact of fda , dea , emea and other government regulation on our business ; the impact of potential risk evaluation and mitigation strategies ( rems ) on our business ; uncertainties associated with obtaining and protecting patents and other intellectual property rights , as well as avoiding the intellectual property rights of others ; products and companies that will compete with the products we license to third-party collaborators ; the possibility we may commercialize our own products and build up our commercial , sales and marketing capabilities and other required infrastructure ; the possibility that we may develop additional manufacturing capabilities ; our employees , including the number of employees and the continued services of key management , technical and scientific personnel ; 57 our future performance , including our anticipation that we will not derive meaningful revenues from our products in development for at least the next twelve months , potential for future inventory write-offs and our expectations regarding our ability to achieve profitability ; sufficiency of our cash resources , anticipated capital requirements and capital expenditures , our ability to comply with covenants of our term loan , and our need for additional financing , including potential sales under our shelf registration statement ; our expectations regarding marketing expenses , research and development expenses , and selling , general and administrative expenses ; the composition of future revenues ; and accounting policies and estimates , including revenue recognition policies . forward-looking statements are not guarantees of future performance and involve risks and uncertainties . actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors . for a more detailed discussion of such forward looking statements and the potential risks and uncertainties that may impact upon their accuracy , see the “ risk factors ” section and “ overview ” section of this management 's discussion and analysis of financial condition and results of operations . these forward-looking statements reflect our view only as of the date of this report . we undertake no obligations to update any forward-looking statements . you should also carefully consider the factors set forth in other reports or documents that we file from time to time with the securities and exchange commission . overview we are a biopharmaceutical company with research and development programs broadly falling into two categories : ( i ) new chemical entities derived from our epigenetic regulator program , in which we attempt to discover and develop molecules which have not previously been approved and marketed as therapeutics , and ( ii ) drug delivery programs , in which we apply our formulation expertise and technologies largely to active pharmaceutical ingredients whose safety and efficacy have previously been established but which we aim to improve in some manner through a new formulation . we also manufacture and sell osmotic pumps used in laboratory research and design , develop and manufacture a wide range of standard and custom biodegradable polymers and excipients for pharmaceutical and medical device clients for use as raw materials in their products . a central aspect of our business strategy involves advancing multiple product candidates at one time , which is enabled by leveraging our resources with those of corporate collaborators . thus , certain of our programs are currently licensed to corporate collaborators on terms which typically call for our collaborator to fund all or a substantial portion of future development costs and then pay us milestone payments based on specific development or commercial achievements plus a royalty on product sales . at the same time , we have retained the rights to other programs , which are the basis of future collaborations and which over time may provide a pathway for us to develop our own commercial , sales and marketing organization . story_separator_special_tag if we are able to subsequently sell products made with raw materials that were previously written down , we will report an unusually high gross profit as there will be no associated cost of goods for these materials . revenue recognition we enter into license and collaboration agreements under which we may receive upfront license fees , research funding and contingent milestone payments and royalties . we evaluate the accounting treatment under these agreements including whether multiple deliverables exist , how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting . for our collaborations with multiple deliverables , we have concluded that the deliverables are not separable and the arrangements should be accounted for as a combined unit of accounting . as a combined unit of accounting , we recognized the consideration for the combined unit of accounting in the same manner as the revenue was recognized for the final deliverable , which was generally ratably over the longest period of involvement . for example , upfront payments received upon execution of collaborative agreements are recorded as deferred revenue and recognized as collaborative research and development revenue based on a straight-line basis over the period of our continuing involvement with the third-party collaborator pursuant to the applicable agreement . such period generally represents the longer of the estimated research and development period or other continuing obligation period defined in the respective agreements between us and our third-party collaborators . if we determine that the expected timeline for a project and therefore our continuing involvement is materially different than we previously assumed , we will adjust the period over which we recognize the deferred revenue . research and development expenses research and development expenses are primarily comprised of salaries , benefits , stock-based compensation and other compensation cost associated with research and development personnel , overhead and facility costs , preclinical and non-clinical development costs , clinical trial and related clinical manufacturing costs , contract services , and other outside costs . research and development costs are expensed as incurred . research and development costs paid to third parties under sponsored research agreements are recognized as expense as the related services are performed , generally ratably over the period of service . goodwill goodwill is periodically assessed and evaluated for impairment at the reporting unit level . the company operates in one operating segment and also has only one reporting unit , which is the research , development and manufacturing of pharmaceutical products . we assess the impairment of goodwill at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important which could trigger an impairment review include the following : significant decline in our stock price for a prolonged period ; our market capitalization relative to net book value ; new information affecting the commercial value of the asset ; significant underperformance relative to expected historical or projected future operating results ; 60 significant changes in the manner of our use of the acquired assets or the strategy for our overall business ; and significant negative industry or economic trends . as of december 31 , 2017 , the carrying value of goodwill was approximately $ 6.4 million and no impairment of goodwill has been recorded for any of the periods presented . however , there can be no assurance that at the time other periodic reviews are completed , a material impairment charge will not be recorded . accrued liabilities and contract research liabilities we incur significant costs associated with third party consultants and organizations for pre-clinical studies , clinical trials , contract manufacturing , validation , testing , and other research and development-related services . we are required to estimate periodically the cost of services rendered but unbilled based on management 's estimates of project status . if these good faith estimates are inaccurate , actual expenses incurred could materially differ from our estimates . stock-based compensation employee stock-based compensation is estimated at the date of grant based on the employee stock award 's fair value using the black-scholes option-pricing model and is recognized as expense ratably over the requisite period . we estimate the volatility of our common stock at the date of grant based on the historical volatility of our common stock . we base the risk-free rate that we use in the black-scholes option valuation model on the implied yield in effect at the time of option grant on u.s. treasury zero-coupon issues with equivalent remaining terms . we have never paid any cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future . consequently , we use an expected dividend yield of zero in the black-scholes option valuation model . we estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates . we use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest . we amortize the fair value of options granted on a straight-line basis . all options are amortized over the requisite service periods of the awards , which are generally the vesting periods . we may elect to use different assumptions under the black-scholes option valuation model in the future , which could materially affect our net income or loss and net income or loss per share . story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > rmance obligations under the agreement ; this recognition of revenue did not result in additional cash proceeds to us . at december 31 , 2017 , all of the $ 2.25 million upfront fee had been recognized as revenue .
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results of operations comparison of years ended december 31 , 2017 , 2016 and 2015 collaborative research and development and other revenue we recognize revenues from collaborative research and development activities and service contracts . collaborative research and development revenue primarily represents reimbursement of qualified expenses related to the collaborative agreements with various third parties to research , develop and commercialize potential products using our drug delivery technologies , revenue recognized from ratable recognition of non-refundable upfront fees , and milestone payments in connection with our collaborative agreements . 61 we expect our collaborative research and development revenue to fluctuate in future peri ods pending our efforts to enter into potential new collaborations and our existing third party collaborators ' commitment to and progress in the research and development programs . the collaborative research and development and other revenues associated wit h our major collaborators are as follows ( in thousands ) : replace_table_token_5_th ( 1 ) amounts related to recognition of upfront fees were $ 20.0 million in 2017 and zero in 2016 and 2015 ; we and sandoz signed a license agreement effective june 2017. as of december 31 , 2017 , all of the $ 20.0 million upfront fee had been recognized as revenue as our contractual performance obligations had been fulfilled . ( 2 ) amounts related to ratable recognition of upfront fees were $ 833,000 in 2017 , $ 208,000 in 2016 and $ 255,000 in 2015 ; we and zogenix signed a license agreement effective july 2011. in august 2017 , we and zogenix terminated the license agreement . as a result , we recognized as revenue all of the remaining upfront fees in the twelve months ended december 31 , 2017 that had previously been deferred .
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coach , inc. gaap to non-gaap reconciliation for the years ended june 29 , 2013 and june 30 , 2012 ( in millions , except per share data ) replace_table_token_16_th replace_table_token_17_th fiscal 2013 items restructuring and transformation in fiscal 2013 , the company incurred restructuring and transformation related charges of $ 53.2 million . the charges recorded in selling , general and administrative expenses and cost of sales were $ 48.4 million and $ 4.8 million , respectively . the charges include the strategic reassessment of the reed krakoff business , streamlining our organizational model and reassessing the fleet of our retail stores and inventories . additional actions are expected to continue into the first quarter of fiscal 2014 , primarily related to the reed krakoff business . fiscal 2012 items charitable contributions and tax adjustments during fiscal 2012 , the company decreased the provision for income taxes by $ 23.9 million , primarily as a result of recording the effect of a revaluation of certain deferred tax asset balances due to a change in 32 japan 's corporate tax laws and the favorable settlement of a multi-year transfer pricing agreement with japan . the company used the net income favorability to contribute an aggregate $ 39.2 million to the coach foundation . currency fluctuation effects the percentage increase in sales in fiscal 2013 for coach japan have been presented both including and excluding currency fluctuation effects from translating these foreign-denominated amounts into u.s. dollars and comparing these figures to the same periods in the prior fiscal year . we believe that presenting coach japan sales increases , including and excluding currency fluctuation effects , will help investors and analysts to understand the effect on these valuable performance measures of significant year-over-year currency fluctuations . net sales the following table presents net sales by reportable segment for fiscal 2013 compared to fiscal 2012 : replace_table_token_18_th ( 1 ) prior year segment data has been restated to reflect the company 's revised reportable segment structure . see note segment information for a discussion of the change in reportable segments . ( 2 ) net sales in the other category , which is not a reportable segment , consists of sales generated in ancillary channels including licensing and disposition . comparable store sales measure sales performance at stores that have been open for at least 12 months , and includes sales from the internet . coach excludes new locations from the comparable store base for the first year of operation . similarly , stores that are expanded by 15 % or more are also excluded from the comparable store base until the first anniversary of their reopening . beginning in fiscal 2014 , comparable store sales will not be adjusted for store expansions given our planned transformation related to capital investments . north america net sales increased 4.9 % to $ 3.48 billion during fiscal 2013 from $ 3.32 billion during fiscal 2012 , primarily driven by sales from new and expanded stores and a 0.3 % increase in comparable store sales , partially offset by decreased shipments into wholesale stores . significant traffic improvement in the north american internet business drove the slight comparable store sales increase . since the end of fiscal 2012 , coach opened 24 factory stores , including 10 men 's , closed three net retail stores , and expanded six factory and one retail store in north america . international net sales increased 9.9 % to $ 1.54 billion during fiscal 2013 from $ 1.40 billion during fiscal 2012 , primarily driven by sales from new and acquisition-related stores . strong comparable store sales performance in asia , led by double-digit percentage growth in china , and increased shipments to international wholesale customers , driven by expanded distribution , were substantially offset by weak sales performance in japan and by the negative foreign exchange impact of the yen , which decreased net sales by $ 82.2 million . since the end of fiscal 2012 , international opened 42 net new stores ( excluding those acquired as a result of the acquisitions ) , with 30 net new stores in mainland china , hong kong and macau , 11 net new stores in japan and one net new store in the other regions . fiscal 2013 results include net sales of the company-operated malaysia and korean businesses , which were acquired in the first quarter of 2013 as well as the benefit of a full year of net sales from taiwan , which was purchased in the third quarter of fiscal 2012 . 33 operating income operating income increased 0.8 % to $ 1.52 billion during fiscal 2013 as compared to $ 1.51 billion in fiscal 2012. operating margin decreased to 30.0 % as compared to 31.7 % in fiscal 2012. excluding items affecting comparability , operating income increased 1.7 % to $ 1.58 billion , or operating margin was 31.1 % , in fiscal 2013. excluding items affecting comparability , operating income was $ 1.55 billion , or operating margin was 32.6 % , in fiscal 2012. gross profit increased 6.7 % to $ 3.70 billion in fiscal 2013 from $ 3.47 billion during fiscal 2012. gross margin in fiscal 2013 was 72.9 % as compared to 72.8 % during fiscal 2012. excluding items affecting comparability , gross profit increased 6.8 % to $ 3.70 billion , or gross margin was 73.0 % , in fiscal 2013. selling , general and administrative ( sg & a ) expenses are comprised of four categories : ( 1 ) selling ; ( 2 ) advertising , marketing and design ; ( 3 ) distribution and consumer service ; and ( 4 ) administrative . selling expenses include store employee compensation , occupancy costs and supply costs , wholesale and retail account administration compensation globally and coach international operating expenses . these expenses are affected by the number of coach-operated stores open during any fiscal period . story_separator_special_tag the reported selling , general and administrative expenses , operating income , income before provision for income taxes , provision for income taxes , net income and earnings per diluted share in fiscal 2012 and 2011 reflect certain items which affect the comparability of our results , as noted in the following tables . refer to page 39 for a discussion on the non-gaap measures . 35 coach , inc. gaap to non-gaap reconciliation for the years ended june 30 , 2012 and july 2 , 2011 ( in millions , except per share data ) replace_table_token_20_th replace_table_token_21_th fiscal 2012 and 2011 items charitable contributions and tax adjustments during fiscal 2012 , the company decreased the provision for income taxes by $ 23.9 million , primarily as a result of recording the effect of a revaluation of certain deferred tax asset balances due to a change in japan 's corporate tax laws and the favorable settlement of a multi-year transfer pricing agreement with japan . the company used the net income favorability to contribute an aggregate $ 39.2 million to the coach foundation . during fiscal 2011 , the company decreased the provision for income taxes by $ 15.5 million , primarily as a result of a favorable settlement of a multi-year tax return examination . the company used the net income favorability to contribute $ 20.9 million to the coach foundation and 400 million yen or $ 4.8 million to the japanese red cross society . currency fluctuation effects the percentage increase in sales in fiscal 2012 for coach japan have been presented both including and excluding currency fluctuation effects from translating these foreign-denominated amounts into u.s. dollars and comparing these figures to the same periods in the prior fiscal year . we believe that presenting coach japan sales , including and excluding currency fluctuation effects , will help investors and analysts to understand the effect on these valuable performance measures of significant year-over-year currency fluctuations . 36 net sales the following table presents net sales by reportable segment for fiscal 2012 compared to fiscal 2011 : replace_table_token_22_th ( 1 ) segment data has been restated to reflect the company 's revised reportable segment structure . see note segment information for a discussion of the change in reportable segments . ( 2 ) net sales in the other category , which is not a reportable segment , consists of sales generated in ancillary channels including licensing and disposition . north america net sales increased 11.5 % to $ 3.32 billion during fiscal 2012 from $ 2.97 billion during fiscal 2011 , primarily driven by sales from new and expanded stores and a 6.6 % increase in comparable store sales partially offset by decreased shipments into wholesale stores . during fiscal 2012 , coach opened 9 net new retail stores and 26 new factory stores , and expanded 10 factory stores in north america . international net sales increased 22.2 % to $ 1.40 billion during fiscal 2012 from $ 1.15 billion during fiscal 2011 , primarily driven by sales from new and acquisition-related stores , increased shipments to wholesale customers , driven by expanded distribution , and double-digit percentage growth in china comparable store sales . additionally , sales were helped by the 5.3 % positive foreign exchange impact of the yen , which increased japan sales by $ 40.1 million . during fiscal 2012 , coach opened 11 net new locations and expanded three locations in japan , and opened 30 net new stores in hong kong and mainland china . fiscal 2012 results include net sales of the company-operated singapore and taiwan businesses , which were acquired in the first quarter and third quarter of fiscal 2012 , respectively . operating income operating income increased 15.9 % to $ 1.51 billion in fiscal 2012 as compared to $ 1.30 billion in fiscal 2011. excluding items affecting comparability of $ 39.2 million in fiscal 2012 and $ 25.7 million in fiscal 2011 , operating income increased 16.6 % to $ 1.55 billion . operating margin increased to 31.7 % as compared to 31.4 % in the prior year , as gross margin increased while sg & a expenses decreased as a percentage of sales . excluding items affecting comparability , operating margin was 32.6 % in fiscal 2012 as compared to 32.0 % in fiscal 2011. gross profit increased 14.6 % to $ 3.47 billion in fiscal 2012 from $ 3.02 billion in fiscal 2011. gross margin was 72.8 % in fiscal 2012 as compared to 72.7 % during fiscal 2011. coach 's gross profit is dependent upon a variety of factors , including changes in the relative sales mix among distribution channels , changes in the mix of products sold , foreign currency exchange rates and fluctuations in material costs . these factors , among others may cause gross profit to fluctuate from year to year . selling , general and administrative ( sg & a ) expenses are comprised of four categories : ( 1 ) selling ; ( 2 ) advertising , marketing and design ; ( 3 ) distribution and consumer service ; and ( 4 ) administrative . selling expenses include store employee compensation , occupancy costs and supply costs , wholesale and retail account administration compensation globally and coach international operating expenses . these expenses are affected by the number of coach-operated stores open during any fiscal period . advertising , marketing and design expenses include employee compensation , media space and production , advertising agency fees ( primarily to support north america ) , new product design costs , public relations and market research expenses . distribution and consumer service expenses include warehousing , order fulfillment , shipping and 37 handling , customer service and bag repair costs . administrative expenses include compensation costs for the executive , finance , human resources , legal and information systems departments , corporate headquarters occupancy costs , consulting and software expenses . coach includes inbound product-related transportation costs from our service providers within cost of sales .
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executive overview coach is a leading american design house of modern luxury accessories . our product offerings include fine accessories and gifts for women and men , including handbags , men 's bags , women 's and men 's small leather goods , footwear , outerwear , watches , weekend and travel accessories , scarves , sunwear , fragrance , jewelry and related accessories . we are in the process of transforming coach from an international accessories business to a global lifestyle brand , anchored in accessories . we plan to accomplish this strategy by building upon our strong management and design teams and enhancing and building out the coach experience through expanded and new product categories , notably footwear and outerwear , enhanced retail environments and integrated marketing communications . coach operates in two segments : north america and international . the north america segment includes sales to north american consumers through coach-operated stores ( including internet sales ) and sales to wholesale customers and distributors . the international segment includes sales to consumers through coach-operated stores in japan and mainland china ( including internet sales ) , hong kong and macau , singapore , taiwan , malaysia , korea , and sales to wholesale customers and distributors in 25 countries . as coach 's business model is based on multi-channel global distribution , our success does not depend solely on the performance of a single channel or geographic area . in order to sustain growth within our global business , we focus on three key growth strategies : transformation to a lifestyle brand , increased global distribution and improved store sales productivity . to that end we are focused on four key initiatives : transform from a leading international accessories company into a global lifestyle brand , anchored in accessories , presenting a clear and compelling expression of the coach woman and man across all product categories , store environments and brand imagery .
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the compensation committee has not set a base salary for the ceo at any fixed level as against comparable positions , but instead considers the ceo 's compensation each year based on all of the factors discussed in this cda . base salary adjustments were primarily determined based upon the general knowledge of the ceo with input story_separator_special_tag restatement of previously issued financial statements as a result of the initial findings of a review of certain technical accounting standards associated with revenue recognition related to its computer system segment , on december 23 , 2009 the company announced its financial statements as of and for the fiscal years ended november 2 , 2008 and october 28 , 2007 included in the company 's annual reports on form 10-k and the company 's consolidated financial statements for the quarterly periods through may 3 , 2009 included in the company 's quarterly reports on form 10-q should no longer be relied upon and would be restated ( the restatement ) . on may 11 , 2010 , the company announced that as part of the restatement process it was also performing an overall review of its consolidated financial statements to determine whether any additional adjustments were necessary beyond those identified in the computer systems segment . subsequently , the company announced that it had determined that additional adjustments beyond those identified for the computer systems segment were necessary . the adjustments required to correct the errors in the consolidated financial statements as a result of completing the restatement process are described in note 2 to our consolidated financial statements included in this report . story_separator_special_tag vs. fiscal 2009 ) replace_table_token_6_th staffing services net revenue : the staffing services segment 's net revenue increased $ 15.0 million , or 1 % , to $ 1,732.3 million in fiscal 2010 from $ 1,717.3 million in fiscal 2009. an increase in demand accounts for the majority of our revenue growth and resulted in an increase of over 5.7 million in contingent staffing hours or a 12.1 % increase in such hours while our average billing rates for this business decreased 5.6 % from fiscal 2009. on average , approximately 29,000 u.s. staffing employees were on assignment throughout the year , compared to approximately 26,900 in fiscal 2009. direct cost of staffing services revenue : the segment 's direct cost of staffing services revenue increased $ 20.9 million , or 1 % , to $ 1,479.6 million in fiscal 2010 from $ 1,458.7 million in fiscal 2009. this increase is primarily attributable to the revenue increase as a result of increased staffing hours described above . direct costs of staffing services revenue of the segment increased to 85.4 % in fiscal 2010 from 84.9 % in fiscal 2009. selling , administrative and other operating costs : the segment 's selling , administrative and other operating costs decreased $ 8.8 million , or 3 % , to $ 232.7 million in fiscal 2010 from $ 241.5 million in fiscal 2009. we 26 began to realize cost savings in fiscal 2010 as a result of the restructuring initiatives that began in fiscal 2009. the average selling , administrative and other operating headcount was reduced by approximately 19 % from the average headcount in fiscal 2009. we also had lower rent , utilities and depreciation as a result of exiting certain leases in fiscal 2009. restructuring costs : the segment 's restructuring charges decreased $ 7.3 million , or 85 % , to $ 1.3 million in fiscal 2010 from $ 8.6 million in fiscal 2009. in fiscal 2010 , the staffing services segment incurred restructuring costs of $ 1.3 million for severance paid and charges recorded for rent on leases that were terminated . the segment incurred $ 8.6 million of restructuring costs in fiscal 2009 as a result of the elimination of employee positions and closure of 65 offices . segment operating profit : the segment 's operating profit increased $ 10.4 million to an operating profit of $ 18.7 million in fiscal 2010 from an operating profit of $ 8.3 million in fiscal 2009. the increase is primarily attributable to higher net revenue of $ 15.0 million resulting from higher demands for staffing services coinciding with improvements in the economic conditions , lower restructuring costs of $ 7.3 million , and lower selling , administrative and other operating costs of $ 8.8 million . these decreases were partially offset by an increase in direct cost of staffing services revenue of $ 20.9 million . computer systems net revenue : the segment 's net revenue increased by $ 11.8 million , or 13 % , to $ 101.8 million in fiscal 2010 from $ 90.0 million in fiscal 2009. this increase primarily results from new systems that were accepted by certain significant customers in the second half of fiscal 2010 and the related recognition of revenue in the fiscal year . as of october 31 , 2010 , november 1 , 2009 and november 2 , 2008 , the company had deferred revenue of $ 125.0 million , $ 123.0 million , and $ 90.4 million , which is presented net of related deferred costs of $ 23.8 million , $ 23.9 million and $ 18.0 million , respectively , associated with software system sales . the balance in deferred revenue and deferred costs as of october 31 , 2010 will be recognized as accounting requirements are met . story_separator_special_tag cost of other revenue : cost of other revenue decreased by $ 31.1 million , or 18 % , to $ 142.1 million in the first nine months of fiscal 2010 from the comparable period of fiscal 2009. this decrease is primarily a result of the closure of offices in canada and reduced construction activity in the telecommunications services segment , as well as lower recognition of previously deferred costs in the computer services segment . selling , administrative and other operating costs : selling and administrative costs decreased by $ 9.4 million , or 4 % , in the first nine months of fiscal 2010 from the comparable period in fiscal 2009. this decrease was primarily a result of cost savings in fiscal 2010 from the restructuring initiative undertaken beginning in fiscal 2009 as discussed below . amortization of purchased intangible assets : amortization of purchased intangible assets remained constant at $ 1.1 million in the first nine months of fiscal 2010 and 2009. restructuring costs : restructuring costs decreased approximately $ 7.4 million , or 77 % , in the first nine months of fiscal 2010 from the comparable period in fiscal 2009. in fiscal 2009 , the staffing services and computer systems segments implemented a series of cost reduction initiatives , including the closing of offices and staff reductions to improve operating efficiencies . fees related to restatement and associated investigations : fees related to the restatement and associated investigations amounted to $ 19.1 million in the first nine months of fiscal 2010 and were comprised primarily of legal , consulting and accounting expenses . the restatement and associated investigations began in the fourth quarter of fiscal 2009. operating loss : our operating losses were $ 52.4 million in the first nine months of fiscal 2010 and $ 21.0 million in the comparable period of fiscal 2009. this increase of $ 31.4 million was primarily due to the restatement expenses of $ 19.1 million , as well as increases in the staffing services , other , and telecommunications services 29 segments ' operating losses of $ 12.5 million , $ 0.5 million and $ 3.7 million , respectively . these losses were partially offset by an improvement in the computer systems segment operating results of $ 9.5 million . other income ( expenses ) : other income increased by $ 2.7 million , or 61 % , in the first nine months of fiscal 2010 from the comparable period in fiscal 2009 , resulting from a $ 3.3 million increase in foreign currency gains primarily driven by our foreign currency denominated short-term borrowings . this increase is partially offset by $ 0.9 million of other income recorded in fiscal 2009 , which represented a settlement of a pre-acquisition claim arising from the purchase price of a subsidiary in 2007. income tax provision : income tax provision increased by $ 61.7 million to $ 58.6 million in expense for the first nine months of fiscal 2010 , from a benefit of $ 3.1 million in the same period in fiscal 2009. the increase in income tax provision is attributed to the significant valuation allowance we established in the second quarter of fiscal 2010. consolidated results of operations and financial highlights ( q3 2010 vs. q3 2009 ) replace_table_token_9_th net revenue : in the third quarter of fiscal 2010 , consolidated net revenue increased by $ 27.1 million , or 6 % , to $ 491.9 million , from the comparable period of fiscal 2009. the increase resulted primarily from a sales increase in staffing services of $ 40.7 million which was partially offset by decreases in telecommunications services of $ 10.6 million and computer systems of $ 4.1 million . direct cost of staffing services revenue : direct costs of staffing services revenues increased by $ 43.3 million , or 13 % , to $ 382.5 in the third quarter of fiscal 2010 from $ 339.2 in the comparable quarter of fiscal 2009. this increase is consistent with the net revenue increase in the staffing services segment as noted above . cost of other revenue : cost of other revenue decreased by $ 11.1 million , or 19 % , to $ 46.0 million in the third quarter of fiscal 2010 from the comparable period of fiscal 2009 primarily due to the closure of offices in canada and reduced construction activity in the telecommunications services segment . selling , administrative and other operating costs : selling and administrative costs increased by $ 4.8 million , or 7 % , in the third quarter of fiscal 2010 from the comparable period in fiscal 2009 due to increased outside services and indirect labor . amortization of purchased intangible assets : amortization of purchased intangible assets remained constant at $ 0.4 million in the third quarter of fiscal 2010 and 2009. restructuring costs : restructuring costs decreased approximately $ 1.1 million in the third quarter of fiscal 2010 from the comparable period of fiscal 2009. in fiscal 2009 , the staffing services and computer systems segments 30 implemented a series of cost reduction initiatives , including the closing of offices and staff reductions to improve operating efficiencies . fees related to restatement and associated investigations : fees related to the restatement and associated investigations amounted to $ 7.5 million in the third quarter of fiscal 2010 and were comprised primarily of legal , consulting and accounting expenses .
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executive summary the demand for our services in all segments , both domestically and in our foreign operations , is dependent upon general economic conditions . our business suffers during economic downturns . since late fiscal 2008 , the slowing of the economy adversely affected our revenue . our 2009 and 2010 revenues were lower than our revenue in the pre-2008 periods . several historical seasonal factors usually affect the revenue and profits of the company . the staffing services segment 's revenue and operating profit are usually lowest in our first fiscal quarter due to the thanksgiving , christmas and new year holidays , as well as certain customer facilities closing during the holidays for one to two weeks . during the third and fourth quarters of the fiscal year , this segment benefits from a reduction of payroll taxes when the annual tax contributions for higher salaried employees have been met , and customers increase the use of our administrative and industrial labor during the summer vacation period . our computer systems segment has seen a slight increase through 2010 in the volume of transactions primarily from an increase in the volume of directory assistance calls , although at lower transaction pricing . however , this volume trend is reversing in the two-year period subsequent to 2010. the volume of transactions is expected to decline in subsequent periods as consumers increasingly utilize free listings offered by alternative sources , including listings available on the internet , and from consolidation in the telecommunications industry . our telecommunications segment achieved improvement after shifting focus to projects with less risk and exiting unprofitable business . in fiscal 2010 , the telecommunications segment continued its focus on winding down the unprofitable business which resulted in reductions in both revenue and cost of other revenue . our other segment it maintenance revenue continues to increase at a modest rate .
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our operations are organized around the following principal activities : media : · the media segment reflects the production and monetization of long-form and short-form media content across various platforms , including wwe network , pay television , digital and social media , as well as filmed entertainment . across these platforms , revenues principally consist of content rights fees , subscriptions to wwe network , and advertising and sponsorships . live events : · live events provide ongoing content for our media platforms . live event segment revenues consist primarily of ticket sales , including primary and secondary distribution , revenues from events for which we receive a fixed fee , as well as the sale of travel packages associated with the company 's global live events . consumer products : · the consumer products segment engages in the merchandising of wwe branded products , such as video games , toys and apparel , through licensing arrangements and direct-to-consumer sales . revenues principally consist of royalties and licensee fees related to wwe branded products , and sales of merchandise distributed at our live events and through ecommerce platforms . results of operations in the first quarter of 2018 , the company revised its reportable segments to better reflect the way the company now manages its business , including resource allocation and assessment . over the past several years , the company has evolved its business model , with an increasing share of revenue coming from the monetization of the company 's media content across digital and direct-to-consumer platforms . as the business model evolved , management 's analysis of its business segment results and the decision process on resource allocations to its businesses have also changed . these changes necessitated a change in the company 's segment reporting to align with management 's operational view . to reflect management 's revised perspective , as discussed in note 1 , effective on january 1 , 2018 , the company now classifies its operations into three reportable segments : media , live events and consumer products . segment information is prepared on the same basis that our chief operating decision maker manages the segments , evaluates financial results , and makes key operating decisions . additionally , concurrent with the aforementioned segment changes , certain business support functions including sales and marketing , international , talent development and other business support functions previously reported in our corporate and other segment are now allocated to the three reportable segments based primarily on a percentage of revenue contribution . the remaining unallocated corporate expenses largely relate to corporate administrative functions , including finance , investor relations , community relations , corporate communications , information technology , legal , human resources and our board of directors . the company does not allocate these costs to its business segments , as they do not directly relate to revenue generating activities . these unallocated corporate expenses will be shown , as applicable , as a reconciling item in tables where segment and consolidated results are both shown . revenues from transactions among our operating segments are not material . in connection with the segment changes noted above , beginning in the first quarter of 2018 , the company also changed its primary measure of segment performance from operating income before depreciation and amortization ( “ oibda ” ) to adjusted oibda . the company defines adjusted oibda as operating income before depreciation and amortization , excluding stock-based compensation , certain impairment charges and other non-recurring material items . adjusted oibda includes amortization expenses directly related to the company 's revenue generating activities , including feature film and television production asset amortization , as well as the amortization of costs related to content delivery and technology assets utilized for our wwe network . the company believes the presentation of adjusted oibda is relevant and useful for investors because it allows investors to view our segment performance in the same manner as the primary method used by management to evaluate segment performance and make decisions about allocating resources . additionally , we believe that adjusted oibda is a primary measure used by media investors , analysts and peers for comparative purposes . adjusted oibda is a non-gaap financial measure and may be different than similarly-titled non-gaap financial measures used by other companies . a limitation of adjusted oibda is that it excludes depreciation and amortization , which represents the periodic charge for certain fixed assets and intangible assets used in generating revenues for our business . additionally , adjusted oibda excludes 23 stock-based compensation , a non-cash expense that may vary between periods with limited correlation to underlying operating performance , as well as other non-recurring material items . adjusted oibda should not be regarded as an alternative to operating income or net income as an indicator of operating performance , or to the statement of cash flows as a measure of liquidity , nor should it be considered in isolation or as a substitute for financial measures prepared in accordance with gaap . we believe that operating income is the most directly comparable gaap financial measure to adjusted oibda . financial information and disclosures for prior periods have been revised to conform to the current period presentation . such revisions have no impact on our consolidated financial condition , results of operations or cash flows for the periods presented . year ended december 31 , 2018 compared to year ended december 31 , 2017 ( dollars in millions ) summary the following tables present our consolidated results followed by our adjusted oibda results : replace_table_token_3_th ( 1 ) our consolida ted net revenues increased by $ 129.2 million , or 16 % , in 2018 as compa red to 2017 . this increase was primarily driven by revenues associated with the distribution of certain live in-ring programming content in international markets . story_separator_special_tag media adjusted oibda as a percentage of revenues increased in 2018 as compared to 2017. this increase was largely driven by the increased revenues relative to our cost base , partially offset by increased costs of $ 18.7 million associated with business support functions and higher programming expenses drive n by third-party produced content , such as camp wwe , which tends to have higher production costs . live events the following tables present the performance results and key drivers for our live events segment ( dollars in millions , except where noted ) : replace_table_token_8_th ( 1 ) other revenues within our live events segment primarily consists of the sale of travel packages associated with the company 's global live events and commissions earned through secondary ticketing , as well as revenues from events for which the company receives a fixed fee . ( 2 ) metrics above exclude the events for our nxt brand . this is our developmental brand that typically conducts their events in smaller venues with lower ticket prices . we conducted 183 nxt events with paid attendance of 147,000 and average ticket prices of $ 43.85 in 2018 as compared to 18 8 events with paid attendance of 1 52,300 and average ticket prices of $ 3 9.27 in 2017 . 26 replace_table_token_9_th live events revenues , which include revenues from ticket sales and travel packages , decreased by $ 7.5 million , or 5 % , in 2018 as compared to 2017 . revenues from our north ameri can ticket sales decreased by $ 6.6 million , or 6 % , as a 7 % decline in average attendance , which resulted in a decrease of $ 9.8 million , included the reduced stadium capacity of our annual royal rumble event and the absence of one pay- per-view event . this decrease was partially offset by the effect of higher average ticket prices , which increased revenues by $ 3.0 million . revenues from our international ticket sales decreased by $ 9.4 million , or 30 % , driven by the imp act of 14 fewer events and a 4 % decline in average ticket prices . the change in ticket prices and average attendance in the current year were due , in part , to changes in the mix of venues and territories . these decreases were partially offset by an increase in other revenues of $ 8.4 million , or 140 % , primarily driven by $ 7.1 million of revenues from international events for which we receive a fixed fee , coupled with additional revenues from travel packages and our secondary ticketing partnership with stubhub . live events adjusted oibda as a percentage of revenues decreased in 2018 as compared to 2017. this decrease was primarily driven by the impact of reduced revenues , coupled with increased costs of $ 3.7 million associated with business support functions . consumer products the following tables present the performance results and key drivers for our consumer products segment ( dollars in millions , except where noted ) : replace_table_token_10_th replace_table_token_11_th consumer products revenues decreased by $ 11.1 million , or 10 % , in 2018 as compared to 2017 . consumer product licensing revenues de creased by $ 6.1 million , or 12 % , pr imarily driven by a decline of $ 7.7 million associated with lower royalties from the sale of our toy products , partially offset by higher sales of $ 3.3 million of our mobile video games . ecommerce revenues de creased by $ 2.9 million , or 8 % , primarily due to a 4 % decline in the volume of online merchandise orders , couple d with a 4 % decrease in the average revenue per order . venue merchandise revenues decreased by $ 2.1 million , or 9 % , as a 7 % decline in average attendance was coupled with an 4 % decline in per capita merchandise spend . 27 consumer products adjusted oibda as a percentage of revenues decreased in 2018 as compared to 2017. this decrease was driven by a reduction in consumer product licensing revenues combined with higher costs of $ 3.2 million associated with business support cost functions . corporate the remaining unallocated corporate expenses largely relate to corporate administrative functions , including finance , investor relations , community relations , corporate communications , information technology , legal , human resources and our board of directors . the company does not allocate these costs to its business segments , as they do not directly relate to revenue generating activities . replace_table_token_12_th ( 1 ) other adjustments in the prior year period include non-recurring legal matters and other contractual obligations . corporate adjusted oibda decreased $ 10.2 million and remained flat as a percentage of total revenues in 2018 as compared to 2017 , partially driven by higher management incentive compensation costs , coupled with higher recruitment and professional fees incurred to support the company 's strategic initiatives . depreciation and amortization ( dollars in millions ) replace_table_token_13_th depreciation and amortization expense de creased $ 0.9 million , or 3 % , in 2018 as compared to 2017 . interest expense ( dollars in millions ) replace_table_token_14_th interest expense relates primarily to interest and amortization associated with our convertible notes , our debt facilities , assumed mortgage and aircraft financing . other income , net ( dollars in millions ) replace_table_token_15_th other income , net is comprised of interest income , gains and losses recorded on our equity investments , realized translation gains and losses and rental income . the increase of $ 3.8 million in 2018 as compared to 2017 is primarily driven by $ 2.5 million in interest income from our short-term investment instruments .
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summary the following tables present our consolidated results followed by our adjusted oibda results : replace_table_token_17_th ( 1 ) our consolidated net revenues increased by $ 71.8 million , or 10 % , in 2017 as compared to 2016 . this increase was primarily driven by $ 27.1 million in incremental revenues associated with the contractual escalation of our core content rights fees ( raw and smackdown live ) , $ 1 3.2 million of increased subscription revenues related to the growth of our wwe network and $ 12.2 million of increased sales of advertising and sponsorships within our media segment . in addition , the impact of 34 additional domestic events contributed $ 8.4 million to our live events revenues , while our consumer products segment generated $ 5.8 million of incremental revenues driven by higher sales of our licensed toy products and increased ecommerce orders . for further analysis , refer to management 's discussion and analysis of our business segments . ( 2 ) our consolidated operating expenses increased by $ 34.9 million , or 7 % , in 2017 as compared to 2016 . the $ 24.8 million increase in our media segment was primarily due to higher film amortization , including $ 5.5 million of film impairment charges resulting from revised ultimate profit 29 expectations for several of our feature films . additionally , we incurred $ 9.4 million of additional television production costs , primarily associated with the use of additional production elements on our weekly live episodic shows . the $ 6.9 million increase in operating expenses in our live events segment was driven by an increased number of events , including international events . for further analysis , refer to management 's discussion and analysis of our business segments . ( 3 ) our consolidated general and administrative expenses increased by $ 13.2 million , or 20 % , in 2017 as compared to 2016 .
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fair value was estimated using level 2 inputs , based on the terms of the related debt , recent transactions and estimates using interest rates currently available to us for debt with similar terms and remaining maturities . note 8. shareholders ' equity we are authorized to issue five million shares of preferred stock . at december 31 , 2013 and story_separator_special_tag overview ducommun incorporated ( “ ducommun ” , “ the company ” , “ we ” , “ us ” or “ our ” ) is a leading global provider of engineering and manufacturing services for high-performance products and high-cost-of failure applications used primarily in the aerospace , defense , industrial , natural resources , medical and other industries . ducommun differentiates itself as a full-service solution-based provider , offering a wide range of value-added products and services in our primary businesses of electronics , structures and integrated solutions . we operate through two primary business units : ducommun labarge technologies ( “ dlt ” ) and ducommun aerostructures ( “ das ” ) . during 2013 , we made significant progress in our plan to de-lever the balance sheet , reduce interest expense and further our ability to refinance our debt in 2015. while 2013 saw growth in our commercial aerospace and defense electronics revenue , it was more than offset by the continued weakness in the non-aerospace and defense revenue . revenue and backlog for our commercial aerospace business remains strong , reflecting increased build rates . highlights for the year ended december 31 , 2013 were as follows : cash generated from operating activities was $ 46.0 million ; we made voluntary principal prepayments of $ 30.0 million on the term loan and also paid off a $ 3 million promissory note , reducing total debt by $ 33 million . firm backlog at the end of 2013 was $ 620.0 million . for the year ended december 31 , 2013 , ebitda was $ 68.5 million and adjusted ebitda was $ 75.5 million . see non-gaap financial measures below for certain information regarding ebitda and adjusted ebitda , including reconciliations of ebitda and adjusted ebitda to net income . non-gaap financial measures when viewed with our financial results prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) and accompanying reconciliations , we believe ebitda and adjusted ebitda provide additional useful information to clarify and enhance the understanding of the factors and trends affecting our past performance and future prospects . we define these measures , explain how they are calculated and provide reconciliations of these measures to the most comparable gaap measure in the tables below . ebitda , adjusted ebitda and the related financial ratios , as presented in this form 10-k , are supplemental measures of our performance that are not required by , or presented in accordance with , gaap . they are not a measurement of our financial performance under gaap and should not be considered as alternatives to net income or any other performance measures derived in accordance with gaap , or as an alternative to net cash provided by operating activities as measures of our liquidity . the presentation of these measures should not be interpreted to mean that our future results will be unaffected by unusual or nonrecurring items . we use ebitda and adjusted ebitda non-gaap operating performance measures internally as complementary financial measures to evaluate the performance and trends of our businesses . we present ebitda , adjusted ebitda and the related financial ratios , as applicable , because we believe that measures such as these provide useful information with respect to our ability to meet our future debt service , capital expenditures , working capital requirements and overall operating performance . ebitda and adjusted ebitda have limitations as analytical tools , and you should not consider them in isolation or as substitutes for analysis of our results as reported under gaap . some of these limitations are : they do not reflect our cash expenditures , future requirements for capital expenditures or contractual commitments ; they do not reflect changes in , or cash requirements for , our working capital needs ; they do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt ; although depreciation and amortization are non-cash charges , the assets being depreciated and amortized will often have to be replaced in the future , and ebitda and adjusted ebitda do not reflect any cash requirements for such replacements ; they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows ; 23 they do not reflect the impact on earnings of charges resulting from matters unrelated to our ongoing operations ; and other companies in our industry may calculate ebitda and adjusted ebitda differently from us , limiting their usefulness as comparative measures . because of these limitations , ebitda , adjusted ebitda and the related financial ratios should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations . you should compensate for these limitations by relying primarily on our gaap results and using ebitda and adjusted ebitda only supplementally . see our consolidated financial statements contained in this form 10-k report . story_separator_special_tag 29 ( 4 ) the 2013 period includes $ 14.1 million in charges related to fourth quarter asset impairment charges of $ 5.7 million on the embraer legacy 450/500 contracts and $ 1.3 million on the boeing 777 wing tip contract which are added back to adjusted ebitda ; forward loss reserves of $ 3.9 million on the embraer legacy 450/500 contracts and $ 1.3 million on the boeing 777 wing tip contract ; and inventory write-offs of $ 1.9 million on the embraer legacy 450/500 contracts . ducommun aerostructures das 's net sales in 2013 increased 1.7 % reflecting a 4.5 % increase in commercial aerospace revenue , partially offset by a 1.7 % decrease in military and space ( defense structures ) revenue . the das segment operating income and ebitda decreased in 2013 , primarily due to the fourth quarter charges of $ 14.1 million related to the embraer legacy 450/500 contracts and boeing 777 wing tip contracts which was partially off set by increased sales volume and lower accrued compensation and benefit costs . ducommun labarge technologies dlt 's net sales in 2013 decreased 3.6 % reflecting a 22.8 % decrease in non-aerospace and defense revenue , partially offset by a 8.1 % increase in defense technologies and 5.5 % increase in commercial aerospace revenue . dlt 's segment operating income and ebitda decreased in 2013 primarily due to lower operating margins from reduced sales and a $ 1.1 million charge for inventory reserves which was partially offset by lower accrued compensation and benefit costs . corporate general and administrative ( “ cg & a ” ) the cg & a expenses increased in 2013 primarily due to $ 0.6 million related to a workers ' compensation insurance payroll audit and $ 0.5 million related to our debt repricing transaction and increased professional fees , partially offset by lower accrued compensation and benefits costs . 30 backlog backlog is subject to delivery delays or program cancellations , which are beyond our control . backlog is affected by timing differences in the placement of customer orders and tends to be concentrated in several programs to a greater extent than our net sales . backlog in non-aerospace and defense markets tends to be of a shorter duration and is generally fulfilled within a 3-month period . as a result of these factors , trends in our overall level of backlog may not be indicative of trends in our future net sales . backlog was $ 620.0 million at december 31 , 2013 , compared to $ 656.6 million at december 31 , 2012 , as shown in more detail below . the decrease in backlog was primarily in the defense technologies end-use markets . approximately $ 496.0 million of total backlog is expected to be delivered during 2014 . the following table summarizes our backlog for 2013 and 2012 : replace_table_token_8_th 31 2012 compared to 2011 the results of operations for 2012 compared to 2011 reflect the full-year impact of increased revenues and operating expenses , including depreciation and amortization expenses , and higher interest expense from the june 2011 labarge acquisition and a non-cash pre-tax goodwill impairment charge of $ 54.3 million in 2011. the following table sets forth net sales , selected financial data , the effective tax rate ( benefit ) and diluted earnings ( loss ) per share : replace_table_token_9_th nm = not meaningful 32 net sales by end-use market and operating segment net sales by end-use market and operating segment during 2012 and 2011 , respectively , were as follows : replace_table_token_10_th net sales for 2012 increased $ 166.1 million , or 28.6 % , to $ 747.0 million , compared to $ 580.9 million in 2011. the higher revenue was primarily the result of the full-year impact of the june 2011 labarge acquisition . the net sales attributable to labarge in 2012 and 2011 were $ 324.2 million and $ 175.4 million , respectively . net sales in the non-aerospace and defense end-use markets remain weak . net sales to major customers a substantial portion of our sales are to our top ten customers . sales to boeing were 17 % percent of our net sales for 2012. see “ part ii , item 8. ducommun incorporated and subsidiaries—notes to consolidated financial statements—note 15. major customers and concentrations of credit risk ” for further information . cost of sales and gross profit gross profit margins vary considerably by contract . gross profit dollars increased primarily due to the full-year impact of the additional gross profit generated from the labarge acquisition . gross profit margins increased due to a higher proportion of net sales of higher margin product , partially offset by lower margins from engineering services . gross profit percentages were also lower in 2011 due to inventory step-up write-off related to the labarge acquisition . gross profit margins for 2012 were favorably impacted by an adjustment to correct operating expenses of approximately $ 0.4 million , or 0.06 % points , relating to the reversal of certain accrued liabilities that were accrued during the periods from 2005 to 2012 , that had , in fact , been paid or were not otherwise owed to suppliers . we assessed the materiality of this reversal and concluded it was immaterial to currently reported annual amounts and previously reported annual and interim amounts and did not restate the prior annual or interim periods .
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results of operations 2013 compared to 2012 the following table sets forth net sales , selected financial data , the effective tax rate and diluted earnings per share : replace_table_token_5_th nm = not meaningful 26 net sales by end-use market and operating segment net sales by end-use market and operating segment during 2013 and 2012 , respectively , were as follows : replace_table_token_6_th net sales for 2013 reflected the growth in the aerospace and defense end-use markets , which were more than offset by lower sales in the non-aerospace and defense end-use markets . net sales to major customers a significant portion of our sales are to our top ten customers . sales to boeing were approximately 18 % and sales to raytheon were approximately 10 % of total sales for 2013. sales decreased $ 10.4 million , or 1.4 % , to $ 736.7 million for the fiscal year ended december 31 , 2013 from $ 747.0 million for the fiscal year ended december 31 , 2012. the lower sales were the result of lower sales in the non-aerospace and defense markets , which was partially offset by higher sales in commercial aerospace and defense technologies . cost of sales and gross profit gross profit decreased in 2013 primarily due to lower net sales and fourth quarter charges of $ 14.1 million in the das operating segment . the fourth quarter charges were comprised of asset impairment charges on production costs of contracts of $ 5.7 million on the embraer legacy 450/500 contracts and $ 1.3 million on the boeing 777 wing tip contract ; forward loss reserves of $ 3.9 million on the embraer legacy 450/500 contracts and $ 1.3 million on the boeing 777 wing tip contract ; and inventory reserves of $ 1.9 million on the embraer legacy 450/500 contracts .
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we are a world-leading services company with the scale , expertise , and experience to handle complicated and behind-the-scenes essential services for waste management , regulatory compliance and destruction of secure information . to our customers , team members and the communities we serve , stericycle is a company that protects what matters . our offering of services appeals to a wide range of small and large business customers . the majority of our customers are healthcare businesses ( hospitals , physician , and dental practices , outpatient clinics , long-term care facilities , etc. ) . we also provide services to retailers , manufacturers , financial services providers , professional services providers , governmental entities , and other businesses . while we manage large volumes of waste and other materials , the volume per customer site on average is small . highlights for the year ended december 31 , 2019 compared to the prior year include : revenues for the year ended december 31 , 2019 were $ 3.31 billion , compared to $ 3.49 billion in 2018. the decline of $ 177.0 million was due to the impact of divestitures and macroeconomic factors of foreign exchange rates and sop pricing which reduced revenues by $ 64.1 million , $ 67.8 million and $ 41.5 million , respectively . organic revenue in rwcs and sid , excluding the impact of sop pricing , remained strong with increases of 0.7 % and 3.6 % compared to 2018 , respectively . these were more than offset by continued lowered sales in domestic crs primarily due to smaller sized recall events and fewer mandated recalls and lower m & i revenues . loss from operations for the year was $ 211.9 million in 2019 , compared to loss from operations of $ 161.1 million in 2018. we incurred significant charges associated with key priorities and other significant matters of $ 663.9 million and $ 780.1 million as detailed below in 2019 and 2018 , respectively . excluding these matters , loss from operations decreased by $ 167.0 million which is attributed to macroeconomic factors of $ 59.0 million including sop pricing and foreign exchange , the impact of divestitures , and operational matters of $ 108.0 million including higher rwcs and corporate operating costs and declines in crs operations . net loss was $ 346.8 million , or $ 3.81 diluted loss per share , compared with $ 253.3 million , or $ 2.91 diluted loss per share , in 2018 , primarily due to the changes in significant charges associated with key priorities and other significant matters and operational items previously highlighted . cash flow from operations for the full year was $ 248.0 million , compared to $ 165.7 million for 2018. in 2018 , cash flow from operations was reduced by the small quantity customer class action settlement payment of $ 295.0 million . excluding the settlement payment , cash flow from operations decreased $ 212.7 million , primarily due to lower operating performance in 2019 , as 2019 10-k annual report stericycle , inc. 36 part ii previously highlighted , and payments in 2019 for certain litigation matters , 2018 incentive compensation and erp-related prepaid software . capital expenditures for the year were $ 194.2 million , including $ 80.6 million for the erp implementation , compared to $ 130.8 million in 2018 , including $ 18.0 million for the erp implementation . during 2019 , we completed the following debt related transactions : a ) issued $ 600.0 million at par of aggregate principal senior notes , due july 2024 , which are unsecured and bear interest at 5.375 % per annum , payable on january 15 and july 15 of each year . b ) executed the fourth amendment which amended the credit agreement to , among other things , ( i ) provide an incremental term loan of $ 365.0 million , ( ii ) modify the definition of “ consolidated ebitda ” , ( iii ) revise the financial covenant requirement for our consolidated leverage ratio and ( iv ) make certain other modifications to negative covenants related to restricted payments and investments that we may make . c ) repaid in full $ 1.075 billion of the outstanding private placement notes using the net proceeds from the senior notes and the incremental term loan together with additional borrowings under the senior credit facility . on february 25 , 2020 , we executed the fifth amendment which amended the credit agreement to , among other things : increase the maximum allowable consolidated leverage ratio to 5.00 to 1.00 until the end of the first quarter of 2022 and 4.50 to 1.00 thereafter . upon the consummation of the divesture of the esol disposal group , each of the foregoing maximum permitted consolidated leverage ratio levels will step down to 4.75 to 1.00 and 4.25 to 1.00 , respectively . allow for continuation of the $ 200 million of cash add backs to ebitda through december 31 , 2020 , and addbacks of $ 100 million until december 31 , 2021 , with no further addbacks thereafter . increase the leverage ratio pricing tier of greater than 4.50 to 1.00 by 0.125 % . grant a first-priority security interest to the administrative agent for the benefit of the lenders in substantially all of the personal property of the company and certain of its material domestic subsidiaries , including certain equity interests held by those entities . for additional information , see part ii , item 8 , financial statements and supplementary data ; note 9 – debt in the consolidated financial statements . over the course of 2019 , we divested a texting business based in the uk , a telephone answering services business and pharmaceutical returns business in north america , and substantially all of our operations in mexico and chile . the five transactions combined generated $ 83.7 million in gross proceeds during 2019. as a result of these divestitures we recorded total non-cash divestiture losses , net of gains , of $ 103.0 million . story_separator_special_tag as such , we are focused on improving the quality of revenue we deliver . during 2019 , we added a chief commercial officer and began implementing changes in our commercial operations . we realigned our sales organization around customer channels ; implemented best practices for sales management and training ; reorganized our marketing teams to focus functional area of expertise across services ; and improved our contracting processes with customers . 3. operational cost efficiencies – our day-to-day operations are shifting toward a standardized operating model to optimize processes , drive efficiencies and improve both safety and service . during 2019 , we added a chief engineer and have begun centralizing operational decision making under a corporate engineering group . additionally , we are focused on driving cost efficiencies through work measurement , asset optimization , use of technology , and expanded strategic sourcing . 2019 10-k annual report stericycle , inc. 40 part ii 4. debt reduction and leverage improvement – as a result of the debt accumulated from our historic acquisition strategy , debt structure and debt improvement were a key focus in 2019. in june 2019 , we raised $ 600 million from the issuance of our senior notes and $ 365 million from an incremental term loan . combined with an additional draw from our senior credit facility , stericycle paid off its more restrictive $ 1.075 billion-dollar private placement notes . additionally , in 2019 , we applied cash flow from operations and proceeds from divestitures to enable a net debt reduction of approximately $ 100.0 m illion . 5. erp implementation – over our 30-year history , stericycle had acquired more than 500 companies without fully integrating certain acquisitions onto centralized information technology platforms . the disparate operating and information systems have resulted in significant operational inefficiencies . with the implementation of an erp , we expect to improve daily decision making via real-time information insights , simplify and enhance forecast accuracy , provide transparency for greater accountability , aid in the development of strategic planning , and make it easier for our customers to do business with us . the “ go-live ” of the erp system began in january 2020 with the global roll-out of the human-resources performance management module . during 2020 , the additional erp capabilities , including commercial , operational and financial , will be implemented in a staged approach across our north america rwcs reportable segment , excluding the esol disposal group . 2019 10-k annual report stericycle , inc. 41 part ii business transformation since the program 's inception , we have recognized the following charges and capital expenditures related to the business transformation : replace_table_token_5_th through december 31 , 2019 , we have completed activities originally contemplated as part of business transformation in the areas of investment in costs savings and business capability and other related matters . prospectively , business transformation activities will be focused on erp development and implementation with additional operating expenditures and capital expenditures anticipated in 2020 to complete design , testing and deployment in north america . once the north america deployment occurs , additional costs will be added to ongoing operations to reflect the cost of the erp post go-live . for 2020 , and beyond , we will continue to incur costs to maintain the legacy suite of applications supporting our global businesses until those applications are replaced by the new erp . 2019 10-k annual report stericycle , inc. 42 part ii business transformation operating expenditures by reportable segment were as follows : replace_table_token_6_th as part of our business transformation , we are undertaking legal entity organizational restructuring actions to assist with streamlining and simplifying business operations and to help lower general and administrative costs . such actions could result in additional charges associated with consulting and professional fees and increases in potential exposure to u.s. and foreign taxes and foreign exchange charges . intangible amortization for the years ended december 31 , 2019 , 2018 , and 2017 , we recognized $ 145.2 million , $ 130.3 million , and $ 118.4 million , respectively , of intangible amortization expense . the increase is partially due to the adjustment of the estimated useful lives of certain of our customer relationship intangibles ( see part ii , item 8. financial statements and supplementary data ; note 7 – goodwill and other intangible assets in the consolidated financial statements ) at the end of 2018 with the remaining changes , net arising from acquisitions and divestitures . acquisition and integration details of the acquisitions completed in the years ended december 31 , 2019 , 2018 , and 2017 can be found in part ii , item 8. financial statements and supplementary data ; note 3 – acquisitions in the consolidated financial statements . acquisition and integration expenses were as follows : replace_table_token_7_th acquisition expenses in all years principally comprise internal costs and changes in deferred consideration . integration expenses incurred in the years ended december 31 , 2018 and 2017 were primarily related to acquisitions completed in the u.s. and , in particular , the shred-it® acquisition . prospectively , baring new acquisitions , we anticipate acquisition and integration expenses to be limited to deferred consideration changes , if any . operational optimization we aim to achieve a culture of continuous improvement that will enhance its efficiency , effectiveness and competitiveness to improve its cost base and cash flow and we have taken a number of actions to reduce operating costs and optimize operations . for example , we believe plant throughput and route density are competitive strengths of stericycle . we maintain such strengths by making adjustments to our network of 2019 10-k annual report stericycle , inc. 43 part ii transportation and treatment facilities to optimize overall logistics and processing capabilities within a service category while reducing operational costs . as part of these efforts , we seek to reduce network redundancies by consolidating facilities , closing the redundant facility , and restructuring the local organization and operation for efficiency . operational optimization expenses , of which $ 9.8
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results of operations revenues ( including segment revenue ) : in analyzing our company 's performance , it is necessary to understand that our various regulated services share a common infrastructure and customer base . we market our regulated and compliance services by offering various pricing options to meet our customers ' preferences , and customers move between these different billing paradigms . for example , our customers may contract with us for medical waste disposal services that are billed based on the weight of waste collected , processed and disposed during a particular period , and in a subsequent period , the same customer could move to our standard service , which packages the same regulated medical waste services with training and education services for a contracted subscription fee . another example is a customer that purchases our medical waste disposal and sharps disposal management services which provides the customer with the same regulated services under a different pricing and billing arrangement . we do not track the movement of customers between the various types of regulated services we offer . although we can identify directional trends in our services , because the regulated services are similar in nature and there are inherent inaccuracies in disaggregation , we analyze revenues by revenue service category and operating segment . we analyze our revenue growth by identifying changes related to organic growth , acquisitions , divestitures and changes due to currency exchange fluctuations . organic growth excludes the effect of foreign exchange and acquisitions and divestitures with less than a full year of revenues in the comparative period . revenues and gross profit associated with sid services are impacted by changes in sop pricing , which has declined in recent quarters . continued declines in sop pricing could have a material impact on our revenues , gross profit and results of operations . regulated waste and compliance services consist of medical waste and compliance solutions and hazardous waste solutions .
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the company discontinues hedge accounting prospectively when it determines that the derivative is no longer effective in offsetting cash flows attributable to the hedged risk , the derivative expires or is sold , terminated , or exercised , the cash flow hedge is de-designated because a forecasted transaction is not probable of occurring , or management determines to story_separator_special_tag financial condition and results of operations unless the context requires otherwise , references in this report to the “ company , ” “ we , ” “ us ” and “ our ” refer to planet fitness , inc. and its consolidated subsidiaries following the recapitalization transactions described in this report and to pla-fit holdings , llc and its consolidated subsidiaries prior to the recapitalization transactions . overview we are one of the largest and fastest-growing franchisors and operators of fitness centers in the united states by number of members and locations , with a highly recognized national brand . our mission is to enhance people 's lives by providing a high-quality fitness experience in a welcoming , non-intimidating environment , which we call the judgement free zone , where anyone—and we mean anyone—can feel they belong . our bright , clean stores are typically 20,000 square feet , with a large selection of high-quality , purple and yellow planet fitness-branded cardio , circuit- and weight-training equipment and friendly staff trainers who offer unlimited free fitness instruction to all our members in small groups through our pe @ pf program . we offer this differentiated fitness experience at only $ 10 per month for our standard membership . this exceptional value proposition is designed to appeal to a broad population , including occasional gym users and the approximately 80 % of the u.s. and canadian populations over age 14 who are not gym members , particularly those who find the traditional fitness club setting intimidating and expensive . we and our franchisees fiercely protect planet fitness ' community atmosphere—a place where you do not need to be fit before joining and where progress toward achieving your fitness goals ( big or small ) is supported and applauded by our staff and fellow members . as of december 31 , 2016 , we had approximately 8.9 million members and 1,313 stores in 48 states , the district of columbia , puerto rico , canada and the dominican republic . of our 1,313 stores , 1,255 are franchised and 58 are corporate-owned . as of december 31 , 2016 , we had 1,255 franchisee-owned stores and had commitments to open more than 1,000 new stores under existing adas . of the 58 existing corporate-owned stores as of december 31 , 2016 , eight of these stores were acquired from a franchisee on march 31 , 2014. composition of revenues , expenses and cash flows revenues we generate revenue from three primary sources : franchise segment revenue : franchise segment revenue relates to services we provide to support our franchisees and includes royalty revenue , franchise fees , placement revenue , other fees and commission income associated with our franchisee-owned stores . franchise segment revenue does not include the sale of tangible products by us to our franchisees . our franchise segment revenue comprised 31 % , 27 % and 26 % of our total revenue for the years ended december 31 , 2016 , 2015 and 2014 , respectively . royalty revenue , which represents royalties paid by franchisees based on the franchisee-owned stores ' monthly and annual membership billings , is recognized on a monthly basis over the term of the franchise agreement . franchise fees , which include fees under adas , are recognized when we have substantially completed all of our performance obligations , which is generally at or near the store opening date . placement revenue includes amounts we charge our franchisees for assembling and placing cardio and strength equipment at franchisee-owned stores . placement revenue is recognized upon completion and acceptance of the services at the franchisee stores . other fees includes online member join fees we receive from franchisees related to processing transactions for new members joining franchisee-owned stores through the company 's website and billing transaction fees we receive from franchisees related to franchisee membership billing processing through our third-party hosted point-of-sale system . through our point-of-sale system , we oversee the processing of membership billings for franchisee-owned stores through eft transactions and the billing transaction fees we receive are based upon the number of transactions processed . our royalties and other fees are deducted from these membership billings and remitted to us by the processor prior to the net billings being remitted to the franchisees . commission income is generated from activities related to our franchisees , including purchases of merchandise , promotional materials and store fixtures by our franchisees from third-party vendors . beginning in 2015 , commission income also included commissions earned on equipment sales by third-party vendors to franchisees in international locations . these commissions are recognized when amounts have been earned and collectability from the vendor is reasonably assured . corporate-owned store segment revenue : includes monthly membership dues , enrollment fees , annual fees and prepaid fees paid by our members as well as retail sales . this source of revenue comprised 28 % , 30 % , and 30 % of our total revenue for the years ended december 31 , 2016 , 2015 and 2014 , respectively . as of december 31 , 2016 , 96 % of our members paid their monthly dues by eft , while the remainder prepaid annually in advance . membership dues and fees are earned and recognized over the membership term . enrollment fees are recognized ratably over the estimated duration of the membership . annual fees are recognized ratably over the 12-month membership period . retail sales are recognized at the point of sale . equipment segment revenue : includes equipment revenue for new u.s. franchisee-owned stores as well as replacement equipment for u.s. existing franchisee-owned stores . story_separator_special_tag we received $ 156.9 million in proceeds , net of underwriting discounts and commissions , which were used to purchase holdings units from the continuing llc owners , at a purchase price per unit equal to the ipo price per share of class a common stock , less underwriting discounts and commissions . 40 on march 31 , 2015 , we amended our senior secured credit facility to provide for an increase in term loan borrowings to $ 506.1 million to permit the issuance of a cash distribution of approximately $ 140.0 million to holders of class t units and class o units of pla-fit holdings . the full incremental borrowings of $ 120.0 million plus cash on hand were used to fund the distribution . on march 31 , 2014 , we acquired the assets related to eight stores in the hudson valley area of new york from a franchisee for total consideration of $ 41.6 million . as a result of this transaction , the stores became corporate-owned stores , and we recorded related property and equipment , intangible assets and goodwill . seasonality our results are subject to seasonality fluctuations in that member joins are typically higher in january as compared to other months of the year . in addition , our quarterly results may fluctuate significantly because of several factors , including the timing of store openings , timing of price increases for enrollment fees and monthly membership dues and general economic conditions . see note 20 to our consolidated financial statements included elsewhere in this form 10-k for our total revenues , income from operations and net income for each of the quarters during the years ended december 31 , 2016 and 2015 . our segments we operate and manage our business in three business segments : franchise , corporate-owned stores and equipment . our franchise segment includes operations related to our franchising business in the united states , puerto rico , canada and the dominican republic . our corporate-owned stores segment includes operations with respect to all corporate-owned stores throughout the united states and canada . the equipment segment includes the sale of equipment to franchisee-owned stores in the u.s. we evaluate the performance of our segments and allocate resources to them based on revenue and earnings before interest , taxes , depreciation and amortization , referred to as segment ebitda . revenue and segment ebitda for all operating segments include only transactions with unaffiliated customers and do not include intersegment transactions . the tables below summarize the financial information for our segments for the years ended december 31 , 2016 , 2015 and 2014 . “ corporate and other , ” as it relates to segment ebitda , primarily includes corporate overhead costs , such as payroll and related benefit costs and professional services that are not directly attributable to any individual segment . replace_table_token_4_th ( 1 ) total segment ebitda is equal to ebitda , which is a metric that is not presented in accordance with gaap . refer to “ —non-gaap financial measures ” for a definition of ebitda and a reconciliation to net income , the most directly comparable gaap measure . 41 a reconciliation of income from operations to segment ebitda is set forth below : replace_table_token_5_th ( 1 ) total segment ebitda is equal to ebitda , which is a metric that is not presented in accordance with gaap . refer to “ —non-gaap financial measures ” for a definition of ebitda and a reconciliation to net income , the most directly comparable gaap measure . 42 how we assess the performance of our business in assessing the performance of our business , we consider a variety of performance and financial measures . the key measures for determining how our business is performing include total monthly dues and annual fees from members ( which we refer to as system-wide sales ) , the number of new store openings , same store sales for both corporate-owned and franchisee-owned stores , average royalty fee percentages for franchisee-owned stores , monthly pf black card membership penetration percentage , ebitda , adjusted ebitda , segment ebitda , four-wall ebitda , adjusted net income , and adjusted net income per share , diluted . see “ —non-gaap financial measures ” below for our definition of ebitda , adjusted ebitda , four-wall ebitda , adjusted net income , and adjusted net income per share , diluted and why we present ebitda , adjusted ebitda , four-wall ebitda , adjusted net income , and adjusted net income per share , diluted , and for a reconciliation of our ebitda , adjusted ebitda , and adjusted net income to net income , the most directly comparable financial measure calculated and presented in accordance with gaap , and a reconciliation of adjusted net income per share , diluted to net income per share , diluted , the most directly comparable financial measure calculated in accordance with gaap . total monthly dues and annual fees from members ( system-wide sales ) we review the total amount of dues we collect from our members on a monthly basis , which allows us to assess changes in the performance of our corporate-owned and franchisee-owned stores from period to period , any competitive pressures , local or regional membership traffic patterns and general market conditions that might impact our store performance . we collect monthly dues on or around the 17 th of every month . we collect annual fees once per year from each member based upon when the member signed his or her membership agreement . number of new store openings the number of new store openings reflects stores opened during a particular reporting period for both corporate-owned and franchisee-owned stores . opening new stores is an important part of our growth strategy and we expect the majority of our future new stores will be franchisee-owned . before we obtain the certificate of occupancy or report any revenue for new corporate-owned stores , we incur pre-opening costs , such as rent expense , labor expense and other operating expenses .
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segment results franchise segment ebitda for the franchise segment was $ 97.3 million in the year ended december 31 , 2016 compared to $ 66.0 million in the year ended december 31 , 2015 , an increase of $ 31.2 million , or 47.3 % . this increase was primarily the result of growth in our franchise segment revenue of $ 28.4 million , including $ 9.0 million attributable to a same store sales increase of 9.0 % from franchisee-owned stores , $ 6.2 million due to higher royalties received from additional franchisee-owned stores not included in the same store sales base , $ 6.5 million attributable to higher franchise and other fees , $ 3.3 million attributable to higher revenue from annual fees and $ 2.8 million from higher vendor commissions . depreciation and amortization was $ 8.5 million in the year ended december 31 , 2016 and the year ended december 31 , 2015. corporate-owned stores segment ebitda for the corporate-owned stores segment was $ 40.8 million in the year ended december 31 , 2016 compared to $ 36.1 million in the year ended december 31 , 2015 , an increase of $ 4.8 million , or 13.2 % .
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set-up fees related to our cloud-based supply chain management solutions are nonrefundable upfront fees that are necessary for our customers to utilize our cloud-based services . these set-up fees do not provide any standalone value to our customers . certain contracts contain set-up fees that constitute a material renewal option right . this material right provides customers a significant future incentive that would not be otherwise available to that customer unless they entered into the contract , as the set-up fees will not be incurred again upon contract renewal . for our fulfillment solution , we have determined that the set-up fees and related costs represent a material renewal option right to our customers as they will not be incurred again upon renewal . these set-up fees and related costs are deferred and recognized ratably over two years , which is the estimated period for which a material right is present for our customers . for our analytics solution , we have determined that the set-up fees do not represent a material customer renewal right and , as such , are deferred and recognized ratably over the estimated initial contract term , which is generally one year . the table below presents the activity of the portion of the deferred revenue liability relating to set-up fees ( in thousands ) : replace_table_token_20_th the entire balance of set-up fees will be recognized within two years and , as such , current amounts will be recognized in the next 1 - 12 months and long-term amounts will be recognized in the next 13 - 24 months . miscellaneous one-time fees consist of professional services and testing and certification . the deferred revenue liability for these one-time fees are for one year or less and recognized at the time service is provided . we have applied the optional exemption under asc 606-10-50-14 ( a ) to not disclose information about the remaining performance obligations for contracts which have original durations of one year or less . note d – deferred costs deferred costs consist of costs to obtain customer contracts , such as commissions paid to sales personnel and to third-party partners for customer referrals , and costs to fulfill customer contracts , such as customer implementation costs . costs to obtain customer contracts relating to recurring revenues are considered incremental and recoverable costs of obtaining a contract with our customer . these costs are deferred and amortized over the expected period of benefit which we have determined to be two years . amortization expense is included in sales and marketing expenses in the accompanying consolidated statements of comprehensive income . costs to fulfill customer contracts are considered incremental and recoverable costs of obtaining a contract with our customer . these costs are deferred and amortized over the expected period of benefit which we have determined to be two years . amortization expense is included in cost of revenues in the accompanying consolidated statements of comprehensive income . 61 the table below presents the activity of deferred costs and amortization of deferred costs ( in thousands ) : replace_table_token_21_th note e – financial instruments we invest primarily in money market funds , certificates of deposit , highly liquid debt instruments of the u.s. government and u.s. corporate debt securities . all highly liquid investments with original maturities of 90 days or less are classified as cash equivalents . all investments with original maturities greater than 90 days and remaining maturities less than one year from the balance sheet date are classified as short-term investments . as of december 31 , 2019 and 2018 , all of our investments held were classified as short-term . our short-term marketable securities are classified as available-for-sale . we intend to hold marketable securities until maturity ; however , we may sell these securities at any time for use in current operations or for other purposes . our marketable securities are carried at fair value and unrealized gains and losses on these investments , net of taxes , are included in accumulated other comprehensive loss in the consolidated balance sheets . realized gains or losses are included in other income ( expense ) , net in the consolidated statements of comprehensive income . when a determination has been made that an other-than-temporary decline in fair value has occurred , the amount of the decline that is related to a credit loss is realized and is included in other income ( expense ) , net in the consolidated statements of comprehensive income . cash equivalents and short-term investments consisted of the following ( in thousands ) : replace_table_token_22_th 62 as of december 31 , 2019 , we had less than $ 0.1 million of unrealized losses and we do not believe any of these unrealized losses represent an other-than-temporary impairment based on our assessment of available evidence . we expect to receive the full principal and interest on all of these cash equivalents , certificates of deposit , and marketable securities . recurring fair value measurements we measure certain financial assets at fair value on a recurring basis based on a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . a financial instrument 's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement . story_separator_special_tag we allocate overhead expenses such as rent , certain employee benefit costs , office supplies and depreciation of general office assets to cost of revenues and operating expenses categories based on headcount . other metrics recurring revenue customers . as of december 31 , 2019 , we had approximately 31,000 customers with contracts to pay us monthly fees , which we refer to as recurring revenue customers . we report recurring revenue customers as of the end of a period . a small portion of our recurring revenue customers consist of separate units within a larger organization . we treat each of these units , which may include divisions , departments , affiliates and franchises , as distinct customers . average recurring revenues per recurring revenue customer . we calculate average recurring revenues per recurring revenue customer , which we also refer to as wallet share , by dividing the recurring revenues from recurring revenue customers for the period by the average of the beginning and ending number of recurring revenue customers for the period . for interim periods , we annualize this number by multiplying the quotient calculated above by the quotient of 12 divided by the number of months in the period . we anticipate that average recurring revenues per recurring revenue customer will continue to increase as we increase the number of solutions we offer and increase the penetration of those solutions across our customer base . non-gaap financial measures . to supplement our financial statements , we also provide investors with adjusted ebitda and non-gaap income per share , both of which are non-gaap financial measures . we believe that these non-gaap measures provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations . our management uses these non-gaap measures to compare the company 's performance to that of prior periods for trend analyses and planning purposes . adjusted ebitda is also used for purposes of determining executive and senior management incentive compensation . these measures are also presented to our board of directors . these non-gaap measures should not be considered a substitute for , or superior to , financial measures calculated in accordance with gaap . these non-gaap financial measures exclude significant expenses and income that are required by gaap to be recorded in the company 's financial statements and are subject to inherent limitations . investors should review the reconciliations of non-gaap financial measures to the comparable gaap financial measures that are included in this “ management 's discussion and analysis of financial condition and results of operations. ” 35 critical accounting policies and estimates the discussion of our financial condition and results of operations is based upon our consolidated financial statements , which are prepared in accordance with gaap . the preparation of these consolidated financial statements requires us to make estimates , judgments and assumptions that affect the reported amounts of assets , liabilities , revenues , costs and expenses and related disclosures . on an ongoing basis , we evaluate our estimates and assumptions . we base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable . our actual results may differ from these estimates under different assumptions or conditions . we believe that our significant accounting policies , which are described in the notes to our consolidated financial statements , involve a greater degree of judgment and complexity and are material to our financial statement presentation . a critical accounting policy is one that is both material to the presentation of our financial statements and requires us to make difficult , subjective or complex judgments for uncertain matters that could have a material effect on our financial condition and results of operations . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations . revenue recognition revenues are recognized when our services are made available to our customers , in an amount that reflects the consideration we are contractually and legally entitled to in exchange for those services . our set-up fees from customers are one-time revenues that are specific for each connection a customer has with a trading partner and many of our customers have connections with numerous trading partners . set-up fees related to our cloud-based supply chain management solutions are nonrefundable upfront fees that are necessary for our customers to utilize our cloud-based services . these set-up fees do not provide any standalone value to our customers . certain contracts contain set-up fees that constitute a material renewal option right . this material right provides customers a significant future incentive that would not be otherwise available to that customer unless they entered into the contract as the set-up fees will not be incurred again upon contract renewal . for our fulfillment solution , we have determined that the set-up fees and related costs represent a material renewal option right to our customers as they will not be incurred again upon renewal . these set-up fees and related costs are deferred and recognized ratably over two years , which is the estimated period for which a material right is present for our customers . for our analytics solution , we have determined that the set-up fees do not represent a material customer renewal right and , as such , are deferred and recognized ratably over the estimated initial contract term , which is one year .
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results of operations year ended december 31 , 2019 compared to year ended december 31 , 2018 the following table presents our results of operations for the periods indicated ( in thousands ) : replace_table_token_9_th revenues . the increase in revenues resulted from two primary factors : the increase in recurring revenue customers , which is driven by continued business growth and by business acquisitions , and the increase in average recurring revenues per recurring revenue customer , which we also refer to as wallet share . the number of recurring revenue customers increased 5 % to 30,771 at december 31 , 2019 from 29,308 at december 31 , 2018. wallet share increased 4 % to $ 8,722 at december 31 , 2019 from $ 8,378 at december 31 , 2018. this was primarily attributable to increased usage of our solutions by our recurring revenue customers . recurring revenues from recurring revenue customers increased 14 % in 2019 , as compared to 2018 , and accounted for 94 % of our total revenues in 2019 , as compared to 93 % in 2018. we anticipate that the number of recurring revenue customers and wallet share will continue to increase as we increase the number of solutions we offer and increase the penetration of those solutions across our customer base . cost of revenues . the increase in cost of revenues was primarily due to a $ 7.1 million increase in personnel-related costs and $ 0.7 million in stock-based compensation expense , driven by increased salaries and benefits due to business growth and by increased headcount , consulting , and contract labor . as we continued to invest in the infrastructure supporting our cloud-based platform , depreciation expense increased by $ 2.1 million . sales and marketing expenses .
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the estimated aggregate grant date fair value of the overallotment options and warrants of approximately $ 0.8 million was recorded as an offset to additional paid-in capital within common stock issuance costs upon the closing of this offering ( see note 5 ) . all warrants story_separator_special_tag the following discussion of our financial condition and results of operations should be read together with our financial statements and related notes included elsewhere in the annual report . this discussion contains forward-looking statements based upon our current plans , estimates , beliefs and expectations that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under the sections entitled “ risk factors , ” “ special note regarding forward-looking statements ” and elsewhere in this annual report . we are an early stage molecular oncology diagnostics company that develops and commercializes proprietary circulating tumor cell , or ctc , and circulating tumor dna , or ctdna , assays utilizing a standard blood sample , or “ liquid biopsy. ” our assays provide , and our planned future assays will provide , information to oncologists and other physicians that enable them to select appropriate personalized treatment for their patients who have been diagnosed with cancer based on molecular drivers and markers of their disease and when traditional methodologies such as tissue biopsies are insufficient or unavailable . our assays have potential to provide more contemporaneous information on the characteristics of a patients ' disease compared with traditional methodologies such as tissue biopsy and imaging . our current assays and our planned future assays focus on key solid tumor indications utilizing our target-selector tm liquid biopsy offering for the biomarker analysis of ctcs and ctdna from a standard blood sample . our patented target-selector ctc offering is based on an internally developed microfluidics-based cell capture and analysis platform , with enabling features that change how ctc testing is used by clinicians . our target-selector platforms provide both biomarker detection as well as monitoring capabilities , and require only a patient blood sample . our patent pending target-selector ctdna technology enables mutation detection with enhanced sensitivity and specificity , and is applicable to nucleic acid from ctdna or other sample types , such as ctcs , red blood cells , or cerebrospinal fluid . we believe that our target-selector platform technology has potential to be developed and commercialized as in vitro diagnostic ( ivd ) test kits , and we are currently pursuing this option . at our corporate headquarters facility located in san diego , california , we operate a clinical laboratory that is certified under the clinical laboratory improvement amendments of 1988 , or clia , and accredited by the college of american pathologists . we manufacture our microfluidic channels , related equipment and certain reagents to perform our current assays and our planned future assays at this facility . clia certification is required before any clinical laboratory , including ours , may perform testing on human specimens for the purpose of obtaining information for the diagnosis , prevention , or treatment of disease or the assessment of health . the assays we offer and intend to offer are classified as laboratory developed tests , or ldts , under clia regulations . in addition , we also participate in and have received college of american pathologists , or cap , accreditation , which includes requires rigorous bi-annual laboratory inspections and an adherence to specific quality standards . we have commercialized our target-selector assays for a number of solid tumor indications such as : breast cancer , non-small cell lung cancer , or nsclc , small cell lung cancer , or sclc , gastric cancer , colorectal cancer , prostate cancer , and melanoma . these assays utilize our dual ctc and ctdna technology platform and provide biomarker analysis from a patient 's blood sample . in the case of our breast and gastric cancer offering , biomarker analysis involves fluorescence in situ hybridization , or fish , for the detection and quantitation of the human epidermal growth factor receptor 2 , or her2 , gene copy number as well as immunocytochemical analysis of estrogen receptor , or er , protein , as well as androgen receptor , or ar , protein , which are currently commercially available . we plan to include immunocytochemical analysis of progesterone receptor , or pr , proteins as part of the target-selector ctc menu in 2017. a patient 's her2 status provides the physician with information about the appropriateness of therapies such as herceptin ® or tykerb ® . er and pr status provides the physician with information about the appropriateness of endocrine therapies such as tamoxifen and aromatase inhibitors . the lung cancer biomarker analyses currently include fish testing for alk , ros1 , ret , met and fgfr1 gene rearrangements and mutation analysis of the t790m , deletion 19 , and l858r mutations of the epidermal growth factor receptor , or egfr , gene as well as braf and kras using our target-selector ctdna platform . the l858r mutation of the egfr gene and exon 19 deletions as activators of egfr kinase activity are associated with the drugs tarceva ® , gilotrif ® and iressa ® . for lung cancer , we also offer a resistance profile assay consisting of the biomarkers met , her2 ( both of which we perform using our technology for ctcs ) , kras , and t790m ( both of which are performed using ctdna in plasma ) . this 63 assay could be used by physicians to identify the mechanism causing disease progression for patients with nsclc who are be ing treated with tki therapy and therefore could qualify for inclusion in a clinical trial . in november 2015 , tagrisso ® was approved by the u.s. food and drug administration , providing another biomarker-based therapy for the treatment of patients with egfr related lung cancer . story_separator_special_tag we collaborate with physicians and researchers at sarah cannon research institute , baylor college of medicine , the university of texas md anderson cancer center , the dana-farber cancer institute , the university of california , san diego , university of california , irvine , washington university , university of colorado , yale university , the university of minnesota , the john wayne cancer institute , and columbia university and plan to expand our collaborative relationships to include other key thought leaders at other institutions for the cancer types we target with our target-selector commercialized assays and our planned future assays . such relationships help us develop and validate the effectiveness and utility of our commercialized assays and our planned future assays in specific clinical settings and provide us access to patient samples and data . we believe that the factors discussed in the following paragraphs have had and are expected to continue to have a material impact on our results of operations and financial condition . revenues the following table sets forth certain information concerning our commercial cases accessioned for the periods shown : replace_table_token_5_th revenues from commercial cases are recognized as collected , and the expected collection period for a commercial case often extends beyond the end of the quarter in which accessioned , with multiple payments received per case . for commercial accessions received during the years ended december 31 , 2015 and 2016 , the average number of tests performed increased from 2.6 tests per accession to 3.6 tests per accession , respectively , as the number of commercialized assays we offer has increased . approximately 41 % and 40 % of total revenues during the years ended december 31 , 2015 and 2016 , respectively , were associated with medicare reimbursement . for commercial accessions received from january 1 , 2016 through december 31 , 2016 , we estimate the average value to be approximately $ 1,100 per accession , when we receive payments from third parties . we have not historically been reimbursed at these average rates for a variety of reasons , including billing challenges related to changes in medicare cpt codes for our fish assays in 2015 , establishing our associated internal processes , and managing an external “ out-sourced ” billing company . additionally , a significant amount of our non-medicare business ( private payors ) has historically not been contracted , and reimbursement for this business has historically not been at “ in network ” rates and has therefore been inconsistent . we first began to contract private payor networks in 2015 , and since then our number of accessions treated as “ in network ” has increased as we continue to execute additional contracts , and reimbursement is improving . we are currently contracted with eight preferred provider organization networks , two large health plans , and three regional independent physician associations , and expect to continue to gain contracts in order to be considered as an “ in-network ” provider with additional plans . during the years ended december 31 , 2015 and 2016 , approximately $ 69,000 and $ 221,000 or 11 % and 7 % , respectively , of our total annual revenues were billed to clinical partners . the clinical laboratory industry is highly competitive , and our relationships and our partners ' relationships with decision-makers at hospitals , cancer centers or physician offices is a critical component of securing their business . consequently , our ability to establish and manage partnerships with groups that have 65 sales and marketing capabilities in our target markets and attract and maintain productive sales personnel that have and can grow these relationships will largely determine our ability to grow our clinical services revenue . costs and expenses we classify our costs and expenses into four categories : cost of revenues , research and development , sales and marketing , and general and administrative . our costs and expenses principally consist of facility costs and overhead , personnel costs , outside services and consulting costs , laboratory consumables , development costs , and legal fees . cost of revenues . our cost of revenues consists principally of facility costs and overhead , personnel costs , and laboratory and manufacturing supplies . we are pursuing various strategies to reduce and control our cost of revenues , including automating aspects of our processes , developing more efficient technology and methods , attempting to negotiate improved terms and volume discounts with our suppliers and exploring relocating our operations to a lower-cost facility . research and development expenses . we incur research and development expenses principally in connection with our efforts to develop and improve our tests . our primary research and development expenses consist of direct personnel costs , laboratory equipment and consumables and overhead expenses . we anticipate that research and development expenses will remain consistent in the near-term , principally to develop and validate tests in our pipeline and to perform work associated with clinical utility studies and development collaborations . in addition , we expect that our costs related to collaborations with research and academic institutions will increase . all research and development expenses are charged to operations in the periods in which they are incurred . sales and marketing expenses . our sales and marketing expenses consist principally of personnel and related overhead costs for our sales team and their support personnel , travel and entertainment expenses , and other selling costs including sales collaterals and trade shows . general and administrative expenses . general and administrative expenses consist principally of personnel-related expenses , professional fees , such as legal , accounting and business consultants , third party billing provider fees , occupancy costs , and other general expenses . we expect that our general and administrative expenses will increase as we expand our business operations . we further expect that general and administrative expenses will increase significantly due to increased information technology , legal , insurance , accounting and financial reporting expenses associated with expanded commercial activities .
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results of operations years ended december 31 , 2015 and 2016 the following table sets forth certain information concerning our results of operations for the periods shown : replace_table_token_6_th revenues revenues were approximately $ 3,223,000 for the year ended december 31 , 2016 , compared with approximately $ 610,000 for the same period in 2015 , an increase of $ 2,613,000 , or 428 % . the increase was due to an increase of approximately $ 2,427,000 in commercial assay revenues resulting primarily from increases in both commercial accession volume and collections made thereon , as well as an increase of approximately $ 186,000 in development services revenues with 535 development services accessions received during the year ended december 31 , 2016 as compared to 216 accessions received during the same period in 2015. costs and expenses costs of revenues . cost of revenues was approximately $ 6,920,000 for the year ended december 31 , 2016 , compared with approximately $ 4,596,000 for the year ended december 31 , 2015 , an increase of $ 2,324,000 , or 51 % . the increase was primarily attributable to an increase of approximately $ 1,052,000 in personnel costs mainly related to higher assay volume as the average number of laboratory and other direct employees increased from an average of 20 employees during the year ended december 31 , 2015 to 28 employees during the same period in 2016 , an increase of approximately $ 988,000 in direct materials costs also related to higher assay volume , as well as an increase of approximately $ 219,000 related to fewer laboratory costs charged to research and development . research and development expenses . research and development expenses were approximately $ 2,713,000 for the year ended december 31 , 2016 , compared with approximately $ 2,858,000 for the year ended december 31 , 2015 , a decrease of $ 145,000 , or 5 % .
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the actual results of the future events described in such forward-looking statements in this annual report could differ materially from those stated in such forward-looking statements . among the factors that could cause actual results to differ materially are the risks and uncertainties discussed in item 1a . risk factors and the uncertainties set forth from time to time in our other public reports and filings and public statements . overview our long-term strategy continues to be providing the best small and medium-sized businesses in the united states with the opportunity to participate in our unique human resources service offering , thereby leveraging our buying power and expertise to provide additional valuable services to clients . our most comprehensive hr business offering is provided through our peo services , now known as our workforce optimization tm solution , which encompasses a broad range of human resources functions , including payroll and employment administration , employee benefits , workers ' compensation , government compliance , performance management and training and development services . our overall operating results can be measured in terms of revenues , payroll costs , gross profit or operating income per worksite employee per month . we often use the average number of worksite employees paid during a period as our unit of measurement in analyzing and discussing our results of operations . in addition to workforce optimization , we offer human capital management , payroll services , time and attendance , performance management , organizational planning , recruiting services , employment screening , financial services , expense management , retirement services and insurance services , ( collectively “ adjacent businesses ” ) , many of which are offered via desktop applications and saas delivery models . these other products or services are offered separately , as a bundle , or along with workforce optimization . we ended 2012 averaging 129,345 paid worksite employees in the fourth quarter , which represents a 6.0 % increase over the fourth quarter of 2011. approximately 17 % of our paid worksite employees were in our mid-market sector for the year ended december 31 , 2012 , which is defined as companies with 150 to 2,000 worksite employees . we expect the average number of paid worksite employees per month to be in the range of 123,250 to 123,750 in the first quarter of 2013. our 2012 average gross profit per worksite employee per month was $ 253 , a $ 2 increase over 2011. higher gross profit per worksite employee per month in 2012 compared to 2011 was primarily the result of a higher contribution from our direct cost programs . operating expenses increased 6.9 % in 2012 to $ 314.7 million . on a per worksite employee per month basis , operating expenses decreased from $ 210 in 2011 to $ 208 in 2012. the 2012 operating expenses included a $ 4.2 million impairment charge related to our performance management reporting unit . please read note 5 to the consolidated financial statements , “ goodwill and other intangible assets , ” for additional information . our net income in 2012 was $ 40.4 million , a $ 9.9 million increase compared to 2011. we ended 2012 with working capital of $ 115.7 million . during 2012 , we paid $ 42.7 million in dividends and repurchased shares at a cost of $ 16.9 million . revenues we account for our revenues in accordance with accounting standards codification ( “ asc ” ) 605-45 , revenue recognition . our workforce optimization gross billings to clients include the payroll cost of each worksite employee at the client location and a markup computed as a percentage of each worksite employee 's payroll cost . we invoice the gross billings concurrently with each periodic payroll of our worksite employees . revenues , which exclude the payroll cost component of gross billings , and therefore , consist solely of the markup , are recognized ratably over the payroll period as worksite employees perform their service at the client worksite . this markup includes pricing components associated with our estimates of payroll taxes , benefits and workers ' compensation costs , plus a separate component related to our hr services . we include revenues that have been recognized but not invoiced in unbilled accounts receivable on our consolidated balance sheets . - 29 - our revenues are primarily dependent on the number of clients enrolled , the resulting number of worksite employees paid each period and the number of worksite employees enrolled in our benefit plans . because our total markup is computed as a percentage of payroll cost , certain revenues are also affected by the payroll cost of worksite employees , which may fluctuate based on the composition of the worksite employee base , inflationary effects on wage levels and differences in the local economies of our markets . direct costs the primary direct costs associated with our workforce optimization revenue-generating activities are : · employment-related taxes ( “ payroll taxes ” ) · costs of employee benefit plans · workers ' compensation costs payroll taxes consist of the employer 's portion of social security and medicare taxes under fica , federal unemployment taxes and state unemployment taxes . payroll taxes are generally paid as a percentage of payroll cost . the federal tax rates are defined by federal regulations . state unemployment tax rates are subject to claim histories and vary from state to state . employee benefits costs are comprised primarily of health insurance premiums and claims costs ( including dental and pharmacy costs ) , but also include costs of other employee benefits such as life insurance , vision care , disability insurance , education assistance , adoption assistance , a flexible spending account and a worklife program . workers ' compensation costs include administrative and risk charges paid to the insurance carrier , and claims costs , which are driven primarily by the frequency and severity of claims . story_separator_special_tag if the plan costs for a reporting quarter are greater than the premiums paid and owed to united , a deficit in the plan would be incurred and we would accrue a liability for the excess costs on our consolidated balance sheets . on the other hand , if the plan costs for the reporting quarter are less than the premiums paid and owed to united , a surplus in the plan would be incurred and we would record an asset for the excess premiums on our consolidated balance sheets . the terms of the arrangement with united require us to maintain an accumulated cash surplus in the plan of $ 9.0 million , which is reported as long-term prepaid insurance . as of december 31 , 2012 , plan costs were less than the premiums paid and owed to united by $ 18.5 million . as this amount is in excess of the agreed-upon $ 9.0 million surplus maintenance level , the $ 9.5 million balance is included in prepaid insurance , a current asset , on our consolidated balance sheets . the premiums owed to united at december 31 , 2012 , were $ 10.5 million , which is included in accrued health insurance costs , a current liability , on our consolidated balance sheets . we believe the use of recent claims activity is representative of incurred and paid trends during the reporting period . the estimated completion rate used to compute incurred but not reported claims involves a significant level of judgment . accordingly , an increase ( or decrease ) in the completion rates used to estimate the incurred claims would result in an increase ( or decrease ) in benefits costs and net income would decrease ( or increase ) accordingly . the following table illustrates the sensitivity of changes in the completion rates on our estimate of total benefit costs of $ 939.5 million in 2012 : replace_table_token_8_th · workers ' compensation costs – since october 1 , 2007 , our workers ' compensation coverage has been provided through our arrangement with the ace group of companies ( “ ace ” ) . under our arrangement with ace ( the “ ace program ” ) , we bear the economic burden for the first $ 1 million layer of claims per occurrence , and effective october 1 , 2010 , we also bear the economic burden for a maximum aggregate amount of $ 5 million per policy year for claim amounts that exceed the first $ 1 million . ace bears the economic burden for all claims in excess of these levels . the ace program is a fully insured policy whereby ace has the responsibility to pay all claims incurred under the policy regardless of whether we satisfy our responsibilities . our coverage from september 1 , 2003 through september 30 , 2007 was provided through selected member insurance companies of american international group , inc. because we bear the economic burden for claims up to the levels noted above , such claims , which are the primary component of our workers ' compensation costs , are recorded in the period incurred . workers ' compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury . accordingly , the accrual of related incurred costs in each reporting period includes estimates , which take into account the ongoing development of claims and therefore requires a significant level of judgment . we employ a third party actuary to estimate our loss development rate , which is primarily based upon the nature of worksite employees ' job responsibilities , the location of worksite employees , the historical frequency and severity of workers ' compensation claims , and an estimate of future cost trends . each reporting period , changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers ' compensation claims cost estimates . during the years ended december 31 , 2012 and 2011 , insperity reduced accrued workers ' compensation costs by $ 13.1 million and $ 11.4 million , respectively , for changes in estimated losses related to prior reporting periods . workers ' compensation cost estimates are discounted to present value at a rate based upon the u.s. treasury rates that correspond with the weighted average estimated claim payout period ( the average discount rate utilized in 2012 and 2011 was 0.6 % and 1.1 % , respectively ) and are accreted over the estimated claim payment period and included as a component of direct costs in our consolidated statements of operations . - 32 - our claim trends could be greater than or less than our prior estimates , in which case we would revise our claims estimates and record an adjustment to workers ' compensation costs in the period such determination is made . if we were to experience any significant changes in actuarial assumptions , our loss development rates could increase ( or decrease ) , which would result in an increase ( or decrease ) in workers ' compensation costs and a resulting decrease ( or increase ) in net income reported in our consolidated statements of operations . the following table illustrates the sensitivity of changes in the loss development rate on our estimate of workers ' compensation costs totaling $ 51.6 million in 2012 : replace_table_token_9_th at the beginning of each policy period , the insurance carrier establishes monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims ( “ claim funds ” ) . the level of claim funds is primarily based upon anticipated worksite employee payroll levels and expected workers ' compensation loss rates , as determined by the carrier . monies funded into the program for incurred claims expected to be paid within one year are recorded as restricted cash , a short-term asset , while the remainder of claim funds are included in deposits , a long-term asset in our consolidated balance sheets .
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results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010. the following table presents certain information related to our results of operations : replace_table_token_13_th ( 1 ) includes the impact of a $ 4.4 million loss related to the exchange of an aircraft , and a $ 3.1 million loss related to a settlement with the state of california . please read note 13 to the consolidated financial statements , “ commitments and contingencies , ” for additional information on the settlement with the state of california . ( 2 ) gross billings of $ 8,345 and $ 7,919 per worksite employee per month , less payroll cost of $ 6,935 and $ 6,580 per worksite employee per month , respectively . revenues our revenues in 2011 , which represent gross billings net of worksite employee payroll cost , increased 14.9 % compared to 2010 , due to a 5.3 % , or $ 71 increase in revenues per worksite employee per month and a 9.2 % increase in the average number of worksite employees paid per month . the 5.3 % increase in revenues per worksite employee per month was due primarily to increases in the benefits and payroll tax pricing to offset increases in these direct costs . by region , our workforce optimization revenue change from 2010 and distribution for the years ended december 31 , 2011 and 2010 were as follows : replace_table_token_14_th other revenue is comprised primarily of revenues generated by our abus . - 39 - our growth in the number of worksite employees paid is affected by three primary sources – new client sales , client retention and the net change in existing clients through worksite employee new hires and layoffs .
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the net loss attributable to common shareholders reflects both the net loss and the deemed dividend . on december 17 , 2013 , the holders of the series a prefs converted all of such securities into an aggregate of 7,000,000 shares of the company 's common stock pursuant to the conversion feature contained in the certificate of designation for the series a prefs . accordingly , none of the series a prefs remain outstanding as of december 31 , 2013 story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements included elsewhere in this report and the information described under the caption risk factors and at the conclusion of this item 7. story_separator_special_tag display : block ; margin-left : 0pt ; margin-right : 0pt '' > potential for combination therapies – we believe that combining two or more antiviral agents , particularly directed against different hcv targets , could lead to more potent inhibition of viral replication and to better suppression of the emergence of drug resistance compared to the use of single agents . we plan to explore combination therapy approaches with other hcv daas , including ns3 protease inhibitors , ns5a inhibitors , and ns5b nucs . cultivating strong partnerships – we will develop relationships with large multinational pharmaceutical companies to promote clinical development . this approach will enable us to focus our efforts on the discovery and early development of select compounds , while our collaborations with larger companies would fund the costly clinical trials and enable preparation for commercialization . -12- critical accounting policies and estimates the following policies and estimates apply to the legacy biozone pharmaceuticals business and to the audit report attached . basis of consolidation the consolidated financial statements include the accounts of biozone pharmaceuticals , inc. and its subsidiaries , all of which are wholly owned , its equity investment in betazone laboratories , llc , and 580 garcia ave , llc , a variable interest entity ( “ vie ” ) . the company considered the terms of its interest in 580 garcia and determined that it was a variable interest entity ( vie ) in accordance with acs 810-10-55 , and that it should be consolidated with the company . the company rents the manufacturing facility located at 580 garcia avenue , pittsburg ca from 580 garcia , is the sole tenant and is a guarantor of the mortgage note issued by 580 garcia to gecc , the lien holder on the property . use of estimates the preparation of the financial statements in conformity with generally accepted accounting principles ( “ gaap ” ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods . actual results could differ from those estimates . these estimates and assumptions include the collectability of accounts receivable and deferred taxes and related valuation allowances . certain of our estimates , including evaluating the collectability of accounts receivable , could be affected by external conditions , including those unique to our industry , and general economic conditions . it is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates . we re-evaluate all of our accounting estimates at least quarterly based on these conditions and record adjustments when necessary . revenue recognition we follow the guidance of the securities and exchange commission 's staff accounting bulletin ( “ sab ” ) 104 for revenue recognition and accounting standards codification ( “ asc ” ) topic 605 , “ revenue recognition ” . the company operates as a contract manufacturer and produces finished goods according to customer specifications . the agreements with customers do not contain any rights of return other than for goods that fail to meet the specifications provided by the customer . the company has not experienced any significant returns from customers and accordingly , in management 's opinion , no reserve for returns is provided . we record revenue when persuasive evidence of an arrangement exists , services have been rendered or product delivery has occurred , the selling price to the customer is fixed or determinable and collectability of the revenue is reasonably assured . inventories inventories are stated at the lower of cost , determined using the weighted average cost method , and net realizable value . net realizable value is the estimated selling price , in the ordinary course of business , less estimated costs to complete and dispose of the product . if the company identifies excess , obsolete or unsalable items , its inventories are written down to their realizable value in the period in which the impairment is first identified . during the year ended december 31 , 2012 we recorded a charge to cost of sales of $ 405,918 while in the prior year period we charged $ 1,439,616 relating to the write-down of inventory due to obsolescence . shipping and handling costs incurred for inventory purchases and product shipments are recorded in cost of sales in the company 's consolidated statements of operations . -13- common stock purchase warrants and other derivative financial instruments we classify as equity any contracts that require physical settlement or net-share settlement or provide us a choice of net-cash settlement or settlement in our own shares ( physical settlement or net-share settlement ) provided that such contracts are indexed to our own stock as defined in asc 815-40 ( `` contracts in entity 's own equity '' ) . we classify as assets or liabilities any contracts that require net-cash settlement ( including a requirement to net cash settle the contract if an event occurs and if that event is outside our control ) or give the counterparty a choice of net-cash settlement or settlement in shares ( physical settlement or net-share settlement ) . story_separator_special_tag our research programs may initially show promise in identifying potential product candidates , yet fail to yield product candidates for clinical development for several reasons , including : · our research methodology or that of our partners may be unsuccessful in identifying potential product candidates ; · potential product candidates may have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval ; and · we or our partners may change their development profiles for potential product candidates or abandon a therapeutic area . such events may force us to abandon our development efforts for a program or programs , which would have a material adverse effect on our business and could cause us to cease operations . research programs to identify new product candidates require substantial technical , financial and human resources . we may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful . we may be unable to successfully complete preclinical testing and clinical trials of our product candidates or experience significant delays in doing so . we intend to invest a significant portion of our efforts and financial resources in the identification and preclinical development of product candidates that target viral replication enzymes . our ability to generate product revenues , which we do not expect will occur for many years , if ever , will depend heavily on the successful development and eventual commercialization of our product candidates . the commercial success of our product candidates will depend on several factors , including : · successful completion of preclinical studies and clinical trials ; · receipt of marketing approvals from regulatory authorities ; · obtaining and maintaining patent and trade secret protection for product candidates ; · establishing and maintaining manufacturing relationships with third parties or establishing our own manufacturing capability ; and · commercializing our products , if and when approved , whether alone or in collaboration with others . if we do not achieve one or more of these factors in a timely manner or at all , we could experience significant delays or an inability to successfully complete development of , or to successfully commercialize , our product candidates , which would materially harm our business . -16- we may be unable to to demonstrate safety and efficacy of our product candidates to the satisfaction of regulatory authorities or we may incur additional costs or experience delays in completing , or ultimately be unable to complete , the development and commercialization of our product candidates . before obtaining marketing approval from regulatory authorities for the sale of product candidates , we or our partners must conduct extensive preclinical studies and clinical trials to demonstrate the safety and efficacy of the product candidates in humans . clinical testing is expensive , difficult to design and implement , can take many years to complete and is uncertain as to outcome . a failure of one or more clinical trials can occur at any stage of testing . the outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials , and interim results of a clinical trial do not predict final results . moreover , preclinical and clinical data are often susceptible to varying interpretations and analyses , and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for their products . events that may cause a delay or unsuccessful completion of clinical development include : · delays in agreeing with the fda or other regulatory authorities on final clinical trial design ; · imposition of a clinical hold following an inspection of our clinical trial operations or trial sites by the fda or other regulatory authorities ; · delays in agreeing on acceptable terms with prospective contract research organizations , or cros , and clinical trial sites ; · delays in obtaining required institutional review board approval at each clinical trial site ; · delays in recruiting suitable patients to participate in a trial ; · delays in the testing , validation , manufacturing and delivery of the product candidates to the clinical sites ; · delays in having patients complete participation in a trial or return for post-treatment follow-up ; · delays caused by patients dropping out of a trial due to product side effects or disease progression ; · clinical sites dropping out of a trial to the detriment of enrollment ; · time required to add new clinical sites ; or · delays by our contract manufacturers in producing and delivering sufficient supply of clinical trial materials . -17- if we or our partners must conduct additional clinical trials or other testing of any product candidates beyond those that are contemplated , or are unable to successfully complete clinical trials or other testing of any the product candidates , or if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns , we or our partners may : · be delayed in obtaining marketing approval for our product candidates ; · not obtain marketing approval at all ; · obtain approval for indications or patient populations not as broad as intended or desired ; · obtain approval with labeling that includes significant use or distribution restrictions or safety warnings ; · be subject to additional post-marketing testing requirements ; or · remove the product from the market after obtaining marketing approval . our product development costs will also increase if we experience delays in testing or in obtaining marketing approvals . we do not know whether any clinical trials will begin as planned , will need to be restructured or will be completed on schedule if at all .
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company overview effective january 2 , 2014 , biozone pharmaceuticals , inc. , biozone acquisitions co. , inc. , a wholly-owned subsidiary of biozone ( the “ merger sub ” ) , and cocrystal discovery , inc. entered into and closed an agreement and plan of merger . pursuant to the merger agreement , merger sub merged with and into cocrystal discovery , with cocrystal discovery continuing as the surviving corporation and a wholly-owned subsidiary of cocrystal . in connection with the merger agreement , cocrystal issued to cocrystal discovery security holders 1,000,000 shares of cocrystal 's series b convertible preferred stock . the series b shares : ( i ) automatically convert into shares of cocrystal 's common stock at a rate of 205.08308640 shares for each share of series b at such time that cocrystal has sufficient authorized capital , ( ii ) are entitled to vote on all matters submitted to shareholders of cocrystal and vote on an as converted basis and ( iii ) have a nominal liquidation preference . additionally , cocrystal assumed all of the outstanding stock options under the cocrystal discovery 2007 equity incentive plan . a total of 4,402,899 options were assumed and 4,227,618 are presently outstanding . the merger is being treated as a reverse merger and recapitalization effected by a share exchange for financial accounting and reporting purposes , since substantially all of biozone 's operating assets were disposed of in exchange for 1,200,000 shares of musclepharm common stock immediately prior to the consummation of the merger as reported on a form 8-k filed by biozone on january 8 , 2014. cocrystal discovery is treated as the accounting acquirer as its shareholders control cocrystal after the merger , even though cocrystal is the legal parent .
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costs incurred to complete the business combination such as investment banking , legal and other professional fees are not considered part of consideration and are charged to acquisition expense as they are incurred . segments operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance . certain operating segments are aggregated into reportable segments . see note 15 “ segment reporting ” . statement of cash flows the company has presented the consolidated statements of cash flows using the indirect method , which involves the story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this annual report . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review item 1a . “ risk factors ” and “ cautionary note regarding forward-looking statements ” in this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . 29 overview we are a delaware corporation based in lincoln , rhode island , and a multi-jurisdictional owner of gaming and racing facilities . we currently own and manage the twin river casino hotel , in lincoln , rhode island , which is our flagship property , the tiverton casino hotel in tiverton , rhode island , the hard rock biloxi in biloxi , mississippi , dover downs hotel & casino in dover , delaware and mile high usa in aurora , colorado . on september 1 , 2018 , we opened the tiverton casino hotel following the closure of the newport grand in august 2018. on march 28 , 2019 , we completed the merger with dover downs and now own and operate the dover downs hotel & casino in dover , delaware . as of march 28 , 2019 , we had an aggregate of over 400,000 square feet of gaming space , approximately 8,500 slot machines , approximately 260 gaming tables , approximately 65 stadium gaming positions , approximately 40 dining establishments , 20 bars , three entertainment venues and approximately 1,200 hotel rooms . as of december 31 , 2018 , we had four operating segments : twin river casino hotel , hard rock biloxi , tiverton casino hotel and mile high usa , and two reportable segments , rhode island and biloxi . in addition , prior to its closing in august 2018 , we operated a fifth , immaterial operating segment , newport grand . twin river casino hotel , newport grand and tiverton casino hotel have been aggregated to form the rhode island reportable segment . our biloxi reportable segment includes only hard rock biloxi . we report mile high usa , an immaterial operating segment , and shared services provided by our management subsidiary , in the “ other ” category . we anticipate that dover downs will operate as a separate operating segment and we are still evaluating the reporting segment structure inclusive of dover downs . results of operations the following table presents , for the periods indicated , certain income and expense items : replace_table_token_3_th the following table presents , for the periods indicated , certain income and expense items expressed as a percentage of net revenues : 30 replace_table_token_4_th * - reflects rounding segment performance the following table sets forth certain financial information associated with results of operations for the years ended december 31 , 2018 , 2017 and 2016. non-gaming revenue includes hotel , food and beverage and other revenue . non-gaming expenses include hotel , food and beverage and other expenses . 31 replace_table_token_5_th year ended december 31 , 2018 compared to year ended december 31 , 2017 net revenue net revenue for the year ended december 31 , 2018 increased 3.9 % to $ 437.5 million , from $ 421.1 million in 2017. this increase was primarily attributable to increases in gaming and racing revenue and non-gaming revenue in the rhode island segment . the increase in gaming and racing revenue of $ 10.8 million in the rhode island segment is primarily attributable to a $ 14.4 million increase which was the result of opening tiverton casino hotel on september 1 , 2018 , partially offset by a decrease of $ 4.2 million which was the result of closing newport grand on august 28 , 2018. the increase in non-gaming revenue in the rhode island segment of $ 4.0 million is primarily attributable to a $ 3.2 million increase as a result of opening the tiverton casino hotel , partially offset by a decrease of $ 1.1 million which was the result of closing newport grand . additionally , non-gaming revenue increased $ 0.8 million due to the opening of the hotel in october at our twin river casino hotel property , and to a lesser extent , due to increases in merchandise , cash services and entertainment revenue . 32 gaming and racing expenses for the year ended december 31 , 2018 increased $ 5.7 million , or 7.6 % , from $ 75.1 million in 2017. this increase was primarily attributable to an increase in the rhode island segment due to a $ 3.7 million increase from opening the tiverton casino hotel casino offset by a decrease of $ 1.0 million resulting from the closing of newport grand . the increase is also partially due to higher labor and benefits costs of $ 1.8 million and expenses associated with new premium games of $ 0.5 million . as a percentage of gaming and racing revenue , costs remained relatively consistent . story_separator_special_tag operating costs and expenses gaming and racing expenses for the year ended december 31 , 2017 decreased $ 0.8 million from $ 75.9 million , or 1.1 % , in 2016. this decrease was primarily attributable to a decrease of $ 1.5 million resulting from the lower racing expenses for mile high usa in “ other ” , which is consistent with a decrease in racing revenue . as a percentage of gaming and racing revenue , costs remained relatively consistent . non-gaming expenses for the year ended december 31 , 2017 decreased $ 3.1 million from $ 47.6 million , or 6.5 % , in 2016. this decrease was primarily attributable to a decrease of $ 1.7 million in the rhode island segment primarily due to a decrease in complimentary buffets offered to gaming patrons consistent with decreased non-gaming revenue , and $ 1.4 million in the biloxi segment due to a decrease in complimentary buffets offered to gaming patrons and the elimination of breakfast hours , consistent with decreased non-gaming revenue . as a percentage of non-gaming and racing revenue , costs remained relatively consistent . advertising , general and administrative advertising , general and administrative expenses for the year ended december 31 , 2017 increased $ 7.2 million from $ 148.1 million , or 4.9 % , in 2016. this increase is primarily attributable to a $ 7.9 million increase in “ other ” for share-based compensation expense for stock options classified as liability awards as a result of an increase in fair value . as a percentage of net revenue , costs remained relatively consistent other operating costs and expenses expansion and pre-opening costs were $ 0.2 million and $ 0.6 million for the years ended december 31 , 2017 and 2016 , respectively . the costs in 2016 were primarily related to the tiverton casino hotel prior to us receiving state and town referendum approval in november 2016 to open the new tiverton casino . referendum costs for the year ended december 31 , 2017 decreased $ 5.0 million from 2016 primarily due to $ 5.0 million of referendum costs related to moving the gaming license from newport grand to the tiverton casino hotel recorded in 2016. depreciation and amortization of intangibles depreciation and amortization of intangibles of $ 22.2 million represented a decrease of $ 2.9 million for the year ended december 31 , 2017 from 2016. this decrease is primarily attributable to the decrease in depreciation of property and equipment as furniture and fixtures included in the biloxi segment that were fully depreciated as of july 2017 and similar assets included in the rhode island segment were fully depreciated as of december 2016 . 34 income from operations our income from operations was $ 123.7 million for the year ended december 31 , 2017 compared to $ 112.5 million in 2016. other income ( expense ) total other expense for the year ended december 31 , 2017 decreased $ 6.4 million , or 22.2 % , from $ 29.1 million in 2016 primarily due to a decrease in interest expense of $ 3.8 million resulting from lower debt balances and lower interest rates , and a decrease in fair value of contingent value rights of $ 2.7 million due to the majority of the contingent value rights being settled in 2016 , and the remaining rights having no further value as of december 31 , 2016. provision for income taxes provision for income taxes for the year ended december 31 , 2017 remained consistent with the comparable period in 2016 at $ 38.9 million . although income before the provision for income taxes increased for the year ended december 31 , 2017 from the comparable period in 2016 , the resulting increase in provision for income taxes was offset by the reduction in the deferred tax rate adjustment resulting from the tcja . net income reported net income in 2017 was $ 62.2 million , an increase of 38.8 % , from $ 44.8 million in 2016. liquidity and capital resources story_separator_special_tag million and proceeds from the sale of newport grand land and building of $ 7.1 million . at december 31 , 2018 , net working capital balance was $ 46.9 million , compared to $ 17.8 million at december 31 , 2017. the increase is primarily attributable to the decrease in the current portion of the term loan of $ 29.7 million , as a mandatory prepayment was due on december 31 , 2017 , as well as a decrease of $ 10.9 million in accounts payable and accrued liabilities balances primarily driven by the completion of the tiverton casino hotel and the completion of the new hotel at twin river casino hotel . these decreases in current liabilities were partially offset by a decrease in cash and cash equivalents and restricted cash , discussed above . at december 31 , 2017 , cash and cash equivalents and restricted cash totaled $ 93.2 million , compared to $ 61.8 million at december 31 , 2016. this increase is primarily attributable to cash provided by operating activities of $ 107.8 million , partially offset by capital expenditures of $ 47.9 million , including the tiverton casino hotel and the new hotel at twin river casino hotel , and net principal payments on long-term debt of $ 24.7 million . 36 at december 31 , 2017 , net working capital balance was $ 17.8 million , compared to $ 40.2 million at december 31 , 2016. the decrease is primarily attributable to an increase of $ 28.3 million in accounts payable and accrued liabilities balances primarily driven by increased capital expenditures for the new casino in tiverton and the hotel at twin river casino hotel discussed above , and the increase in the current portion of the term loan of $ 22.6 million , for a payment to be made in march 2018 , partially offset by an increase in cash and cash equivalents and restricted cash , discussed above .
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cash flow summary replace_table_token_6_th net cash provided by operating activities net cash provided by operating activities for the year ended december 31 , 2018 was $ 109.2 million , an increase of $ 1.4 million compared to the year ended december 31 , 2017. this increase was primarily attributable to a $ 7.7 million increase in net income adjusted for non-cash items that remained relatively consistent , up $ 1.5 million , for the year ended december 31 , 2018 compared to 2017. this increase is partially offset by a $ 6.3 million decrease in cash provided by operating assets and liabilities , primarily driven by a $ 6.3 million increase in cash used in prepaid expenses and other assets related to prepaid taxes , and an increase in accounts receivable of $ 4.0 million resulting primarily from higher balances due from the state of rhode island in connection with the tiverton casino hotel , including a one-time $ 1.8 million receivable associated with construction of a roundabout built in conjunction with the tiverton casino hotel . these decreases were partially offset by an increase in cash provided by accounts payable and accrued expenses of $ 2.7 million due to incrementally higher accounts payable and accrued balances associated with the tiverton casino hotel as compared to newport grand . net cash provided by operating activities for the year ended december 31 , 2017 was $ 107.8 million , an increase of $ 37.1 million compared to the year ended december 31 , 2016. this increase was primarily attributable to a $ 24.2 million increase in cash provided by operating assets and liabilities , primarily driven by ( i ) an increase of $ 9.3 million in cash provided by prepaid expenses and other assets relating to tax payments , including $ 4.9 million taxes prepaid during the year ended december 31 , 2016 that were used to make $ 4.9
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borrowings under this credit story_separator_special_tag general we have a 52/53-week fiscal year ending on the tuesday closest to december 31. fiscal years 2008 , 2009 and 2010 ended on december 30 , 2008 , december 29 , 2009 and december 28 , 2010 , respectively , and each contained 52 weeks . our next 53-week fiscal year is 2011 which ends on january 3 , 2012. 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 and commissary operations prepare and assemble consistent , high-quality ingredients that are delivered fresh to our restaurants through our network of independent distributors . restatement of financial information on february 22 , 2011 , management , after discussion with the audit committee of our board of directors , determined that previously issued financial statements for the fiscal years 2006 , 2007 , 2008 and 2009 and each of the four quarters of fiscal 2009 and fiscal 2008 should be restated in order to revise our accounting for the provision for income taxes . these matters are described in more detail in note 3 and note 20 to our consolidated financial statements included in this annual report . the restated consolidated balance sheet as of december 29 , 2009 and the related restated consolidated statements of operations , stockholders ' equity and cash flows for the years ended december 29 , 2009 and december 30 , 2008 are included in this annual report . the selected financial data for those fiscal years , as well as fiscal years 2006 and 2007 in this annual report , have also been restated because of these matters . the accompanying management 's discussion and analysis of financial condition and results of operations section gives effect to these restatements and a detailed discussion follows . we have not amended our reports previously filed under the securities exchange act of 1934 , and therefore the financial statements and related financial information contained in those reports should no longer be relied upon and are superseded by the financial statements and financial information in this annual report on form 10-k. during the year end close process , the company identified two types of errors while preparing its income tax provision . these errors only impact the provision for income taxes and resulted in errors to the company 's income tax provisions , net income ( loss ) amounts and earnings per share amounts for 2001 through 2009. the errors do not impact income from operations for 2001 through 2009. the first error relates to the incorrect netting of deferred tax liabilities ( dtl ) against deferred tax assets ( dta ) . this relates to the cost basis under generally accepted accounting principles ( gaap ) versus the cost basis for tax purposes for amortization of indefinite-lived intangibles that do not amortize for gaap . this dtl should not be a source of future taxable income in calculating a valuation allowance or assessing whether deferred tax assets are more likely than not to be realized . the company maintained a full valuation allowance against its net deferred tax assets from 2000 through the third quarter of 2009. however , the company 's valuation allowance became understated over the years 2001 through 2008 by a cumulative $ 16.3 million as a result of offsetting this dtl against its dtas in calculating its valuation allowance and its annual tax expense . this dtl should have been presented as a dtl on the company 's balance sheet . likewise , as a result of understating its provision for income taxes in each of these years , cumulative losses for these years and the company 's accumulated deficit were understated by $ 16.3 million as of the end of fiscal 2008. the company 's 24 income tax expense was understated by $ 1.4 million in 2008 giving rise to an overstatement of net income in 2008 of $ 1.4 million . correction of this item did not change income ( loss ) before income taxes for any year from 2001 through 2009. correction for this item would increase income tax expense by a total of $ 7.5 million ( an average of $ 1.1 million per year ) from 2002 through 2008 with an initial increase in income tax expense of approximately $ 8.9 million in 2001. as a result of the company reversing the valuation allowance in 2009 , the impact to 2009 is that the company understated its tax benefit by $ 16.3 million for this item . as of the end of fiscal 2009 , this error had no further impact on the company 's financial statements . the second error was due to improper recognition of certain deferred tax assets and liabilities relating to years prior to 2009 totaling approximately $ 2.0 million and includes the following : an incorrect state income tax rate was applied to the state tax loss carry forwards for the calculation of the related deferred tax asset ( a $ 1.6 million expense ) ; deferred tax asset recognition for workers compensation ( a $ 1.8 million benefit ) and deferred rent ( a $ 0.6 million benefit ) ; an alternative minimum tax ( amt ) credit carryover from 1997 had not been previously recognized ( a $ 0.3 million benefit ) ; a net true-up in the gaap versus tax cost basis ( a $ 0.6 million benefit ) for property , plant and equipment , and intangibles ; and other miscellaneous benefits of $ 0.3 million . story_separator_special_tag to accelerate unit growth of our company-owned restaurants , our board of directors has approved the expansion of our capital expenditure budget by $ 11.0 million to a projected $ 28.0 million to $ 30.0 million in 2011. this capital expenditure budget includes the opening of 10 to 14 new company-owned restaurants and the relocation of an additional 10 to 14 company-owned restaurants , along with the continued roll-out of the new coffee program . the new units will primarily be in our more developed markets , such as denver , baltimore , washington d.c. and texas . we also intend to deploy our capital into areas such as installing drive-thru lanes and adding new exterior signage . as we move into 2011 , we have a robust pipeline of existing franchise development agreements and new license locations . we will continue to host discovery days for potential franchisees as well as expand our license footprint . we plan to open 20 to 26 franchise locations in 2011 in markets that have already been established and have shown a strong following . we plan to open 45 to 50 license restaurants in 2011 , primarily in colleges and universities , hospitals , airports and military bases . subsequent to december 28 , 2010 , the company extended an offer to sell two company-owned restaurants to a franchisee for approximately $ 0.8 million and has received a deposit from the franchisee . this purchase is expected to close in the first half of 2011. further , the company extended an offer to buy back one franchised restaurant from a franchisee for approximately $ 0.6 million . this buy back deal is expected to close in the first half of 2011. results of operations for 2010 as compared to 2009 financial highlights operating income increased 10.7 % to $ 27.6 million in 2010 from $ 24.9 million in 2009. consolidated earnings before interest , taxes , depreciation , amortization , and other operating expenses ( adjusted ebitda ) , a non-gaap measure , which is calculated starting with net income , increased $ 3.0 million , or 7.1 % , to $ 45.3 million in 2010 from $ 42.3 million in 2009. earnings per share ( eps ) decreased to $ 0.67 per share on a dilutive basis in 2010 compared to $ 5.47 per share on a dilutive basis in 2009 , as restated . this decrease was primarily due to the benefit from 27 income taxes that we recognized related to the reversal of substantially all of our valuation allowance of $ 79.3 million on our deferred tax assets , which had an impact of $ 4.80 per share on a dilutive basis in 2009 , as restated . adjusted earnings per share ( adjusted eps ) , a non-gaap measure , was $ 0.75 on a dilutive basis in 2010 compared to $ 0.67 on a dilutive basis in 2009. our net cash from operating activities increased by 29.8 % to $ 43.8 million from $ 33.7 million . use of non-gaap financial information in addition to the results reported in accordance with accounting principles generally accepted in the united states of america ( gaap ) included in this filing , the company has provided certain non-gaap financial information , including adjusted earnings before interest , taxes , depreciation , amortization , adjustment for series z modification , restructuring expenses , write-off of debt issuance costs , and other operating expenses/income ( adjusted ebitda ) ; net income adjusted for changes in our tax valuation allowance , all adjustments related to the series z modification , restructuring expenses , write-off of debt issuance costs , and the reversing effect of residual amount in other comprehensive income related to cash flow hedge ( adjusted net income ) ; earnings per share adjusted for changes in our tax valuation allowance , all adjustments related to the series z modification , restructuring expenses , write-off of debt issuance costs , and the reversing effect of residual amount in other comprehensive income related to cash flow hedge ( adjusted eps ) and free cash flow , or net cash provided by operating activities less net cash used in investing activities . management believes that the presentation of this non-gaap financial information provides useful information to investors because this information may allow investors to better evaluate ongoing business performance and certain components of the company 's results . in addition , the company 's board of directors uses this non-gaap financial information to evaluate the performance of the company and the management team . this information should be considered in addition to the results presented in accordance with gaap , and should not be considered a substitute for the gaap results . the company has reconciled the non-gaap financial information to the nearest gaap measure on pages 33-34. we include in this report information on company-owned , franchise and license and system-wide comparable store sales percentages . comparable store sales percentages refer to changes in sales of our restaurants , whether operated by the company or by franchisees and licensees , in operation at least thirteen months including those restaurants temporarily closed for an immaterial amount of time . some of the reasons restaurants may be temporarily closed include remodeling , 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 . system-wide sales include sales at all restaurants , whether operated by the company , franchisees or licensees . management reviews the increase or decrease in comparable store sales to assess business trends . comparable store sales exclude closed locations . 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 .
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consolidated results replace_table_token_10_th * as a result of the march 17 , 2010 agreement modifying our series z , we recognized a non-cash loss of $ 0.9 million on the extinguishment of debt , recorded additional redemption within stockholders ' equity and recorded a discount within interest expense . * * not meaningful our income from operations improved by $ 2.6 million in 2010 to $ 27.6 million as a result of higher revenues and lower cost of sales offset by an increase in operating expenses . total revenues increased by $ 3.1 million to $ 411.7 million as a result of increases in company-owned restaurant sales and franchise and license related revenues . our catering business saw an increase of 9.2 % over 2009. system-wide comparable store sales were 0.3 % due to a turnaround in our transactions trend from -2.3 % in 2009 to flat in 2010 and an increase in average check of 0.3 % . we achieved this by growing our base bagel sales and by turning around breakfast sales . total costs in our company-owned restaurants and manufacturing and commissaries segments decreased $ 2.9 million . the combination of this increase in revenues and decrease in total cost of sales resulted in an increase of $ 6.0 million in contribution margin . our operating expense increased by $ 3.4 million as a result of a $ 3.0 million increase in general and administrative expenses , a $ 1.1 million increase in depreciation and amortization expense and $ 0.5 million in severance expense offset by a net improvement in other operating items of $ 1.2 million . income before income taxes improved by $ 1.7 million in 2010 to $ 20.5 million .
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rou assets represent our right to use an underlying asset for the lease term , and lease liabilities represent our obligation to make lease payments arising from the lease . we have elected not to story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. in addition to historical financial information , the following discussion contains forward-looking statements that reflect our plans , estimates , and beliefs . our actual results could differ materially from those contained in or implied by any forward-looking statements . factors that could cause or contribute to these differences include those under “ risk factors ” included in part i , item 1a or in other parts of this annual report on form 10-k. overview we provide a low-code automation platform that accelerates the creation of high-impact business applications , enabling our customers to automate the most important aspects of their business . global organizations use our applications to improve customer experience , achieve operational excellence , and simplify global risk management and compliance . with our platform , organizations can rapidly and easily design , build , and implement powerful , enterprise-grade custom applications through our intuitive , visual interface with little or no coding required . our customers have used applications built on our platform to launch new business lines , automate vital employee workflows , manage complex trading platforms , accelerate drug development , and build global procurement systems . with our platform , decision makers can reimagine their products , services , processes , and customer interactions by removing much of the complexity and many of the challenges associated with traditional approaches to software development . we have generated the majority of our revenue from sales of subscriptions , which include ( 1 ) saas subscriptions bundled with maintenance and support and hosting services and ( 2 ) term license subscriptions bundled with maintenance and support . our subscription fees are based primarily on the number of users who access and utilize the applications built on our platform or , alternatively , non-user based single application licenses . our customer contract terms generally vary from one to three years with most providing for payment in advance on an annual , quarterly , or monthly basis . due to the variability of our billing terms and the episodic nature of our customers purchasing additional subscriptions , we do not believe changes in our deferred revenue in a given period are directly correlated with our revenue growth . since inception , we have invested in our customer success organization to help ensure customers are able to build and deploy applications on our platform . we have several strategic partnerships , including with kpmg , pwc , accenture , and deloitte , for them to refer customers to us in order to purchase subscriptions and then to provide professional services directly to the customers using our platform . we intend to further grow our base of strategic partners to provide broader customer coverage and solution delivery capabilities . in addition , over time we expect professional services revenue as a percentage of total revenue to decline as we increasingly rely on strategic partners to help our customers deploy our software . we believe our investment in professional services , including strategic partners building their practices around appian , will drive increased adoption of our platform . as of december 31 , 2020 , we had 693 customers in a variety of industries , of which 548 customers were commercial and 145 customers were government or non-commercial entities . our customers include financial services , government , life sciences , telecommunications , media , energy , manufacturing , and transportation organizations . generally , our sales force targets its efforts to organizations with over 2,000 employees and $ 2 billion in annual revenue . as of december 31 , 2020 , 25 % of our commercial customers were global 2000 organizations , and 60 of our customers were fortune 500 companies . revenue from government agencies represented 18.1 % , 17.1 % , and 15.7 % of our total revenue in 2020 , 2019 , and 2018 , respectively . no single end-customer accounted for more than 10 % of our total revenue in 2020 , 2019 , and 2018. our platform supports multiple languages to facilitate collaboration and address challenges in multinational organizations . we offer our platform globally . in 2020 , 2019 , and 2018 , 33.8 % , 32.3 % , and 28.7 % , respectively , of our total revenue was generated from customers outside of the united states . as of december 31 , 2020 , we operated in 12 countries . we believe we have a significant opportunity to grow our international footprint . we are investing in new geographies , including through investment in direct and indirect sales channels , professional services , and customer support and implementation partners . we have experienced strong revenue growth , with revenue of $ 304.6 million , $ 260.4 million , and $ 226.7 million in 2020 , 2019 , and 2018 , respectively . our subscriptions revenue was $ 198.7 million , $ 151.3 million , and $ 126.0 million in 2020 , 2019 , 45 and 2018 , respectively , and includes sales of our saas subscriptions , on-premises term license subscriptions , and maintenance support . our cloud subscription revenue was $ 129.2 million , $ 95.0 million , and $ 67.4 million in 2020 , 2019 , and 2018 , respectively . we have invested in developing our platform , expanding our sales and marketing and research and development capabilities , and providing general and administrative resources to support our growth . we intend to continue to invest in our business to take advantage of our market opportunity . story_separator_special_tag because we primarily recognize revenue from our on-premises term license subscriptions upfront under asc 606 , we believe cloud subscription revenue better reflects the performance of our business . the calculation of lifetime customer value as compared to customer acquisition costs for the prior years were unchanged . on a rolling 12 month basis , we estimate that for each of the past five fiscal years , the average lifetime value of a customer has exceeded 7x the associated average cost of acquiring them , including the year ended december 31 , 2020. key factors affecting our performance the following are several key factors that affect our performance : market adoption of our platform . our ability to grow our customer base and drive market adoption of our platform is affected by the pace at which organizations digitally transform . we expect our revenue growth will be primarily driven by the pace of adoption and penetration of our platform . we offer a leading custom software automation platform and intend to continue to invest to expand our customer base . the degree to which prospective customers recognize the need for low-code software that enables organizations to digitally transform , and subsequently allocate budget dollars to purchase our software , will drive our ability to acquire new customers and increase sales to existing customers , which , in turn , will affect our future financial performance . growth of our customer base . we believe we have a substantial opportunity to grow our customer base . we define a customer as an entity with an active subscription or maintenance and support contract related to a perpetual software license as of the specified measurement date . to the extent we contract with one or more entities under common control , we count those entities as separate customers . we have aggressively invested , and intend to continue to invest , in our sales force in order to drive sales to new customers . we continue to make investments to enhance the expertise of our sales and marketing organization within our key industry verticals of financial services , government , and life sciences . in addition , we have established relationships with strategic partners who work with organizations undergoing digital transformations . we had a total customer count of 693 , 533 , and 436 as of december 31 , 2020 , 2019 , and 2018 , respectively . our number of customers with active software subscription agreements was 654 , 487 , and 378 as of december 31 , 2020 , 2019 , and 2018 , respectively . as of december 31 , 2020 , 25 % of our commercial customers were global 2000 organizations , and 60 of our customers were fortune 500 companies . our ability to continue to grow our customer base is dependent , in part , upon our ability to differentiate ourselves within the increasingly competitive markets in which we participate . further penetration of existing customers . our sales force seeks to generate additional revenue from existing customers by adding new users to our platform . many of our customers begin by building a single application and then grow to build dozens of applications on our platform . generally , the development of new applications on our platform results in the expansion of our user base within an organization and a corresponding increase in revenue to us because we charge subscription fees on a per-user basis and , to a lesser degree , non-user based single application licenses . as a result of this “ land and expand ” strategy , we have generated significant additional revenue from our customer base . our ability to increase sales to existing customers will depend on a number of factors , including the size of our sales force and professional services teams , customers ' level of satisfaction with our platform and professional services , pricing , economic conditions , and our customers ' overall spending levels . we have also re-focused some of our 47 professional services personnel to become customer success managers . their role is to ensure the customer realizes value from our platform and support the `` land and expand '' strategy versus delivering billable hours . mix of subscriptions and professional services revenue . we believe our professional services have driven customer success and facilitated the adoption of our platform by customers . during the initial period of deployment by a customer , we generally provide a greater amount of support in building applications and training than later in the deployment , with a typical engagement extending from two to six months . at the same time , many of our customers have historically purchased subscriptions only for a limited set of their total potential end users . as a result of these factors , the proportion of total revenue for a customer associated with professional services is relatively high during the initial deployment period . over time , as the need for professional services associated with user deployments decreases and the number of end users increases , we expect subscriptions revenue as a percentage of total revenue to increase . in addition , we intend to further grow our base of strategic partners to provide broader customer coverage and solution delivery capabilities . these partners perform professional services with respect to any new service contracts they sign . as the usage of partners expands , we expect the proportion of our total revenue from subscriptions to increase over time relative to professional services . in 2020 , 2019 , and 2018 , 65.2 % , 58.1 % , and 55.6 % of our revenue , respectively , was derived from sales of subscriptions , while the remaining 34.8 % , 41.9 % , and 44.4 % , respectively , was derived from the sale of professional services . investments in growth .
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results of operations the following table sets forth our consolidated statement of operations data ( in thousands ) : replace_table_token_9_th ( 1 ) stock-based compensation as a component of these line items is as follows : replace_table_token_10_th 54 the following table sets forth our consolidated statement of operations data expressed as a percentage of total revenue : replace_table_token_11_th year ended december 31 , 2020 compared to the year ended december 31 , 2019 revenue replace_table_token_12_th total revenue increased $ 44.2 million , or 17.0 % , in 2020 compared to 2019 due to an increase in our subscriptions revenue of $ 47.4 million , which was partially offset by a decrease in our professional services revenue of $ 3.2 million . of the increase in subscriptions revenue , $ 34.2 million was attributable to cloud subscription revenue , $ 11.0 million was attributable to on-premises software revenue , and $ 2.2 million was attributable to maintenance and support revenue . with respect to new versus existing customers , $ 36.5 million of the increase in subscriptions revenue stemmed from expanded deployments and corresponding sales of additional subscriptions to existing customers while the remaining increase of $ 10.9 million was the result of sales of subscriptions to new customers , $ 2.8 million of which related to a three-year on-premises contract which closed in the first quarter of 2020. the decrease in professional services revenue was due primarily to a $ 16.9 million decrease 55 in revenue from existing customers which was substantially offset by $ 13.7 million in sales to new customers . further contributing to the decrease in professional services revenue was our increased usage of partners to perform professional services in 2020 as compared to 2019 , which has resulted in increases to our subscriptions revenue without any change to our professional services revenue .
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malonebailey , llp www.malone-bailey.com houston , texas march 31 , 2015 report of independent registered public accounting firm to the board of directors and stockholders of lighter than air systems corp. we have audited the accompanying balance sheet of lighter than air systems corp. as of december 31 , 2013 and the related statements of operations , stockholders ' equity , and cash flows for the year then ended . lighter than air systems corp. 's management is responsible for these financial statements . our responsibility is to express an opinion on these financial statements based on our audit . we conducted our audit in accordance with standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements . the company is not required to have , nor were we engaged to perform , an audit of its internal control over financial reporting . our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances , but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . an audit also includes examining , on a test basis , evidence supporting the amounts and disclosures in the financial statements , assessing the accounting principles used and significant estimates made by management , as well as evaluating the overall financial statement presentation . we believe that our audit provides a reasonable basis for our opinion . in our opinion , the financial statements referred to above present fairly , in all material respects , the financial position of lighter than air systems corp. as of december 31 , 2013 and the results of its operations and its cash flows for the year then ended , in conformity with accounting principles generally accepted in the united states of america . rssm cpa llp new york , new york march 31 , 2015 drone aviation holding corp. ( fka macrosolve , inc. ) consolidated balance sheets replace_table_token_7_th the accompanying notes are an integral part of these consolidated financial statements . * lighter than air systems corp. only f- 1 drone aviation holding corp. ( fka macrosolve , inc. ) consolidated statements of operations replace_table_token_8_th the accompanying notes are an integral part of these consolidated financial statements . * lighter than air systems corp. only f- 2 drone aviation holding corp. ( fka macrosolve , inc. ) consolidated statements of cash flows replace_table_token_9_th the accompanying notes are an integral part of these consolidated financial statements . * lighter than air systems corp. only f- 3 drone aviation holding corp. ( fka macrosolve , inc. ) consolidated statements of stockholders ' equity for the years ended december 31 , 2014 and 2013 common stock preferred stock series a preferred stock series b preferred stock series b-1 preferred stock series c preferred stock series d preferred stock series e preferred stock series f additional paid-in accumulated shares amount shares amount shares amount shares amount shares amount shares amount shares amount shares amount capital deficit total predecessor balance , at december 31 , 2012 100 $ 1 - $ - $ 181,148 $ ( 19,474 ) $ 161,675 sale of common stock ( 100 ) ( 1 ) ( 181,148 ) 19,474 ( 161,675 ) balance , at march 28 , 2013 - $ - - $ - $ - $ - $ - successor balance , march 29 , 2013 - $ - - $ - $ - $ - $ - net loss - - ( 268,396 ) ( 268,396 ) purchase of common stock 100 1 922,499 - 922,500 balance , at december 31 , 2013 100 $ 1 - $ - $ 922,499 $ ( 268,396 ) $ 654,104 balance , story_separator_special_tag introduction the following discussion and analysis of financial condition and results of operations should be read in conjunction with our historical financial statements and the notes to those statements that appear elsewhere in this report . certain statements in the discussion contain forward-looking statements based upon current expectations that involve risks and uncertainties , such as plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under “ item 1a . risk factors. ” and elsewhere in this report . business overview for this information please see part 1 , item 1 “ business. ” story_separator_special_tag during the year ended december 31 , 2014 was approximately $ 1,302,000 , which was a decrease in operating cash flow of approximately $ 1,250,000 or ( 2,382 ) % from approximately $ ( 52,000 ) net cash used in operating activities during the year ended december 31 , 2013. the 2014 net loss of approximately $ 2,123,000 was $ 2,153,000 greater than the 2013 income of approximately $ 30,000 , and included approximately $ 43,000 loss on disposal of available-for-sale securities , $ 351,000 loss on derivative liability , and $ 342,000 value of shares issued for services . investing activities : net cash provided by investing activities during the year ended december 31 , 2014 was approximately $ 1,529,000 , which was an increase of approximately $ 1,529,000 or ( 100 ) % from approximately $ 0 net cash used in investing activities during the year ended december 31 , 2013. in 2014 , the company recognized approximately $ 1,693,000 cash from the reverse merger and $ 169,000 cash from sale of available-for-sale securities and spent approximately $ 28,000 on furniture and equipment . story_separator_special_tag 23 financing activities : net cash provided by financing activities was approximately $ 1,143,000 in 2014 compared with approximately $ 0 cash provided by financing activities for the same period in 2013 , an increase of approximately $ 1,143,000 or ( 100 % ) . in 2014 , the company received approximately $ 823,000 cash proceeds from the series f convertible preferred stock financing as well as $ 17,000 cash proceeds from the exercise of series f warrants . the company redeemed $ 350,000 series b-1 convertible preferred stock during 2014. during 2014 , the company experienced negative cash flow from operations . significant negative cash flow from operations is likely to occur in 2015 as development continues on the watt family of tethered drone products , followed by commercialization . although we currently have adequate funds to sustain our operations in the near term , we may require additional funds to continue operations depending upon the level of interest in the company 's new and existing product offerings . we have no current plans to raise additional funds ; however , if we need to raise additional funds through the issuance of equity , equity-related or convertible debt securities in the future , these securities may have rights , preferences or privileges senior to those of the rights of holders of our common stock and they may experience additional dilution . we can not predict whether additional financing will be available to us on favorable terms when required , or at all . the issuance of additional common stock by our management may have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock . historically , we have financed our cash needs by registered private placements of our securities . there is no assurance that we will be able to obtain financing on terms consistent with our past financings or satisfactory to us , if at all . as of december 31 , 2014 , the company has common stock outstanding as well as convertible preferred stock series a , b , b-1 , c , d , e and f and we have $ 110,000 in debt that consists of a note from the oklahoma technology commercialization center which relates to the former macrosolve business and is under review . off-balance sheet arrangements we do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition , revenues , and results of operations , liquidity or capital expenditures . critical accounting policies and estimates the company 's accounting policies are more fully described in note 1 of the financial statements . as disclosed in note 1 , the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes . actual results could differ significantly from those estimates . the company believes that the following discussion addresses the company 's most critical accounting policies , which are those that are most important to the portrayal of the company 's financial condition and results of operations and require management 's most difficult , subjective and complex judgments . accounts receivable and credit policies : trade accounts receivable consist of amounts due from the sale of tethered aerostats , accessories , spare parts and delivery and installation of aerostats . accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days of receipt of the invoice . the company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts based on historical collection experience and a review of the current status of trade accounts receivable . at december 31 , 2014 and 2013 , the company deems $ 0 and $ 0 as uncollectible , respectively . revenue recognition and unearned income : the company recognizes revenue when all four of the following criteria are met : 1 ) persuasive evidence of an arrangement exists ; 2 ) delivery has occurred and title has transferred or services have been rendered ; 3 ) our price to the buyer is fixed or determinable ; and 4 ) collectability is reasonably assured . we record unearned revenue as a liability and their associated costs of sales as work in process inventory . in 2014 , the company recognized $ 1,650 in revenue from a 2013 sale that was delivered in 2014. there is a balance of $ 30,170 in accounts receivable at december 31 , 2014 for sales on account . long-lived assets : the company accounts for long-lived assets in accordance with the provisions of asc 360-10-35 , “ impairment or disposal of long-lived assets ” . this statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated future cash flows , an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset . no impairment charges were incurred during the periods ended december 31 , 2014 and 2013 . 24 the company accounts for goodwill and intangible assets in accordance with asc 350 `` intangibles goodwill and other '' . asc 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value . derivative financial instruments : the company evaluates its financial instruments to determine if such instruments are derivatives or contain features
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results of operations year ended december 31 , 2014 compared to year ended december 31 , 2013 ( all references are to fiscal years ) . total net revenues : total net revenues increased $ 11,000 , or 1 % , to $ 858,000 in 2014 from $ 847,000 for 2013. sources of revenue were derived primarily from sales of tethered aerostat products , cameras and accessories . cost of revenues and gross profit : cost of revenues for 2014 increased $ 163,000 , or 32 % , from $ 512,000 in 2013 to $ 675,000 in 2014. the company sold six third-party cameras in 2014 in addition to its proprietary tethered aerostats , which are manufactured in-house , resulting in higher cost of sales . the resulting gross profit for 2014 of $ 183,000 was a decrease of $ 153,000 , or 45 % from the gross profit for 2013 of $ 336,000. gross profit margins were 21 % and 40 % for 2014 and 2013 , respectively . general and administrative expenses : general and administrative expenses increased by $ 1,600,000 , or 525 % , to $ 1,905,000 in 2014 from $ 305,000 in 2013. the company put an executive management team in place following the june 3 , 2014 business combination and reverse merger discussed above which represents approximately $ 576,000 of the 2014 expenses . the company incurred approximately $ 372,000 in financial advisory and investor relations expenses in 2014 , $ 215,000 of which were non-cash and paid with stock . a strategic advisory board was established in august 2014. the advisors will be compensated with stock at the end of their first year of service and $ 127,000 non-cash pro-rata expense has been recorded in 2014. accounting fees increased approximately $ 75,000 in 2014 , including the costs associated with the business combination and reverse merger .
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f-11 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 , and include : salaries , benefits and other related costs , including stock-based compensation expense , for personnel engaged in research and development functions ; license maintenance fees and milestone fees incurred in connection with various license agreements ; the cost of laboratory supplies and acquiring , developing and manufacturing preclinical study and , eventually , clinical trial materials ; expenses incurred under agreements with contract research organizations , or cros , contract manufacturing organizations , or cmos , as well as academic institutions and consultants that conduct our preclinical studies and other scientific development services ; facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs ; costs of outside consultants , including their fees , stock-based compensation and related travel expenses ; and costs related to compliance with regulatory requirements . costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to the company by its vendors . payments for these activities are based on the terms of the individual arrangements , which may differ from the pattern of costs incurred , and are reflected in the consolidated financial statements as prepaid expenses or accrued expenses and other current liabilities . comprehensive loss comprehensive loss includes net loss as well as other changes in stockholders ' equity ( deficit ) that result from transactions and economic events other than those with stockholders . the company includes foreign currency translation adjustments and unrealized gains and losses on available-for-sale investments in other comprehensive loss . for the years ended december 31 , 2019 and 2018 , accumulated comprehensive loss included $ 0 and $ 9 , respectively , of foreign currency translation adjustments . in addition , for the year ended december 31 , 2019 , accumulated comprehensive loss included $ 14 of unrealized gains on investments . foreign currency transactions the functional currency for the company 's wholly-owned foreign subsidiary , logicbio australia , is the u.s. dollar . the functional currency for the company 's wholly-owned foreign subsidiary , logicbio research , was the israeli new shekel . assets and liabilities of logicbio research are translated into story_separator_special_tag financial condition and results of operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report on form 10-k , our actual results could differ materially from the results described in , or implied by , these forward-looking statements . overview we are a genome editing company focused on developing medicines to durably treat rare diseases in patients with significant unmet medical need using generide , our proprietary technology platform . our generide technology is designed to precisely integrate corrective genes into a patient 's genome to provide a stable therapeutic effect . because generide is designed to have this durable therapeutic effect , we are initially targeting rare liver disorders in pediatric patients where it is critical to provide treatment early in a patient 's life before irreversible disease pathology can occur . we have demonstrated proof of concept of our therapeutic platform in animal models for a number of diseases and are focusing on development of our lead product candidate , lb-001 , for the treatment of methylmalonic acidemia , or mma , a life-threatening disease that presents at birth . based on our generide technology , we are developing our lead product candidate , lb-001 , to treat mma . in january 2020 , we announced the submission of an ind to support the initiation of a phase 1/2 clinical trial in pediatric patients with mma , which the fda has placed on clinical hold . subsequently , we received a letter from the fda specifying its questions related to the clinical hold . the clinical hold was based on questions that were clinical and nonclinical in nature , including questions related to the studies conducted for our ind filing , but did not relate to chemistry , manufacturing , and controls . we expect to have interactions with the fda regarding their questions through mid-2020 , after which we plan to provide guidance on the anticipated timing for the initiation of the phase 1/2 clinical trial for lb-001 . we believe that achieving clinical proof of concept in an inherited liver disease such as mma will validate our platform technology , including its potential application to other organs and diseases . in january 2020 , we announced a research collaboration with takeda pharmaceutical company limited to further develop lb-301 in crigler-najjar syndrome , or cn , the second indication to be pursued using the generide platform . in addition to mma and cn , we have demonstrated proof of concept of our platform in hemophilia b and alpha-1-antitrypsin deficiency , or a1atd , animal disease models . we expect to select future product candidates from these genetic diseases or others addressed by targeting the liver initially , and later by targeting the central nervous system , or cns , and muscle . story_separator_special_tag other income ( expense ) , net interest income consists primarily of interest on our cash and cash equivalents and investments . interest expense consists of interest expense related to the aggregate $ 10.0 million principal amount of the term a loan borrowing under the loan and security agreement in july 2019. a portion of the interest expense on the term a loan is non-cash expense relating to the accretion of the debt discount and amortization of issuance costs . in the year ended december 31 , 2019 , we recorded $ 0.5 million in interest expense , of which $ 0.4 million relates to cash interest paid and the remainder to the accretion of the debt discount and amortization of issuance costs . other expense , net consists primarily of foreign exchange losses . story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:6pt ; text-indent:4.86 % ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > during the year ended december 31 , 2019 , net cash provided by financing activities was $ 10.1 million , primarily related to net proceeds of $ 9.8 million under the july 2019 loan and security agreement as well as $ 0.2 million related to the exercise of stock options . during the year ended december 31 , 2018 , net cash provided by financing activities was $ 72.3 million , primarily from the issuance of common stock related to the ipo . funding requirements we expect our expenses to increase in connection with our ongoing activities , particularly as we advance the preclinical activities and clinical trials of our product candidates and any future product candidates . we expect that our expenses will increase substantially if and as we : continue our current research programs and our preclinical development of any product candidates from our current research programs ; initiate clinical trials for lb-001 and any other product candidates we identify and develop ; seek to identify , assess , acquire and or develop additional research programs and additional product candidates ; seek marketing approvals for any product candidate that successfully complete clinical trials ; develop , optimize , scale and validate a manufacturing process and analytical methods for any product candidates we may develop ; establish and build out internal process and analytical development capabilities and preclinical and clinical grade production ; obtain market acceptance of any product candidates we may develop as viable treatment options ; address competing technological and market developments ; maintain , expand and protect our intellectual property portfolio and provide reimbursement of third-party expenses related to our patent portfolio ; further develop our generide technology platform ; hire additional technical , quality , regulatory , clinical , scientific and commercial personnel and add operational , financial and management information systems and personnel , including personnel to support our process and product development , manufacturing and planned future commercialization efforts ; make royalty , milestone or other payments under current and any future in-license agreements ; establish and maintain supply chain and manufacturing relationships with third parties that can provide adequate products and services , in both amount , timing and quality , to support clinical development and the market demand for any product candidate for which we obtain regulatory and marketing approval ; lease and build new facilities , including offices and labs , to support organizational growth ; validate and build-out a commercial-scale current good manufacturing practices , or cgmp , manufacturing facility ; and establish a sales , marketing and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval . 99 we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates because of the numerous risks and uncertainties associated with the development of lb-001 and any other product candidates and programs we may develop and because the extent to which we may enter into collaborations with third parties for development of lb-001 and any other product candidates we may develop is unknown . for example , in january 2020 , we announced the submission of an ind to support the initiation of a phase 1/2 clinical trial in pediatric patients with mma , which the fda has placed on clinical hold pending the resolution of certain clinical and nonclinical questions . our future funding requirements , both near and long-term , will depend on many factors , including : the initiation , scope , progress , timing , costs and results of drug discovery , preclinical development , laboratory testing , and planned clinical trials for lb-001 and any other product candidates ; the outcome , timing and cost of meeting regulatory requirements established by the u.s. food and drug administration , or fda , and other comparable foreign regulatory authorities , including resolving any potential clinical holds that may be imposed on us ; the cost of filing , prosecuting , defending and enforcing our patent claims and other intellectual property rights ; the cost of defending potential intellectual property disputes , including patent infringement actions ; the achievement of milestones or occurrence of other developments that trigger payments under any of our current agreements or other agreements we may enter into ; the extent to which we are obligated to reimburse , or entitled to reimbursement of , clinical trial and other research and development costs under future collaboration agreements , if any ; the effect of competing technological and market developments ; the cost and timing of completion of clinical or commercial-scale manufacturing activities ; the extent to which we in-license or acquire other products and technologies ; our ability to establish and maintain collaborations on favorable terms , if at all ; the cost of establishing sales , marketing and distribution capabilities for lb-001 and any other
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results of operations years ended december 31 , 2019 and 2018 the following table summarizes our results of operations for the years ended december 31 , 2019 and 2018 : replace_table_token_1_th research and development expenses the following table summarizes our research and development expenses for the years ended december 31 , 2019 and 2018 : replace_table_token_2_th research and development expenses for the year ended december 31 , 2019 were $ 30.7 million , compared to $ 11.1 million for year ended december 31 , 2018. the increase of approximately $ 19.6 million was primarily due to an increase of approximately $ 14.1 million related to external development and manufacturing expenses for our lead product candidate lb-001 , $ 1.9 million in other research and development expenses as we increased our overall research and development activities , and $ 3.6 million in personnel-related costs related to an increase in headcount . personnel-related costs for the year ended december 31 , 2019 included stock-based compensation expense of $ 0.8 million compared to $ 0.3 million for the year ended december 31 , 2018 . 97 general and administrative expenses general and administrative expenses were $ 10.4 million for the year ended december 31 , 2019 , compared to $ 6.9 million for the year ended december 31 , 2018. the increase of approximately $ 3.5 million was primarily due to increased legal and professional fees and personnel-related costs , including salaries , stock-based compensation and bonuses . the increase in professional fees was primarily due to the increase in legal , auditing and consulting services provided . the increase in personnel-related costs was primarily due to an increase in headcount . stock-based compensation expense included in general and administrative expenses was $ 1.0 million and $ 0.8 million for the years ended december 31 , 2019 and 2018 , respectively .
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with the exception of the gains resulting from the completed photovoltaics asset sale , we have determined that at this time it is more likely than not that deferred tax assets attributable to all other items will not be realized , primarily due to uncertainties related to our ability to utilize our net operating loss carryforwards before they expire . accordingly , we have established a valuation allowance for such deferred tax assets which we do not expect to realize . if there is a change in our ability to realize our deferred tax assets for which a valuation allowance has been established , then our tax valuation allowance may decrease in the period in which we determine that realization is more likely than not . likewise , if we determine that it is not more likely than not that deferred tax assets will be realized , then a valuation allowance may be established for such deferred tax assets and our tax provision may increase in the period in which we make the determination . see note 12 - income and other taxes in the notes to the consolidated financial statements for additional information related to our income taxes . 47 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 customer typically bears all costs and risks of loss or damage to the goods from that point . we account for shipping and related transportation costs by recording the charges that are invoiced to customers as revenue , with the corresponding cost recorded as cost of revenue . in those instances where inventory is maintained at a consigned location , revenue is recognized only when our customer pulls product for use and after title and ownership has transferred to the customer . any warranty cost and remaining obligations that are inconsequential or perfunctory are accrued when the corresponding revenue is recognized . distributors . we use a number of distributors around the world and recognize revenue upon shipment of product to these distributors . title and risk of loss pass to the distributors upon shipment , and our distributors are contractually obligated to pay us on standard commercial terms , just like our other direct customers . we do not sell to our distributors on consignment and , except in the event of product discontinuance , do not give distributors a right of return . contract manufacturers . prior to certain customers accepting product that is manufactured at one of our contract manufacturers , these customers require that they first qualify the product and manufacturing processes at our contract manufacturer . the customers ' qualification process determines whether the product manufactured at our contract manufacturer achieves their quality , performance , and reliability standards . after a customer completes the initial qualification process , we receive approval to ship qualified product to that customer . as part of the manufacturing process at our contract manufacturers , the finished product is tested prior to shipment to the customer using the same criteria that our customer uses to test product it receives . revenue is recognized upon shipment of customer-qualified product , 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 . product warranty reserves we provide our customers with limited rights of return for non-conforming shipments and warranty claims for certain products . pursuant to asc 450 , contingencies , we make estimates of product warranty expense using historical experience rates as a percentage of revenue and accrue estimated warranty expense as a cost of revenue . we estimate the costs of our warranty obligations based on historical experience of known product failure rates and anticipated rates of warranty claims , use of materials to repair or replace defective products , and service delivery costs incurred in correcting product issues . in addition , from time to time , specific warranty accruals may be made if unforeseen technical problems arise . should our actual experience relative to these factors differ from our estimates , we may be required to record additional warranty reserves . alternatively , if we provide more reserves than needed , we may reverse a portion of such provisions in future periods . see note 10 - accrued expenses and other current liabilities in the notes to the consolidated financial statements for additional disclosures related to our product warranty reserves . 48 stock-based compensation stock-based compensation expense related to employee stock-based awards is measured and recognized in the consolidated financial statements based on the fair value of the awards granted and is recorded to cost of revenue ; sales , general and administrative ; and research and development expense based on the employee 's responsibility and function over the requisite service period . the company has granted awards to employees that vest based solely on continued service , or service conditions , and awards that vest based on the achievement of performance targets based on the company 's stock price appreciation exceeding a peer index . story_separator_special_tag the fair value of each option award containing service is estimated on the grant date using the black-scholes option-pricing model . the fair value of awards containing performance target conditions is estimated using a monte-carlo lattice model . for all awards , stock-based compensation expense is recognized on a straight-line basis over the requisite service periods of the awards , which is generally from three to five years . for performance condition awards , expense recognized is not subsequently reversed if the market conditions are not achieved . stock-based compensation expense is reduced for forfeitures . determining the fair value of stock-based awards at the grant date requires judgment . the company 's use of the black-scholes option-pricing model and monte-carlo lattice model requires the input of subjective assumptions such as the expected term of the option , the expected volatility of the price of the company 's common stock , risk-free interest rates and the expected dividend yield of the company 's common stock . the assumptions used in the company 's valuation models represent management 's best estimates . these estimates involve inherent uncertainties and the application of management 's judgment . if factors change and different assumptions are used , the company 's stock-based compensation expense could be materially different in the future . expected term represents the period that stock-based awards are expected to be outstanding and is determined based on historical experience of similar awards , giving consideration to the contractual terms of the stock-based awards , vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards . the expected stock price volatility is based on our historical stock prices . if we use different assumptions for estimating stock-based compensation expense in future periods , the change in our non-cash stock-based compensation expense could adversely affect our results of operations . during fiscal year 2017 , the company early adopted accounting standards update ( “ asu ” ) 2016-09. asu 2016-09 introduced targeted amendments intended to simplify the accounting for stock compensation , including the company 's election to eliminate the requirements to estimate the number of awards that are expected to vest , and instead , account for forfeitures when they occur . the new standard requires the change be adopted using the modified retrospective approach . as such , the company recorded a cumulative-effect adjustment of $ 0.2 million to decrease the september 30 , 2016 accumulated deficit and common stock balances . see note 14 - equity in the notes to the consolidated financial statements for additional disclosures related to our stock-based compensation . litigation contingencies we are subject to various legal proceedings , claims , and litigation , either asserted or unasserted , that arise in the ordinary course of business . while the outcome of these matters is currently not determinable , we do not expect the resolution of these matters will have a material adverse effect on our business , financial position , results of operations , or cash flows . however , the results of these matters can not be predicted with certainty . professional legal fees are expensed when incurred . we accrue for contingent losses when such losses are probable and reasonably estimable . in the event that estimates or assumptions prove to differ from actual results , adjustments are made in subsequent periods to reflect more current information . should we fail to prevail in any legal matter or should several legal matters be resolved against the company in the same reporting period , then the financial results of that particular reporting period could be materially affected . see note 13 - commitments and contingencies in the notes to our consolidated financial statements for disclosures related to our legal proceedings . 49 asset retirement obligations pursuant to asc 410 , asset retirement and environmental obligations , an aro is recorded when there is a legal obligation associated with the retirement of a tangible long-lived asset and the fair value of the liability can reasonably be estimated . upon initial recognition of an asset retirement obligation , a company increases the carrying amount of the long-lived asset by the same amount as the liability . over time , the liabilities are accreted for the change in their present value through charges to operations costs . the initial capitalized costs are depleted over the useful lives of the related assets through charges to depreciation , depletion , and or amortization . if the fair value of the estimated aro changes , an adjustment is recorded to both the aro liability and the asset retirement cost . revisions in estimated liabilities can result from revisions of estimated inflation rates , escalating retirement costs , and changes in the estimated timing of settling asset retirement obligations . we have known conditional asset retirement conditions , such as certain asset decommissioning and restoration of rented facilities to be performed in the future . see note 13 - commitments and contingencies in the notes to the consolidated financial statements for additional disclosures related to our aros . * * * the above listing is not intended to be a comprehensive list of all of our accounting policies . in many cases , u.s. gaap specifically dictates the accounting treatment of a particular transaction . there are also areas in which management 's judgment in selecting any available alternative would not produce a materially different result . for a complete discussion of our accounting policies , recently adopted accounting pronouncements , and other required u.s. gaap disclosures , we refer you to the accompanying footnotes to our consolidated financial statements in this annual report . 50 story_separator_special_tag september 30 , 2016 . gain from change in estimate on aro as a result of the revision in the estimated amount and timing of cash flows for aro during the fiscal year ended september 30 , 2017 , the company reduced the aro liability by
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results of operations the following table sets forth our consolidated statements of operations data expressed as a percentage of revenue : replace_table_token_5_th 51 comparison of financial results for the fiscal years ended september 30 , 2017 and 2016 replace_table_token_6_th revenue for the fiscal year ended september 30 , 2017 , revenue increased 33.6 % compared to the prior year driven by significantly higher sales of our catv products primarily to u.s. customers . gross profit our cost of revenue consists of raw materials , compensation expense including non-cash stock-based compensation expense , depreciation expense and other manufacturing overhead costs , expenses associated with excess and obsolete inventories , and product warranty costs . historically , our cost of revenue as a percentage of revenue , which we refer to as our gross margin , has fluctuated significantly due to product mix , manufacturing yields and sales volumes , and inventory and specific product warranty charges . consolidated gross margins were 34.6 % and 33.6 % for fiscal years ended september 30 , 2017 and 2016 , respectively . stock-based compensation expense within cost of revenue totaled approximately $ 0.5 million and $ 0.3 million during the fiscal years ended september 30 , 2017 and 2016 , respectively . 52 for the fiscal year ended september 30 , 2017 , gross margins increased by 37.4 % when compared to the prior year . the increase in gross margins for the fiscal year ended september 30 , 2017 was primarily due to product mix and higher sales volume . selling , general and administrative ( “ sg & a ” ) sg & a consists primarily of compensation expense including non-cash stock-based compensation expense related to executive , finance , and human resources personnel , as well as sales and marketing expenses , professional fees , legal and patent-related costs , and other corporate-related expenses . stock-based compensation expense within sg & a totaled approximately $ 2.6 million and $ 1.4 million during the fiscal years ended september 30 , 2017 and 2016 , respectively .
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please see “ risk factors ” and “ special note regarding forward-looking statements ” for a discussion of the uncertainties , risks and assumptions associated with these statements . overview monroe capital corporation is an externally managed , closed-end , non-diversified management investment company that has elected to be regulated as a business development company ( “ bdc ” ) under the investment company act of 1940 , as amended ( the “ 1940 act ” ) . in addition , for u.s. federal income tax purposes , we have elected to be treated as a regulated investment company ( “ ric ” ) under the subchapter m of the internal revenue code of 1986 , as amended ( the “ code ” ) . we are a specialty finance company focused on providing financing solutions primarily to lower middle-market companies in the united states and canada . we provide customized financing solutions focused primarily on senior secured , junior secured and unitranche secured ( a combination of senior secured and junior secured debt in the same facility in which we syndicate a “ first out ” portion of the loan to an investor and retain a “ last out ” portion of the loan ) debt and , to a lesser extent , unsecured subordinated debt and equity , including equity co-investments in preferred and common stock , and warrants . our shares are currently listed on the nasdaq global select market under the symbol “ mrcc ” . our investment objective is to maximize the total return to our stockholders in the form of current income and capital appreciation through investment in senior secured , unitranche secured and junior secured debt and , to a lesser extent , subordinated debt and equity investments . we seek to use our extensive leveraged finance origination infrastructure and broad expertise in sourcing loans to invest in primarily senior secured , unitranche secured and junior secured debt of middle-market companies . our investments will generally range between $ 2.0 million and $ 18.0 million each , although this investment size may vary proportionately with the size of our capital base . as of december 31 , 2019 , our portfolio included approximately 77.1 % senior secured debt , 12.4 % unitranche secured debt , 2.2 % junior secured debt and 8.3 % equity securities , compared to december 31 , 2018 , when our portfolio included approximately 79.3 % senior secured debt , 10.6 % unitranche secured debt , 3.8 % junior secured debt and 6.3 % equity securities . we expect that the companies in which we invest may be leveraged , often as a result of leveraged buy-outs or other recapitalization transactions , and , in certain cases , will not be rated by national ratings agencies . if such companies were rated , we believe that they would typically receive a rating below investment grade ( between bb and ccc under the standard & poor 's system ) from the national rating agencies . while our primary focus is to maximize current income and capital appreciation through debt investments in thinly traded or private u.s. companies , we may invest a portion of the portfolio in opportunistic investments in order to seek to enhance returns to stockholders . such investments may include investments in high-yield bonds , distressed debt , private equity or securities of public companies that are not thinly traded and securities of middle-market companies located outside of the united states . we expect that these public companies generally will have debt securities that are non-investment grade . on february 28 , 2014 , our wholly-owned subsidiary , monroe capital corporation sbic , lp ( “ mrcc sbic ” ) , a delaware limited partnership , received a license from the small business administration ( “ sba ” ) to operate as a small business investment company ( “ sbic ” ) under section 301 ( c ) of the small business investment act of 1958. mrcc sbic commenced operations on september 16 , 2013. see “ sba debentures ” below for more information . on september 12 , 2018 , we closed a public offering of $ 69.0 million in aggregate principal amount of senior unsecured notes ( “ 2023 notes ” ) . on march 20 , 2019 , we completed a registered direct offering of $ 40.0 million in additional aggregate principal amount of our 2023 notes . see “ 2023 notes ” below for more information . investment income we generate interest income on the debt investments in portfolio company investments that we originate or acquire . our debt investments , whether in the form of senior secured , unitranche secured or junior secured debt , typically have an initial term of three to seven years and bear interest at a fixed or floating rate . in some instances , we receive payments on our debt investment based on scheduled amortization of the outstanding balances . in addition , we receive repayments of some of our debt investments prior to their scheduled maturity date . in some cases , our investments provide for deferred interest of payment-in-kind ( “ pik ” ) interest . in addition , we may generate revenue in the form of commitment , origination , amendment , structuring or due diligence fees , fees for providing managerial assistance and consulting fees . loan origination fees , original issue discount and market discount or premium are capitalized , and we accrete or amortize such amounts as interest income . we record prepayment premiums and prepayment gains ( losses ) on loans as interest income . as the frequency or volume of the repayments which trigger these prepayment premiums and prepayment gains ( losses ) may fluctuate significantly from period to period , the associated interest income recorded may also fluctuate significantly from period to period . interest and fee income is recorded on the accrual basis to the extent we expect to collect such amounts . interest income is accrued based upon the outstanding principal amount and contractual terms of debt and preferred equity investments . story_separator_special_tag the weighted average effective yield including debt investments acquired for no cost in a restructuring on non-accrual status was 4.8 % for junior secured loans and 8.7 % in total as of december 31 , 2019. the weighted average effective yield including debt investments acquired for no cost in a restructuring on non-accrual status was 5.6 % for junior secured loans and 9.8 % in total as of december 31 , 2018. the weighted average annualized effective yield on portfolio investments is a metric on the investment portfolio alone and does not represent a return to stockholders . this metric is not inclusive of our fees and expenses , the impact of leverage on the portfolio or sales load that may be paid by investors . the following table shows the composition of our investment portfolio ( in thousands ) : replace_table_token_7_th 48 our portfolio composition remained relatively consistent with december 31 , 2018 , with the largest shifts in portfolio composition resulting from the funding of senior secured loans and the additional investments made in slf during the year ended december 31 , 2019. the decrease in total contractual and effective yields on the portfolio was primarily attributed to general decreases in libor and moving three additional portfolio companies to non-accrual status . the following table shows the portfolio composition by industry ( in thousands ) : replace_table_token_8_th portfolio asset quality mc advisors ' portfolio management staff closely monitors all credits , with senior portfolio managers covering agented and more complex investments . mc advisors segregates our capital markets investments by industry . the mc advisors ' monitoring process and projections developed by monroe capital both have daily , weekly , monthly and quarterly components and related reports , each to evaluate performance against historical , budget and underwriting expectations . mc advisors ' analysts will monitor performance using standard industry software tools to provide consistent disclosure of performance . when necessary , mc advisors will update our internal risk ratings , borrowing base criteria and covenant compliance reports . as part of the monitoring process , mc advisors regularly assesses the risk profile of each of our investments and rates each of them based on an internal proprietary system that uses the categories listed below , which we refer to as mc advisors ' investment performance rating . for any investment rated in grades 3 , 4 or 5 , mc advisors , through its internal portfolio management group ( “ pmg ” ) , will increase its monitoring intensity and prepare regular updates for the investment committee , summarizing current operating results and material impending events and suggesting recommended actions . the pmg is responsible for oversight and management of any investments rated in grades 3 , 4 , or 5. mc advisors monitors and , when appropriate , changes the investment ratings assigned to each investment in our portfolio . in connection with our valuation process , mc advisors reviews these investment ratings on a quarterly basis . the investment performance rating system is described as follows : investment performance risk rating summary description grade 1 includes investments exhibiting the least amount of risk in our portfolio . the issuer is performing above expectations or the issuer 's operating trends and risk factors are generally positive . grade 2 includes investments exhibiting an acceptable level of risk that is similar to the risk at the time of origination . the issuer is generally performing as expected or the risk factors are neutral to positive . grade 3 includes investments performing below expectations and indicates that the investment 's risk has increased somewhat since origination . the issuer may be out of compliance with debt covenants ; however , scheduled loan payments are generally not past due . grade 4 includes an issuer performing materially below expectations and indicates that the issuer 's risk has increased materially since origination . in addition to the issuer being generally out of compliance with debt covenants , scheduled loan payments may be past due ( but generally not more than six months past due ) . grade 5 indicates that the issuer is performing substantially below expectations and the investment risk has substantially increased since origination . most or all of the debt covenants are out of compliance or payments are substantially delinquent . investments graded 5 are not anticipated to be repaid in full . 49 our investment performance risk ratings do not constitute any rating of investments by a nationally recognized statistical rating organization or reflect or represent any third-party assessment of any of our investments . in the event of a delinquency or a decision to rate an investment grade 4 or grade 5 , the pmg , in consultation with the investment committee , will develop an action plan . such a plan may require a meeting with the borrower 's management or the lender group to discuss reasons for the default and the steps management is undertaking to address the under-performance , as well as amendments and waivers that may be required . in the event of a dramatic deterioration of a credit , mc advisors and the pmg will form a team or engage outside advisors to analyze , evaluate and take further steps to preserve our value in the credit . in this regard , we would expect to explore all options , including in a private equity sponsored investment , assuming certain responsibilities for the private equity sponsor or a formal sale of the business with oversight of the sale process by us . the pmg and the investment committee have extensive experience in running debt work-out transactions and bankruptcies .
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results of operations operating results were as follows ( in thousands ) : replace_table_token_11_th 50 investment income the composition of our investment income was as follows ( in thousands ) : replace_table_token_12_th ( 1 ) during the years ended december 31 , 2019 , 2018 and 2017 , includes pik dividends of $ 54 , $ 819 and $ 241 , respectively . the increase in investment income of $ 9.8 million during the year ended december 31 , 2019 is primarily the result of an increase in interest income ( including pik interest income ) due to an increase in average outstanding loan balances ( tempered by a decline in the weighted average portfolio yield ) and an increase in dividend income from our investment in slf , partially offset by a decline in the weighted average portfolio yield and a decrease in accretion of discounts and amortization of premium . the increase in investment income of $ 7.3 million during the year ended december 31 , 2018 is primarily due to an increase in average outstanding loan balances and an increase in dividend income due to our investment in slf , partially offset by a decrease in prepayment gain ( loss ) . operating expenses the composition of our operating expenses was as follows ( in thousands ) : replace_table_token_13_th ( 1 ) during the years ended december 31 , 2019 , 2018 and 2017 , mc advisors waived part one incentive fees ( based on net investment income ) of $ 1.2 million , zero and $ 0.3 million , respectively . incentive fees during the years ended december 31 , 2019 , 2018 and 2017 were limited by $ 1.1 million , $ 4.9 million and $ 0.4 million due to the incentive fee limitation , respectively . see note 6 in our attached consolidated financial statements for additional information on the incentive fee limitation .
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discontinued operations are discussed in note 5 of the notes to the consolidated financial statements in item 8. the financial information in this md & a is based on results from continuing operations . overview we are a fully integrated , self-administered , publicly-traded reit specializing in the ownership , management , development and redevelopment of community shopping centers . most of our properties are multi-anchored by supermarkets and or national chain stores . our primary business is managing and leasing space to tenants in the shopping centers we own . we also manage centers for our unconsolidated joint ventures for which we charge fees . our credit risk , therefore , is concentrated in the retail industry . at december 31 , 2014 , we owned and managed , either directly or through our interest in real estate joint ventures , a total of 80 shopping centers and one office building , with approximately 16.9 million square feet of gross leasable area owned by us and our joint ventures . we also owned interests in three parcels of land available for development and five parcels of land available for sale . we are predominantly a community shopping center company with a focus on managing and adding value to our portfolio of centers that are primarily multi-anchored by grocery stores and or nationally recognized discount department stores . we believe that centers with a grocery and or discount component attract consumers seeking value-priced products . since these products are required to satisfy everyday needs , customers usually visit the centers on a weekly basis . over half of our shopping centers are anchored by tenants that sell groceries . supermarket anchor tenants in our centers include , among others , publix super market , whole foods , kroger and sprouts . national chain anchor tenants in our centers include , among others , tj maxx/marshalls , bed bath and beyond , home depot and kohl 's . our shopping centers are primarily located in a dozen of the largest metropolitan markets in the united states . our focus on these markets has enabled us to develop a thorough understanding of their unique characteristics . throughout our primary regions , we have concentrated a number of centers in reasonable proximity to each other in order to achieve efficiencies in management , leasing and acquiring new properties . critical accounting policies management 's discussion and analysis of financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . actual results could differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies require our most subjective judgment and use of estimates in the preparation of our consolidated financial statements . 26 acquisitions acquisitions of properties are accounted for utilizing the acquisition method and , accordingly , the results of operations of an acquired property are included in our results of operations from the date of acquisition . estimates of fair values are based upon future cash flows and other valuation techniques in accordance with our fair value measurements policy , which are used to record the purchase price of acquired property among land , buildings on an “ as if vacant ” basis , tenant improvements , identifiable intangibles and any gain on purchase . identifiable intangible assets and liabilities include the effect of above-and below-market leases , the value of having leases in place ( “ as-is ” versus “ as if vacant ” and absorption costs ) , other intangible assets such as assumed tax increment revenue bonds and out-of-market assumed mortgages . depreciation and amortization is computed using the straight-line method over the estimated useful lives of 40 years for buildings , over the remaining terms of any intangible asset contracts and the respective tenant leases , which may include bargain review options . the impact of these estimates , including incorrect estimates in connection with acquisition values and estimated useful lives , could result in significant differences related to the purchased assets , liabilities and subsequent depreciation or amortization expense . for more information , refer to note 1 , organization and summary of significant accounting policies subtopic real estate of the notes to the consolidated financial statements . impairment we review our investment in real estate , including any related intangible assets , for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of the property may not be recoverable . these changes in circumstances include , but are not limited to , changes in occupancy , rental rates , tenant sales , net operating income , geographic location , real estate values and expected holding period . the viability of all projects under construction or development , including those owned by unconsolidated joint ventures , are regularly evaluated under applicable accounting requirements , including requirements relating to abandonment of assets or changes in use . to the extent a project , or individual components of the project , are no longer considered to have value , the related capitalized costs are charged against operations . impairment provisions resulting from any event or change in circumstances , including changes in our intentions or our analysis of varying scenarios , could be material to our consolidated financial statements . we recognize an impairment of an investment in real estate when the estimated discounted or undiscounted cash flow is less than the net carrying value of the property . story_separator_special_tag there was no similar charge in 2012. liquidity and capital resources the majority of our cash is generated from operations and is dependent on the rents that we are able to charge and collect from our tenants . the principal uses of our liquidity and capital resources are for operations , developments , redevelopments , including expansion and renovation programs , acquisitions , and debt repayment . in addition , we make quarterly dividend payments in accordance with reit requirements for distributing the substantial majority of our taxable income on an annual basis . we anticipate that the combination of cash on hand , cash from operations , availability under our credit facilities , additional financings , equity offerings , and the sale of existing properties will satisfy our expected working capital requirements through at least the next 12 months . although we believe that the combination of factors discussed above will provide sufficient liquidity , no such assurance can be given . at december 31 , 2014 and 2013 , we had $ 17.5 million and $ 9.2 million , respectively , in cash and cash equivalents and restricted cash . restricted cash was comprised primarily of funds held in escrow by lenders to pay real estate taxes , insurance premiums , and certain capital expenditures . short-term liquidity requirements our short-term liquidity needs are met primarily from rental income and recoveries and consist primarily of funds necessary to pay operating expenses associated with our operating properties , interest and scheduled principal payments on our debt , quarterly dividend payments ( including distributions to op unit holders ) and capital expenditures related to tenant improvements and redevelopment activities . we have five mortgages maturing from june through december 2015 totaling $ 86.1 million , which includes scheduled amortization payments . we continually search for investment opportunities that may require additional capital and or liquidity . as of december 31 , 2014 , we had no proposed property acquisitions under contract . 30 long-term liquidity requirements our long-term liquidity needs consist primarily of funds necessary to pay indebtedness at maturity , potential acquisitions of properties , redevelopment of existing properties , the development of land and non-recurring capital expenditures . the following is a summary of our cash flow activities : replace_table_token_16_th operating activities we anticipate that cash on hand , operating cash flows , borrowings under our revolving credit facility , issuance of equity , as well as other debt and equity alternatives , will provide the necessary capital that we require to operate . net cash flow provided by operating activities increased $ 25.0 million in 2014 compared to 2013 primarily due to : net operating income increased $ 27.7 million as a result of our acquisitions ( net of dispositions ) and leasing activity at our shopping centers ; offset by net accounts receivable increase of $ 0.7 million ; and an increase in net interest expense of approximately $ 4.7 million primarily due to the issuance of senior notes . investing activities net cash used for investing activities decreased $ 40.0 million compared to 2013 primarily due to : acquisitions of real estate decreased $ 77.8 million ; investment in unconsolidated joint ventures decreased $ 5.0 million . in the previous year we had made contributions to fund debt repayment . in addition in 2013 we received a distribution of $ 1.7 million for the sale of joint venture property ; offset by restricted cash decreased $ 5.1 million ; and additions to real estate increased $ 36.1 million , as a result of an increase in development funding by $ 25.1 million , capital expenditures of $ 9.3 million , and $ 1.7 million in deferred leasing costs . financing activities cash flows provided by financing activities were $ 208.7 million as compared to $ 271.7 million in 2013 . this difference of $ 63.1 million is primarily explained by : an increase in our net borrowing of $ 53.9 million for debt and deferred financing costs ; offset by a decrease in net proceeds of $ 103.9 million from common share issuances ; an increase in cash dividends to common shareholders of $ 14.0 million due to additional shares issued as well as an increase in our per share quarterly dividend payment ; and a decrease in cash paid out for op unit conversions of $ 1.2 million . as of december 31 , 2014 , $ 335.9 million was available to be drawn on our $ 350 million unsecured revolving credit facility subject to certain covenants . it is anticipated that additional funds borrowed under our credit facilities will be used for general corporate purposes , including working capital , capital expenditures , the repayment of indebtedness or other corporate activities . for further information on the credit facilities and other debt , refer to note 9 of the consolidated financial statements . 31 dividends and equity we currently qualify , and intend to continue to qualify in the future , as a reit under the internal revenue code of 1986 , as amended ( the `` code ” ) . under the code , as a reit we must distribute to our shareholders at least 90 % of our reit taxable income annually , excluding net capital gain . distributions paid are at the discretion of our board and depend on our actual net income available to common shareholders , cash flow , financial condition , capital requirements , restrictions in financing arrangements , the annual distribution requirements under reit provisions of the code and such other factors as our board deems relevant . we paid cash dividends of $ 0.7625 per common share to shareholders in 2014 . in the third quarter we increased our quarterly dividend 6.7 % to $ 0.20 per share , or an annualized amount of $ 0.80 per share . cash dividends for 2013 and 2012 were $ 0.6923 and $ 0.653 per common share , respectively .
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results of operations comparison of the year ended december 31 , 2014 to the year ended december 31 , 2013 the following summarizes certain line items from our audited statements of operations which we believe are important in understanding our operations and or those items that have significantly changed during the year ended december 31 , 2014 as compared to 2013 : replace_table_token_14_th total revenue in 2014 increased $ 48.3 million , or 28.4 % from 2013 . the increase is primarily due to the following : $ 43.7 million increase related to acquisitions completed in 2014 and 2013 ; $ 4.6 million increase at existing centers ; and $ 1.8 million increase in lease termination income primarily due to the early departure of an office tenant at our office building ; offset by $ 1.8 million decrease related to properties sold in 2014 , reduced management fee income and properties in redevelopment . operating expense in 2014 increased $ 7.8 million , or 33.4 % from 2013 . the increase is primarily due to the following : $ 5.7 million related to increases in recoverable operating expenses due to our 2014 and 2013 acquisitions ; and $ 1.5 million related to increase in recoverable operating expenses at existing centers . real estate tax expense in 2014 increased $ 8.3 million , or 35.9 % from 2013 , primarily due to our 2014 and 2013 acquisitions . depreciation and amortization expense in 2014 increased $ 24.9 million , or 44.2 % , from 2013 . the increase was primarily due to our acquisitions in 2014 and 2013 , new development completion and other capital activities .
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the various sections of this discussion contain a number of forward-looking statements , all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this report as well as other matters over which we have no control . our actual results may differ materially . see “ cautionary note regarding forward-looking statements. ” company overview founded in 1987 , aspen 's mission is to become an institution of choice for adult learners by offering cost-effective , comprehensive , and relevant online education . one of the key differences between aspen and other publicly-traded , exclusively online , for-profit universities is that 87 % of our full-time degree-seeking students ( as of december 31 , 2012 ) are enrolled in a graduate degree program ( master or doctorate degree program ) . according to publicly available information , aspen enrolls a larger percentage of its full-time degree-seeking students in graduate degree programs than its publicly-traded competitors . as of december 31 , 2012 , 1,681 students were enrolled as full-time degree seeking students with 1,467 of those students or 87 % in a master or doctoral graduate degree program . in addition , a further 872 students are engaged in part time programs , such as continuing education courses and certificate level programs . therefore , aspen 's student body totaled 2,553 as of december 31 , 2012. among online , for-profit universities , aspen ranks among the leaders relative to the closely analyzed industry metrics such as high student graduation rates , high student course completion rates and low revenue exposure to doe federal student financial aid title iv programs . during 2012 , aspen had a student graduation rate of 58 % , and a student course completion rate of 90 % ( calculated in accordance with detc guidelines which is the average completion rate of students in our top 10 most popular courses ) , a federal student financial aid title iv program participation rate of only 18 % of revenues ( this rate was calculated in accordance with the doe regulations with revenues calculated on a cash basis ) . while most publicly-traded for-profit universities are near the 90/10 title iv ratio limit , aspen 's ratio is only 18 % . enrollments degree-seeking student enrollments increased by 37 % during 2012 , from 1,477 to 2,024 students . among aspen 's degree seeking programs , the master of nursing program grew 273 % in 2012 , from 71 students to 265 students . part-time students enrolled as of march 31 , 2012 were 529 students , an increase of 7 % from 496 part-time students at year-end 2011. story_separator_special_tag roman ; font-size : 10pt '' > 40 back to costs and expenses instructional costs and services instructional costs and services for the year ended december 31 , 2012 rose to $ 2,926,837 from $ 2,200,034 for the year ended december 31 , 2011 , an increase of 33 % . the increase is primarily attributable to higher charges associated with non-capitalizable courseware costs and payments to faculty due to the increase in class completions . as student enrollment levels increase , instructional costs and services should rise commensurately . however , as aspen increases its full-time degree-seeking student enrollments , the higher gross margins associated with such students should lead to the growth rate in instructional costs and services to lag that of overall revenues . revenues less instructional costs and services , a measure of the gross profit of aspen operations , for the year ended december 31 , 2012 declined to $ 2,090,376 from $ 2,277,897 for the year ended december 31 , 2011 , a decrease of 8 % . gross profit from aspen 's full-time degree-seeking students declined to $ 1,785,030 for the year ended december 31 , 2011 from $ 1,946,899 for the year ended december 31 , 2011 , a decrease of 8 % . the timing impact of the legacy tuition plan was experienced in the second half of 2012 as aspen 's gross profit from full-time degree-seeking students fell at a year/year rate of 14 % versus a 1 % decline during the first half of 2012. this is because the second half of 2011 was affected by a large number of legacy tuition plan students completing their initial four courses which contributed gross profits in contrast to later periods with a lower number of initial four courses taken by legacy tuition plan students . after the initial four courses , gross profit from the legacy tuition plan is immaterial . gross profit growth is expected in 2013 as new full-time degree-seeking student enrollments increase and legacy tuition plan students represent a shrinking portion of the total full-time degree-seeking student population . gross profit from aspen 's third-party corporate employee certificate programs and part-time degree programs declined to $ 305,346 for the year ended december 31 , 2012 from $ 330,998 for the year ended december 31 , 2011 , a decrease of 8 % . the timing impact of hurricane sandy was experienced in the second half of 2012 as aspen 's gross profit from third-party corporate employee certificate programs and part-time degree programs fell at a year/year rate of 44 % versus a year/year growth rate of 35 % during the first half of 2012. gross profit growth in 2013 should benefit from the growing number of regular rate students , the de-emphasis of low-margin third-party-sourced corporate employee certificate programs and the ramp-up of aspen 's own certificate programs . marketing and promotional marketing and promotional costs for the year ended december 31 , 2012 increased to $ 1,442,128 from $ 515,362 for the year ended december 31 , 2011 , an increase of 180 % . the increase is primarily attributable to expenses related to the launch and operation of aspen 's new marketing and student enrollment program . story_separator_special_tag non-gaap financial measures should be viewed as supplemental to , and should not be considered as alternatives to net income , operating income , and cash flow from operating activities , liquidity or any other financial measures . they may not be indicative of the historical operating results of aspen group nor is it intended to be predictive of potential future results . investors should not consider non-gaap financial measures in isolation or as substitutes for performance measures calculated in accordance with gaap . our management uses and relies on adjusted ebitda , a non-gaap financial measure . we believe that both management and shareholders benefit from referring to the following non-gaap financial measure in planning , forecasting and analyzing future periods . our management uses this non-gaap financial measure in evaluating its financial and operational decision making and as a means to evaluate period-to-period comparison . 42 back to aspen group defines adjusted ebitda as earnings ( or loss ) from continuing operations before preferred dividends , interest expense , income taxes , collateral valuation adjustment , bad debt expense , depreciation & amortization , and amortization of stock-based compensation . aspen group excludes stock based compensation because our management believes adjusted ebitda is an important measure of our operating performance because it allows management , investors and analysts to evaluate and assess our core operating results from period to period after removing the impact of items of a non-operational nature that affect comparability . our management recognizes that adjusted ebitda has inherent limitations because of the excluded items . we have included a reconciliation of our non-gaap financial measure to the most comparable financial measure calculated in accordance with gaap . we believe that providing the non-gaap financial measure , together with the reconciliation to gaap , helps investors make comparisons between aspen group and other companies . in making any comparisons to other companies , investors need to be aware that companies use different non-gaap measure to evaluate their financial performance . investors should pay close attention to the specific definition being used and to the reconciliation between such measure and the corresponding gaap measure provided by each company under applicable sec rules . the following table presents a reconciliation of adjusted ebitda to net income ( loss ) allocable to common stockholders , a gaap financial measure : replace_table_token_3_th over the course of 2012 , aspen group narrowed the adjusted ebitda loss as a result of the 188 % increase in the number of full-rate tuition students and the 36 % decrease in the number of legacy tuition plan students , a shift that lifted average realized per-course tuition from $ 463 in the first quarter of 2012 to $ 653 in the fourth quarter of 2012 - a 41 % increase . the impact of the collateral valuation adjustment will be confined to 2012 if the market price of aspen group shares remains at or above the current $ 0.35/share valuation level . as of the filing date of this report , aspen group had reduced its line of credit balance from $ 250,000 to $ 100. in 2013 , the amount of interest expense is not expected to increase over 2012 levels . as aspen group de-emphasizes third-party sourced certificate programs , the level of bad debt expense is likely to be reduced . the above factors along with higher numbers of full-rate tuition degree-seeking students are expected to deliver a positive adjusted ebitda performance in the third quarter of 2013. capital resources and liquidity net cash used in operating activities during the year ended december 31 , 2012 totaled ( $ 4,403,361 ) and resulted primarily from a net loss of ( $ 6,010,734 ) offset by non-cash items of $ 1,965,955 and a net change in operating assets and liabilities of ( $ 358,582 ) . net cash from operating activities include non-recurring expenses of $ 702,093 which comprised of professional fees . net cash used in investing activities during the year ended december 31 , 2012 totaled ( $ 619,801 ) and resulted primarily from capitalized technology expenditures of ( $ 505,146 ) and a net increase of restricted cash of ( $ 264,992 ) , offset by officer loan repayments received of $ 150,000 . 43 back to net cash provided by financing activities during the year ended december 31 , 2012 totaled $ 4,901,548 which resulted primarily from proceeds from the net issuance of debt and equity securities and warrants of $ 5,370,021 offset by issuance costs of ( $ 266,473 ) and the repurchase of treasury shares of ( $ 202,000 ) . in may 2011 , aspen had approximately $ 200,000 in cash when its new management team joined it in connection with the egc merger . from june 2010 through the time of the egc merger , aspen had received $ 1,390,500 from the legacy tuition plan which was designed to increase immediate cash flow at the expense of future cash flow . to sustain its operations , aspen raised $ 328,000 from the sale of convertible notes and $ 3,469,985 from the sale of convertible preferred stock at prices ranging from approximately $ 0.95 to $ 1.00 per share . funds were used to repurchase $ 740,000 of common stock pursuant to a prior obligation , to repay $ 165,000 to investors who purchased aspen common stock in prior years resulting from violation of state securities laws registration provisions , to repurchase $ 21,200 of common stock to investors requesting a return of their investments , and $ 2,871,785 for general corporate purposes including working capital . we do not anticipate generating positive cash flow from operations until approximately the third quarter of 2013. as of the filing date of this report , we had $ 806,441 in available cash . as discussed above , we anticipate our marketing and regulatory costs will increase . to ensure we have enough cash to support our working capital needs , we plan to raise additional working capital .
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results of operations year ended december 31 , 2012 compared with year ended december 31 , 2011 revenue revenue for the year ended december 31 , 2012 increased to $ 5,017,213 from $ 4,477,931 for the year ended december 31 , 2011 , an increase of 12 % . the increase is primarily attributable to the growth in aspen student enrollments as revenues from full-time degree-seeking students increased to $ 2,684,930 from $ 2,395,440 , an increase of 12 % . of particular note , revenues from aspen 's nursing degree program , which is included in the revenue amount discussed in the preceding sentence , increased to $ 409,938 from $ 124,113 , an increase of 230 % . meanwhile , the revenue aspen derives from its third-party sourced corporate-sponsored employee certificate programs and part-time degree programs rose to $ 2,332,283 from $ 2,082,491 , an increase of 12 % . 39 back to our 2012 and 2011 revenues were impacted by the 2010 ( and previous years ) pre-payment tuition plan , or the legacy tuition plan , which was discontinued on july 15 , 2011. the legacy tuition plan had students paying full-rate tuition for a degree program 's first 4 courses ( $ 675/course ) and a steeply discounted tuition rate for the program 's eight course balance ( $ 112.50/course ) . specifically , the plan produced immediate cash flow , but unsustainably low gross profit margins over the length of the degree program . as of december 31 , 2012 , 44 % of our full-time degree-seeking students are still enrolled under the legacy tuition plan . however , as the table below demonstrates , the contribution from legacy tuition plan students to overall aspen revenue and profits diminished steadily over the course of 2012 as the population of full-time degree-seeking students paying regular tuition rates increased by 188 % and the population of legacy tuition plan students fell by 36 % .
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for the 2013 fiscal year , the company has calculated its composite score to be 1.5. however , this is subject to determination by the doe once it receives and reviews the company 's audited financial statements for the 2013 story_separator_special_tag you should read the following discussion together with the “ selected financial data , ” “ forward looking statements ” and the consolidated financial statements and the related notes thereto included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that are based on management 's current expectations , estimates and projections about our business and operations . our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors , including those we discuss under “ risk factors ” and “ forward looking statements ” and elsewhere in this annual report on form 10-k. story_separator_special_tag years as we have raised tuition on average for the last several years by 3 % per year and restructured certain programs to reduce the amount of financial aid available to students , while funds received from title iv programs increased at lower rates . the additional financing that we are providing to students may expose us to greater credit risk and can impact our liquidity . however , we believe that these risks are somewhat mitigated due to the following : · annual federal title iv loan limits , including grants have increased . title iv funds represented 80 % of our 2013 revenue on a cash basis ; · our internal financing is provided to students only after all other funding resources have been exhausted ; thus , by the time this funding is available , students have completed approximately two-thirds of their curriculum and are more likely to graduate ; · funding for students who interrupt their education is typically covered by title iv funds as long as they have been properly packaged for financial aid ; and · we have a good collection history with our graduates . historically , 90 % of all of our graduates have repaid their balances in full . for the year ended december 31 , 2013 , approximately 80 % of our revenue on a cash basis was derived from title iv funds and approximately 20 % was derived from state grants and cash payments made by students . the hea requires institutions to use the cash basis of accounting when determining its compliance with the 90/10 rule . for the year ended december 31 , 2012 , approximately 81 % of our revenue on a cash basis was derived from title iv funds , approximately 19 % was derived from state grants and cash payments made by students . the credit crisis that has impacted the financial markets has had a limited impact on our ability to finance our creditworthy students . however , no assurance can be given that the worsening of the economy or tightening of the credit markets would not have a negative impact on our ability to continue to finance our creditworthy students . for students who are unable to get traditional financing , we make available the gap financing for them to be able to attend school . as of december 31 , 2013 , we had outstanding loan commitments to our students of $ 36.5 million as compared to $ 34.7 million at december 31 , 2012. loan commitments , net of interest that would be due on the loans through maturity , were $ 26.5 million at december 31 , 2013 as compared to $ 25.0 million at december 31 , 2012. commitments at december 31 , 2013 represented an average commitment balance , including interest of approximately $ 6,500. our bad debt expense as a percentage of revenue decreased to 4.1 % for 2013 from 5.1 % in 2012 and 4.5 % in 2011. the decrease in 2013 as compared to 2012 was attributable to our focused efforts on improving financial aid processes and collection activities which resulted in lower outstanding balances of our students including better collections from graduates than historically estimated . the increase in 2012 as compared to 2011 was due to higher average accounts receivable balances throughout the year resulting from increased loans to our students . all institutions participating in title iv programs must satisfy specific standards of financial responsibility . the doe evaluates institutions for compliance with these standards each year , based on the institution 's annual audited financial statements , as well as following a change in ownership resulting in a change of control of the institution . the most significant financial responsibility measurement is the institution 's composite score , which is calculated by the doe based on three ratios : · the equity ratio , which measures the institution 's capital resources , ability to borrow and financial viability ; · the primary reserve ratio , which measures the institution 's ability to support current operations from expendable resources ; and · the net income ratio , which measures the institution 's ability to operate at a profit . 42 index the doe assigns a strength factor to the results of each of these ratios on a scale from negative 1.0 to positive 3.0 , with negative 1.0 reflecting financial weakness and positive 3.0 reflecting financial strength . the doe then assigns a weighting percentage to each ratio and adds the weighted scores for the three ratios together to produce a composite score for the institution . the composite score must be at least 1.5 for the institution to be deemed financially responsible without the need for further oversight . if an institution 's composite score is below 1.5 , but is at least 1.0 , it is in a category denominated by the doe as `` the zone . '' story_separator_special_tag the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period . on an ongoing basis , we evaluate our estimates and assumptions , including those related to revenue recognition , bad debts , fixed assets , goodwill and other intangible assets , income taxes and certain accruals . actual results could differ from those estimates . the critical accounting policies discussed herein are not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap and does not result in significant management judgment in the application of such principles . we believe that the following accounting policies are most critical to us in that they represent the primary areas where financial information is subject to the application of management 's estimates , assumptions and judgment in the preparation of our consolidated financial statements . revenue recognition . revenues are derived primarily from programs taught at our schools . tuition revenues and one-time fees , such as nonrefundable application fees , and course material fees are recognized on a straight-line basis over the length of the applicable program , which is the period of time from a student 's start date through his or her graduation date , including internships or externships that take place prior to graduation . if a student withdraws from a program prior to a specified date , any paid but unearned tuition is refunded . refunds are calculated and paid in accordance with federal , state and accrediting agency standards . other revenues , such as tool sales and contract training revenues are recognized as services are performed or goods are delivered . on an individual student basis , tuition earned in excess of cash received is recorded as accounts receivable , and cash received in excess of tuition earned is recorded as unearned tuition . allowance for uncollectible accounts . based upon experience and judgment , we establish an allowance for uncollectible accounts with respect to tuition receivables . we use an internal group of collectors , augmented by third-party collectors as deemed appropriate , in our collection efforts . in establishing our allowance for uncollectible accounts , we consider , among other things , current and expected economic conditions , a student 's status ( in-school or out-of-school ) , whether or not a student is currently making payments , and overall collection history . changes in trends in any of these areas may impact the allowance for uncollectible accounts . the receivables balances of withdrawn students with delinquent obligations are reserved for based on our collection history . although we believe that our reserves are adequate , if the financial condition of our students deteriorates , resulting in an impairment of their ability to make payments , additional allowances may be necessary , which will result in increased selling , general and administrative expenses in the period such determination is made . 44 index our bad debt expense as a percentage of revenues for the years ended december 31 , 2013 , 2012 and 2011 was 4.1 % , 5.1 % and 4.5 % , respectively . our exposure to changes in our bad debt expense could impact our operations . a 1 % increase in our bad debt expense as a percentage of revenues for the years ended december 31 , 2013 , 2012 and 2011 would have resulted in an increase in bad debt expense of $ 3.5 million , $ 3.8 million and $ 4.6 million , respectively . we do not believe that there is any direct correlation between tuition increases , the credit we extend to students and our loan commitments . our loan commitments to our students are made on a student-by-student basis and are predominantly a function of the specific student 's financial condition . we only extend credit to the extent there is a financing gap between the tuition charged for the program and the amount of grants , loans and parental loans each student receives . each student 's funding requirements are unique . factors that determine the amount of aid available to a student are student status ( whether they are dependent or independent students ) , pell grants awarded , plus loans awarded or denied to parents and family contributions . as a result , it is extremely difficult to predict the number of students that will need us to extend credit to them . our tuition increases have ranged historically from 3 % to 5 % annually and have not meaningfully impacted overall funding requirements , since the amount of financial aid funding available to students in recent years has increased at greater rates than our tuition increases . because a substantial portion of our revenues are derived from title iv programs , any legislative or regulatory action that significantly reduces the funding available under title iv programs or the ability of our students or schools to participate in title iv programs could have a material effect on the realizability of our receivables . goodwill . we test our goodwill for impairment annually , or whenever events or changes in circumstances indicate an impairment may have occurred , by comparing its fair value to its carrying value . impairment may result from , among other things , deterioration in the performance of the acquired business , adverse market conditions , adverse changes in applicable laws or regulations , including changes that restrict the activities of the acquired business , and a variety of other circumstances . if we determine that impairment has occurred , we are required to record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made .
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general we are a leading provider of diversified career-oriented post-secondary education as measured by total enrollment . we offer recent high school graduates and working adults degree and diploma programs in five areas of study : automotive technology , health sciences , skilled trades , hospitality services and business and information technology . each area of study is specifically designed to appeal to and meet the educational objectives of our student population , while also satisfying the criteria established by industry and employers . the resulting diversification limits dependence on any one industry for enrollment growth or placement opportunities and broadens potential branches for introducing new programs . as of december 31 , 2013 , we enrolled 13,740 students in diploma and degree programs and 104 in certificate programs at our 33 campuses and five training sites across 15 states . of those schools , 16 are located in the states of new jersey , connecticut and pennsylvania . we have increased our geographic footprint and our diversity through acquisitions and through initial start-ups . our campuses , a majority of which serve major metropolitan markets , are located throughout the united states . five of our campuses are destination schools , which attract students from across the united states and , in some cases , from abroad . our other campuses primarily attract students from their local communities and surrounding areas . all of our schools are either nationally or regionally accredited and are eligible to participate in federal financial aid programs . our revenues consist primarily of student tuition and fees derived from the programs we offer . our revenues are reduced by scholarships granted to our students . we recognize revenues from tuition and one-time fees , such as application fees , ratably over the length of a program , including internships or externships that take place prior to graduation . we also earn revenues from our bookstores , dormitories , cafeterias and contract training services .
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the sec defines critical accounting policies as those that are both most important to the portrayal of a company 's financial condition and results , and that require management 's most difficult , subjective , or complex judgments , often as a result of the need to make estimates about matters that are inherently uncertain and may change materially in subsequent periods . the preparation of our consolidated financial statements requires estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes . significant estimates made by us include valuation of loans , equity investments , and investments in subsidiaries , evaluation of the recoverability of accounts receivable and income tax assets , and the assessment of litigation and other contingencies . the matters that 40 give rise to such provisions are inherently uncertain and may require complex and subjective judgments . although we believe that estimates and assumptions used in determining the recorded amounts of net assets and liabilities at december 31 , 2015 are reasonable , actual results could differ materially from the estimated amounts recorded in our financial statements . general we are a specialty finance company that has a leading position in originating , acquiring , and servicing loans that finance taxicab medallions and various types of commercial businesses . a wholly-owned portfolio company of ours , medallion bank , also originates consumer loans for the purchase of recreational vehicles , boats , motorcycles , and trailers , and to finance small-scale home improvements . since 1996 , the year in which we became a public company , we have increased our taxicab medallion loan portfolio at a compound annual growth rate of 4 % , and our commercial loan portfolio at a compound annual growth rate of 4 % ( 9 % and 6 % on a managed basis when combined with medallion bank ) . since medallion bank acquired a consumer loan portfolio and began originating consumer loans in 2004 , it has increased its consumer loan portfolio at a compound annual growth rate of 18 % . total assets under our management and the management of our unconsolidated wholly-owned subsidiaries , which includes our managed net investment portfolio , as well as assets serviced for third party investors , were $ 1,655,000,000 as of december 31 , 2015 and $ 1,497,000,000 as of december 31 , 2014 , and have grown at a compound annual growth rate of 11 % from $ 215,000,000 at the end of 1996. our loan-related earnings depend primarily on our level of net interest income . net interest income is the difference between the total yield on our loan portfolio and the average cost of borrowed funds . we fund our operations through a wide variety of interest-bearing sources , such as revolving bank facilities , bank certificates of deposit issued to customers , debentures issued to and guaranteed by the sba , and bank term debt . net interest income fluctuates with changes in the yield on our loan portfolio and changes in the cost of borrowed funds , as well as changes in the amount of interest-bearing assets and interest-bearing liabilities held by us . net interest income is also affected by economic , regulatory , and competitive factors that influence interest rates , loan demand , and the availability of funding to finance our lending activities . we , like other financial institutions , are subject to interest rate risk to the degree that our interest-earning assets reprice on a different basis than our interest-bearing liabilities . we also provide debt , mezzanine , and equity investment capital to companies in a variety of industries , consistent with our investment objectives . these investments may be venture capital style investments which may not be fully collateralized . medallion capital 's investments are typically in the form of secured debt instruments with fixed interest rates accompanied by membership interests and or warrants to purchase an equity interest for a nominal exercise price ( such warrants are included in equity investments on the consolidated balance sheets ) . interest income is earned on the debt instruments . we are a closed-end , management investment company under the 1940 act . we have elected to be treated as a bdc under the 1940 act . we have also elected to be treated for federal income tax purposes as a ric under subchapter m of the code . as a ric , we generally do not have to pay corporate-level federal income taxes on any net ordinary income or capital gains that we distribute to our shareholders as distributions if we meet certain source-of-income and asset diversification requirements . medallion bank is not a ric and must pay corporate-level us federal and state income taxes . our wholly-owned portfolio company , medallion bank , is a bank regulated by the fdic and the utah department of financial institutions which originates taxicab medallion , commercial , and consumer loans , raises deposits , and conducts other banking activities . medallion bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit issued to its customers . to take advantage of this low cost of funds , we refer a portion of our taxicab medallion and commercial loans to medallion bank , which then originates these loans . however , the fdic restricts the amount of taxicab medallion loans that medallion bank may finance to three times tier 1 capital , or $ 485,814,000 as of december 31 , 2015. we earn referral fees for these activities . all of these servicing activities have been assigned to msc . as a non-investment company , medallion bank is not consolidated with the company . realized gains or losses on investments are recognized when the investments are sold or written off . the realized gains or losses represent the difference between the proceeds received from the disposition of portfolio assets , if any , and the cost of such portfolio assets . story_separator_special_tag total medallion loans serviced for third parties were $ 26,959,000 , $ 27,658,000 , and $ 24,875,000 at december 31 , 2015 , 2014 , and 2013. the weighted average yield of the medallion loan portfolio at december 31 , 2015 was 4.09 % , an increase of 6 basis points from 4.03 % at december 31 , 2014 , which was an increase of 1 basis point from 4.02 % at december 31 , 2013. the weighted average yield of the managed medallion loan portfolio at december 31 , 2015 was 3.96 % , an increase of 3 basis points from 3.93 % at december 31 , 2014 , which was an increase of 4 basis points from 3.89 % at december 31 , 2013. the slight changes in 2015 reflected our increasing rates as loans refinance . at december 31 , 2015 , 31 % of the medallion loan portfolio represented loans outside new york , compared to 32 % at year-end 2014 and 2013. at december 31 , 2015 , 26 % of the managed medallion loan portfolio represented loans outside new york , compared to 26 % at year-end 2014 and 2013. we continue to focus our efforts on originating higher yielding medallion loans outside the new york market . commercial loan portfolio our commercial loans represented 14 % of the net investment portfolio as of december 31 , 2015 , compared to 14 % and 13 % at december 31 , 2014 and 2013 , and were 8 % , 9 % , and 10 % on a managed basis . commercial loans increased by $ 10,746,000 or 15 % during 2015 ( increased by $ 11,478,000 or 10 % on a managed basis ) , primarily reflecting growth in the high-yield mezzanine portfolio , partially offset by a decrease in the other secured commercial loan portfolio , and in the managed portfolio , also by an increase in asset-based loan participations purchased . net commercial loans serviced by third parties were $ 3,419,000 , $ 118,000 , and $ 255,000 at december 31 , 2015 , 2014 , and 2013. the weighted average yield of the commercial loan portfolio at december 31 , 2015 was 12.80 % , an increase of 89 basis points from 11.91 % at december 31 , 2014 , which was an increase of 131 basis points from 10.60 % at december 31 , 2013. the weighted average yield of the managed commercial loan portfolio at december 31 , 2015 was 10.18 % , an increase of 98 basis points from 9.20 % at december 31 , 2014 , which was an increase of 113 basis points from 8.07 % at december 31 , 2013. the increases primarily represented the greater proportion of higher yielding mezzanine loans in the portfolio . we continue to originate adjustable-rate and floating-rate loans tied to the prime rate to help mitigate our interest rate risk in a rising interest rate environment . at december 31 , 2015 , variable-rate loans represented 9 % of the commercial portfolio , compared to 6 % and 12 % at december 31 , 2014 and 2013 , and were 38 % , 38 % , and 49 % on a managed basis . although this strategy initially produces a lower yield , we believe that this strategy mitigates interest rate risk by better matching our earning assets to their adjustable-rate funding sources . consumer loan portfolio our managed consumer loans , all of which are held in the portfolio managed by medallion bank , represented 41 % of the managed net investment portfolio as of december 31 , 2015 , compared to 36 % and 31 % at december 31 , 2014 and 2013. medallion bank originates adjustable rate consumer loans secured by recreational vehicles , boats , motorcycles , trailers and home improvements located in all 50 states . the portfolio is serviced by a third party subsidiary of a major commercial bank . 44 the weighted average gross yield of the managed consumer loan portfolio was 14.06 % at december 31 , 2015 , compared to 14.71 % and 15.67 % at december 31 , 2014 and 2013. the decreases primarily reflected the change in portfolio mix to include a higher proportion of lower-yielding home improvement loans . adjustable rate loans represented 20 % of the managed consumer portfolio at december 31 , 2015 , compared to 37 % and 68 % at december 31 , 2014 and 2013. delinquency and loan loss experience we generally follow a practice of discontinuing the accrual of interest income on our loans that are in arrears as to payments for a period of 90 days or more . we deliver a default notice and begin foreclosure and liquidation proceedings when management determines that pursuit of these remedies is the most appropriate course of action under the circumstances . a loan is considered to be delinquent if the borrower fails to make a payment on time ; however , during the course of discussion on delinquent status , we may agree to modify the payment terms of the loan with a borrower that can not make payments in accordance with the original loan agreement . for loan modifications , the loan will only be returned to accrual status if all past due interest and principal payments are brought fully current . for credit that is collateral based , we evaluate the anticipated net residual value we would receive upon foreclosure of such loans , if necessary . there can be no assurance , however , that the collateral securing these loans will be adequate in the event of foreclosure . for credit that is cash flow-based , we assess our collateral position , and evaluate most of these relationships as ongoing businesses , expecting to locate and install a new operator to run the business and reduce the debt . for the consumer loan portfolio , the process to repossess the collateral is started at 60 days past due .
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consolidated results of operations for the years ended december 31 , 2015 and 2014 net increase in net assets resulting from operations was $ 29,376,000 or $ 1.20 per diluted common share in 2015 , up $ 684,000 or 2 % from $ 28,692,000 or $ 1.14 per share in 2014 , primarily reflecting lower operating expenses and higher net interest income , partially offset by lower net realized/unrealized gains and noninterest income . net investment income after income taxes was $ 16,826,000 or $ 0.69 per share in 2015 , up $ 1,681,000 or 11 % from $ 15,145,000 or $ 0.60 in 2014. investment income was $ 42,653,000 in 2015 , up $ 1,585,000 or 4 % from $ 41,068,000 a year ago , and included $ 864,000 from interest recoveries and bonuses on certain investments in 2015 , compared to $ 4,363,000 in 2014. also included in 2015 and 2014 were $ 18,889,000 and $ 15,000,000 in dividends from medallion bank and other controlled subsidiaries . excluding those items , 50 investment income increased $ 1,195,000 or 6 % , primarily reflecting portfolio growth , partially offset by the repricing of the portfolios to lower current market interest rates . investment income also reflected a $ 326,000 or 19 % reduction in lease revenue received from our owned chicago medallions , reflecting the tightening of the market and increased competition in chicago . the yield on the investment portfolio was 7.74 % in 2015 , down 6 % from 8.25 % in 2014. excluding the extra interest and dividends , the 2015 yield was down 5 % to 4.16 % from 4.36 % in 2014 , reflecting the general decrease in market interest rates and changes in the portfolio mix . average investments outstanding were $ 550,763,000 in 2015 , up 11 % from $ 497,536,000 a year ago , primarily reflecting portfolio growth , partially offset by loan payments received .
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see the discussion about forward-looking statements on page 1 of this annual report on form 10-k. this section of this form 10-k generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2018 , filed with the sec on february 27 , 2019. executive overview ani pharmaceuticals , inc. and its consolidated subsidiaries , anip acquisition company and ani pharmaceuticals canada inc. ( together , “ ani , ” the “ company , ” “ we , ” “ us , ” or “ our ” ) is an integrated specialty pharmaceutical company focused on delivering value to our customers by developing , manufacturing , and marketing high quality branded and generic prescription pharmaceuticals . we focus on niche and high barrier to entry opportunities including controlled substances , anti-cancer ( oncolytics ) , hormones and steroids , and complex formulations . our three pharmaceutical manufacturing facilities , of which two are located in baudette , minnesota and one is located in oakville , ontario , are together capable of producing oral solid dose products , as well as semi-solids , liquids and topicals , controlled substances , and potent products that must be manufactured in a fully-contained environment . our strategy is to use our assets to develop , acquire , manufacture , and market branded and generic specialty prescription pharmaceuticals . by executing this strategy , we believe we will be able to continue to grow our business , expand and diversify our product portfolio , and create long-term value for our investors . on june 19 , 2013 , biosante pharmaceuticals , inc. ( “ biosante ” ) acquired anip acquisition company ( “ anip ” ) in an all-stock , tax-free reorganization ( the “ merger ” ) , in which anip became a wholly-owned subsidiary of biosante . biosante was subsequently renamed ani pharmaceuticals , inc. the merger was accounted for as a reverse acquisition pursuant to which anip was considered the acquiring entity for accounting purposes . in 2014 , we acquired abbreviated drug applications ( “ andas ” ) for 31 generic products , the new drug application ( “ nda ” ) for lithobid , and the nda for vancocin , along with two related andas . we also launched our methazolamide product . in addition , we completed a follow-on public offering of common stock , yielding net proceeds of $ 46.7 million , and closed a public offering of $ 143.8 million of 3.0 % convertible senior notes due in 2019 ( the “ notes ” ) , with simultaneous bond hedge and warrant transactions . in 2015 , we acquired andas for 23 generic products and entered into a distribution agreement with idt australia limited ( “ idt ” ) to market several generic products in the u.s. we also launched six products during the year . in 2016 , we acquired the ndas and product rights for cortrophin gel , cortrophin-zinc , and inderal la , and acquired the rights to market and distribute our fenofibrate and hydrocortisone rectal cream products . we also entered into a three-year senior secured asset-based revolving credit facility for up to $ 30.0 million . during the 2016 year , we launched 11 products . in 2017 , we acquired the right , title , and interest in the ndas and the u.s. rights to market atacand , atacand hct , arimidex , and casodex . in addition , we acquired the nda , trademarks , and certain finished goods inventory for inderal xl and innopran xl . we also entered into a $ 125.0 million five-year senior secured credit facility ( the “ credit agreement ” ) comprised of a $ 75.0 million five-year term loan ( the “ term loan ” ) and a $ 50.0 million senior secured revolving credit facility ( the “ revolving credit facility ” ) . during the 2017 year , we launched six products . 37 in 2018 , our subsidiary , ani pharmaceuticals canada inc. ( “ ani canada ” ) , acquired all the issued and outstanding equity interests of wellspring pharma services inc. ( “ wellspring ” ) , a canadian company that performs contract development and manufacturing of pharmaceutical products . in conjunction with the transaction , we acquired wellspring 's pharmaceutical manufacturing facility , laboratory , and offices , its current book of commercial business , as well as an organized workforce . following the consummation of the transaction , wellspring was merged into ani canada with the resulting entity 's name being ani pharmaceuticals canada inc. in addition , we acquired the andas for three previously-commercialized generic products , the approved andas for two generic products that have yet to be commercialized , the development package for one generic product , a license , supply , and distribution agreement for a generic product with an anda that is pending approval , and certain manufacturing equipment required to manufacture one of the products . we also acquired the andas for 23 previously-marketed generic products and api for four of the acquired products . during the 2018 year , we launched 11 products . in addition , in december 2018 , we refinanced our $ 125.0 million credit agreement by entering into an amended and restated senior secured credit facility ( the “ credit facility ” ) for up to $ 265.2 million . story_separator_special_tag the year ended december 31 , 2018 included $ 5.6 million of costs of sales related to the excess of fair value over cost on inderal xl and innopran xl inventory and write-off of remaining inventory acquired as part of the acquisition when we re-launched the products under our own label . in addition , cost of sales for the year ended december 31 , 2019 included lower sales of products subject to profit-sharing arrangements , as well as the impact of the january 2019 royalty buy out from the asset purchase agreement amendment with teva . decreases were tempered by the fourth quarter 2019 $ 4.6 million inventory reserve charge , primarily related to the exit from the market for methylphenidate extended release . cost of sales as a percentage of net revenues decreased to 30.6 % during the year ended december 31 , 2019 , from 36.2 % during same period in 2018 , primarily due to the non-recurrence of $ 5.6 million net impact on cost of sales ( 2.8 % as a percent of net revenues ) of the excess of fair value over cost for inderal xl and innopran xl inventory sold and written off during the period , as well as lower royalty expense recognized in the period , offset by the inventory reserve charges recognized in the fourth quarter 2019. we source the raw materials for our products from both domestic and international suppliers , which we carefully select . generally , we qualify only a single source of api for use in each product due to the cost and time required to validate and qualify a second source of supply . any change in one of our api suppliers must usually be approved through a pas by the fda . the process of obtaining an approval of such a pas can require between four and 18 months . while we also generally qualify a single source for non-api raw materials , the process required to qualify an alternative source of a non-api raw material is typically much less rigorous . if we were to change the supplier of a raw material for a product , the cost for the material could be greater than the amount we paid with the previous supplier . changes in suppliers are rare , but could occur as a result of a supplier 's business failing , an issue arising from an fda inspection , or failure to maintain our required standards of quality . as a result , we select suppliers with great care , based on various factors including quality , reliability of supply , and long-term financial stability . certain of the apis for our drug products , including those that are marketed without approved ndas or andas , such as eemt , are sourced from international suppliers . from time to time , we have experienced temporary disruptions in the supply of certain of such imported api due to fda inspections . during the year ended december 31 , 2019 , we purchased 13 % of our inventory from one supplier . as of december 31 , 2019 , amounts payable to this supplier were $ 0.7 million . in the year ended december 31 , 2018 , we purchased 13 % of our inventory from one supplier . in order to manufacture certain of our products deemed controlled substances , we must submit a request to the drug enforcement administration ( “ dea ” ) for a quota to purchase the amount of api needed for manufacture . without approved quotas from the dea , we would not be able to purchase these ingredients from our suppliers . as a result , we are dependent upon the dea to annually approve a sufficient quota of api to support the continued manufacture of our controlled substances at commercial level . 42 other operating expenses replace_table_token_5_th ( 1 ) not meaningful other operating expenses consist of research and development costs , selling , general , and administrative expenses , depreciation and amortization , impairment charges , and cortrophin pre-launch charges . for the year ended december 31 , 2019 , other operating expenses increased to $ 127.0 million from $ 93.2 million for the same period in 2018 , an increase of $ 33.8 million , or 36.3 % , primarily as a result of the following factors : · research and development expenses increased from $ 15.4 million to $ 19.8 million , an increase of 28.7 % , due to $ 2.3 million of expense related to in-process research and development acquired in the acquisition from coeptis , as well as work on development projects , primarily the cortrophin gel re-commercialization project and work on the andas acquired in the asset purchase agreement with impax laboratories , inc. ( now amneal ) , and $ 1.2 million in expense for development milestone payments earned under certain collaborative agreements . these increases were partially offset by the non-recurrence of $ 1.3 million of expense related to in-process research and development acquired in the asset purchase with impax laboratories , inc. in the second quarter of 2018. we anticipate that research and development costs will be lower in 2020 as compared to 2019 , as we anticipate the completion of our cortrophin re-development efforts . · selling , general , and administrative expenses increased from $ 44.1 million to $ 55.8 million , an increase of 26.7 % , driven by a full year of costs related to our ani canada subsidiary , increased u.s. based headcount and increased pharmacovigilance compliance costs in continued support of the expansion of our commercial portfolio , increased stock compensation expense , higher generic drug user fee amendments ( “ gdufa ” ) and prescription drug user fee act ( “ pdufa ” ) user fees paid to the u.s. fda , higher legal fees , and increased sales and marketing related costs . we anticipate that selling , general , and administrative expenses will continue to be greater in 2020 than in 2019 as we support anticipated revenue growth and increased scope of our business .
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general the following table summarizes our results of operations for the years ended december 31 , 2019 and 2018. replace_table_token_2_th the following table sets forth , for the periods indicated , items in our consolidated statements of operations as a percentage of net revenues . replace_table_token_3_th 40 results of operations for the years ended december 31 , 2019 and 2018 net revenues replace_table_token_4_th we derive substantially all of our revenues from sales of generic and branded pharmaceutical products , contract manufacturing , and contract services , which include product development services , laboratory services , and royalties on net sales of certain products . net revenues for the year ended december 31 , 2019 were $ 206.5 million compared to $ 201.6 million for the same period in 2018 , an increase of $ 5.0 million , or 2.5 % , primarily as a result of the following factors : · net revenues for generic pharmaceutical products were $ 128.7 million during the year ended december 31 , 2019 , an increase of 9.6 % compared to $ 117.5 million for the same period in 2018. the primary reasons for the increase are the september 2019 launch of vancomycin oral solution , annualization of the 2018 launches of ezetimibe-simvastatin and candesartan , other products launched in 2019 , as well as increased unit sales of vancomycin tablets . these increases were tempered by decreases in sales of esterified estrogen with methyltestosterone ( “ eemt ” ) , diphenoxylate hydrochloride and atropine sulfate , and fenofibrate . as described in item 1. business – government regulations – unapproved products , we market eemt and opium tincture without food and drug administration ( “ fda ” ) approved ndas . the fda 's policy with respect to the continued marketing of unapproved products appears in the fda 's september 2011 compliance policy guide sec . 440.100 titled `` marketed new drugs without approved ndas or andas . ''
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you can identify these forward-looking statements by words such as “ may , ” “ will , ” “ should , ” “ could , ” “ expect , ” “ anticipate , ” “ believe , ” “ estimate , ” “ intend , ” “ plan , ” “ goal ” and other similar expressions . you should consider our forward-looking statements in light of the risks discussed under the heading “ risk factors , ” as well as our consolidated financial statements , related notes , and the other financial information appearing elsewhere in this report and our other filings with the united states securities and exchange commission . the forward-looking statements contained in this report are made as of the date hereof and the company assumes no obligation to update or supplement any forward-looking statements . you should read the following management 's discussion and analysis of financial condition and results of operations in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this report . general the first international house of pancakes restaurant opened in 1958 in toluca lake , california . shortly thereafter , the company 's predecessor began developing and franchising additional restaurants . the company was incorporated under the laws of the state of delaware in 1976 with the name ihop corp. in november 2007 , the company completed the acquisition of applebee 's international , inc. , which became a wholly-owned subsidiary of the company . effective june 2 , 2008 , the name of the company was changed to dineequity , inc. and on february 20 , 2018 , the name of the company was changed to dine brands global , inc. sm ( “ dine brands global , ” “ we ” or “ our ” ) . through various subsidiaries ( see exhibit 21 , subsidiaries of dine brands global , inc. ) , we own , franchise and operate the applebee 's neighborhood grill + bar ® ( “ applebee 's ” ) concept in the bar and grill segment within the casual dining category of the restaurant industry and we own and franchise the international house of pancakes ® ( “ ihop ” ) concept in the family dining category of the restaurant industry . references herein to applebee 's ® and ihop ® restaurants are to these two concepts , whether operated by franchisees , area licensees or us . domestically , applebee 's and ihop franchise restaurants are in all 50 states and two ihop franchise restaurants are in the district of columbia . internationally , ihop restaurants are in three united states territories and 12 countries outside of the united states ; applebee 's restaurants are in two united states territories and 13 countries outside of the united states . with nearly 3,700 restaurants combined , we believe we are the largest full-service restaurant company in the world . the june 18 , 2018 issue of nation 's restaurant news reported that ihop and applebee 's were the largest restaurant systems in the family dining and casual dining categories , respectively , in terms of united states system-wide sales during 2017. this marks the eleventh consecutive year our two brands have achieved the number one ranking in nation 's restaurant news . we have a 52/53 week fiscal year ending on the sunday nearest to december 31 of each year . for convenience , in this annual report on form 10-k , we refer to all fiscal years as ending on december 31 and all interim fiscal quarters as ending on march 31 , june 30 and september 30 of the respective fiscal year . there were 52 calendar weeks in our 2018 , 2017 and 2016 fiscal years that ended on december 30 , 2018 , december 31 , 2017 and january 1 , 2017 , respectively . story_separator_special_tag fourth quarter was due in part to the comparison to a strong fourth quarter of 2017 during which we first introduced promotional initiatives that effectively increased customer traffic . applebee 's same-restaurant sales increase for the fourth quarter of 2018 exceeded that of the casual dining segment of the restaurant industry . based on data from black box intelligence , a restaurant sales reporting firm ( “ black box ” ) , the casual dining segment of the restaurant industry experienced an increase in same-restaurant sales during the fourth quarter of 2018 resulting from an increase in average customer check that was offset by a decline in customer traffic . for the full year ended december 31 , 2018 , applebee 's domestic same-restaurant sales increased 5.0 % , more than a 1,000 basis point improvement over a 5.3 % decrease in 2017. the increase in domestic same-restaurant sales for the full year 2018 was primarily due to an increase in customer traffic , as well as an increase in average customer check . for the full year 2018 , 34 applebee 's substantially outperformed the casual dining segment , primarily with respect to traffic . based on data from black box , the casual dining segment 's increase in same-restaurant sales was smaller than applebee 's and was due to a decline in traffic that was partially offset by an increase in average customer check . we believe applebee 's significantly outperformed the casual dining segment due to a multi-faceted strategy we began implementing in the latter half of 2017. the goal of that strategy was to redefine the applebee 's brand identity and culture and reconnect with our core customer base . our recent marketing , culinary and operational initiatives appear to have resonated positively with our guests as an increase in customer traffic was primarily responsible for the 5.0 % increase in domestic same-restaurant sales in 2018. the increase in traffic was driven , in part , by growth in our off-premise business ( carside-to-go take-home and , to a lesser degree , third-party delivery ) . story_separator_special_tag as part of the resolution of these issues , and as previously disclosed , we reached a court-approved settlement with one franchisee which , among other things , resulted in the payment of $ 12.5 million from the franchisee to us for past due royalty and advertising fees and the dismissal of all outstanding litigation between the parties and we completed the acquisition of 69 applebee 's restaurants in north carolina and south carolina in december 2018. we are closely monitoring and working with one remaining franchisee of significantly smaller scale on resolving outstanding issues related to past due royalty and advertising payments . in working with our franchisees to resolve financial health issues , we provided various forms of assistance , primarily the approved closures of non-viable restaurants and waiver of related termination fees as well as making loans to certain franchisees , of which there are approximately $ 22.8 million outstanding at december 31 , 2018. the majority of the loans resulted from the conversion of short-term accounts receivable for royalties and advertising fees into interest-bearing notes receivable . events impacting comparability of financial information change in accounting policy on january 1 , 2018 , we adopted the guidance of asc 606. the two most significant impacts of this change in accounting policy are as follows : prior to the adoption of asc 606 , we did not record advertising fees received under applebee 's franchise agreements as franchise revenue and expense ; we did record advertising fees received under ihop franchise agreements as franchise revenue and expense . in evaluating advertising activity under the guidance of asc 606 , we consider ourselves to be primarily responsible for fulfilling the promise to provide all the services specified in the contract , including advertising activities , which are not considered to be distinct services in the context of providing the right to the symbolic intellectual property . accordingly , under asc 606 , we are recording all advertising fees received as franchise revenue . under previous accounting guidance for franchisors , advertising revenue and expense were recognized in the same amount in each period . that guidance was modified by asc 606 , such that advertising expense may now be recognized in a different period than the advertising revenue recognized as described above . prior to the adoption of asc 606 , the company generally recognized the entire franchise and or development fee as revenue at the restaurant opening date . under asc 606 , franchise and development fees are recognized as revenue ratably on a straight-line basis over the term of the franchise agreement commencing with the restaurant opening date . we adopted this change in accounting principle using the full retrospective method . accordingly , previously reported financial information for the years ended december 31 , 2017 and 2016 has been adjusted to reflect the changes as described above from application of asc 606. see notes 2 and 3 of the notes to consolidated financial statements for additional discussion of our adoption of asc 606 and our policies for recognition of revenue from contracts with customers . in conjunction with the adoption of asc 606 , we implemented internal controls to ensure we adequately evaluated our contracts with franchisees and properly assessed the impact of asc 606 on our consolidated financial statements . 38 temporary increase in franchisee contribution rate to the applebee 's naf all domestic applebee 's franchisees have entered into an amendment to their franchise agreements to increase their contribution to the applebee 's national advertising fund ( the “ applebee 's naf ” ) , with virtually all agreeing to a 0.25 % increase to 3.50 % of their gross sales and a decrease to their minimum local promotional expenditures to 0.25 % of their gross sales for the period from january 1 , 2018 to december 31 , 2019. such franchisees also agreed to an incremental temporary increase of 0.75 % in the advertising contribution rate to 4.25 % effective july 1 , 2018 to december 31 , 2019. as a result of these rate increases , advertising revenue increased approximately $ 25 million in 2018 as compared to 2017. franchisor contributions to the applebee 's naf we contributed $ 30.0 million , $ 9.5 million and $ 2.5 million to the applebee 's naf in the years ended december 31 , 2018 , 2017 and 2016 , respectively , to mitigate the decline in franchisee contributions due to restaurant closures and the non-timely payment of advertising fees by certain franchisees . our contributions ceased as of june 30 , 2018 and we do not anticipate making similar contributions to the applebee 's naf in the foreseeable future . tax cuts and jobs act the tax cuts and jobs act ( the “ tax act ” ) enacted in december 2017 lowered the federal statutory corporate tax rate from 35 % to 21 % , beginning in 2018. in accordance with u.s. gaap , we revalued our net deferred tax liability as of december 31 , 2017 , based on a u.s. federal tax rate of 21 percent . this revaluation reduced our 2017 net loss by $ 66.5 million , or $ 3.75 per share . during the year ended december 31 , 2018 , we increased our tax provision by $ 5.1 million related to adjustments resulting from irs audits for tax years 2011 through 2013. this increased our effective tax rate from what would have been an estimated combined federal and state rate of 25 % ( reflecting the reduction in the federal tax rate from the tax act ) to approximately 27.4 % for the year ended december 31 , 2018. completion of the irs audits for tax years 2011 through 2013 will allow us to accelerate the collection of certain tax benefits recognized in prior years . as a result , we expect to receive a cash refund of approximately $ 12.5 million within the next 12 months .
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executive summary of 2018 results overview we reported net income of $ 80.4 million , or $ 4.37 per diluted share in 2018 , compared to a loss of $ 342.7 million generated in 2017 that was primarily due to impairment charges taken in the third quarter of 2017 related to applebee 's goodwill and intangible assets ; our gross profit grew $ 14.4 million , primarily due to an increase in gross profit from franchise operations ; applebee 's domestic same-restaurant sales grew 5.0 % in 2018 , the largest annual increase since our acquisition of the brand in 2007 ; ihop 's reported system-wide sales grew 3.9 % in 2018 driven by an increase in franchise restaurants due to development and a 1.5 % increase in domestic same-restaurant sales ; the combined system-wide sales of both brands grew to nearly $ 7.6 billion , a 3.0 % increase compared to 2017 . 31 we generated cash from operating activities of $ 140.3 million and adjusted free cash flow ( cash provided by operating activities , plus receipts from notes and equipment contract receivables , less additions to property and equipment ) of $ 140.9 million in 2018 ; we returned nearly $ 85 million to our stockholders , comprised of $ 51.1 million in cash dividends and $ 33.6 million in the form of stock repurchases ; ihop franchisees opened 71 new restaurants worldwide , with net development of 45 restaurants . applebee 's franchisees closed 106 restaurants worldwide , with a net reduction of 99 restaurants . taken together , the total number of our restaurants declined by less than 1 % from last year 's total ; and ihop franchisees remodeled 270 domestic restaurants in 2018 under our new rise ‘ n ' shine design .
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the table below summarizes activity related to restricted stock units ( in thousands , except per share amounts ) : replace_table_token_18_th non-cash restricted stock unit award expense recognized in the accompanying statements of operations was $ 2.0 million and $ 1.3 million for the years ended december 31 , 2020 and 2019. at december 31 , 2020 , there was $ 0.8 million of story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and other parts of this annual report on form 10-k contain forward-looking statements that involve risks and uncertainties , such as our plans , objectives , expectations , intentions and beliefs . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those identified below and those discussed in the section entitled “ risk factors ” included elsewhere in this annual report on form 10-k. overview we are a clinical-stage biopharmaceutical company focused on the discovery , development , and commercialization of novel , proprietary , synthetic small molecules for the treatment of brain and nervous system disorders . we focus our efforts on targeting and modulating n-methyl-d-aspartate receptors , or nmdars , which are vital to normal and effective function of the brain and nervous system . we believe leveraging the therapeutic advantages of the differentiated modulatory mechanism of our compounds will drive a paradigm shift in the treatment of disorders of the brain and nervous system . we are advancing a pipeline of distinct product candidates derived from our nmdar modulator discovery platform , or the discovery platform . the following table summarizes the current status of our development programs as of the date of this annual report . nyx-2925 is in clinical development for the treatment of chronic pain . nyx-2925 is being evaluated in two phase 2b studies in two chronic pain conditions : one evaluating the efficacy and safety in approximately 200 patients with painful diabetic peripheral neuropathy , or painful dpn , and the other evaluating the efficacy and safety in approximately 300 patients with fibromyalgia . these studies have both recently recommenced enrollment following their temporary suspension in march of 2020 due to challenges introduced by the covid-19 pandemic . nyx-783 is in clinical development for the treatment of post-traumatic stress disorder , or ptsd . we recently completed an initial exploratory phase 2 study to evaluate safety , tolerability , and signals of efficacy of nyx-783 in 160 patients with ptsd . in the study , patients treated with nyx-783 demonstrated improvements across ptsd symptoms and nyx-783 was well-tolerated with no drug-related serious adverse events reported . the nyx-783 50 mg group demonstrated a clinically meaningful improvement from baseline on caps-5 total score after 4 weeks of treatment and , while the exploratory study was powered based on clinical , and not statistical , considerations , on some measures nyx-783 did demonstrate statistically significant separation from placebo . nyx-458 is in phase 2 clinical development for the treatment of cognitive impairment associated with parkinson 's disease and dementia with lewy bodies . we recently recommenced study activities , including site initiation and obtaining irb approval , for a phase 2 exploratory study that was 93 temporarily suspended in march of 2020 due to challenges introduced by the covid-19 pandemic . we expect to recommence the screening and enrollment of patients in that study following an investigator meeting that is planned for march 26 , 2021. we do not expect to generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for a product candidate , which we expect will take a number of years and the outcome of which is uncertain , or enter into collaborative agreements with third parties , the timing of which is largely beyond our control and may never occur . to fund our current and future operating plans , we will need additional capital , which we may obtain through one or more equity offerings , debt financings , or other third-party funding , including potential strategic alliances and licensing or collaboration arrangements . we may , however , be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all , including as a result of covid-19 . our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our current product candidates , or any additional product candidates , if developed . the amount and timing of our future funding requirements will depend on many factors , including the impacts of covid-19 , our ability to successfully enroll subjects in a timely way for the clinical studies , and the pace and results of our preclinical and clinical development efforts . we can not assure you that we will ever be profitable or generate positive cash flow from operating activities . the covid-19 pandemic has and could further adversely impact our clinical and or preclinical studies , as well as our business operations . we continue to evaluate the impact of the covid-19 pandemic on patients and our employees , as well as our operations and the operations of our business partners and healthcare communities . in response to the covid-19 pandemic , we have implemented policies to mitigate the risk of exposure to covid-19 by our personnel , including restrictions on the number of staff in any given research and development laboratory or manufacturing facility , a work-from-home policy applicable to the majority of our personnel , and a phased approach to bringing personnel back to our locations over time . story_separator_special_tag 97 on october 26 , 2020 , we completed a follow-on public offering of our common stock pursuant to an effective registration statement on form s-3 . we sold an aggregate of 16,100,000 shares of common stock , which included the exercise in full of the underwriters ' option to purchase additional shares , at a public offering price of $ 3.00 per share . net proceeds from the offering were approximately $ 45.1 million after deducting underwriting discounts and commissions as well as estimated offering expenses . subsequent to december 31 , 2020 and through the filing date of this annual report on form 10-k , we sold an aggregate of 3,629,458 shares under the “ at the market offering ” at an average price of $ 4.03 for net proceeds of $ 14.5 million . as of december 31 , 2020 , we had cash and cash equivalents of $ 141.0 million . we invest our cash equivalents in liquid money market accounts funding requirements our primary uses of capital are , and we expect will continue to be , research and development services , compensation and related expenses , laboratory and related supplies , legal and other regulatory expenses , patent prosecution filing and maintenance costs for our licensed intellectual property and general overhead costs . we expect to continue to incur significant expenses and operating losses for the foreseeable future . in addition , since the closing of our ipo , we have incurred , and expect to incur , additional costs associated with operating as a public company . we anticipate that our expenses will increase significantly in connection with our ongoing activities , as we : ● seek to address and recover from impacts of covid-19 ; ● advance the clinical development of our lead product candidates ; ● continue to improve the manufacturing process for our product candidates ; and manufacture clinical supplies as our development progresses ; ● continue the research and development of our preclinical product candidates ; ● seek to identify and develop additional product candidates ; ● maintain , expand , and protect our intellectual property portfolio ; and ● improve our operational , financial , and management systems to support our clinical development and other operations . outlook based on our research and development plans and our timing expectations related to the progress of our programs , we expect that our cash and cash equivalents as of december 31 , 2020 will be sufficient to fund our operations for at least the next 12 months . we have based this estimate on assumptions that may prove to be wrong , and we could utilize our available capital resources sooner than we currently expect . we do not expect to generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for a product candidate , which we expect will take a number of years and the outcome of which is uncertain , or enter into collaborative agreements with third parties , the timing of which is largely beyond our control and may never occur . to fund our current and future operating plans , we will need additional capital , which we may obtain through one or more equity offerings , debt financings , or other third-party funding , including potential strategic alliances and licensing or collaboration arrangements . we may , however , be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all , including as a result of covid-19 . our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our current product candidates , or any additional product candidates , if 98 developed . the amount and timing of our future funding requirements will depend on many factors , including the effects of covid-19 , our ability to successfully enroll subjects in a timely way for the clinical studies and the pace and results of our preclinical and clinical development efforts . we can not assure you that we will ever be profitable or generate positive cash flow from operating activities . cash flows the following table summarizes our sources and uses of cash for each of the periods presented ( in thousands ) : replace_table_token_3_th operating activities for the year ended december 31 , 2020 , compared to the same period in 2019 , the $ 9.7 million decrease in net cash used in operating activities was primarily due to a $ 7.4 million decrease in our net loss year over year , driven mostly by lower research and development expenses and and a use of cash decrease of $ 1.5 million due to changes in working capital largely driven by timing of cash paid to support our clinical research programs . investing activities for the year ended december 31 , 2020 , compared to the same period in 2019 , the $ 0.2 million increase in net cash used in investing activities was primarily due to purchases of lab equipment . financing activities for the year ended december 31 , 2020 , compared to the same period in 2019 , the $ 84.5 million increase in net cash provided by financing activities was primarily due to $ 78.5 million and $ 5.7 million of net proceeds received from our january and october 2020 follow-on public offerings and 2020 “ at the market offering ” , respectively , net of underwriting discounts and commissions and other offering expenses . critical accounting policies and significant judgments and estimates we prepare our financial statements in accordance with generally accepted accounting principles in the united states , or u.s. gaap . in the preparation of these financial statements , we are required to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs and expenses , and related disclosures .
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results of operations comparison of years ended december 31 , 2020 and 2019 the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_1_th collaboration revenue collaboration revenue was $ 1.6 million for the year ended december 31 , 2020 , compared to $ 3.7 million for the year ended december 31 , 2019 and is attributable to the research collaboration with allergan . the jointly funded research activities under the research collaboration and the associated payments by allergan came to their contractual conclusion in the third quarter of 2020. research and development expenses the following table summarizes our research and development expenses incurred during the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_2_th research and development expenses were $ 32.8 million for the year ended december 31 , 2020 , compared to $ 44.3 million for the year ended december 31 , 2019. the decrease of $ 11.5 million was primarily due to the following : ● approximately $ 4.2 million decrease due to lower employee headcount costs and related support costs in 2020 compared to 2019 ; 96 ● approximately $ 3.0 million decrease for costs associated with our preclinical research efforts with external research organizations and in part by the natural conclusion of the research collaboration with allergan in the third quarter of 2020 ; ● approximately $ 2.6 million decrease related to the ongoing development of nyx-458 for the treatment of parkinson 's disease cognitive impairment , including the temporary suspension of the exploratory phase 2 study of nyx-458 due to the covid-19 pandemic ; and ● approximately $ 1.3 million decrease for clinical , regulatory , and drug product costs related to the ongoing development of nyx-783 due to the conclusion of the phase 2 study in october 2020. general and administrative expenses general and administrative expenses were $ 19.5 million for the
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in june 1999 , ggs was awarded a four-year contract to supply deicing equipment to the united states air force , and subsequently was awarded two three-year extensions on the contract , which expired in june 2009. in july 2009 , ggs was awarded a new one-year contract with the united states air force with four additional one-year extension options . although sales remain somewhat seasonal , particularly with regard to commercial deicers which typically are delivered prior to the winter season , this diversification has lessened the seasonal impacts in recent years and allowed the company to be more efficient in its planning and production . if sales to the united states air force do not continue to be a significant component of ggs 's sales , seasonal patterns of revenues and earnings attributable to its commercial deicer business may resume . the overnight air cargo and ground support services segments are not susceptible to seasonal trends . critical accounting policies and estimates the company 's significant accounting policies are more fully described in note 1 of notes to the consolidated financial statements in item 8. the preparation of the company 's financial statements in conformity with accounting principles generally accepted in the united states requires the use of estimates and assumptions to determine certain assets , liabilities , revenues and expenses . management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions . the company 's estimates and assumptions could change materially as conditions within and beyond our control change . accordingly , actual results could differ materially from estimates . the company believes that the following are its most significant accounting policies : allowance for doubtful accounts . an allowance for doubtful accounts receivable is established based on management 's estimates of the collectability of accounts receivable . the required allowance is determined using information such as customer credit history , industry information , credit reports , customer financial condition and the collectability of outstanding accounts receivables . the estimates can be affected by changes in the financial strength of the aviation industry , customer credit issues or general economic conditions . 15 inventories . the company 's parts inventories are valued at the lower of cost or market . provisions for excess and obsolete inventories are based on assessment of the marketability of slow-moving and obsolete inventories . historical parts usage , current period sales , estimated future demand and anticipated transactions between willing buyers and sellers provide the basis for estimates . estimates are subject to volatility and can be affected by reduced equipment utilization , existing supplies of used inventory available for sale , the retirement of aircraft or ground equipment and changes in the financial strength of the aviation industry . warranty reserves . the company warranties its ground equipment products for up to a three-year period from date of sale . product warranty reserves are recorded at time of sale based on the historical average warranty cost and are adjusted as actual warranty cost becomes known . income taxes . income taxes have been provided using the liability method . deferred income taxes reflect the net affects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes using enacted rates expected to be in effect during the year in which the basis differences reverse . revenue recognition . cargo revenue is recognized upon completion of contract terms . maintenance and ground support services revenue is recognized when the service has been performed . revenue from product sales is recognized when contract terms are completed and ownership has passed to the customer . recent accounting pronouncements we do not believe there are any recently issued accounting standards that have not yet been adopted that will have a material impact on the company 's financial statements . forward looking statements certain statements in this report , including those contained in “ overview , ” are “ forward-looking ” statements within the meaning of the private securities litigation reform act of 1995 with respect to the company 's financial condition , results of operations , plans , objectives , future performance and business . forward-looking statements include those preceded by , followed by or that include the words “ believes ” , “ pending ” , “ future ” , “ expects , ” “ anticipates , ” “ estimates , ” “ depends ” or similar expressions . these forward-looking statements involve risks and uncertainties . actual results may differ materially from those contemplated by such forward-looking statements , because of , among other things , potential risks and uncertainties , such as : · economic conditions in the company 's markets ; · the risk that contracts with fedex could be terminated ; · the risk that the number of aircraft operated for fedex will be further reduced ; · the risk that the united states air force will defer or substantially reduce orders under its new contract with ggs as compared to order levels under the prior contract ; · the risk that gas will be unable to obtain a new contract with delta airlines or find alternative sources of revenue to replace that contract ; · the impact of any terrorist activities on united states soil or abroad ; · the company 's ability to manage its cost structure for operating expenses , or unanticipated capital requirements , and match them to shifting customer service requirements and production volume levels ; · the risk of injury or other damage arising from accidents involving the company 's air cargo operations , equipment sold by ggs or services provided by ggs or gas ; 16 · market acceptance of the company 's new commercial and military equipment and services ; · competition from other providers of similar equipment and services ; · changes in government regulation and technology ; · story_separator_special_tag in june 1999 , ggs was awarded a four-year contract to supply deicing equipment to the united states air force , and subsequently was awarded two three-year extensions on the contract , which expired in june 2009. in july 2009 , ggs was awarded a new one-year contract with the united states air force with four additional one-year extension options . although sales remain somewhat seasonal , particularly with regard to commercial deicers which typically are delivered prior to the winter season , this diversification has lessened the seasonal impacts in recent years and allowed the company to be more efficient in its planning and production . if sales to the united states air force do not continue to be a significant component of ggs 's sales , seasonal patterns of revenues and earnings attributable to its commercial deicer business may resume . the overnight air cargo and ground support services segments are not susceptible to seasonal trends . critical accounting policies and estimates the company 's significant accounting policies are more fully described in note 1 of notes to the consolidated financial statements in item 8. the preparation of the company 's financial statements in conformity with accounting principles generally accepted in the united states requires the use of estimates and assumptions to determine certain assets , liabilities , revenues and expenses . management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions . the company 's estimates and assumptions could change materially as conditions within and beyond our control change . accordingly , actual results could differ materially from estimates . the company believes that the following are its most significant accounting policies : allowance for doubtful accounts . an allowance for doubtful accounts receivable is established based on management 's estimates of the collectability of accounts receivable . the required allowance is determined using information such as customer credit history , industry information , credit reports , customer financial condition and the collectability of outstanding accounts receivables . the estimates can be affected by changes in the financial strength of the aviation industry , customer credit issues or general economic conditions . 15 inventories . the company 's parts inventories are valued at the lower of cost or market . provisions for excess and obsolete inventories are based on assessment of the marketability of slow-moving and obsolete inventories . historical parts usage , current period sales , estimated future demand and anticipated transactions between willing buyers and sellers provide the basis for estimates . estimates are subject to volatility and can be affected by reduced equipment utilization , existing supplies of used inventory available for sale , the retirement of aircraft or ground equipment and changes in the financial strength of the aviation industry . warranty reserves . the company warranties its ground equipment products for up to a three-year period from date of sale . product warranty reserves are recorded at time of sale based on the historical average warranty cost and are adjusted as actual warranty cost becomes known . income taxes . income taxes have been provided using the liability method . deferred income taxes reflect the net affects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes using enacted rates expected to be in effect during the year in which the basis differences reverse . revenue recognition . cargo revenue is recognized upon completion of contract terms . maintenance and ground support services revenue is recognized when the service has been performed . revenue from product sales is recognized when contract terms are completed and ownership has passed to the customer . recent accounting pronouncements we do not believe there are any recently issued accounting standards that have not yet been adopted that will have a material impact on the company 's financial statements . forward looking statements certain statements in this report , including those contained in “ overview , ” are “ forward-looking ” statements within the meaning of the private securities litigation reform act of 1995 with respect to the company 's financial condition , results of operations , plans , objectives , future performance and business . forward-looking statements include those preceded by , followed by or that include the words “ believes ” , “ pending ” , “ future ” , “ expects , ” “ anticipates , ” “ estimates , ” “ depends ” or similar expressions . these forward-looking statements involve risks and uncertainties . actual results may differ materially from those contemplated by such forward-looking statements , because of , among other things , potential risks and uncertainties , such as : · economic conditions in the company 's markets ; · the risk that contracts with fedex could be terminated ; · the risk that the number of aircraft operated for fedex will be further reduced ; · the risk that the united states air force will defer or substantially reduce orders under its new contract with ggs as compared to order levels under the prior contract ; · the risk that gas will be unable to obtain a new contract with delta airlines or find alternative sources of revenue to replace that contract ; · the impact of any terrorist activities on united states soil or abroad ; · the company 's ability to manage its cost structure for operating expenses , or unanticipated capital requirements , and match them to shifting customer service requirements and production volume levels ; · the risk of injury or other damage arising from accidents involving the company 's air cargo operations , equipment sold by ggs or services provided by ggs or gas ; 16 · market acceptance of the company 's new commercial and military equipment and services ; · competition from other providers of similar equipment and services ; · changes in government regulation and technology ; ·
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fiscal 2010 highlights after three consecutive years of record gross revenues and net profits , the company experienced a decline in both in the fiscal year ended march 31 , 2010 , reflecting very difficult economic and industry conditions . we remain dedicated to conserving cash , watching and controlling costs and maintaining , as well as expanding , our customer and vendor relationships . during the year ended march 31 , 2010 , revenues from our gas subsidiary totaled $ 9,168,000. this relatively new line of business continues to expand its customer base . gas has been able to add additional customers this year , but more importantly continue to develop existing customers and locations to improve utilization of our staff . our overnight air cargo segment saw its operating income decrease by $ 956,000 or 28 % in fiscal 2010 as a result of a reduction in the number of aircraft operated for fedex over the past two years . we operated 89 aircraft for our customer at march 31 , 2008 , 82 aircraft at march 31 , 2009 and 80 aircraft at march 31 , 2010. the reduction in aircraft has been a combination of retirement of the last of the aging fokker fleet , weather events that have destroyed aircraft while on ground , as well as our customer 's decision to park aircraft due to current economic conditions . as a result , we have experienced a $ 364,000 reduction in administrative fee revenue from our customer in the year ended march 31 , 2010 without any corresponding reduction in overhead costs . we also saw a significant reduction in revenues relating to pass through costs to our customer including fuel , flight and maintenance salaries and other operating costs . we are not aware of any plans to further reduce the number of aircraft we operate at this time , whether for economic or other reasons .
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mir is the leading maker of collaborative autonomous mobile robots story_separator_special_tag overview we are a leading global supplier of automation equipment for test and industrial applications . we design , develop , manufacture and sell automatic test systems used to test semiconductors , wireless products , data storage and complex electronics systems in the consumer electronics , wireless , automotive , industrial , computing , communications , and aerospace and defense industries . our industrial automation products include collaborative robotic arms , autonomous mobile robots and advanced robotic control software used by global manufacturing and light industrial customers to improve quality , increase manufacturing and material handling efficiency and decrease manufacturing costs . our automatic test equipment and industrial automation products and services include : semiconductor test ( semiconductor test ) systems ; defense/aerospace ( defense/aerospace ) test instrumentation and systems , storage test ( storage test ) systems , and circuit-board test and inspection ( production board test ) systems ( collectively these products represent system test ) ; industrial automation ( industrial automation ) products ; and wireless test ( wireless test ) systems . we have a customer base which includes integrated device manufacturers ( idms ) , outsourced semiconductor assembly and test providers ( osats ) , original equipment manufacturers ( oems ) , wafer foundries , fabless companies that design , but contract with others for the manufacture of integrated circuits ( ics ) , developers of wireless devices and consumer electronics , manufacturers of circuit boards , automotive suppliers , wireless product manufacturers , storage device manufacturers , aerospace and military contractors , and distributors that sell collaborative robots , autonomous mobile robots and wireless test systems . the market for our test products is concentrated with a limited number of significant customers accounting for a substantial portion of the purchases of test equipment . one customer drives significant demand for our products both through direct sales and sales to the customer 's supply partners . we expect that sales of our test products will continue to be concentrated with a limited number of significant customers for the foreseeable future . the sales of our products and services are dependent , to a large degree , on customers who are subject to cyclical trends in the demand for their products . these cyclical periods have had , and will continue to have , a significant effect on our business because our customers often delay or accelerate purchases in reaction to changes in their businesses and to demand fluctuations in the semiconductor and electronics industries . historically , these demand fluctuations have resulted in significant variations in our results of operations . during the first quarter of 2018 , demand outlook for mobile device test capacity in 2018 declined sharply for our semiconductor test business . demand in other segments of the semiconductor test business , including memory test , increased in 2018 . 23 in 2015 , we acquired universal robots a/s ( universal robots ) , the leading supplier of collaborative robots which are low-cost , easy-to-deploy and simple-to-program robots that work side by side with production workers to improve quality , increase manufacturing efficiency and decrease manufacturing costs . the acquisition of universal robots provides a growth engine to our business . the total purchase price for universal robots was approximately $ 315 million , which included cash paid of approximately $ 284 million and $ 32 million in fair value of contingent consideration payable upon achievement of revenue and earnings targets through 2018. contingent consideration for 2015 was $ 15 million and was paid in february 2016. contingent consideration for the period from july 2015 to december 2017 was $ 24.6 million and was paid march 2018. contingent consideration for the period from july 2015 to december 2018 was $ 3.9 million and it is expected to be paid in march 2019. on february 26 , 2018 , we acquired energid technologies corporation ( energid ) for a total purchase price of approximately $ 27.6 million . energid 's technology enables and simplifies the programming of complex robotic motions used in a wide variety of end markets , ranging from heavy industry to healthcare , utilizing both traditional robots and collaborative robots . on april 25 , 2018 , we acquired mobile industrial robots aps ( mir ) , a danish limited liability company . mir is the leading maker of collaborative autonomous mobile robots for industrial applications . the total purchase price was approximately $ 198 million , which included cash paid of approximately $ 145 million and $ 53 million in fair value of contingent consideration payable upon achievement of certain thresholds and targets for revenue and earnings before interest and taxes through 2020. at december 31 , 2018 , the maximum amount of contingent consideration that could be paid is $ 115 million . contingent consideration for 2018 was $ 31.0 million and is expected to be paid in march 2019. universal robots , mir and energid are included in our industrial automation segment . we believe our recent acquisitions have enhanced our opportunities for growth . we intend to continue to invest in our business , grow market share in our markets and expand further our addressable markets while tightly managing our costs . critical accounting policies and estimates we have identified the policies discussed below as critical to understanding our business and our results of operations and financial condition . the impact and any associated risks related to these policies on our business operations is discussed throughout management 's discussion and analysis of financial condition and results of operations where such policies affect our reported and expected financial results . revenue from contracts with customers we adopted accounting standards codification ( asc ) 606 , revenue from contracts with customers on january 1 , 2018 using the modified retrospective method for all contracts not completed as of the date of adoption . story_separator_special_tag in march 2017 , the financial accounting standards board ( fasb ) issued asu 2017-07 , compensationretirement benefits ( topic 715 ) : improving the presentation of net periodic pension cost and net periodic postretirement benefit cost . we retrospectively adopted the new accounting guidance on presentation of net periodic pension costs and net periodic postretirement benefit costs in the first quarter of 2018. this guidance requires the service cost component of net benefit costs to be reported in the same line item in the consolidated statement of operations as other employee compensation costs . the non-service components of net benefit costs such as interest cost , expected return on assets , amortization of prior service cost , and actuarial gains or losses , are required to be reported separately outside of income or loss from operations . following the adoption of this guidance , we continue to record the service cost component in the same line item as other employee compensation costs and the non-service components of net benefit costs such as interest cost , expected return on assets , amortization of prior service cost , and actuarial gains or losses are reported within other ( income ) expense , net . in 2017 and 2016 , the retrospective adoption of this standard decreased income from operations by $ 5.0 million and $ 3.0 million , respectively , due to the reclass of net actuarial pension gains and increased non-operating ( income ) expense by the same amount with no impact to net income ( loss ) . inventories inventories are stated at the lower of cost ( first-in , first-out basis ) or net realizable value . on a quarterly basis , we use consistent methodologies to evaluate all inventories for net realizable value . we record a provision for both excess and obsolete inventory when such write-downs or write-offs are identified through the quarterly review process . the inventory valuation is based upon assumptions about future demand , product mix , and possible alternative uses . equity incentive and stock purchase plans stock-based compensation expense is based on the grant-date fair value estimated in accordance with the provisions of asc 718 , compensationstock compensation . upon adoption of asu 2016-09 , compensation-stock compensation ( topic 718 ) : improvements to employee share-based payment accounting , in the first quarter of 2017 , we made an accounting policy election to continue accounting for forfeitures by applying an estimated forfeiture rate and recognizing compensation costs only for those stock-based compensation awards expected to vest . in accordance with asu 2016-09 , starting in the first quarter of 2017 , excess tax benefits or tax deficiencies are recognized as a discrete tax benefit or discrete tax expense to the current income tax provision in our consolidated statements of operations and are reported as cash flows from operating activities . on january 1 , 2017 , a cumulative effect adjustment of $ 39.1 million for any prior year excess tax benefits or tax deficiencies not previously recorded was recorded as an increase to retained earnings and deferred tax assets . all cash payments made to taxing authorities on the employees ' behalf for withheld shares are presented as financing activities on the statement of cash flows . in 2018 and 2017 , we recognized a discrete tax benefit of $ 7.6 million and $ 6.3 million , respectively , related to net excess tax benefit . income taxes deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse . the measurement of deferred tax assets is reduced by a valuation allowance 26 if it is more likely than not that some or all of the deferred tax assets will not be realized . we performed the required assessment of positive and negative evidence regarding the realization of the net deferred tax assets in accordance with asc 740 , accounting for income taxes . this assessment included the evaluation of scheduled reversals of deferred tax liabilities , estimates of projected future taxable income and tax-planning strategies . although realization is not assured , based on our assessment , we concluded that it is more likely than not that such assets , net of the existing valuation allowance , will be realized . investments we account for our investments in debt and equity securities in accordance with the provisions of asc 320-10 , investmentsdebt and equity securities . on a quarterly basis , we review our investments to identify and evaluate those that have an indication of a potential other-than-temporary impairment . factors considered in determining whether a loss is other-than-temporary include : the length of time and the extent to which the market value has been less than cost ; the financial condition and near-term prospects of the issuer ; and the intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value . financial assets and financial liabilities in january 2016 , the fasb issued asu 2016-01 , financial instrumentsoverall ( subtopic 825-10 ) : recognition and measurement of financial assets and financial liabilities . we adopted the new accounting guidance in the first quarter of 2018 using the modified retrospective approach . this guidance requires that changes in fair value of equity marketable securities be accounted for directly in earnings . previously , the changes in fair value of equity marketable securities were recorded in accumulated other comprehensive income on the balance sheet . we continue to record realized gains in interest income and realized losses in interest expense . the adoption of this new accounting guidance increased the january 1 , 2018 retained earnings balance by $ 3.1 million and decreased the accumulated other comprehensive income balance by the same amount .
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results of operations the following table sets forth the percentage of total net revenues included in our consolidated statements of operations : replace_table_token_4_th 28 revenues revenues for our reportable segments were as follows : replace_table_token_5_th the decrease in semiconductor test revenues of $ 170.1 million , or 10 % , from 2017 to 2018 was driven primarily by a decrease in sales in the mobility and microcontroller test segments , partially offset by increased sales in memory and analog test segments and an increase in service revenues . the increase in semiconductor test revenues of $ 294.3 million , or 22 % , from 2016 to 2017 was driven primarily by increased sales in the microcontroller , power management , flash memory , and automotive safety test segments and an increase in service revenues . the increase in industrial automation revenues of $ 91.4 million , or 54 % , from 2017 to 2018 was due to higher demand for collaborative robotic arms and the acquisition of mir , completed in april 2018. mir added revenues of $ 24.1 million in 2018. the increase in industrial automation revenues of $ 71.1 million , or 72 % , from 2016 to 2017 was due to higher demand for collaborative robotic arms . the increase in system test revenues of $ 24.0 million , or 12 % , from 2017 to 2018 was primarily due to higher system sales in production board test and higher sales of 3.5 hard disk drive and system level testers in storage test . the increase in system test revenues of $ 2.3 million , or 1 % , from 2016 to 2017 was primarily due to higher service revenue in defense/aerospace test instrumentation and systems . the increase in wireless test revenues of $ 20.1 million , or 18 % , from 2017 to 2018 was primarily due to higher demand for next generation wireless products .
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market-condition award —on april 9 , 2015 , our board of directors granted a market-condition award to our chief executive officer of 99,285 shares of restricted common stock , with a purchase price of $ 3.40 per share , which the board of directors determined was the fair market value on the grant date . the market-condition award does not vest until our market capitalization ( determined based on the number of shares of common stock outstanding multiplied by the closing market price for our common stock as reported on nasdaq ) exceeds at least $ 2.0 billion for 20 consecutive trading days on or before the date twenty-four ( 24 ) months after the closing of our ipo . the fair story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the section of this annual report entitled “ selected financial data ” and our financial statements and related notes included elsewhere in this annual report . 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 . in this annual report , words such as “ may , ” “ will , ” “ expect , ” “ anticipate , ” “ estimate , ” “ intend , ” and similar expressions ( as well as other words or expressions referencing future events , conditions or circumstances ) are intended to identify forward-looking statements , as described elsewhere herein . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical-stage biopharmaceutical company dedicated to discovering , developing and commercializing novel therapeutics to treat grievous blood-based disorders with significant unmet need . we are developing our initial product candidate , gbt440 , as an oral , once-daily therapy for sickle cell disease , or scd , and are currently evaluating gbt440 in scd subjects in an ongoing phase 1/2 clinical trial . scd is a genetic disease marked by red blood cell , or rbc , destruction and occluded blood flow and hypoxia , leading to anemia , stroke , multi-organ failure , severe pain crises , and shortened patient life span . gbt440 inhibits abnormal hemoglobin polymerization , the underlying mechanism of rbc sickling . in our clinical trials of gbt440 in scd subjects , we observed reduced markers of red blood cell destruction , improvements in anemia , improvements in markers of tissue oxygenation , reduced numbers of sickled rbcs , and reduced markers of inflammation . in addition to gbt440 for the treatment of scd , we intend to evaluate gbt440 for the treatment of hypoxemic pulmonary disorders and intend initially to conduct a phase 2a proof of concept study of idiopathic pulmonary fibrosis subjects . we are also engaged in other research and development activities targeted towards hereditary angioedema , or hae . we own and have exclusively licensed rights to our portfolio of product candidates in the united states , europe and other major markets . we own or co-own one issued u.s. patent that covers the composition of matter for gbt440 , which is due to expire in 2032 ( absent any applicable patent term extensions ) , and we own or co-own additional pending patent applications in the united states and selected foreign countries . since our inception in 2011 , we have devoted substantially all of our resources to identifying and developing our product candidates , including conducting clinical trials and preclinical studies and providing general and administrative support for these operations . prior to our initial public offering , or ipo , we had funded our operations primarily from the issuance and sale of redeemable convertible preferred stock . in august 2015 , we completed our ipo pursuant to which we issued 6,900,000 shares of our common stock at a price of $ 20.00 per share , which included 900,000 shares sold pursuant to the exercise of the underwriters ' option to purchase additional shares . we received $ 126.2 million from the ipo , net of underwriting discounts and commissions , and offering expenses incurred by us . we have never been profitable and have incurred net losses in each year since inception . our net losses were $ 46.4 million for the year ended december 31 , 2015 and $ 20.8 million for the year ended december 31 , 2014 . as of december 31 , 2015 we had an accumulated deficit of $ 98.5 million . to date , we have not generated any revenue . we do not expect to receive any revenue from any product candidates that we develop until we obtain regulatory approval and commercialize our products or enter into collaborative agreements with third parties . substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations . we had cash and cash equivalents totaling $ 148.5 million as of december 31 , 2015 . recent developments the regents of the university of california license agreement in september 2015 , we executed an agreement with the regents of the university of california , or the regents , for an exclusive license to those rights the regents may own in certain patents and patent applications relating to gbt440 and gbt440 analogs , and in exchange have committed to pay a royalty of less than 1 % on future net sales . we are solely responsible , in consultation with the regents , for preparing , filing , prosecuting and maintaining these patents and patent applications . story_separator_special_tag given the absence of a public trading market for our common stock , our board of directors exercised their judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock , including : our stage of development ; progress of our research and development efforts ; the rights , preferences and privileges of our preferred stock relative to those of our common stock ; equity market conditions affecting comparable public companies and the lack of marketability of our common stock . compensation expense for purchases under the espp is recognized based on the fair value of the common stock on the date of offering , less the purchase discount percentage provided for in the plan . stock-based compensation expense was $ 3.2 million for the year ended december 31 , 2015 , $ 0.4 million for the year ended december 31 , 2014 and $ 0.1 million for the year ended december 31 , 2013 . as of december 31 , 2015 , we had $ 11.4 million of total unrecognized stock-based compensation costs , net of estimated forfeitures , which we expect to recognize over a weighted-average period of 1.8 years . we have not recognized , and we do not expect to recognize in the near future , any tax benefit related to employee stock-based compensation expense as a result of the full valuation allowance on our deferred tax assets including deferred tax assets related to our net operating loss carryforwards . income taxes we use the asset and liability method of accounting for income taxes . under this method , deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse . we periodically assess the likelihood that the resulting deferred tax assets will be realized . a valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized . as of december 31 , 2015 , our total deferred tax assets , less our total deferred tax liabilities , were $ 36.1 million . due to our lack of earnings history and uncertainties surrounding our ability to generate future taxable income , the net deferred tax assets have been fully offset by a valuation allowance . the deferred tax assets were primarily comprised of federal and state tax net operating losses and tax credit carryforwards . utilization of the net operating loss ( nol ) carryforwards may be subject to a substantial annual limitation due to ownership changes that may have occurred or that could occur in the future , as required by section 382 of the internal revenue code of 1986 , as amended , or the code , and similar state provisions . these ownership change limitations may limit the amount of nol carryforwards and other tax attributes that can be utilized annually to offset future taxable income and tax , respectively . in general , an “ ownership change ” as defined by section 382 of the code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points ( by value ) of the outstanding stock of a company by certain stockholders . since our formation , we have raised capital through the issuance of capital stock on several occasions , which separately or combined with the purchasing stockholders ' subsequent disposition of those shares , may have resulted in such ownership changes , or could result in ownership changes in the future . 58 story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; '' > redeemable convertible preferred stock liability in october 2014 , at which time we were no longer under any obligation to issue additional shares of series a redeemable convertible preferred stock . the change in fair value of series a redeemable convertible preferred stock liability was $ 0.3 million for the year ended december 31 , 2014 , compared to a $ 2.5 million expense for the year ended december 31 , 2013 . the change in both periods represents the increase in fair value of the series a redeemable convertible preferred stock liability associated with our obligation to issue additional shares of series a redeemable convertible preferred stock . income taxes as of december 31 , 2015 , we had net operating loss carryforwards of approximately $ 82.1 million to offset future federal income taxes , if any , through 2035 , and approximately $ 80.0 million that may offset future state income taxes , if any , through 2035. current federal and state tax laws include substantial restrictions on the utilization of net operating losses and tax credits in the event of an ownership change . even if the carryforwards are available , they may be subject to annual limitations , lack of future taxable income , or future ownership changes that could result in the expiration of the carryforwards before they are utilized . at december 31 , 2015 , we recorded a 100 % valuation allowance against our deferred tax assets of approximately $ 36.1 million , as at that time our management believed it was uncertain that they would be fully realized . if we determine in the future that we will be able to realize all or a portion of our net operating loss carryforwards , an adjustment to our net operating loss carryforwards would increase net income in the period in which we make such a determination . liquidity and capital resources we are not profitable and have incurred losses and negative cash flows from operations each year since our inception . prior to our ipo , our operations were financed primarily by net proceeds from the sale and issuance of convertible preferred stock .
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results of operations comparison of the years ended december 31 , 2015 , 2014 and 2013 replace_table_token_4_th research and development expenses research and development expenses consist primarily of costs incurred for the development of our product candidates , which include : employee-related expenses , which include salaries , benefits and stock-based compensation ; expenses incurred under agreements with consultants , third-party contract organizations , and investigative clinical trial sites that conduct research and development activities on our behalf ; laboratory and vendor expenses related to the execution of preclinical studies , nonclinical studies and clinical trials ; the costs related to production of clinical supplies , including fees paid to contract manufacturers ; licensing of intellectual property rights ; and facilities and other allocated expenses , which include expenses for rent and maintenance of facilities , depreciation and amortization expense and other supplies . we expense all research and development costs in the periods in which they are incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and clinical sites . nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized . the capitalized amounts are then expensed as the related goods are delivered and the services are performed . the largest component of our total operating expenses has historically been our investment in research and development activities , including the clinical development of gbt440 . we allocate research and development salaries , benefits , stock-based compensation and indirect costs to gbt440 and other product candidates that we may pursue on a program-specific basis , and we include these costs in the program-specific expenses .
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this discussion contains forward-looking statements that involve risks , uncertainties , and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors , including those set forth under item 1a , “ risk factors ” and elsewhere in this report . the results of swss , our former security solutions division , are being presented as discontinued operations in the consolidated statements of income for the fiscal years ending april 30 , 2015 and 2014. see note 4 — discontinued operations in the notes to consolidated financial statements for additional information regarding these discontinued operations . unless otherwise indicated , any reference to income statement items in this management 's discussion and analysis of financial condition and results of operations refers to results from continuing operations . on may 5 , 2014 , we completed the drp acquisition , which expanded our capabilities to include custom injection molding services , rapid prototyping , and tooling . on december 11 , 2014 , we completed the bti acquisition . bti , based in columbia , missouri , is a leading provider of hunting and shooting accessories and offers innovative , high-quality products under several brands . results of operations for the fiscal year ended april 30 , 2015 include activity for the period subsequent to the respective drp and bti acquisitions . subsequent to the bti acquisition , we began reporting our results of operations in two segments : ( 1 ) accessories , representing bti , and ( 2 ) firearms , representing all other operations . story_separator_special_tag based on our consolidated leverage ratio as of january 31 , 2016 , effectively fixed our interest rate on the term loan , subject to change based on changes in our consolidated leverage ratio . as o f april 30 , 2016 , our interest rate on the term loan was 3.06 % . our business we are one of the world 's leading manufacturers of firearms and a provider of quality accessory products for the shooting , hunting , and rugged outdoor enthusiast . we manufacture a wide array of handguns ( including revolvers and pistols ) , long guns ( including modern sporting rifles , bolt action rifles , and single shot rifles ) , handcuffs , and firearm-related products and accessories for sale to a wide variety of customers , including gun enthusiasts , collectors , hunters , sportsmen , competitive shooters , individuals desiring home and personal protection , law enforcement and security agencies and officers , and military agencies in the united states and throughout the world . we are one of the largest manufacturers of handguns , modern sporting rifles , and handcuffs in the united states and an active participant in the hunting rifle market . we are also a leading provider of shooting , hunting , and outdoor accessories , including reloading , gunsmithing , gun cleaning supplies , tree saws , and vault accessories . we sell our products under the smith & wesson , m & p , thompson/center arms , caldwell shooting supplies , wheeler engineering , tipton gun cleaning supplies , frankford arsenal reloading tools , lockdown vault accessories , hooyman premium tree saws , bog-pod , and golden rod moisture control brands . we manufacture our firearm products at our facilities in springfield , massachusetts ; houlton , maine ; and deep river , connecticut ; and we develop and market our accessories products at our facility in columbia , missouri . we plan to continue to capitalize on the goodwill developed through our historic 164 year old “ smith & wesson ” brand as well as our other well-known brands by expanding consumer awareness of the products we produce . key performance indicators we evaluate the performance of our business based upon operating profit , which includes net sales , cost of sales , selling and administrative expenses , and certain components of other income and expense . we also track our return on invested capital , and we use adjusted ebitdas ( earnings before interest , taxes , depreciation , amortization , and stock-based compensation expense , excluding certain non-operational items ) , which is a non-gaap financial metric , as a supplemental measure of our performance in order to provide investors with an improved understanding of underlying performance trends . we evaluate our various firearm products by such measurements as gross margin per unit produced , units produced per day , revenue by trade channel , and incoming orders per day . we evaluate our various accessories products by such measurements as incoming orders per day , sales by customer , and gross margin by product line . key industry data firearms have been subject to legislative actions in the past , and the market has reacted to these actions . there was a substantial increase in sales in the early 1990s during the period leading up to and shortly after the enactment of the brady bill . in the period from 1992 through 1994 , u.s. handgun sales increased by over 50 % , as consumers purchased handguns because of the fear of prohibition of handgun ownership . sales levels then returned to pre-1992 levels and grew at normal industry growth rates until late in calendar 2008 , when sales increased in what appears to be fears surrounding crime and terrorism , an economic downturn , and a change in the white house administration . story_separator_special_tag although revenue for handguns increased 22.7 % , our handgun unit shipments into the sporting goods distribution channel increased 31.7 % over the prior fiscal year as a result of increased shipments of promotional products that lowered our average selling price . our long gun unit shipments into the sporting goods distribution channel increased 51.8 % over the prior fiscal year primarily driven by increased demand on two key products : our lower price point m & p sport rifle and our thompson/center bolt action hunting rifle . in our professional channel , unit shipments were lower than the prior fiscal year because of lower m & p pistol sales to law enforcement agencies as well as lower international shipments to canada , italy , and thailand as a result of economic conditions and delayed export licenses . 34 fiscal 2015 net sales compared with fiscal 2014 net sales in our firearm division for fiscal 2015 decreased 15.2 % from the prior fiscal year . although consumer demand for handguns , as reflected in nics background checks , increased over fiscal 2014 , we believe that a portion of the consumer demand was satisfied with excess channel inventory . thus , our handgun revenue decreased $ 27.5 million , or 6.5 % , from the prior fiscal year because of the decrease in sales of our larger frame m & p branded polymer pistol products , partially offset by increased sales of our small concealed carry polymer pistols and revolvers . revenue for our long guns decreased $ 65.1 million , or 41.9 % , from the prior fiscal year , primarily because of reduced sales of our modern sporting rifles as a result of lower demand , partially offset by increased lower price point sport rifle sales as well as bolt action and single-shot hunting rifle sales . other products and services revenue increased by 5.6 % over the prior fiscal year , primarily as a result of sales of our injection molding products following the drp acquisition in early fiscal 2015 , which represented 2.0 % of firearm revenue , as well as increased handcuff sales . firearm revenue was positively impacted by a price increase in january 2014 on a selected number of our products . in total , price increases favorably impacted firearm revenue for fiscal 2015 compared with the prior fiscal year by 0.3 % while decreases in the number of units sold impacted firearm revenue by 16.6 % . new products , defined as any new sku not shipped in the prior year , represented 17.4 % of firearm revenue for fiscal 2015. our accessories division revenue following the bti acquisition in december 2014 represented 3.7 % of total revenue for fiscal 2015. handgun unit shipments into our sporting goods distribution channel decreased 9.4 % for fiscal 2015 compared with fiscal 2014 primarily as a result of reduced shipments of our m & p branded polymer pistols partially offset by increased unit shipments for revolvers . our long gun unit shipments into the sporting goods distribution channel decreased 35.5 % in fiscal 2015 compared with fiscal 2014 primarily because of lower shipments of our modern sporting rifles . in our professional channel , unit shipments were relatively flat in fiscal 2015 compared with fiscal 2014. cost of sales and gross profit the following table sets forth certain information regarding cost of sales and gross profit for the fiscal years ended april 30 , 2016 , 2015 , and 2014 ( dollars in thousands ) : replace_table_token_6_th replace_table_token_7_th replace_table_token_8_th fiscal 2016 cost of sales and gross profit compared with fiscal 2015 gross margin for fiscal 2016 increased by 5.3 percentage points over the prior fiscal year , primarily because of increased production volumes and improved manufacturing fixed-cost absorption , which had an aggregate 6.5 percentage point favorable impact . that increased production volume and favorable manufacturing fixed-cost absorption was partially offset by higher manufacturing spending relative to sales volumes and additional expense recorded as a result of promotional product discounts that , when combined , yielded a 3.1 percentage point reduction to gross margin but contributed to our improved production volumes and favorable absorption . in addition , we recorded inventory adjustments that resulted in a favorable impact on gross margin by 50 basis points . gross margin for our accessories division favorably impacted total company gross margin by 90 basis points for fiscal 2016 in spite of sales of thompson/center accessories that were transitioned into our accessories division on october 1 , 2015 that generally 35 have lower gross margins . gross profit of our accessories division for fiscal 2015 included $ 4.2 million of increased cos t of goods sold from the fair value step-up in inventory as a result of the bti acquisition in the prior fiscal year and negatively impacted gross margin for that division by 20.1 percentage points . fiscal 2015 cost of sales and gross profit compared with fiscal 2014 gross margin for fiscal 2015 decreased by 6.0 percentage points from the prior fiscal year , primarily as a result of a combination of reduced sales volumes for our higher-margin products , higher spending relative to sales volumes , additional promotional product discounts , and unfavorable manufacturing fixed-cost absorption during fiscal 2015. that additional spending relative to sales volume and unfavorable manufacturing fixed-cost absorption negatively impacted gross margin by 5.4 percentage points , or $ 67.4 million , and the additional promotional product discounts resulted in a 1.1 percentage point , or $ 5.9 million , reduction to gross margin .
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2016 highlights our fiscal 2016 net sales of $ 722.9 million represented an increase of 31.0 % over our fiscal 2015 net sales . net sales for our firearm division increased by 23.8 % over the prior fiscal year to $ 657.6 million . net sales for our accessories division was $ 65.3 million in fiscal 2016 compared with net sales of $ 20.6 million for the prior fiscal year , following the bti acquisition on december 11 , 2014. income from continuing operations for fiscal 2016 was $ 94.0 million , or $ 1.68 per fully diluted share , compared with income from continuing operations of $ 49.8 million , or $ 0.90 per fully diluted share , for fiscal 2015. our operating results for fiscal 2016 were affected by numerous factors , including the following : · the 23.8 % increase in firearm net sales was driven primarily by the ongoing increased consumer interest in firearms that has occurred over the past several years , as reflected by higher national instant criminal background check system , or nics , as well as the impact of news events and the current political environment that appears to have increased demand in the second half of our fiscal year . we also believe that new products , product line extensions for our m & p branded products , specifically our small concealed carry polymer pistols , and annual promotional programs during this time helped to stimulate demand for our products . this increased consumer demand resulted in reduced overall firearm inventory at distributors in spite of increased shipments of the majority of our products into the sporting goods channel .
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also , projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions , or that the degree of compliance with the policies or procedures may deteriorate . critical audit matters the critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that ( i ) relates to accounts or disclosures that are material to the consolidated financial statements and ( ii ) involved our especially challenging , subjective , or complex judgments . the communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements , taken as a whole , and we are not , by communicating the critical audit matter below , providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates . impairment assessments of real estate investments and investments in unconsolidated real estate ventures as described in notes 2 , 3 and 4 to the consolidated financial statements , the partnership 's gross carrying value of operating real estate investments was $ 3,474 million and its investments in unconsolidated real estate ventures was $ 401 million as of december 31 , 2020. during 2020 , the partnership did not recognize an impairment related to real estate investments or an other than temporary impairment related to investments in unconsolidated real estate ventures . management reviews its real estate investments for impairment following the end of each quarter for each of its real estate investments where events or changes in circumstances indicate that the carrying amounts may not be recoverable . for real estate investments , management analyzes recoverability based on the estimated undiscounted future cash flows expected to be generated from the operations and eventual disposition of the assets . estimated future cash flows used in such analysis are story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere herein and is based primarily on our consolidated financial statements for the years ended december 31 , 2020 , 2019 and 2018. this report including the following discussion , contains forward-looking statements , which we intend to be covered by the safe-harbor provisions of section 27a of the securities act of 1933 , as amended and section 21e of the securities 27 exchange act of 1934 , as amended . the words “ anticipate , ” “ believe , ” “ estimate , ” “ expect , ” “ intend , ” “ will , ” “ should ” and similar expressions , as they relate to us , are intended to identify forward-looking statements . although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions , we can give no assurance that our expectations will be achieved . these forward-looking statements are inherently uncertain , and actual results may differ from expectations . “ see “ forward-looking statements ” immediately before part i of this report . overview during the twelve months ended december 31 , 2020 , we owned and managed properties within five segments : ( 1 ) philadelphia central business district ( “ philadelphia cbd ” ) , ( 2 ) pennsylvania suburbs , ( 3 ) austin , texas , ( 4 ) metropolitan washington , d.c. , and ( 5 ) other . the philadelphia cbd segment includes properties located in the city of philadelphia , pennsylvania . the pennsylvania suburbs segment includes properties in chester , delaware and montgomery counties in the philadelphia suburbs . the austin , texas segment includes properties in the city of austin , texas . the metropolitan washington , d.c. segment includes properties in northern virginia , washington , d.c. and southern maryland . the other segment includes properties in camden county , new jersey and properties in new castle county , delaware . in addition to the five segments , our corporate group is responsible for cash and investment management , development of certain real estate properties during the construction period , and certain other general support functions . we generate cash and revenue from leases of space at our properties and , to a lesser extent , from the management of properties owned by third parties and from investments in the real estate ventures . factors that we evaluate when leasing space include rental rates , costs of tenant improvements , tenant creditworthiness , current and expected operating costs , the length of the lease term , vacancy levels , and demand for space . we also generate cash through sales of assets , including assets that we do not view as core to our business plan , either because of location or expected growth potential , and assets that are commanding premium prices from third party investors . our financial and operating performance is dependent upon the demand for office , residential , parking , and retail space in our markets , our leasing results , our acquisition , disposition and development activity , our financing activity , our cash requirements and economic and market conditions , including prevailing interest rates . we are closely monitoring the impact of the covid-19 pandemic on all aspects of our business , including how it is impacting our tenants , employees , and business partners . adverse changes in economic conditions , including the ongoing effects of the global covid-19 pandemic , could result in a reduction of the availability of financing and potentially in higher borrowing costs . vacancy rates may increase , and rental rates and rent collection rates may decline , beyond 2020 as the current economic climate may negatively impact tenants . overall economic conditions , including but not limited to higher unemployment and deteriorating financial and credit markets , could have a dampening effect on the fundamentals of our business , including increases in past due accounts , tenant defaults , lower occupancy and reduced effective rents . story_separator_special_tag the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting periods . certain accounting policies are considered to be critical accounting policies , as they require management to make assumptions about matters that are highly uncertain at the time the estimate is made and changes in the accounting estimate are reasonably likely to occur from period to period . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . impairment we assess each of our real estate investments for indicators of impairment quarterly or when circumstances indicate that a real estate investment may be impaired . when indicators of potential impairment are present that suggest that the carrying amounts of real estate investments and related intangible assets may not be recoverable , we assess the recoverability by determining whether the respective carrying values will be recovered through the estimated undiscounted future operating cash flows expected from the use of the assets and their eventual disposition over , in most cases , a ten-year holding period . if we believe there is a significant possibility that we might dispose of the assets earlier , we assess the recoverability using a probability weighted analysis of the estimated undiscounted future cash flows expected to be generated from the operations and eventual disposition of the assets over the various possible holding periods . if the recoverability assessment indicates that the carrying value of a tested real estate investment is not recoverable from estimated undiscounted future cash flows , it is written down to its estimated fair value and an impairment is recognized . if and when our plans change , we revise our recoverability analyses to use the cash flows expected from the operations and eventual disposition of each asset using holding periods that are consistent with our revised plans . real estate investment fair values are estimated based on contract prices , discounted cash flows , or comparable sales . estimated future cash flows used in such analyses are based on our views of market and economic conditions . the estimation of future cash flows is subjective and is based on various assumptions , including but not limited to market rental rates , capitalization rates , and recent sales data for comparable real estate investments . estimated future cash flows are discounted 30 when determining fair value of an asset . most of these assumptions are influenced by our direct experience with the real estate investments and their markets as well as market data obtained from real estate leasing and brokerage firms . determining the appropriate capitalization or discount rate also requires significant judgment and is typically based on many factors , including the prevailing rate for the market or submarket , as well as the quality and location of the real estate investment . changes in the estimated future cash flows due to changes in our plans for a real estate investment , views of market and economic conditions and or our ability to obtain development rights could result in recognition of an impairment which could be material . real estate investments held for sale are carried at the lower of their carrying values ( i.e. , cost less accumulated depreciation and any impairment recognized , where applicable ) or estimated fair values less costs to sell . accordingly , decisions to sell certain operating real estate investments , real estate investments in development or land held for development will result in impairments if carrying values of the specific real estate investments exceed their estimated fair values less costs to sell . the estimates of fair value consider matters such as recent sales data for comparable real estate investments and , where applicable , contracts or the results of negotiations with prospective purchasers . these estimates are subject to revision as market conditions , and our assessment of such conditions , change . in addition to our real estate investments , we review each of our investments in unconsolidated real estate ventures to determine whether there are any indicators , including property operating performance , changes in anticipated hold periods , and general market conditions , that the company 's investment in the unconsolidated joint venture may be impaired . if any indicators of impairment are present , we calculate the fair value of the investment in the unconsolidated real estate venture . if the fair value of the investment is less than the carrying value , we determine whether the impairment is other than temporary . if the impairment is determined to be other than temporary , we record an impairment . we use considerable judgment in the determination of whether indicators of impairment are present and , in the assumptions , estimations , and inputs used in calculating the fair value of the investment , which is generally determined through income valuation approaches , including discounted cash flows and direct capitalization models . these judgments are similar to those outlined above in the impairment of real estate investments . we also use judgment in making the determination as to whether or not the impairment is temporary by considering , among other things , the length of time that the market value has been less than cost , the financial condition of the unconsolidated real estate venture and our ability and intent to retain the investment long enough for a recovery in value . our judgments related to the determination of fair value and whether an impairment is other than temporary could result in the recognition of an impairment which could be material . revenue recognition the majority of our revenues are derived from leases and are reflected as rents on the accompanying consolidated statements of operations . rental revenue is recognized on a straight-line basis over the term of the lease .
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results of operations the following discussion is based on our consolidated financial statements for the years ended december 31 , 2020 and 2019. refer to item 7 . `` results of operations '' in our annual report on form 10-k for the year ended december 31 , 2019 for a discussion of the results of operations for the year ended december 31 , 2018 which is presented therein in the form of a year-to-year comparison to the year ended december 31 , 2019. we believe that presentation of our consolidated financial information , without a breakdown by segment , will effectively present important information useful to our investors . net operating income ( “ noi ” ) , as presented in the comparative analysis , below is defined as total revenue less property operating expenses , real estate taxes , and third party management expenses . property operating expenses that are included in determining noi consist of costs that are necessary and allocable to our operating properties such as utilities , property-level salaries , repairs and maintenance , property insurance , management fees , and bad debt expense . general and administrative expenses that are not reflected in noi primarily consist of corporate-level salaries , amortization of share awards , and professional fees that are incurred as part of corporate office management . noi is a non-gaap financial measure that we use internally to evaluate the operating performance of our real estate assets by segment , as presented in note 19 , `` segment information , ” to our consolidated financial statements , and of our business as a whole . we believe noi provides useful information to investors regarding our financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level .
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our actual results may differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below and those set forth under the section entitled `` risk factors '' in item 1a , and other documents we file with the securities and exchange commission . historical results are not necessarily indicative of future results . overview we are a leading genomic diagnostics company that is fundamentally improving patient care by resolving diagnostic uncertainty with evidence that is trustworthy and actionable . our products uniquely combine genomic technology , clinical science and machine learning to provide answers that give physicians and patients a clear path forward without risky , costly surgery that is often unnecessary . the role of genomic information in medical practice is evolving rapidly and has affected the diagnosis of disease as well as treatment decisions . over the past decade , molecular diagnostic tests that analyze genomic material from surgical tissue samples have emerged as an important complement to evaluations performed by pathologists . information at the molecular level enables one to understand more fully the makeup and specific subtype of disease to improve diagnosis . in many cases , the genomic information derived from these samples can help guide treatment decisions as part of the standard of care . we deploy machine learning methods and rna expression to improve diagnostic clarity for cancer and other diseases . in our thyroid and lung cancer indications , diagnosis can be ambiguous in approximately 15-70 % of patients undergoing diagnostic evaluation . our tests provide clarity of diagnosis that can in turn guide treatment decisions in approximately half of those cases , eliminating costly , risky surgeries and other unnecessary medical procedures , improving the lives of patients and saving the healthcare system money . since our founding in 2008 , we have commercialized three genomic tests that we believe are transforming diagnostics : the afirma gene expression classifier , or gec , for thyroid cancer ; the percepta bronchial genomic classifier for lung cancer ; and the envisia genomic classifier for idiopathic pulmonary fibrosis , or ipf . collectively , we believe these three tests address a $ 2 billion global market opportunity . the published evidence supporting our tests demonstrates the robustness of our science and clinical studies . patients and physicians can access our full list of publications on our website . nearly 30 clinical studies covering our products have been published , including two landmark clinical validation papers published in the new england journal of medicine . we continue to build upon our extensive library of clinical evidence . we also expect to continue expanding our offerings in thyroid cancer , lung cancer and interstitial lung diseases such as ipf as well as other cancer indications that we believe will benefit from our technology and approach . we believe our focus on developing clinically useful tests that change patient care is enabling the company to set new standards in genomic test reimbursement . our flagship product , the afirma gec , is now covered for more than 200 million people in the u.s. for use in thyroid cancer diagnosis and our second commercial product , the percepta classifier , is the first genomic test to gain medicare coverage for improved lung cancer screening and diagnosis . fourth quarter and full-year 2016 financial results revenue for the three- and twelve-month periods ended december 31 , 2016 was $ 18.3 million and $ 65.1 million , respectively , an increase of 30 % and 31 % over the prior year . afirma gene expression classifier ( gec ) reported volume for the three- and twelve-month periods ended december 31 , 2016 was 6,313 and 23,237 , respectively , an increase of 13 % and 20 % over the prior year . operating expenses for the three- and twelve-month periods ended december 31 , 2016 , were $ 21.9 million and $ 93.9 million , respectively , an increase of 0 % and 13 % over the prior year . 43 net loss and comprehensive loss for the three- and twelve-month periods ended december 31 , 2016 was ( $ 4.4 ) million and ( $ 31.4 ) million , respectively , a 45 % and 7 % reduction from the prior year . cash and cash equivalents was $ 59.2 million at december 31 , 2016. during the twelve-month period ended december 31 , 2016 , the company raised $ 51.1 million in capital , including $ 19.2 million in net proceeds from its march 2016 debt financing and $ 31.9 million in net proceeds from a public offering of common stock . cash burn for the three- and twelve-month periods ended december 31 , 2016 ( which is defined as net cash used in operating activities and purchases of property and equipment ) , was $ 4.7 million and $ 32.2 million , respectively , a 33 % and 3 % improvement compared to the prior year . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; font-weight : bold ; '' > impact of genzyme co-promotion agreements from january 2012 through september 9 , 2016 , we were party to a co-promotion agreement with genzyme to market the afirma solution in the united states . the agreement required that we pay a certain percentage of our cash receipts from the sale of the afirma solution to genzyme , which percentage decreased over time , ranging from 50 % in 2012 to 15 % beginning january 1 , 2015. we received a $ 10.0 million upfront co-promotion fee from genzyme under the co-promotion agreement , which we amortized over the estimated useful life based on the provisions of the agreement as a reduction to selling and marketing expenses . on march 9 , 2016 , we gave genzyme notice of termination of the agreement effective september 9 , 2016 and the amortization of the upfront co-promotion fee was extended to that date . story_separator_special_tag as a result , our cost of revenue as a percentage of revenue may vary significantly from period to period because we do not recognize all revenue in the period in which the associated costs are incurred . we expect cost of revenue in absolute dollars to increase as the number of tests we perform increases and from the higher costs of our new facility . however , we expect that the cost per test will decrease over time due to leveraging fixed costs , efficiencies we may gain as test volume increases and from automation , process efficiencies and other cost reductions . as we introduce new tests , initially our cost of revenue will be high and will increase disproportionately our aggregate cost of revenue until we achieve efficiencies in processing these new tests . 47 research and development research and development expenses include costs incurred to develop our technology , collect clinical samples and conduct clinical studies to develop and support our products . these costs consist of personnel costs , including stock-based compensation expense , prototype materials , laboratory supplies , consulting costs , costs associated with setting up and conducting clinical studies at domestic and international sites , and allocated overhead including rent , information technology , equipment depreciation and utilities . we expense all research and development expenses in the periods in which they are incurred . we expect to incur significant research and development expenses as we continue to invest in research and development activities related to developing additional products and evaluating various platforms . we incurred research and development expenses in 2016 for the development and launch of envisia and for the continued development and support of the afirma and percepta tests . in 2017 , we expect to incur research and development expenses on ongoing evidence development for our afirma . percepta and envisia classifiers . selling and marketing selling and marketing expenses consist of personnel costs , including stock-based compensation expense , direct marketing expenses , consulting costs , and allocated overhead including rent , information technology , equipment depreciation and utilities . in addition , co-promotion fees paid to genzyme , net of amortization of the upfront fee received , are included in selling and marketing expenses . beginning in november 2014 , our personnel and marketing costs increased as we took on more sales and marketing responsibilities related to afirma , but these increases were offset by the lower rate we were required to pay genzyme under the co-promotion agreement beginning in january 2015. on march 9 , 2016 , we gave genzyme notice of termination of the co-promotion agreement effective september 9 , 2016. consequently , in 2016 , we further expanded our internal sales force and increased our marketing spending as we transitioned out of the relationship . we have also incurred increased selling and marketing expense as a result of investments in our lung product portfolio . we believe selling and marketing expenses will continue to increase as we launch and promote our new tests . general and administrative general and administrative expenses include those from executive , finance and accounting , human resources , legal , billing and client services , and quality and regulatory functions . these expenses include personnel costs , including stock-based compensation expense , audit and legal expenses , consulting costs , costs associated with being a public company , and allocated overhead including rent , information technology , equipment depreciation and utilities . we expect these expenses to continue to grow as we build our general and administration infrastructure and to stabilize thereafter . intangible asset amortization intangible asset amortization began in april 2015 when we launched the percepta test and as a result reclassified the indefinite-lived intangible asset to a finite-lived intangible asset . the finite-lived intangible asset with a cost of $ 16.0 million is being amortized over 15 years , using the straight-line method . interest expense interest expense is attributable to our borrowings under our loan and security agreement and the credit agreement that replaced it . other income ( expense ) , net other income ( expense ) , net consists primarily of sublease rental income and interest income received from payers and from our cash equivalents . 48 critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our audited financial statements , which have been prepared in accordance with united states generally accepted accounting principles , or u.s. gaap . the preparation of the 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 revenue generated and expenses incurred during the reporting periods . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions and any such differences may be material . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . revenue recognition we recognize revenue in accordance with the provisions of accounting standards codification ( “ asc ” ) 954-605 , health care entities — revenue recognition . our revenue is generated from the provision of diagnostic services . the service is completed upon the delivery of test results to the prescribing physician , at which time we bill for the service . we recognize revenue related to billings for tests delivered on an accrual basis when amounts that will ultimately be realized can be reasonably estimated . the estimates of amounts that will ultimately be realized require significant judgment by management .
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2016 and recent business highlights reimbursement : executed a blues group-purchasing agreement in april 2016 , accelerating blues plan in-network contracting and overall reimbursement for the afirma gec thyroid cancer test . as of february 28 , 2017 , the company has more than 70 million blues plan members under coverage and nearly 25 million under contract . expanded overall covered lives for the afirma gec by 50 million to nearly 225 million and overall contracted lives by 25 million to over 155 million as of february 28 , 2017. achieved draft medicare coverage policies for the percepta bronchial genomic classifier for use in lung cancer screening and diagnosis , leading to two final policies scheduled to become effective in march 2017. clinical evidence and commercial expansion : clinical utility and cost-effectiveness data for the percepta classifier were presented at the american thoracic society and the chest annual meetings , further suggesting that use of the percepta classifier changes patient care and reduces healthcare costs as intended . launched the envisia genomic classifier at the chest annual meeting in october 2016 , in conjunction with the presentation of new data suggesting the test 's ability to significantly improve the diagnosis of ipf without the need for risky , expensive surgery . pipeline advancements : presented data at the american thyroid association meeting in september 2016 , demonstrating the potential for a next-generation afirma gec , planned for 2017 introduction , to substantially increase the percentage of patients with benign thyroid nodules who may be able to avoid unnecessary surgery . data were published in the journal of the national cancer institute suggesting the potential for the “ field of injury ” technology behind veracyte 's percepta classifier to enable lung cancer detection using a simple , non-invasive nasal swab test .
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recent acquisitions as described in “ item 1. business – overview , ” on march 8 , 2016 , the company closed on the acquisition of substantially all of the assets of bamko , inc. with an effective date of march 1 , 2016. bamko is a full-service merchandise sourcing and promotional products company based in los angeles , ca . the purchase price for the asset acquisition consisted of approximately $ 15.2 million cash , net of cash acquired , the issuance of approximately 324,000 restricted shares of superior 's common stock that vests over a five-year period , the potential future payments of approximately $ 5.5 million in additional contingent consideration through 2021 , and the assumption of certain liabilities of bamko . depending on the context , when using the term “ bamko ” in this form 10-k , we refer either to the company 's wholly-owned subsidiary housing the acquired business ( bamko , llc ) or to the business acquired in the transaction , as subsequently grown through additional acquisitions . on august 21 , 2017 , the company , bamko , acquired substantially all of the assets of publicidentity , inc. ( “ public identity ” ) . public identity is a promotional products and branded merchandise agency that provides promotional products and branded merchandise to corporate clients and universities . the purchase price consisted of $ 0.8 million in cash , the issuance of approximately 54,000 restricted shares of superior 's common stock and future payments of approximately $ 0.4 million in additional consideration through 2020. the majority of the shares issued vest over a three-year period . on november 30 , 2017 , bamko closed on the acquisition of substantially all of the assets of tangerine promotions , ltd. and tangerine promotions west , inc. ( collectively “ tangerine ” ) . the transaction had an effective date of december 1 , 2017. tangerine is a promotional products and branded merchandise agency that serves many well-known brands . the company is one of the leading providers of point-of-purchase ( pop ) and point-of-sale ( pos ) merchandise in the country . the purchase price for the asset acquisition consisted of approximately $ 7.2 million in cash , subject to adjustment , the issuance of approximately 83,000 restricted shares of superior 's common stock that vests over a four-year period , the potential future payments of approximately $ 5.5 million in additional contingent consideration through 2021 , and the assumption of certain liabilities of tangerine . on may 2 , 2018 , the company acquired cid resources , inc. , a delaware corporation ( “ cid ” ) which manufactures uniforms , lab coats , and layers , and sells its products to specialty uniform retailers , ecommerce medical uniform retailers , and other retailers . the purchase price in the acquisition consisted of the following : ( a ) approximately $ 84.4 million in cash , subject to adjustment for cash on hand , indebtedness , unpaid seller expenses and working capital ( excluding cash ) , in each case as of the closing date , and ( b ) the issuance of 150,094 shares of the company 's common stock to an equityholder of cid . the working capital adjustment was based on the difference between working capital as of the closing date and a target amount of approximately $ 39.5 million . superior is comprised of three reportable business segments : ( 1 ) uniforms and related products , ( 2 ) remote staffing solutions , and ( 3 ) promotional products . 17 business outlook uniforms and related products historically , we have manufactured and sold a wide range of uniforms , career apparel and accessories , which comprises our uniforms and related products segment . our primary products are provided to workers and , as a result , our business prospects are dependent upon levels of employment and overall economic conditions , among other factors . our revenues are impacted by our ability to attract and retain new customers , our customers ' opening and closing of locations and reductions and increases in headcount . additionally , voluntary employee turnover at our customers can have a significant impact on our business . the current economic environment in the united states is continuing to see moderate improvement in the employment environment and voluntary employee turnover has been increasing . we also continue to see an increase in the demand for employees in the healthcare sector and our acquisition of cid provides us with a market to sell fashion seal healthcare apparel to retail stores and into the digital marketplace . these factors are expected to have positive impacts on our prospects for growth in net sales in 2019. we have continued our efforts to increase penetration of the health care market . we have been and continue to pursue acquisitions to increase our market share in the uniforms and related products segment . remote staffing solutions this business segment , which operates in el salvador , belize and the united states , was initially started to provide remote staffing services for the company at a lower cost structure in order to improve our own operating results . it has in fact enabled us to reduce operating expenses in our uniforms and related products segment and to more effectively service our customers ' needs in that segment . we began selling remote staffing services to other companies during 2009. we have grown this business from approximately $ 1.0 million in net sales to outside customers in 2010 to approximately $ 27.3 million in net sales to outside customers in 2018. we have spent significant effort over the last several years improving the depth of our management infrastructure and expanding our facilities in this segment to support significant growth . we increased net sales to outside customers by approximately 42 % , 34 % , and 20 % in 2018 , 2017 and 2016 , respectively . story_separator_special_tag this increase is attributed to lower net sales to cover operating expenses ( contributing 1.1 % ) and losses on investments related to the supplemental executive retirement plan ( contributing 0.3 % ) partially offset by lower salaries , wages , bonuses and related expenses ( contributing 0.5 % ) and lower amortization of non-compete agreements ( contributing 0.3 % ) . as a percentage of net sales , selling and administrative expenses for our remote staffing solutions segment approximated 35.6 % in 2018 and 34.2 % in 2017. the increase is primarily attributed to investments in the business to support continued sales growth . as a percentage of net sales , selling and administrative expenses for our promotional products segment were 23.9 % in 2018 and 28.4 % in 2017. the decrease is primarily related to higher net sales to cover operating costs for the year ended december 31 , 2018. in addition , the decrease is a result of fair market value adjustments for the acquisition related contingent liabilities ( contributing 1.9 % ) . these decreases were partially offset by higher amortization expense due to the acquisitions in 2017 ( contributing 1.6 % ) . 19 other periodic pension costs other periodic pension costs decreased from $ 1.2 million in 2017 to $ 0.4 million in 2018. the decrease was primarily due to lower settlement losses and higher expected return on plan assets in 2018. gain on sale of property , plant and equipment in the quarter ended march 31 , 2017 , we sold our former call center building and related assets in el salvador in our remote staffing solutions segment for net proceeds of $ 2.8 million and realized a gain on sale of $ 1.0 million . interest expense interest expense increased to $ 3.2 million for the year ended december 31 , 2018 from $ 0.8 million for the year ended december 31 , 2017 primarily due to increased borrowing related to the may 2 , 2018 acquisition of cid and higher interest rates . income taxes on december 22 , 2017 , the u.s. enacted the tax cuts and jobs act ( “ tax act ” ) that instituted fundamental changes to the u.s. tax system . the tax act includes changes to the taxation of foreign earnings by implementing a dividend exemption system , expansion of the current anti-deferral rules , a minimum tax on low-taxed foreign earnings and new measures to deter base erosion . the tax act also permanently reduces the corporate tax rate from 34 % to 21 % , imposes a one-time mandatory transition tax on the historical earnings of foreign affiliates and implements a territorial style tax system . as a result of the transition tax under the tax act , the company will no longer consider its undistributed earnings from foreign subsidiaries as indefinitely reinvested and has provided a deferred tax liability primarily for foreign withholding taxes that would be expected to apply when the foreign subsidiaries distribute such earnings as dividends to the company in the united states . the tax act imposes a u.s. tax on global intangible low taxed income ( “ gilti ” ) that is earned by certain foreign affiliates owned by a u.s. shareholder . the computation of gilti is still subject to interpretation and while clarifying guidance was recently released , more is expected . gilti is generally intended to impose tax on the earnings of a foreign corporation that are deemed to exceed a certain threshold return relative to the underlying business investment . in accordance with guidance issued by fasb , the company has made a policy election to treat future taxes related to gilti as a current period expense in the reporting period in which the tax is incurred . the company will be impacted by gilti relative to the earnings of its foreign subsidiaries in 2018 and beyond , which may be material to our consolidated financial statements . the effective tax rate was 20.7 % and 39.4 % in the year ended december 31 , 2018 and 2017 , respectively . the 18.7 % decrease in the effective tax rate between years is attributed primarily to the reduction in corporate tax rate ( contributing 13.0 % ) , the 2017 transition tax ( contributing 6.7 % ) , the 2017 revaluation of deferred taxes ( contributing 6.9 % ) , and an increase in the benefit of foreign sourced income ( contributing 2.3 % ) ; partially offset by the addition of the gilti tax ( contributing 2.7 % ) , a decrease in the excess tax benefit associated with share based compensation ( contributing 6.9 % ) and other minor increases ( contributing 0.6 % ) . the effective tax rate may vary from quarter to quarter due to unusual or infrequently occurring items , the resolution of income tax audits , changes in tax laws , the tax impact from employee share-based payments , taxes incurred in connection to the territorial style tax system , or other items . for further discussion of changes in the effective tax rate , refer to the note 7 to the consolidated financial statements . 20 year ended december 31 , 2017 vs . 2016 operations net sales replace_table_token_4_th net sales net sales for the company increased 5.6 % from $ 252.6 million in 2016 to $ 266.8 million in 2017. the aggregate increase in net sales is attributed to the acquisitions of bamko effective march 1 , 2016 , public identity on august 21 , 2017 , and tangerine on december 1 , 2017 ( contributing 6.0 % ) , increases in net sales after intersegment eliminations from our remote staffing solutions segment ( contributing 1.9 % ) , partially offset by a reduction in net sales from our uniforms and related products segment ( contributing a decrease of 2.3 % ) . uniforms and related products net sales decreased 2.7 % in 2017 compared to 2016. the decrease in net sales in this segment is attributed to several factors .
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overview management uses a number of standards in measuring the company 's liquidity , such as : working capital , profitability ratios , long-term debt as a percentage of long-term debt and equity , and activity ratios . the strength of the company 's balance sheet provides the ability to pursue acquisitions , to invest in new product lines and technologies , and to invest in additional working capital as necessary . as of december 31 , 2018 , approximately $ 4.8 million of our cash is held in our foreign subsidiaries . as a result of the tax act , the company no longer intends to permanently reinvest its historical foreign earnings and plans to repatriate the funds as needed for liquidity . the company 's primary source of liquidity has been its net income and the use of credit facilities and term loans as described further below . in the future , the company may continue to use credit facilities and other secured and unsecured borrowings as a source of liquidity . the company may also begin relying on the issuance of equity or debt securities . there can be no assurance that any such financings would be available to us on reasonable terms . any future issuances of equity securities or debt securities with equity features may be dilutive to our shareholders . additionally , the cost of the company 's future sources of liquidity may differ from the costs of the company 's sources of liquidity to date . balance sheet accounts receivable-trade increased 26.6 % from $ 50.6 million on december 31 , 2017 to $ 64.0 million on december 31 , 2018 . $ 7.6 million of the increase is due to the acquisition of cid .
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risk factors of this annual report on form 10-k and cautionary statement contained in item 1. business of this annual report on form 10-k for a discussion of the uncertainties , risks and assumptions associated with these statements . overview we are a leading supplier and manufacturer of structural and related building products for residential new construction in the u.s. we offer an integrated solution to our customers providing manufacturing , supply and installation of a full range of structural and related building products . our manufactured products include our factory-built roof and floor trusses , wall panels and stairs , aluminum and vinyl windows , custom millwork and trim , as well as engineered wood that we design and cut for each home . we also assemble interior and exterior doors into pre-hung units . additionally , we supply our customers with a broad offering of professional grade building products not manufactured by us , such as dimensional lumber and lumber sheet goods , various window , door and millwork lines , as well as cabinets , roofing and gypsum wallboard . our full range of construction-related services includes professional installation , turn-key framing and shell construction , and spans all our product categories . we group our building products into five product categories : prefabricated components . our prefabricated components consist of wood floor and roof trusses , steel roof trusses , wall panels , stairs , and engineered wood . windows & doors . our windows & doors category is comprised of the manufacturing , assembly , and distribution of windows and the assembly and distribution of interior and exterior door units . lumber & lumber sheet goods . lumber & lumber sheet goods include dimensional lumber , plywood , and osb products used in on-site house framing . millwork . millwork includes interior trim , exterior trim , columns and posts that we distribute , as well as custom exterior features that we manufacture under the synboard ® brand name . other building products & services . other building products & services are comprised of products such as cabinets , gypsum , roofing and insulation and services such as turn-key framing , shell construction , design assistance , and professional installation spanning all of our product categories . our operating results are dependent on the following trends , events and uncertainties , some of which are beyond our control : homebuilding industry . our business is driven primarily by the residential new construction market , which is in turn dependent upon a number of factors , including demographic trends , interest rates , consumer confidence , employment rates , foreclosure rates , and the health of the economy and mortgage markets . over the past few years , many homebuilders significantly decreased their starts because of lower demand and an excess of home inventory . due to the decline in housing starts and increased competition for homebuilder business , we have and will continue to experience pressure on our gross margins . single family housing starts in 2011 were the lowest since the downturn began in 2006. however , industry forecasters expect to see some improvement over the next few years . we also still believe there are several meaningful trends that indicate u.s. housing demand will likely recover in the long term and that the current downturn in the housing industry is likely a trough in the cyclical nature of the residential construction industry . these trends include relatively low interest rates , the aging of housing stock , and normal population growth due to immigration and birthrate exceeding death rate . targeting large production homebuilders . over the past ten years , the homebuilding industry has undergone consolidation , and the larger homebuilders have increased their market share . we expect that trend to continue due to the better liquidity and land positions of the larger homebuilders relative to the smaller , less capitalized homebuilders . our focus is on maintaining relationships and market share with these customers while balancing the competitive pressures we are facing in our markets with certain profitability expectations . our sales to the builder 100 , the country 's largest 100 homebuilders , increased 9.9 % during 2011 , despite a 8.6 % decrease in actual u.s. single-family housing starts for the year . we expect that our ability to 24 maintain strong relationships with the largest builders will be vital to our ability to grow and expand into new markets as well as maintain our current market share through the current downturn . additionally , during this downturn , we have been successful in expanding our custom homebuilder base while maintaining acceptable credit standards . expand into multi-family and light commercial business . we continue to look for ways to expand our multi-family and light commercial business to further diversify our customer base and lessen our dependence on single-family residential new construction . use of prefabricated components . prior to the current housing downturn , homebuilders were increasingly using prefabricated components in order to realize increased efficiency and improved quality . shortening cycle time from start to completion was a key imperative of the homebuilders during periods of strong consumer demand . with the current housing downturn , that trend decelerated as cycle time had less relevance . customers who traditionally used prefabricated components , for the most part , still do . however , the conversion of customers to this product offering has slowed . we expect this trend to continue at least for the duration of this downturn . in response , we have reduced our manufacturing capacity and delayed plans to open new facilities . economic conditions . economic changes both nationally and locally in our markets impact our financial performance . the building products supply industry is highly dependent upon new home construction and subject to cyclical market changes . story_separator_special_tag in addition , quarterly results historically have reflected , and are expected to continue to reflect , fluctuations from period to period arising from the following : the volatility of lumber prices ; the cyclical nature of the homebuilding industry ; general economic conditions in the markets in which we compete ; the pricing policies of our competitors ; the production schedules of our customers ; and the effects of weather . the composition and level of working capital typically change during periods of increasing sales as we carry more inventory and receivables . working capital levels typically increase in the second and third quarters of the year due to higher sales during the peak residential construction season . these increases have in the past resulted in negative operating cash flows during this peak season , which historically have been financed through available cash . collection of receivables and reduction in inventory levels following the peak building and construction season have in the past positively impacted cash flow . we have also from time to time utilized our borrowing availability under credit facilities to cover working capital needs . 26 story_separator_special_tag 28 selling , general and administrative expenses . selling , general and administrative expenses decreased $ 7.3 million , or 3.6 % . our office general and administrative expense decreased $ 5.3 million , primarily due to a $ 1.0 million decrease in depreciation expense , a $ 1.2 million litigation settlement we received in 2010 , as well as $ 3.2 million of recapitalization costs we incurred in 2009. additionally , bad debt expense decreased $ 1.9 million due to tightened credit standards . as a percent of sales , selling , general and administrative expenses decreased from 29.7 % in 2009 to 27.7 % in 2010. our office general and administrative expense as a percentage of sales decreased 0.9 % , delivery costs decreased by 0.3 % , occupancy decreased by 0.3 % due to the fixed nature of the category and bad debt expense decreased by 0.3 % . interest expense , net . interest expense was $ 31.7 million in 2010 , an increase of $ 4.6 million . the increase was primarily due to higher interest rates on our 2016 notes issued in january 2010 , combined with the write-off of $ 1.6 million of unamortized debt issuance costs related to long-term debt repaid , $ 2.5 million of costs incurred related to our recapitalization transaction , and the write-off of $ 0.6 million in debt issuance costs related to the reduction of our revolving credit facility from $ 250 million to $ 150 million in 2010. these increases were partially offset by lower average debt balances and a write-off of $ 1.2 million in debt issue costs and $ 1.6 million of expense related to the settlement of one of our swaps in 2009. income tax ( benefit ) expense . we recorded an income tax benefit of $ 1.1 million during 2010 compared to a benefit of $ 30.8 million during 2009. our benefit was reduced by an after tax , non-cash valuation allowance of $ 35.4 million and $ 3.9 million related to our net deferred tax assets for 2010 and 2009 , respectively . in 2009 , we recognized a $ 2.1 million income tax benefit in continuing operations related to losses generated by our discontinued operations due to recently enacted tax legislation that allowed for an extended carry-back of net operating losses generated in 2009. excluding the valuation allowance , our effective tax rate would have been 38.3 percent for 2010. excluding the valuation allowance and the impact of the change in tax law for 2009 , our effective tax rate would have been 37.2 percent for 2009. discontinued operations , net . loss from discontinued operations was $ 1.2 million in 2010 compared to $ 5.0 million in 2009. in 2010 , we recognized $ 1.1 million in expense related to future minimum lease obligations on closed facilities and revisions to sub-rental income estimates . in 2009 , we recognized $ 2.4 million in expense related to future minimum lease obligations on closed facilities and employee severance . we also reduced our expense in 2009 by $ 1.8 million due to a negotiated lease termination . the remaining loss from discontinued operations was primarily related to operating losses incurred in our ohio market which we exited in 2009. liquidity and capital resources our primary capital requirements are to fund working capital needs and operating expenses , meet required interest and principal payments , and fund capital expenditures . in the past , our capital resources have primarily consisted of cash flows from operations and borrowings under our various credit facilities . in december of 2011 , we entered into a $ 160.0 million first-lien term loan and a stand-alone letter of credit facility , which provides up to $ 20.0 million of letters of credit . the term loan , which was issued at 97 % , provided $ 119.6 million of net proceeds after repaying the $ 20.0 million outstanding under the existing senior secured revolving credit facility , using $ 14.2 million to collateralize letters of credit outstanding under the new letter of credit facility , and paying fees and expenses related to this transaction . in conjunction with the closing of the term loan , we terminated our existing senior secured revolving credit facility ( see note 8 to the consolidated financial statements included in item 8 of this annual report on form 10-k ) . the homebuilding industry , and therefore our industry , has been in a significant downturn since 2006. we are expecting increased stability and a slight improvement in the housing industry in 2012. beyond 2012 , it is difficult for us to predict what will happen as our industry is dependent on a number of factors , including national economic conditions , employment levels , the availability of credit for homebuilders and potential home buyers , the level of foreclosures , existing home inventory , and interest rates .
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results of operations the following table sets forth the percentage relationship to sales of certain costs , expenses and income items for the years ended december 31 : replace_table_token_4_th 2011 compared with 2010 sales . sales for the year ended december 31 , 2011 were $ 779.1 million , an 11.2 % increase from sales of $ 700.3 million for 2010. we achieved this increase in sales despite an 8.6 % decline in u.s. single-family housing starts through our ability to increase market share with our existing customers and by adding a significant number of new customers . we estimate our sales volume increased approximately 12 % during 2011 , which was partially offset by commodity price deflation . the following table shows sales classified by major product category ( dollars in millions ) : replace_table_token_5_th increased sales volume was achieved across all product categories . sales of our windows and doors increased $ 22.2 million , which was primarily attributable to an increase in our sales of assembled and distributed vinyl and aluminum window products . for the lumber and lumber sheet goods category , unit volume increases of approximately $ 27.8 million were the main driver of the increase , partially offset by approximately $ 4.2 million in lower customer pricing . sales of other building products & services increased approximately $ 15.1 million due largely to increased sales in roofing , hardware and installation services . gross margin . gross margin increased $ 26.2 million to $ 157.9 million . our gross margin percentage increased from 18.8 % in 2010 to 20.3 % in 2011 , a 1.5 percentage point increase . our gross margin percentage increased by 0.9 percentage points due to increased sales volume and our ability to leverage fixed costs in cost of goods sold . the remaining increase in our gross margin percentage was primarily due to improved customer pricing , coupled with less volatility in the commodity markets during the current year .
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while our audit committee has concluded that the payments made to mr. khesin prior to board approval may be in violation of section 402 of the sarbanes oxley act of 2002 , in the event it is determined any such payments were a violation of the sarbanes oxley act , such violation could have a material adverse effect on our company , including , but not limited to criminal , civil or administrative sanctions , penalties , or investigations , in addition to potential securities litigation . as a consequence of these activities , the company received notice from its independent auditor of potential illegal acts concerning payments of personal expenses by the company for 2014 and 2015. the company 's audit committee has agreed with the findings for 2014 and 2015. on september 29 , 2016. the company , in accordance with section 10a of the securities and exchange act of 1934 , informed the commission in a letter also dated september 29 , 2016. see `` controls and procedures `` and `` executive compensation `` . item 14. principal accounting fees and services . the following table shows the fees paid by us to marcum llp , malonebaily ( * ) and bf borgers cpa , our current independent registered public accounting firm , for 2016 and 2015. marcum llp , 2016 2015 audit fees ( 1 ) $ $ 304,350 audit related fees ( 2 ) $ $ 35,450 tax fees $ $ all other fees $ $ 35 bf borgers cpa pc , 2016 2015 audit fees ( 1 ) $ 150,000 $ 230,000 audit related fees ( 2 ) $ $ tax fees $ $ all other fees $ $ ( * ) the company engaged malonebaily llp ( malonebaily ) as its independent registered public accounting firm on may 2 , 2016. on august 10 , 2016 , malonebaily was dismissed . the company has paid malonebaily $ 90,000 to date and was billed $ 250,000 for unfinished story_separator_special_tag introductory statements information included or incorporated by reference in this filing may contain forward-looking statements . this information may involve known and unknown risks , uncertainties and other factors which may cause our actual results , performance or achievements to be materially different from the future results , performance or achievements expressed or implied by any forward-looking statements . forward-looking statements , which involve assumptions and describe our future plans , strategies and expectations , are generally identifiable by use of the words may , will , should , expect , anticipate , estimate , believe , intend or project or the negative of these words or other variations on these words or comparable terminology . 18 this filing contains forward-looking statements regarding , among other things , ( a ) our projected sales and profitability , ( b ) our company 's growth strategies , ( c ) our company 's future financing plans and ( d ) our company 's anticipated needs for working capital . actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors , including , without limitation , the matters described in this filing generally . in light of these risks and uncertainties , there can be no assurance that the forward-looking statements contained in this filing will in fact occur . you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing in this report . some of the information contained in this discussion and analysis or set forth elsewhere in this registration statement , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should review the risk factors below for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . significant accounting policies our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses . note 2 to the notes to consolidated financial statements describes the significant accounting policies used in the preparation of the consolidated financial statements . certain of these significant accounting policies are considered to be critical accounting policies , as defined below . a critical accounting policy is defined as one that is both material to the presentation of our consolidated financial statements and requires management to make difficult , subjective or complex judgments that could have a material effect on our financial condition and results of operations . specifically , critical accounting estimates have the following attributes : 1 ) we are required to make assumptions about matters that are highly uncertain at the time of the estimate ; and 2 ) different estimates we could reasonably have used , or changes in the estimate that are reasonably likely to occur , would have a material effect on our financial condition or results of operations . estimates and assumptions about future events and their effects can not be determined with certainty . we base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances . these estimates may change as new events occur , as additional information is obtained and as our operating environment changes . these changes have historically been minor and have been included in the consolidated financial statements as soon as they became known . story_separator_special_tag cash flows from financing activities our financing activities used $ 88,574 in net cash for 2016 as compared to $ 5,746,595 in cash used for 2015. the change in cash flows from financing activities of $ 5,835,168 was primarily due to net proceeds from private placement of $ 4,514,000 , proceeds from the sale of common stock of $ 1,020,000 and proceeds from the issuance of warrants of $ 25,500 in 2015. for additional details , see the consolidated statements of cash flows in the consolidated financial statements . financial position total assets our total assets decreased from $ 10,715,426 as of december 31 , 2015 , to $ 5,718,284 as of december 31 , 2016. the decrease in our total assets of $ 4,997,142 , or 47 % , is a result of an increase in current assets , partially offset by a decrease in non-current assets . current assets our current assets decreased from $ 10,064,357 as of december 31 , 2015 , to $ 4,716,296 as of december 31 , 2016. the decrease in our current assets of $ 5,348,061 , or 53 % , is attributable to decreases in cash and cash equivalents , decrease in inventories , a decrease in prepaid and other current assets , offset by an increase in accounts receivable , net . cash and cash equivalents cash and cash equivalents decreased from $ 4,517,604 as of december 31 , 2015 , to $ 322,319 as of december 31 , 2016. the decrease in cash and cash equivalents of $ 4,195,285 was primarily related to cash proceeds from the sale of stocks and warrants of $ 5,559,000 in 2015 and used in 2016. for additional details , see the consolidated statements of cash flows in the consolidated financial statements . inventories , net inventories , net decreased from $ 3,733,213 as of december 31 , 2015 , to $ 2,251,005 as of december 31 , 2016. the decrease in inventories , net of $ 1,482,208 , or 40 % , is a result of a reserve for obsolescence of $ 272,000 and a reduction in inventory on hand as a result of an increase in demand and back orders . accounts receivable , net accounts receivable , net increased from $ 1,557,560 as of december 31 , 2015 , to $ 2,028,360 as of december 31 , 2016. the increase in accounts receivable , net of $ 470,800 , or 30 % , was primarily a result of sales recorded in the last quarter of 2016 compare to the same period in 2015. prepaid expenses and other current assets prepaid and other current assets decreased from $ 255,980 as of december 31 , 2015 , to $ 114,612 as of december 31 , 2016. the decrease in prepaid and other current assets of $ 141,368 was primarily related to amortization of prepaid prepaid marketing expenses , from 2015. non-current assets our non-current assets increased from $ 651,069 as of december 31 , 2015 , to $ 1,001,988 as of december 31 , 2016. the increase in non-current assets of $ 350,919 or 54 % , is attributable to an increase in furniture and equipment , net of $ 6,992 , $ 488,054 related party receivable , fernando tamez who is our distributor in spain , offset by $ 143,470 of amortization expenses associated with intangible assets . 22 total liabilities our total liabilities increased from $ 3,422,271 as of december 31 , 2015 , to $ 4,484,665 as of december 31 , 2016. the increase in our total liabilities of $ 1,062,394 , or 31 % , is attributable to a decrease in current liabilities , partially offset by an increase in long-term debt , net of current portion . current liabilities our current liabilities increased from $ 3,307,221 as of december 31 , 2015 , to $ 4,437,078 as of december 31 , 2016. the increase in our current liabilities of $ 1,129,857 , or 34 % , is attributable to an aggregate net increase of $ 1,315,605 in accounts payable and other current liabilities , offset by an aggregate decrease of $ 185,748 in accrued expenses and short term debt . the aggregate net increase in accounts payable and other current liabilities was related , in part , to higher business volume and timing of payments . long term debt , net of current portion our long-term debt , net of current portion decreased from $ 115,050 as of december 31 , 2015 , to $ 47,587 as of december 31 , 2016. the decrease of $ 67,463 , or 59 % , was primarily related to bank loans payments . see below material commitments for additional information . material commitments equipment loan during august and december 2016 , the company 's mexican subsidiary obtained an equipment loan for mxn $ 848,500 or $ 41,050 , payable in monthly installments over 30 months and payment began in september 2016. as of december 31 , 2016 , the remaining outstanding amount on this equipment loan was mxn $ 514,657 or $ 24,906 and bears annual interest of 0 % . bank loans - on june 25 , 2015 , the company 's mexican subsidiary obtained a bank loan for mxn $ 2,000,000 or $ 127,715 , payable in monthly installments over 36 months and payment began in july 2015. as of december 31 , 2016 , this bank loan was repaid . on july 6 , 2015 , the company 's mexican subsidiary obtained another bank loan for mxn $ 3,150,000 or $ 201,151 , payable in monthly installments over 36 months and payment began in august 2015. as of december 31 , 2016 , the remaining outstanding amount on this bank loan was mxn $ 1,771,802.13 , or $ 85,744 and bears annual interest of 9.3 % . off balance sheet arrangements none .
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results of operations the following discussion and analysis addresses the major factors that affected our operations and financial condition reflected in our consolidated financial statements for 2016 and 2015. this discussion is intended to supplement and highlight information contained in , and should be read in conjunction with , our consolidated financial statements and related notes and the selected financial data presented elsewhere in this report . year ended december 31 , 2016 to the year ended december 31 , 2015 net revenues our total net revenue increased by $ 1,169,415 , or 9.9 % , from $ 11,777,760 for 2015 to $ 12,947,175 for 2016. the increase in net revenue was due to an increase in net revenue in the u.s. and mexico . net revenue in the u.s. increased by $ 687,061 or 8 % , from $ 8,625,778 for 2015 to $ 9,312,838 for 2016. net revenue in mexico increased by $ 482,355 , or 15.3 % from $ 3,151,982 for 2015 to $ 3,634,337 for 2016. of the increase for mexico , $ 397,422 was in net revenue for mexico and $ 84,933 , or 17.6 % was related to the strengthening of the u.s. dollar versus the mexican peso . the increase in total net revenues in the u.s. is primarily due to our marketing and sales efforts to expand our customer base , with our primary focus on expanding our distributors , both domestic and foreign .
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in addition , please refer to the risks set forth under the caption “ risk factors ” included in our annual report for a further description of risks and uncertainties affecting our business and financial results . historical trends should not be taken as indicative of future operations and financial results . other than as required under the u.s. federal securities laws or the canadian securities laws , we do not assume a duty to update these forward-looking statements , whether as a result of new information , subsequent events or circumstances , changes in expectations or otherwise . we prepare our financial statements in accordance with accounting principles generally accepted in the united states ( “ u.s . gaap ” or “ gaap ” ) . however , this management 's discussion and analysis of financial condition and results of operations also contains certain non-gaap financial measures to assist readers in understanding our performance . non-gaap financial measures either exclude or include amounts that are not reflected in the most directly comparable measure calculated and presented in accordance with gaap . where non-gaap financial measures are used , we have provided the most directly comparable measures calculated and presented in accordance with u.s. gaap , a reconciliation to gaap measures and a discussion of the reasons why management believes this information is useful to it and may be useful to investors . unless the context otherwise requires , all references in this section to the “ company , ” “ we , ” “ us , ” or “ our ” are to restaurant brands international inc. and its subsidiaries , collectively . overview we are a canadian corporation originally formed on august 25 , 2014 to serve as the indirect holding company for tim hortons and its consolidated subsidiaries and for burger king and its consolidated subsidiaries . on march 27 , 2017 , we acquired popeyes louisiana kitchen , inc. and its consolidated subsidiaries . we are one of the world 's largest quick service restaurant ( “ qsr ” ) companies with more than $ 34 billion in system-wide sales and over 27,000 restaurants in more than 100 countries and u.s. territories as of december 31 , 2019 . our tim hortons ® , burger king ® , and popeyes ® brands have similar franchise business models with complementary daypart mixes and product platforms . our three iconic brands are managed independently while benefiting from global scale and sharing of best practices . tim hortons restaurants are quick service restaurants with a menu that includes premium blend coffee , tea , espresso-based hot and cold specialty drinks , fresh baked goods , including donuts , timbits ® , bagels , muffins , cookies and pastries , grilled paninis , classic sandwiches , wraps , soups and more . burger king restaurants are quick service restaurants that feature flame-grilled hamburgers , chicken and other specialty sandwiches , french fries , soft drinks and other affordably-priced food items . popeyes restaurants are quick service restaurants featuring a unique “ louisiana ” style menu that includes fried chicken , chicken tenders , fried shrimp and other seafood , red beans and rice , and other regional items . we have three operating and reportable segments : ( 1 ) tim hortons ( “ th ” ) ; ( 2 ) burger king ( “ bk ” ) ; and ( 3 ) popeyes louisiana kitchen ( “ plk ” ) . our business generates revenue from the following sources : ( i ) franchise revenues , consisting primarily of royalties based on a percentage of sales reported by franchise restaurants and franchise fees paid by franchisees ; ( ii ) property revenues from properties we lease or sublease to franchisees ; and ( iii ) sales at restaurants owned by us ( “ company restaurants ” ) . in addition , our tim hortons business generates revenue from sales to franchisees related to our supply chain operations , including manufacturing , procurement , warehousing and distribution , as well as sales to retailers . 29 recent events and factors affecting comparability transition to new lease accounting standard we transitioned to accounting standards codification topic 842 , leases ( “ asc 842 ” ) , effective january 1 , 2019 on a modified retrospective basis using the effective date transition method . our consolidated financial statements reflect the application of asc 842 guidance beginning in 2019 , while our consolidated financial statements for prior periods were prepared under the guidance of a previously applicable accounting standard . the most significant effects of this transition that affect comparability of our results of operations between 2019 and 2018 include the following : beginning on january 1 , 2019 , we record lease income and lease cost on a gross basis for lessee reimbursements of costs such as property taxes and maintenance when we are the lessor in the lease . although there was no net impact to our consolidated statement of operations from this change , the presentation resulted in total increases to both franchise and property revenues and franchise and property expenses of $ 130 million ( $ 85 million related to our th segment , $ 43 million related to our bk segment and $ 2 million related to our plk segment ) during 2019 , compared to 2018 and 2017 , when such amounts were recorded on a net basis . as described in note 10 , leases , to the accompanying audited consolidated financial statements , the transition provisions of asc 842 required the reclassification of favorable lease assets and unfavorable lease liabilities where we are the lessee in the underlying lease to the right-of-use ( “ rou ” ) asset recorded for the underlying lease . story_separator_special_tag during 2018 , th , bk and plk segment sg & a increased primarily due to the inclusion of advertising fund expenses from the application of asc 606 beginning january 1 , 2018 . 35 during 2019 , the increase in share-based compensation and non-cash incentive compensation expense was primarily due to an increase in the number of equity awards granted during 2019 . ( income ) loss from equity method investments ( income ) loss from equity method investments reflects our share of investee net income or loss , non-cash dilution gains or losses from changes in our ownership interests in equity method investees , and basis difference amortization . the change in ( income ) loss from equity method investments during 2019 was primarily driven by the recognition of a $ 20 million non-cash dilution gain during 2018 on the initial public offering by one of our equity method investees , partially offset by an $ 11 million non-cash dilution gain during 2019 from the issuance of additional shares in connection with a merger by one of our equity method investees . the change in ( income ) loss from equity method investments during 2018 was primarily driven by the recognition of a $ 20 million non-cash dilution gain during 2018 ( described above ) , partially offset by an increase in equity method investment net losses that we recognized during 2018. other operating expenses ( income ) , net our other operating expenses ( income ) , net were comprised of the following : replace_table_token_12_th net losses ( gains ) on disposal of assets , restaurant closures , and refranchisings represent sales of properties and other costs related to restaurant closures and refranchisings . gains and losses recognized in the current period may reflect certain costs related to closures and refranchisings that occurred in previous periods . litigation settlements and reserves , net primarily reflects accruals and proceeds received in connection with litigation matters . net losses ( gains ) on foreign exchange is primarily related to revaluation of foreign denominated assets and liabilities . other , net during 2018 is comprised primarily of a payment in connection with the settlement of certain provisions associated with the 2017 redemption of our preferred shares as a result of changes in treasury regulations . interest expense , net replace_table_token_13_th interest expense , net for 2019 was consistent with 2018. during 2018 , interest expense , net increased primarily due to higher outstanding debt from the incurrence of incremental term loans and the issuance of senior notes during 2017 and a decrease in interest income , partially offset by a $ 60 million benefit during 2018 related to the amortization of amounts other than currency movements of our net investment hedges , which is excluded from the accounting hedge . loss on early extinguishment of debt during 2019 , we redeemed the entire outstanding principal balance of $ 1,250 million of 4.625 % first lien secured notes due january 15 , 2022 , made partial principal amount prepayments of our existing senior secured term loan and refinanced our 36 existing senior secured term loan . in connection with these transactions , we recorded a loss on early extinguishment of debt of $ 23 million that primarily reflects the write-off of unamortized debt issuance costs and discounts and fees incurred . during 2017 , we recorded a $ 122 million loss on early extinguishment of debt which primarily reflects the payment of premiums to fully redeem our second lien notes and the write-off of unamortized debt issuance costs and discounts in connection with the refinancing of our term loan facility . income tax expense our effective tax rate was 23.5 % in 2019 and 17.2 % in 2018. the effective tax rate was reduced by 2.2 % and 5.0 % for 2019 and 2018 , respectively , as a result of benefits from stock option exercises . the comparison between 2019 and 2018 was also unfavorably impacted by 2018 reserve releases and settlements , which reduced the 2018 effective tax rate by a net 2.8 % . additionally , the effective tax rate for 2019 increased by 1.1 % due to the impact of an increase in our tax provision related to revaluing our swiss net deferred tax liability due to swiss tax reform . in 2019 , the beneficial impact of internal financing arrangements in various jurisdictions was offset by an increase in the provision for unrecognized tax benefits related to a financing arrangement that is not applicable to ongoing operations . the change in our effective income tax rate to 17.2 % in 2018 from ( 12.1 ) % in 2017 is primarily due to the impact of certain aspects of the tax act , realignment of certain intercompany financings and changes in foreign currency exchange rates , partially offset by the release of a valuation allowance related to use of capital losses . net income we reported net income of $ 1,111 million for 2019 compared to net income of $ 1,144 million for 2018. the decrease in net income is primarily due to a $ 103 million increase in income tax expense , a $ 23 million loss on early extinguishment of debt in the current year , a $ 19 million increase in share-based compensation and non-cash incentive compensation expense , a $ 14 million unfavorable change from the impact of equity method investments , a $ 6 million increase in corporate restructuring and tax advisory fees , and a $ 5 million decrease in th segment income . these factors were partially offset by a $ 66 million increase in bk segment income , a $ 31 million increase in plk segment income , an $ 18 million favorable change in the results from other operating expenses ( income ) , net , a $ 14 million decrease in office centralization and relocation costs and the non-recurrence of $ 10 million of plk transaction costs incurred in the prior period . amounts above include a total unfavorable fx impact to net income of $ 39 million .
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results of operations tabular amounts in millions of u.s. dollars unless noted otherwise . segment income may not calculate exactly due to rounding . replace_table_token_7_th ( a ) we calculate the fx impact by translating prior year results at current year monthly average exchange rates . we analyze these results on a constant currency basis as this helps identify underlying business trends , without distortion from the effects of currency movements . replace_table_token_8_th ( b ) segment depreciation and amortization consists of depreciation and amortization included in cost of sales and franchise and property expenses . ( c ) th segment income includes $ 16 million , $ 15 million and $ 13 million of cash distributions received from equity method investments for 2019 , 2018 and 2017 , respectively . 32 replace_table_token_9_th ( d ) bk segment income includes $ 6 million , $ 5 million and $ 1 million of cash distributions received from equity method investments for 2019 , 2018 and 2017 , respectively . replace_table_token_10_th ( e ) plk revenues and segment income from the acquisition date of march 27 , 2017 through december 31 , 2017 are included in our consolidated statement of operations for 2017. comparable sales th comparable sales were ( 1.5 ) % during 2019 , including canada comparable sales of ( 1.4 ) % . bk comparable sales were 3.4 % during 2019 , including u.s. comparable sales of 1.7 % . plk comparable sales were 12.1 % during 2019 , including u.s. comparable sales of 13.0 % . 33 sales and cost of sales sales include th supply chain sales and sales from company restaurants . th supply chain sales represent sales of products , supplies and restaurant equipment , as well as sales to retailers .
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diluted eps is computed by dividing net income applicable to common shares by the weighted-average number of common shares outstanding plus all potential common shares . diluted eps reflects the potential dilution that could occur if securities or other story_separator_special_tag introduction the following discussion and analysis is intended to address the significant factors affecting our consolidated statements of income for the years 2009 through 2011 and consolidated statements of financial condition as of december 31 , 2010 and 2011. when we use the terms `` first midwest , '' the `` company , '' `` we , '' `` us , '' and `` our , '' we mean first midwest bancorp , inc. , a delaware corporation , and its consolidated subsidiaries . when we use the term `` bank , '' we are referring to our wholly owned banking subsidiary , first midwest bank . for your reference , a glossary of certain terms is presented on pages 3 and 4 of this form 10-k. the discussion is designed to provide stockholders with a comprehensive review of our operating results and financial condition and should be read in conjunction with the consolidated financial statements , accompanying notes thereto , and other financial information presented in this form 10-k. our results of operations are affected by various factors , many of which are beyond our control , including interest rates , general economic conditions ( nationally and in our service areas ) , legislative changes , and changes in real estate and securities markets . our management evaluates performance using a variety of quantitative metrics , which include : pre-tax pre-provision operating earnings pre-tax pre-provision operating earnings ( which reflect our operating performance before the effects of credit-related charges and other unusual , infrequent , or non-recurring revenues and expenses ) is a non-gaap financial measure , which we believe is useful because it helps investors to assess the company 's operating performance . a reconciliation of pre-tax , pre-provision operating earnings to gaap can be found in table 1. net interest income net interest income is our primary source of revenue . net interest income equals the difference between interest income and fees earned on interest-earning assets ( such as loans and securities ) and interest expense incurred on interest-bearing liabilities ( such as deposits and borrowed funds ) . net interest margin net interest margin equals net interest income divided by total interest-earning assets . noninterest income noninterest income is the income we earn from fee-based revenues ( such as service charges on deposit accounts and wealth management fees ) , boli and other income , and non-operating revenues ( such as securities gains and losses ) . asset quality asset quality is an estimation of the quality of our loan portfolio , including an assessment of the credit risk related to existing and potential loss exposure , and incorporates an evaluation of a variety of factors , such as non-performing loans to total loans . regulatory capital our regulatory capital is classified in one of the following two tiers : ( i ) tier 1 capital consists of common equity , retained earnings , qualifying non-cumulative perpetual preferred stock , and qualifying trust-preferred securities , less goodwill and most intangible assets , and ( ii ) tier 2 capital includes qualifying subordinated debt and the allowance for credit losses , subject to limitations . a condensed review of operations for the fourth quarter of 2011 is included in the section titled `` fourth quarter 2011 vs. 2010 '' of this item 7. the summary provides an analysis of the quarterly earnings performance for the fourth quarter of 2011 compared to the same period in 2010. unless otherwise stated , all earnings per common share data included in this section and throughout the remainder of this discussion are presented on a fully diluted basis . 42 performance overview table 1 selected financial data ( dollar amounts in thousands , except per share data ) replace_table_token_9_th ( 1 ) for further discussion of losses realized on oreo , integration costs associated with fdic-assisted transactions , severance-related costs , and an fdic special assessment , see the section titled `` noninterest expense '' of this item 7 . ( 2 ) the company 's accounting and reporting policies conform to u.s. generally accepted accounting principles ( `` gaap '' ) and general practice within the banking industry . as a supplement to gaap , the company has provided this non-gaap performance result . the company believes that this non-gaap financial measure is useful because it helps investors to assess the company 's operating performance . although this non-gaap financial measure is intended to enhance investors ' understanding of the company 's business and performance , this non-gaap financial measure should not be considered an alternative to gaap . 43 replace_table_token_10_th ( 1 ) excludes covered loans and covered oreo . for a discussion of covered loans and covered oreo , refer to note 5 of `` notes to consolidated financial statements '' in item 8 of this form 10-k. asset quality , including covered loans and covered oreo , is included in the section titled `` loan portfolio and credit quality '' of this item 7. in a challenged business environment , consistent sales focus helped us to hold loan balances steady as we significantly reduced our exposure to troubled real estate lending categories . our overall credit metrics significantly improved from 2010 as we reduced potential problem credits by almost 30 % during this period . at the same time , transactional deposit growth helped our margins remain over 4 % and our fee-based revenues expand . our net interest margin performance in 2012 will depend , to a large extent , on our ability to redeploy excess cash from lower-yielding , shorter-term investments to higher-yielding loans , as well as maintain transactional deposits . story_separator_special_tag for a discussion of our funding sources , see the section titled `` funding and liquidity management '' of this item 7. in fourth quarter 2011 , we redeemed all of the $ 193.0 million of preferred shares issued to the treasury , resulting in the recognition of $ 1.5 million in accelerated accretion . we funded the redemption through a combination of existing liquid assets and proceeds from a $ 115.0 million senior debt offering . the notes , which have an interest rate of 5.875 % , payable semi-annually , will mature in november 2016. in a related transaction , we redeemed the treasury 's associated warrant . we paid $ 900,000 to the treasury to redeem the warrant , which concluded our 45 participation in the cpp . for a discussion of our capital position , see the section titled `` management of capital '' of this item 7. performance overview for 2010 compared with 2009 net loss in 2010 was $ 9.7 million , before adjustment for preferred dividends and non-vested restricted shares , with a $ 19.7 million loss , or $ 0.27 per share , applicable to common shareholders after such adjustments . this compares to a net loss of $ 25.8 million , before adjustment for preferred dividends and non-vested restricted shares and net loss applicable to common shareholders of $ 35.6 million , or $ 0.71 per share , for 2009. the year-over-year improvement was largely due to higher net interest income and fee-based revenues and lower provision for loan losses , which more than offset higher noninterest expense , including losses recognized on the sale and write-down of oreo . pre-tax , pre-provision operating earnings for 2010 were $ 136.4 million , an increase of 3.8 % from 2009. the increase over 2009 was primarily driven by higher average interest-earning assets , improved net interest margins , and greater fee-based revenues , which offset higher costs related to fdic-assisted transactions and loan remediation activities . our 2010 tax-equivalent net interest income increased $ 24.5 million compared to 2009. interest expense declined $ 40.7 million , reflecting both a decline in total interest-bearing liabilities and the rates paid for those liabilities . tax-equivalent interest income declined $ 16.2 million compared to 2009 due to a 14 basis point decline in tax-equivalent yield . the net result of these changes was an increase in tax-equivalent net interest income . fee-based revenues of $ 86.8 million for 2010 grew by 1.9 % compared to 2009. service charge fees declined primarily from lower overdraft and non-sufficient fund fees . however , this decline was more than offset by increases in other service charges , commissions , and fees ( primarily merchant fee income ) , card-based fees , and wealth management fees . noninterest expense rose by 18.7 % for 2010 compared to 2009. the increase was attributed to higher losses and write-downs on oreo and increases in loan remediation costs ( including costs to service certain assets acquired in fdic-assisted transactions ) , other professional services fees from the valuation and integration of fdic-acquired assets , and compensation expense . we recorded integration expenses associated with our fdic-assisted transactions of $ 3.3 million in 2010. in 2010 , we sold $ 390.2 million in collateralized mortgage obligations ( `` cmos '' ) , other mortgage-backed securities , municipal securities , and corporate bonds for a gain of $ 17.1 million . net securities gains were $ 12.2 million for 2010 and were net of other-than-temporary impairment charges of $ 4.9 million . impairment charges were primarily related to our collateralized debt obligations ( `` cdos '' ) . outstanding loans , excluding covered loans , of $ 5.1 billion as of december 31 , 2010 declined $ 102.7 million , or 2.0 % , from december 31 , 2009 as we charged-off $ 147.1 million in loans in 2010. growth of 1.9 % in commercial and industrial loans , 4.8 % in multi-family loans , and 7.2 % in other commercial real estate lending more than offset a 37.8 % decline in the commercial and residential construction loan portfolios . excluding covered loans and covered oreo , non-performing assets as of december 31 , 2010 were $ 269.5 million , down $ 66.5 million , or 19.8 % , compared to december 31 , 2009. non-performing loans , excluding covered loans , represented 4.24 % of total loans at december 31 , 2010 , compared to 4.77 % at december 31 , 2009. loans 30-89 days delinquent totaled $ 23.6 million at december 31 , 2010 down $ 14.3 million from december 31 , 2009. the improvement in asset quality was substantially driven by loan charge-offs , oreo write-downs , and disposals of non-performing assets , partly offset by loans downgraded to non-accrual status . in fourth quarter 2010 , the lagging market recovery for real estate in the suburban chicago market warranted a reassessment of the existing disposition strategies for certain non-performing assets and a shift to more aggressively pursue remediation . in selecting non-performing assets for disposition strategy reassessment , we specifically targeted construction-related loans and oreo that we believed were subject to longer estimated recovery periods and a higher likelihood of further declines in value due to their geographic locations . our determinations of the underlying collateral values were based on current offers . if offers were not available , we relied upon current offers 46 for similar properties located in similar geographic areas . as a result , we wrote down selected non-performing construction loans and oreo to better reflect expected proceeds from disposition and recorded additional fourth quarter loan charge-offs and oreo write-downs of $ 47.7 million .
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investment portfolio valuation summary ( dollar amounts in thousands ) replace_table_token_16_th replace_table_token_17_th refer to the following page for footnotes . 56 ( 1 ) the effective duration of the securities portfolio represents the estimated percentage change in the fair value of the securities portfolio given a 100 basis point change up or down in the level of interest rates . this measure is used as a gauge of the portfolio 's price volatility at a single point in time and is not intended to be a precise predictor of future fair values , since those values will be influenced by a number of factors . ( 2 ) average life is presented in years and represents the weighted-average time to receive all future cash flows , using the dollar amount of principal paydowns , including estimated principal prepayments , as the weighting factor . portfolio composition as of december 31 , 2011 , our securities portfolio totaled $ 1.1 billion , decreasing 5.8 % from december 31 , 2010 , following a 15.6 % decrease from december 31 , 2009. our securities portfolio declined over the past three years as we took advantage of opportunities in the market to sell securities at a gain given the low interest rate environment . approximately 95 % of our $ 1.0 billion available-for-sale portfolio is comprised of u.s. agency securities , municipals , cmos , and other mortgage-backed securities as of december 31 , 2011. the remainder consists of seven cdos with a fair value of $ 13.4 million and an aggregate unrealized loss of $ 35.4 million , and miscellaneous other securities totaling $ 32.7 million . investments in municipal securities comprised 48.4 % , or $ 490.1 million , of the total available-for-sale securities portfolio as of december 31 , 2011. this type of security has historically experienced very low default rates and provided a predictable cash flow .
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we have been focusing on developing respiratory and oxygen homecare products in particular since 2006. we distribute products designed and manufactured by other companies . 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 individual customers . 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 . according to china 's medical device industry analysis and forecast report of 2011 released by s & p consulting , it is estimated that the entire medical instrument and equipment market in china will double , reaching $ 53.7 billion by 2015. the compound annual growth rate ( “ cagr ” ) of the chinese medical device industry is expected to remain at 20 % to 30 % during this period . currently , the output of global medical devices account for 42 % of the total global pharmaceutical market , while in china , medical devices only account for 14 % of the total chinese pharmaceutical market . 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. 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 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 2012 , we anticipate new opportunities , combined with favorable government policies , will position us for continued growth . ii- 2 new opportunities in our business for 2011 , espicom , a highly regarded market research company , estimates chinese medical device market growth to be in the region of 13.1 % , one of the fastest growing markets in the world . high rates of growth are not uncommon in the asian region , but on the back of a huge market size , china 's growth is particularly pronounced . also according to espicom , the medical device market in china is expected to reach $ 28 billion by 2014 , doubled compared with the total sales in 2006. 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. 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 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 ubiquitous 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 . story_separator_special_tag operating costs and expenses our operating costs and expenses consist of cost of revenues , general and administrative expenses , selling expenses and other expenses . our total operating costs and expenses increased both as a percentage of our total revenues and in absolute amount for the year ended december 31 , 2011 compared to the same period in 2010 , primarily due to the development of government-related projects , 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 . ii- 4 replace_table_token_3_th cost of revenues cost of revenues primarily includes raw materials , 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 general and administration expenses will increase in the near future as a result of business expansion and public company compliance in the u.s. operating expenses - selling expenses our selling expenses increased by 32.39 % from $ 1.42 million for the fiscal year ended december 31 , 2010 to $ 1.88 million for the fiscal year ended december 31 , 2011. our selling expenses consist primarily of salaries and related expenses for personnel engaged in sales , marketing and customer support functions , and costs associated with advertising and other marketing activities . our selling expenses increased in 2011 mainly because we have invested in strengthening our distribution network , relationship with government and other customers , and development of the homecare device market ( in particular our oxygen therapy service initiative ) . we expect our selling expenses will continue to grow as we drive top-line growth in these areas . ii- 6 operating income as a result of the foregoing , we generated an operating income of approximately $ 3.61 million in 2011 , compared to approximately $ 5.13 million in 2010. operating income decreased by 29.57 % largely due to the increase in operating expenses . taxation our income tax expense was approximately $ 0.66 million in 2011 , compared to approximately $ 0.85 million in 2010. our taxable income decreased primarily due to the decrease in net income . net income as a result of the foregoing , we had net income of approximately $ 3.13 million in 2011 , compared to approximately $ 4.56 million in 2010. after deduction of non-controlling interest in income , net income attributable to dehaier was approximately $ 3.10 million and $ 4.54 million in 2011 and 2010 , respectively . make-good escrow on march 22 , 2010 , our founders placed an aggregate of 600,000 common shares into escrow . such shares equaled 40 % of the maximum number of shares that were sold in the initial public offering ( “ ipo ” ) . the shares remained in escrow until we filed our form 10-k with the securities and exchange commission for the year ended december 31 , 2010. the shares in escrow ( make-good shares ) were accounted for as an element in the ipo and we did not recognize any compensation expense upon the return of such make-good shares to the holders . to the extent our earnings per share for the year ended december 31 , 2010 were less than $ 0.80 , we would have redeemed the make good shares , pro rata . at december 31 , 2010 , our earnings per share were $ 1.09. thus , we did not need to redeem any of the make-good shares . the shares were returned to our founders on may 5 , 2011 and are included as part of the calculation of the basic and diluted earnings per share in the accompanying consolidated financial statements . liquidity and capital resources cash flows and working capital in 2010 , we financed our operations primarily from proceeds of common stock issuances . in 2011 , we mainly used the cash proceeds from our ipo and from our operations . as of december 31 , 2011 , we had approximately $ 3.69 million in cash and cash equivalents . as a result of the total cash activities , net cash decreased from $ 5,923,386 at december 31 , 2010 to $ 3,694,486 at december 31 , 2011. we believe that our currently available working capital of $ 26,981,557 , including cash of $ 3,694,486 , should be adequate to meet our anticipated cash needs and sustain our current operations for at least 12 months .
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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 , 2011 compared to fiscal year ended december 31 , 2010. revenues our total revenues increased by 10.41 % from $ 19.60 million for the fiscal year ended december 31 , 2010 to $ 21.64 million for the fiscal year ended december 31 , 2011. in 2011 , we changed our development strategy that not only focused on traditional medical devices sales but also government procurement projects and the burgeoning r espiratory and oxygen homecare market . overall , revenue of traditional medical devices , including centralized government procurement projects , was 89.47 % of the total revenues , while r espiratory and oxygen homecare was 10.53 % of revenues in 2011. in 2010 , revenue of traditional medical devices was 97.75 % and r espiratory and oxygen homecare was only 2.25 % . this shift in revenue mix reflects management 's efforts to focus on driving growth in homecare medical devices . cost of revenues our cost of revenues increased by 14.36 % from $ 11.98 million for the fiscal year ended december 31 , 2010 to $ 13.70 million for the fiscal year ended december 31 , 2011. our cost of revenues grew in tandem with our revenue growth . our gross margin decreased due to the increased cost of the products and assembly parts we purchased and increased labor cost , which were mainly affected by country-wide inflation in china . to the extent inflation pressures persist , we could see continued increase in our cost of revenues .
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we developed the first unhydrogenated styrenic block copolymers ( “ usbc ” ) in 1964 and the first hydrogenated styrenic block copolymers ( “ hsbc ” ) in the late 1960s . our sbcs enhance the performance of numerous products by imparting greater flexibility , resilience , strength , durability , and processability , and are used in a wide range of applications , including adhesives , coatings , consumer and personal care products , sealants , lubricants , medical , packaging , automotive , paving , roofing , and footwear products . we also sell isoprene rubber ( “ ir ” ) and isoprene rubber latex ( “ irl ” ) , which are non-sbc products primarily used in applications such as medical products , personal care , adhesives , tackifiers , paints , and coatings . our polymers are typically formulated or compounded with other products to achieve improved , customer-specific performance characteristics in a variety of applications . we seek to maximize the value of our product portfolio by emphasizing complex or specialized polymers and innovations that yield higher margins than more commoditized products . we sometimes refer to these complex or specialized polymers or innovations as being more “ differentiated. ” our products are found in many everyday applications , including personal care products , such as disposable diapers , and in the rubberized grips of toothbrushes , razor blades , and power tools . our products are also used to impart tack and shear properties in a wide variety of adhesive products and to impart characteristics such as flexibility and durability in sealants and corrosion resistance in coatings . our paving and roofing applications provide durability , extending road and roof life . we also produce cariflex tm isoprene rubber and isoprene rubber latex . our cariflex products are based on synthetic polyisoprene polymer and do not contain natural rubber latex or other natural rubber products making them an ideal substitute for natural rubber latex , particularly in applications with high purity requirements such as medical , healthcare , personal care , and food contact . we believe the versatility of cariflex provides opportunities for new , differentiated applications . chemical segment we manufacture and sell high value products primarily derived from pine wood pulping co-products . we refine and further upgrade two primary feedstocks , crude tall oil ( “ cto ” ) and crude sulfate turpentine ( “ cst ” ) , both of which are co-products of the wood pulping process , into value-added specialty chemicals . we refine cto through a distillation process into four primary constituent fractions : tall oil fatty acids ( “ tofa ” ) ; tall oil rosin ( “ tor ” ) ; distilled tall oil ( “ dto ” ) ; and tall oil pitch . we further upgrade tofa , tor , and dto into derivatives such as dimer acids , polyamide resins , rosin resins , dispersions , and disproportionated resins . we refine cst into terpene fractions , which can be further upgraded into terpene resins . the various fractions and derivatives resulting from our cto and cst refining process provide for distinct functionalities and properties , determining their respective applications and end markets . we focus our resources on four product groups : adhesives ; roads and construction ; tires ; and performance chemicals . within our product groups , our products are sold into a diverse range of submarkets , including packaging , tapes and labels , pavement marking , high performance tires , fuel additives , oilfield and mining , coatings , metalworking fluids and lubricants , inks , and flavor and fragrances , among others . while this business is based predominantly on the refining and upgrading of cto and cst , we have the capacity to use both hydrocarbon-based raw materials , such as alpha-methyl-styrene , rosins , and gum rosins where appropriate and , accordingly , are able to offer tailored solutions for our customers . 32 status of synergies , operational improvement , and cost reduction initiatives we previously announced synergies and operational improvement initiatives associated with the arizona chemical acquisition and a cost reduction initiative targeted at lowering costs in our polymer segment . the polymer segment cost reduction initiative began in 2015 with a total target savings of $ 70 million to be realized by the end of 2018. we realized approximately $ 45.0 million to date and we currently anticipate we will realize a significant portion of the remaining savings in 2018. in conjunction with the acquisition of arizona chemical , we identified $ 65 million of cost-based synergies , approximately $ 25 million of which relate to general and administrative costs , and approximately $ 40 million of which are associated with operation cost improvements ; all of which has been realized as of december 31 , 2017. results of operations factors affecting our results of operations raw materials . we use butadiene , styrene , and isoprene in our polymer segment and cto and cst in our chemical segment as our primary raw materials . the cost of these raw materials has generally correlated with changes in energy prices and is generally influenced by supply and demand factors and for our isoprene monomers the prices for natural and synthetic rubber . average purchase prices of our raw materials increased during 2017 compared to 2016 and were lower in 2016 compared to 2015 . we use the fifo basis of accounting for inventory and cost of goods sold , and therefore gross profit . in periods of raw material price volatility , reported results under fifo will differ from what the results would have been if cost of goods sold were based on ecrc . specifically , in periods of rising raw material costs , reported gross profit will be higher under fifo than under ecrc . conversely , in periods of declining raw material costs , reported gross profit will be lower under fifo than under ecrc . story_separator_special_tag during the year ended december 31 , 2016 , we released $ 55.5 million of the valuation allowances , of which $ 87.0 million primarily related to our u.s. net operating loss carryforwards and other deferred tax assets , partially offset by $ 31.3 million of new valuation allowances assumed in connection with the arizona chemical acquisition . as of december 31 , 2016 , $ 30.5 million and $ 8.5 million of the $ 44.7 million valuation allowance relates to net deferred tax assets in france and united kingdom , respectively . we consider the reversal of deferred tax liabilities within the net operating loss carryforward period , projected future taxable income and tax planning strategies in making this assessment . excluding the change in our valuation allowance and impact of u.s. tax reform , our effective tax rates would have been a benefit of 31.3 % and 38.9 % for the years ended december 31 , 2017 and 2016 , respectively . the tax act was enacted on december 22 , 2017 and introduces significant changes to u.s. income tax law . due to the timing of the enactment and the complexity involved in applying the provisions of the tax act , provisional amounts for the income tax effects of the tax act have been recorded as of december 31 , 2017 and are subject to change during 2018. we recorded a provisional amount for our one-time transitional tax liability and income tax expense of $ 46.3 million . additionally , the impact of the tax act to our deferred taxes was a benefit of $ 95 million , of which $ 68.9 million relates to the reduction of the u.s. statutory tax rate from 35.0 % to 21.0 % for years after 2017 and the remaining relates to changes in our investments in foreign subsidiaries . net income attributable to kraton was $ 97.5 million , or $ 3.07 per diluted share , for the year ended december 31 , 2017 , a decrease of $ 9.8 million compared to a net income of $ 107.3 million , or $ 3.43 per diluted share , for the year ended december 31 , 2016 . adjusted diluted earnings per share ( non-gaap ) was $ 2.85 for the year ended december 31 , 2017 compared to $ 2.36 for the year ended december 31 , 2016 . see item 6. selected financial data for a reconciliation of u.s. gaap diluted earnings ( loss ) per share to adjusted diluted earnings per share . year ended december 31 , 2016 compared to year ended december 31 , 2015 our operating results for the year ended december 31 , 2016 include the operating results for arizona chemical since the acquisition date of january 6 , 2016. revenue was $ 1,744.1 million for the year ended december 31 , 2016 compared to $ 1,034.6 million for the year ended december 31 , 2015 , an increase of $ 709.5 million , or 68.6 % , of which $ 719.4 million relates to our chemical segment . cost of goods sold was $ 1,265.1 million for the year ended december 31 , 2016 compared to $ 806.0 million for the year ended december 31 , 2015 , an increase of $ 459.1 million , or 57.0 % , of which $ 515.0 million relates to our chemical segment . our chemical segment results includes the negative effect of $ 24.7 million related to the full amortization of the fair value adjustment in purchase accounting for inventory , which was fully amortized during the year ended december 31 , 2016. the polymer segment cost of goods sold decreased $ 55.9 million , largely driven by a $ 67.9 million decrease in raw material costs and a $ 41.7 million reduction in other manufacturing costs ( including a $ 3.3 million decrease in turnaround costs ) , partially 35 offset by a $ 43.6 million increase related to higher sales volumes and a $ 10.2 million negative effect from currency fluctuations . research and development expenses were $ 39.5 million for the year ended december 31 , 2016 compared to $ 31.0 million for the year ended december 31 , 2015 , an increase of $ 8.5 million , or 27.3 % , of which $ 11.2 million relates to our chemical segment . selling , general , and administrative expenses were $ 177.6 million for the year ended december 31 , 2016 compared to $ 117.3 million for the year ended december 31 , 2015 , an increase of $ 60.3 million , or 51.4 % , of which $ 69.1 million relates to our chemical segment . selling , general , and administrative expenses for our polymer segment decreased $ 8.8 million , primarily driven by lower staffing costs . depreciation and amortization was $ 125.7 million for the year ended december 31 , 2016 compared to $ 62.1 million for the year ended december 31 , 2015 , an increase of $ 63.6 million , or 102.4 % , of which $ 65.7 million relates to our chemical segment and includes the step up to fair value of the acquired long-lived assets . disposition and exit of business activities was a gain of $ 28.4 million for the year ended december 31 , 2016 , which resulted from the sale of certain compounding assets and the dissolution of our joint venture in paulinia , brazil , partially offset by the exit from our nexar tm and solutions resinates product lines . loss on extinguishment of debt was $ 13.4 million for the year ended december 31 , 2016 , of which $ 8.4 million was recognized to satisfy and cancel our 6.75 % senior notes due 2019 and $ 5.0 million was related to the write-off of previously capitalized debt issuance costs , following the arizona chemical acquisition . interest expense , net was $ 139.0 million for the year ended december 31 , 2016 compared to $ 24.2 million for the year ended december 31 , 2015 , an increase of $ 114.7 million .
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segment results effective with the arizona chemical acquisition our operating segments are as follows : polymer segment . our polymer segment is comprised of our sbc 's and other engineered polymers business . chemical segment . our chemical segment is comprised of our pine-based specialty products business . polymer segment replace_table_token_16_th ( 1 ) see item 6. selected financial data for a reconciliation of u.s. gaap operating income to non-gaap adjusted ebitda . ( 2 ) defined as adjusted ebitda as a percentage of revenue . year ended december 31 , 2017 compared to year ended december 31 , 2016 revenue for the polymer segment was $ 1,199.7 million for the year ended december 31 , 2017 compared to $ 1,024.7 million for the year ended december 31 , 2016 . sales volumes were 333.7 kilotons for the year ended december 31 , 2017 , an increase of 9.5 kilotons , or 2.9 % . performance products volumes increase d 2.9 % , specialty polymers volumes increase d 3.6 % ( excluding the effect of the sale of the compounding business , sales volumes would have increased 7.2 % ) , and cariflex volumes increase d 0.4 % . with respect to revenue for the polymer segment product groups : cariflex revenue was $ 168.3 million for the year ended december 31 , 2017 compared to $ 171.0 million for the year ended december 31 , 2016 . specialty polymers revenue was $ 389.9 million for the year ended december 31 , 2017 compared to $ 340.3 million for the year ended december 31 , 2016 . the revenue increase was primarily driven by higher average selling prices resulting from higher raw material costs and to a lesser extent increased sales volumes . performance products revenue was $ 640.3 million for the year ended december 31 , 2017 compared to $ 513.1 million for the year ended december 31 , 2016 .
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story_separator_special_tag to an increase in outstanding debt , including the following activity related to nnn 's notes payable ( dollars in thousands ) : replace_table_token_12_th the increase in interest expense for the year ended december 31 , 2020 was partially offset by a decrease of $ 5,163,000 in the weighted average outstanding balance , and a 20 basis points decrease in the interest rate , on the credit facility for the year ended december 31 , 2020 , as compared to the same period in 2019. the credit facility had a weighted average outstanding balance of $ 18,895,000 and $ 24,058,000 at december 31 , 2020 and 2019 , respectively . in addition , interest expense for the year ended december 31 , 2020 , includes $ 2,291,000 in connection with the early redemption of the 2022 notes described below . loss on early extinguishment of debt . in march 2020 , nnn redeemed the $ 325,000,000 3.800 % notes payable that were due in october 2022. the notes were redeemed at a price equal to 100 % of the principal amount , plus ( i ) a make-whole amount of $ 16,679,000 , and ( ii ) all accrued and unpaid interest . comparison of expenses – 2019 versus 2018 refer to “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of nnn 's annual report on form 10-k for the year ended december 31 , 2019 filed with the commission on february 11 , 2020 , for a detailed comparison of expenses for the years ended december 31 , 2019 versus december 31 , 2018 . 31 impact of inflation nnn 's leases typically contain provisions to mitigate the adverse impact of inflation on nnn 's results of operations . tenant leases generally provide for limited increases in rent as a result of fixed increases , increases in the cpi , and or , to a lesser extent , increases in the tenant 's sales volume . during times when inflation is greater than increases in rent , rent increases will not keep up with the rate of inflation . properties are leased to tenants under long-term , net leases which typically require the tenant to pay certain operating expenses for a property , thus , nnn 's exposure to inflation is reduced with respect to these expenses . inflation may have an adverse impact on nnn 's tenants . liquidity general . nnn 's demand for funds has been and will continue to be primarily for ( i ) payment of operating expenses and cash dividends ; ( ii ) property acquisitions and development ; ( iii ) capital expenditures ; ( iv ) payment of principal and interest on its outstanding debt ; and ( v ) other investments . while the total impact of the economic downturn are unknown , nnn expects to meet short-term liquidity requirements through cash and cash equivalents , cash provided from operations and nnn 's credit facility . as of december 31 , 2020 , nnn had $ 267,236,000 of cash and cash equivalents and $ 900,000,000 was available for future borrowings under the credit facility . nnn moderated new property investments during 2020 in order to better gauge the impact of the economic downturn on retailers , retail real estate , capital markets and investment returns . nnn will continue to monitor the impact of the economic downturn , among other things , when considering new property investments in 2021 . ( see `` overview - impact of covid-19 on nnn 's business '' ) . nnn anticipates its long-term capital needs will be funded by the credit facility , cash provided from operations , the issuance of long-term debt or the issuance of common or preferred equity or other instruments convertible into or exchangeable for common or preferred equity . however , there can be no assurance that additional financing or capital will be available , or that the terms will be acceptable or advantageous to nnn . cash and cash equivalents . nnn 's cash and cash equivalents includes the aggregate of cash and cash equivalents and restricted cash and cash held in escrow from the consolidated balance sheets . nnn did not have restricted cash , including cash held in escrow as of december 31 , 2020 , 2019 and 2018. the table below summarizes nnn 's cash flows for each of the years ended december 31 ( dollars in thousands ) : replace_table_token_13_th cash provided by operating activities represents cash received primarily from rental revenues and interest income less cash used for general and administrative expenses . nnn 's cash flow from operating activities has been sufficient to pay the distributions for each period presented . the change in cash provided by operations for the years ended december 31 , 2020 , 2019 and 2018 , is primarily the result of changes in revenues and expenses as discussed in “ results of operations. ” cash generated from operations is expected to fluctuate in the future . changes in cash for investing activities are primarily attributable to acquisitions and dispositions of properties . nnn typically uses cash on hand or proceeds from its credit facility to fund the acquisition of its properties . 32 nnn 's financing activities for the year ended december 31 , 2020 , included the following significant transactions : ( i ) issuance and redemption of notes payable resulted in the following : $ 395,062,000 in net proceeds from the issuance in march of the 2.500 % notes payable due in april 2030 , $ 290,459,000 in net proceeds from the issuance in march of the 3.100 % notes payable due in april 2050 , $ 325,000,000 payment in march for the early redemption of the 3.800 % notes payable due in october 2022 , and $ 16,679,000 payment in march of the make-whole amount for the early redemption of the story_separator_special_tag story_separator_special_tag to an increase in outstanding debt , including the following activity related to nnn 's notes payable ( dollars in thousands ) : replace_table_token_12_th the increase in interest expense for the year ended december 31 , 2020 was partially offset by a decrease of $ 5,163,000 in the weighted average outstanding balance , and a 20 basis points decrease in the interest rate , on the credit facility for the year ended december 31 , 2020 , as compared to the same period in 2019. the credit facility had a weighted average outstanding balance of $ 18,895,000 and $ 24,058,000 at december 31 , 2020 and 2019 , respectively . in addition , interest expense for the year ended december 31 , 2020 , includes $ 2,291,000 in connection with the early redemption of the 2022 notes described below . loss on early extinguishment of debt . in march 2020 , nnn redeemed the $ 325,000,000 3.800 % notes payable that were due in october 2022. the notes were redeemed at a price equal to 100 % of the principal amount , plus ( i ) a make-whole amount of $ 16,679,000 , and ( ii ) all accrued and unpaid interest . comparison of expenses – 2019 versus 2018 refer to “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of nnn 's annual report on form 10-k for the year ended december 31 , 2019 filed with the commission on february 11 , 2020 , for a detailed comparison of expenses for the years ended december 31 , 2019 versus december 31 , 2018 . 31 impact of inflation nnn 's leases typically contain provisions to mitigate the adverse impact of inflation on nnn 's results of operations . tenant leases generally provide for limited increases in rent as a result of fixed increases , increases in the cpi , and or , to a lesser extent , increases in the tenant 's sales volume . during times when inflation is greater than increases in rent , rent increases will not keep up with the rate of inflation . properties are leased to tenants under long-term , net leases which typically require the tenant to pay certain operating expenses for a property , thus , nnn 's exposure to inflation is reduced with respect to these expenses . inflation may have an adverse impact on nnn 's tenants . liquidity general . nnn 's demand for funds has been and will continue to be primarily for ( i ) payment of operating expenses and cash dividends ; ( ii ) property acquisitions and development ; ( iii ) capital expenditures ; ( iv ) payment of principal and interest on its outstanding debt ; and ( v ) other investments . while the total impact of the economic downturn are unknown , nnn expects to meet short-term liquidity requirements through cash and cash equivalents , cash provided from operations and nnn 's credit facility . as of december 31 , 2020 , nnn had $ 267,236,000 of cash and cash equivalents and $ 900,000,000 was available for future borrowings under the credit facility . nnn moderated new property investments during 2020 in order to better gauge the impact of the economic downturn on retailers , retail real estate , capital markets and investment returns . nnn will continue to monitor the impact of the economic downturn , among other things , when considering new property investments in 2021 . ( see `` overview - impact of covid-19 on nnn 's business '' ) . nnn anticipates its long-term capital needs will be funded by the credit facility , cash provided from operations , the issuance of long-term debt or the issuance of common or preferred equity or other instruments convertible into or exchangeable for common or preferred equity . however , there can be no assurance that additional financing or capital will be available , or that the terms will be acceptable or advantageous to nnn . cash and cash equivalents . nnn 's cash and cash equivalents includes the aggregate of cash and cash equivalents and restricted cash and cash held in escrow from the consolidated balance sheets . nnn did not have restricted cash , including cash held in escrow as of december 31 , 2020 , 2019 and 2018. the table below summarizes nnn 's cash flows for each of the years ended december 31 ( dollars in thousands ) : replace_table_token_13_th cash provided by operating activities represents cash received primarily from rental revenues and interest income less cash used for general and administrative expenses . nnn 's cash flow from operating activities has been sufficient to pay the distributions for each period presented . the change in cash provided by operations for the years ended december 31 , 2020 , 2019 and 2018 , is primarily the result of changes in revenues and expenses as discussed in “ results of operations. ” cash generated from operations is expected to fluctuate in the future . changes in cash for investing activities are primarily attributable to acquisitions and dispositions of properties . nnn typically uses cash on hand or proceeds from its credit facility to fund the acquisition of its properties . 32 nnn 's financing activities for the year ended december 31 , 2020 , included the following significant transactions : ( i ) issuance and redemption of notes payable resulted in the following : $ 395,062,000 in net proceeds from the issuance in march of the 2.500 % notes payable due in april 2030 , $ 290,459,000 in net proceeds from the issuance in march of the 3.100 % notes payable due in april 2050 , $ 325,000,000 payment in march for the early redemption of the 3.800 % notes payable due in october 2022 , and $ 16,679,000 payment in march of the make-whole amount for the early redemption of the
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results of operations property analysis general . the following table summarizes the property portfolio as of december 31 : replace_table_token_4_th the following table summarizes the lease expirations , assuming none of the tenants exercise renewal options , of the property portfolio for each of the next 10 years and then thereafter in the aggregate as of december 31 , 2020 : replace_table_token_5_th ( 1 ) based on the annualized base rent for all leases in place as of december 31 , 2020 . ( 2 ) approximate square feet . 27 the following table summarizes the diversification of the property portfolio based on the top 20 lines of trade : replace_table_token_6_th ( 1 ) based on annualized base rent for all leases in place as of december 31 of the respective year . the following table summarizes the diversification of the property portfolio by state as of december 31 , 2020 : replace_table_token_7_th ( 1 ) based on annualized base rent for all leases in place as of december 31 , 2020 . 28 property acquisitions . the following table summarizes the property acquisitions for each of the years ended december 31 ( dollars in thousands ) : replace_table_token_8_th ( 1 ) includes additional square footage from completed construction on existing properties . ( 2 ) includes dollars invested in projects under construction or tenant improvements for each respective year . nnn typically funds property acquisitions either through borrowings under the credit facility or by issuing its debt or equity securities in the capital markets . property dispositions . the following table summarizes the properties sold by nnn for each of the years ended december 31 ( dollars in thousands ) : replace_table_token_9_th nnn typically uses the proceeds from a property disposition to either pay down the credit facility or reinvest in real estate . analysis of revenue general .
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2012 ) 90 exhibit number description 10.47† amended and restated employment agreement by and between kilroy realty corporation , kilroy realty , l.p. and john b. kilroy , jr. ( previously filed by kilroy realty corporation on form 8-k as filed with the securities and exchange commission on april 4 , 2012 ) 10.48† noncompetition story_separator_special_tag the following discussion relates to our consolidated financial statements and should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report . the results of operations discussion is combined for the company and the operating partnership because there are no material differences in the results of operations between the two reporting entities . forward-looking statements statements contained in this “ item 7. management 's discussion and analysis of financial condition and results of operations ” that are not historical facts may be forward-looking statements , including statements or information concerning projected future occupancy and rental rates , lease expirations , debt maturity , potential investments , strategies such as capital recycling , development and redevelopment activity , projected construction costs , dispositions , future executive incentive compensation , pending , potential or proposed acquisitions and other forward-looking financial data , as well as the discussion in “ —factors that may influence future results of operations ” , “ —liquidity and capital resource of the company ” , and “ —liquidity and capital resources of the operating partnership. ” forward-looking statements can be identified by the use of words such as “ believes , ” “ expects , ” “ projects , ” “ may , ” “ will , ” “ should , ” “ seeks , ” “ approximately , ” “ intends , ” “ plans , ” “ pro forma , ” “ estimates ” or “ anticipates ” and the negative of these words and phrases and similar expressions that do not relate to historical matters . forward-looking statements are based on our current expectations , beliefs and assumptions , and are not guarantees of future performance . forward-looking statements are inherently subject to uncertainties , risks , changes in circumstances , trends and factors that are difficult to predict , many of which are outside of our control . accordingly , actual performance , results and events may vary materially from those indicated in the forward-looking statements , and you should not rely on the forward-looking statements as predictions of future performance , results or outcomes . numerous factors could cause actual future events to differ materially from those indicated in forward-looking statements , including , among others : global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants ; adverse economic or real estate conditions in california and washington including with respect to california 's continuing budget deficits ; risks associated with our investment in real estate assets , which are illiquid , and with trends in the real estate industry ; defaults on or non-renewal of leases by tenants ; any significant downturn in tenants ' businesses ; our ability to re-lease property at or above current market rates ; costs to comply with government regulations , including environmental remediations ; the availability of cash for distribution and debt service and exposure of risk of default under debt obligations ; significant competition , which may decrease the occupancy and rental rates of properties ; potential losses that may not be covered by insurance ; the ability to successfully complete acquisitions and dispositions on announced terms ; the ability to successfully operate acquired properties ; the ability to successfully complete development and redevelopment properties on schedule and within budgeted amounts ; 42 defaults on leases for land on which some of our properties are located ; adverse changes to , or implementations of , applicable laws , regulations or legislation ; environmental uncertainties and risks related to natural disasters ; and the company 's ability to maintain its status as a reit . the factors included in this report are not exhaustive and additional factors could adversely affect our business and financial performance . for a discussion of additional risk factors , see the factors included in this report under the caption “ item 1a . risk factors , ” and in our other filings with the sec . all forward-looking statements are based on currently available information and speak only as of the date of this report . we assume no obligation to update any forward-looking statement that becomes untrue because of subsequent events , new information or otherwise , except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws . company overview we are a self-administered reit active in premier office submarkets along the west coast . we own , develop , acquire and manage real estate assets , consisting primarily of class a properties in the coastal regions of los angeles , orange county , san diego county , the san francisco bay area and greater seattle , which we believe have strategic advantages and strong barriers to entry . we own our interests in all of our real estate assets through the operating partnership and the finance partnership . we conduct substantially all of our operations through the operating partnership . we owned a 97.8 % and 97.6 % general partnership interest in the operating partnership as of december 31 , 2013 and 2012 , respectively . all our properties are held in fee except for the eleven office buildings which are held subject to long-term ground leases for the land ( see note 15 “ commitments and contingencies ” to our consolidated financial statements included in this report for additional information regarding our ground lease obligations ) . 2013 highlights we made significant progress on several fronts during 2013 , and are well-positioned for continued long-term growth through our strong leasing performance , well timed acquisitions , development and redevelopment efforts , ongoing capital recycling program and successful financing activities . leasing . story_separator_special_tag critical accounting policies are by definition those policies that are material to our financial statements and for which the impact of changes in estimates , assumptions , and judgments could have a material impact to our financial statements . the following critical accounting policies discussion reflects what we believe are the most significant estimates , assumptions , and judgments used in the preparation of our consolidated financial statements . this discussion of our critical accounting policies is intended to supplement the description of our accounting policies in the footnotes to our consolidated financial statements and to provide additional insight into the information used by management when evaluating significant estimates , assumptions , and judgments . for further discussion of our significant accounting policies , see note 2 “ basis of presentation & significant accounting policies ” to our consolidated financial statements included in this report . 44 rental revenue recognition rental revenue is our principal source of revenue . the timing of when we commence rental revenue recognition depends largely on our conclusion as to whether we are or the tenant is the owner for accounting purposes of the tenant improvements at the leased property . when we conclude that we are the owner of tenant improvements for accounting purposes , we record the cost to construct the tenant improvements as an asset , and we commence rental revenue recognition when the tenant takes possession of or controls the finished space , which is typically when such tenant improvements are substantially complete . the determination of whether we are or the tenant is the owner of the tenant improvements for accounting purposes is subject to significant judgment . in making that determination , we consider numerous factors and perform a detailed evaluation of each individual lease . no one factor is determinative in reaching a conclusion . the factors we evaluate include but are not limited to the following : whether the lease agreement requires landlord approval of how the tenant improvement allowance is spent prior to installation of the tenant improvements ; whether the lease agreement requires the tenant to provide evidence to the landlord supporting the cost and what the tenant improvement allowance was spent on prior to payment by the landlord for such tenant improvements ; whether the tenant improvements are unique to the tenant or reusable by other tenants ; whether the tenant is permitted to alter or remove the tenant improvements without the consent of the landlord or without compensating the landlord for any lost utility or diminution in fair value ; and whether the ownership of the tenant improvements remains with the landlord or remains with the tenant at the end of the lease term . in addition , we also record the cost of certain tenant improvements paid for or reimbursed by tenants when we conclude that we are the owner of such tenant improvements using the factors discussed above . for these tenant-funded tenant improvements , we record the amount funded or reimbursed by tenants as deferred revenue , which is amortized and recognized as rental revenue over the term of the related lease beginning upon substantial completion of the leased premises . during the years ended december 31 , 2013 , 2012 , and 2011 , we capitalized $ 15.1 million , $ 24.0 million , and $ 4.3 million , respectively , of tenant-funded tenant improvements . leases at our development and redevelopment properties generally have higher tenant-funded tenant improvements and we expect the trend to increase as our development and redevelopment activities increase . for those periods , we also recognized $ 10.7 million , $ 9.1 million , and $ 9.3 million , respectively , of noncash rental revenue related to the amortization of deferred revenue recorded in connection with tenant-funded tenant improvements . when we conclude that we are not the owner and the tenant is the owner of tenant improvements for accounting purposes , we record our contribution towards those improvements as a lease incentive , which is amortized as a reduction to rental revenue on a straight-line basis over the term of the related lease , and rental revenue recognition begins when the tenant takes possession of or controls the space . our determination as to whether we are or the tenant is the owner of tenant improvements for accounting purposes is made on a lease-by-lease basis and has a significant impact on the amount of noncash rental revenue that we record related to the amortization of deferred revenue for tenant-funded tenant improvements , and can also have a significant effect on the timing of our overall revenue recognition . 45 tenant reimbursement revenue reimbursements from tenants consist of amounts due from tenants for common area maintenance , real estate taxes , and other recoverable costs , including capital expenditures . calculating tenant reimbursement revenue requires an in-depth analysis of the complex terms of each underlying lease . examples of judgments and estimates used when determining the amounts recoverable include : estimating the final expenses , net of accruals , that are recoverable ; estimating the fixed and variable components of operating expenses for each building ; conforming recoverable expense pools to those used in establishing the base year or base allowance for the applicable underlying lease ; and concluding whether an expense or capital expenditure is recoverable pursuant to the terms of the underlying lease . during the year , we accrue estimated tenant reimbursement revenue in the period in which the tenant reimbursable costs are incurred based on our best estimate of the amounts to be recovered . throughout the year , we perform analyses to properly match tenant reimbursement revenue with reimbursable costs incurred to date . additionally , during the fourth quarter of each year , we perform preliminary reconciliations and accrue additional tenant reimbursement revenue or refunds . subsequent to year end , we perform final detailed reconciliations and analyses on a lease-by-lease basis and bill or refund each tenant for any cumulative annual adjustments in the first and second quarters of each year for the previous year 's activity .
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summary of 2013 funding transactions we continue to be active in the capital markets to finance our acquisition and development activity and our continued desire to improve our debt maturities and lower our overall weighted average cost of capital . this was primarily a result of the following transactions : capital markets / debt transactions in september 2013 , the company completed an underwritten public offering of 6,175,000 shares of its common stock . the net offering proceeds ( after deducting underwriting discounts and commissions and offering expenses ) of approximately $ 295.9 million were contributed to the operating partnership ( see notes 10 “ stockholders ' equity of the company ” and 11 “ preferred and common units of the operating partnership ” to our consolidated financial statements included in this report for additional information ) . during the year ended december 31 , 2013 , we issued and sold a total of 1,040,838 of our common stock shares under our at-the-market stock offering program at a weighted average price of $ 53.11 per share before selling commissions . the net offering proceeds ( after deducting sales agent compensation ) of approximately $ 54.4 million were contributed to the operating partnership ( see “ —liquidity sources ” below for additional information ) . in january 2013 , the operating partnership issued unsecured senior notes in an underwritten public offering with an aggregate principal balance of $ 300.0 million that are scheduled to mature on january 15 , 2023. the unsecured senior notes require semi-annual interest payments each january and july based on a stated annual interest rate of 3.800 % . in january 2013 , the operating partnership assumed a secured mortgage loan with a principal balance of $ 83.9 million that was recorded at fair value resulting in a premium of $ 11.6 million in connection with an acquisition .
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the credit facility is unsecured and contains story_separator_special_tag forward-looking statements when used in this annual report on form 10-k and in our other filings with the securities and exchange commission , in our press releases and in oral statements made with the approval of an executive officer , the words or phrases `` will likely result , '' `` are expected to , '' `` will continue , '' `` is anticipated , '' `` may , '' `` intends , '' `` believes , '' `` estimate , '' `` project '' or similar expressions are intended to identify `` forward-looking statements '' within the meaning of the private securities litigation reform act of 1995. such statements are subject to certain risks and uncertainties , including , among others , the following : our performance is directly affected by changing conditions in global financial markets generally and in the equity markets particularly , and a decline or a lack of sustained growth in these markets may result in decreased advisory fees or performance fees and a corresponding decline ( or lack of growth ) in our operating results and in the cash flow distributable to us from our affiliates ; we can not be certain that we will be successful in finding or investing in additional investment management firms on favorable terms , that we will be able to consummate announced investments in new investment management firms , or that existing and new affiliates will have favorable operating results ; we may need to raise capital by making long-term or short-term borrowings or by selling shares of our common stock or other securities in order to finance investments in additional investment management firms or additional investments in our existing affiliates , and we can not be sure that such capital will be available to us on acceptable terms , if at all ; and those certain other factors discussed under the caption `` risk factors . '' these factors could affect our financial performance and cause actual results to differ materially from historical earnings and those presently anticipated and projected . we will not undertake and we specifically disclaim any obligation to release publicly the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of events , whether or not anticipated . in that respect , we wish to caution readers not to place undue reliance on any such forward-looking statements , which speak only as of the date made . executive overview the following executive overview summarizes the significant trends affecting our results of operations and financial condition . this overview and the remainder of this management 's discussion and analysis supplements , and should be read in conjunction with , the consolidated financial statements of amg and its subsidiaries ( collectively , the `` company '' or `` amg '' ) and the notes thereto contained elsewhere in this annual report on form 10-k. for the year ended december 31 , 2012 , net income ( controlling interest ) was $ 174.0 million , earnings per sharediluted was $ 3.28 , including a $ 102.2 million impairment of an indefinite-lived intangible asset at one of our affiliates , and cash flow from operations was $ 633.2 million . for the year ended december 31 , 2011 , net income ( controlling interest ) was $ 164.9 million , earnings per sharediluted was $ 3.11 and cash flow from operations was $ 708.5 million . for the year ended december 31 , 2012 , economic net income was $ 408.8 million , economic earnings per share was $ 7.71 , representing a 16 % increase over the prior year , and ebitda was $ 543.4 million . for the year ended december 31 , 2011 , economic net income was $ 351.0 million , economic earnings per share was $ 6.62 and ebitda was $ 471.3 million . reconciliations of net income to economic net income and cash flow from operations to ebitda are included on pages 27 and 29 , respectively . 17 for the year ended december 31 , 2012 our assets under management increased 32 % to $ 431.8 billion . the increase was the result of $ 47.5 billion from investment performance , $ 30.1 billion from organic growth from net client cash flows and $ 28.0 billion from our new investments in veritable and yacktman . the table below shows our financial highlights for each of the past three years : replace_table_token_3_th ( 1 ) ebitda , including a reconciliation to cash flow from operations , is discussed in greater detail in `` supplemental liquidity measure '' on page 28 . ( 2 ) economic net income and economic earnings per share , including a reconciliation of economic net income to net income , are discussed in `` supplemental performance measures '' on page 26. diversification of assets under management the following table provides information regarding the composition of our assets under management : replace_table_token_4_th ( 1 ) the equity asset class includes equity , balanced and asset allocation products . ( 2 ) the alternative asset class includes private equity , multi-strategy , market neutral equity and hedge products . ( 3 ) our affiliates sponsor money market funds with fund assets representing less than 1 % of our assets under management . ( 4 ) investments in sovereign and non-sovereign debt of european countries represent less than 1 % of our assets under management . 18 ( 5 ) the geography of a particular investment product describes the general location of its investment holdings . during the year ended december 31 , 2012 , on an asset class basis , we experienced organic growth from net client cash flows in our alternative ( $ 18.8 billion ) and equity asset classes ( $ 8.5 billion ) . story_separator_special_tag this increase was also attributable to an increase in acquisition-related professional fees , as compared to 2011. selling , general and administrative expenses increased $ 66.2 million ( or 23 % ) in 2011. this increase was primarily a result of increases of $ 48.9 million in aggregate affiliate expenses from the full year impact of new affiliate investments in 2010. this increase was also attributable to increases in sub-advisory and distribution expenses attributable to increases in assets under management at our affiliates in the mutual fund distribution channel . these increases were partially offset by a $ 13.5 million decrease in acquisition-related professional fees , as compared to 2010. intangible amortization and impairments increased $ 102.3 million ( or 105 % ) in 2012 and $ 37.7 million ( or 63 % ) in 2011. these increases were primarily the result of impairments associated with an indefinite-lived intangible asset at one of our affiliates of $ 102.2 million in 2012 and $ 9.2 million in 2011. the increase in 2011 was also attributable to the full year impact of amortization of definite-lived intangible assets resulting from new affiliate investments in 2010. income from equity method investments when we own a minority investment and are required to use the equity method of accounting , we only recognize our share of these affiliates ' earnings ( generally calculated as a fixed percentage of revenue ) net of intangible amortization . accordingly , we have not consolidated these affiliates ' 24 operating results ( including their revenue ) . the following table summarizes our share of the profits from our equity method investments : replace_table_token_8_th income from equity method affiliates increased $ 57.0 million ( or 78 % ) in 2012. this increase was the result of increases in revenue , including performance fees , as well as our additional investment in bluemountain during 2012. income from equity method affiliates decreased $ 4.8 million ( or 6 % ) in 2011. this decrease was primarily the result of decreases in performance fees . other income statement data the following table summarizes non-operating income and expense data : replace_table_token_9_th ( 1 ) percentage change is not meaningful . investment and other income increased $ 27.0 million in 2012 , as compared to 2011 , principally as a result of increases in affiliate investment earnings . this increase was also a result of a $ 12.8 million write-off of a cost method investment in 2011 , which did not recur in 2012. investment and other income decreased $ 23.4 million in 2011 , as compared to 2010 , principally as a result of increases in affiliate investment losses . this decrease also resulted from the write-off of the cost method investment noted previously . interest expense increased $ 9.2 million ( or 12 % ) in 2012 , primarily as a result of the issuance of the 6.375 % senior notes due in 2042 ( the `` 2042 senior notes '' ) and the 5.25 % senior notes due in 2022 ( the `` 2022 senior notes '' ) as well as increased borrowings under our credit facility . interest expense increased $ 7.6 million ( or 11 % ) in 2011 , principally as a result of an increase in the cost of borrowings under our revolving credit facility . this increase was also attributable to a $ 0.8 million increase in issuance costs related to the credit facility amendment that occurred in 2011. imputed interest expense and contingent payment arrangements consists of interest accretion on our senior convertible securities and our junior convertible trust preferred securities , as well as the accretion and revaluation of our contingent payment arrangements . imputed interest expense and contingent payment arrangements decreased $ 53.4 million in 2012 as compared to 2011. this decrease relates primarily to gains on the revaluation of contingent payment arrangements of $ 53.8 million which occurred in 2012. imputed interest expense and contingent payment arrangements increased $ 2.4 million ( or 10 % ) in 2011 as compared to 2010 , principally as a result of a $ 6.7 million increase in accretion related to our contingent payment arrangements ( related to investments in new affiliates ) partially offset by a $ 4.8 million gain on revaluation . income taxes decreased $ 9.3 million ( or 10 % ) in 2012 from an $ 11.5 million reduction in our valuation allowance , principally on benefits of uncertain tax positions from an improved projection of u.s. income . this benefit was offset by a $ 3.3 million increase in taxes attributable to the non-controlling interest . income taxes increased $ 1.6 million ( or 2 % ) in 2011 , as the result of an increase in income before income taxes , partially offset by a $ 7.6 million benefit from revaluing certain deferred tax liabilities as a result of a change to corporate tax rates in the united kingdom . 25 net income the following table summarizes net income for the past three years : replace_table_token_10_th net income ( non-controlling interests ) increased $ 42.7 million ( or 22 % ) in 2012. this increase was principally a result of our new affiliate investments in 2012 and increases in affiliate investment earnings , as well as gains on the revaluation of contingent payment arrangements attributable to the non-controlling interests of $ 18.0 million . net income ( non-controlling interests ) increased $ 46.0 million ( or 31 % ) in 2011. this change resulted principally from the previously discussed changes in revenue for the 2011 period as well as affiliate equity issuances which had the effect of increasing affiliate equity ownership , and therefore increasing net income attributable to non-controlling interests .
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results of operations our affiliate investments are generally structured as revenue sharing arrangements . when we own a controlling interest , we consolidate the affiliates ' results . our discussion of revenue and operating expenses relates to our consolidated affiliates . when we hold a minority investment and are required to use the equity method of accounting , we do not consolidate the operating results of these firms ( including their revenue ) . our share of these firms ' earnings ( net of intangible amortization ) is reported in income from equity method investments and is discussed on page 24. revenue our revenue is generally determined by the level of our average assets under management and the composition of our assets across our operating segments and products within our operating segments , which realize different fee rates . our ratio of revenue to average assets under management ( in total and by channel ) is calculated as revenue divided by average assets under management and may change as a result of new investments , net client cash flows , performance and , to a lesser extent , changes in contractual fees . therefore , changes in this ratio should not necessarily be viewed as an indicator of changes in contractual fee rates billed to our affiliates ' clients . our revenue is also determined by the level of performance fees recognized . performance fees are generally measured on absolute or relative investment performance against a benchmark . as a result , the level of performance fees earned can vary significantly from period to period and these fees may not necessarily be correlated to changes in assets under management . our revenue increased $ 100.7 million ( or 6 % ) in 2012 from 2011 , primarily from an increase in average assets under management from our consolidated affiliates , partially offset by a decline in our ratio of revenue to average assets under management .
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the category of “ tax services ” includes tax compliance , tax advice , tax planning . the category of “ all other fees ” generally includes advisory services related to accounting rules and regulations . the policies and procedures contained in the audit committee charter provide that the committee must pre-approve the audit services , audit-related services and non-audit services provided by the independent auditors and the provision for such services by jlkz cpa llp ( 2020 ) and weinberg & company , p.a . ( 2019 ) were compatible with the maintenance of the firms ' independence in the conduct of its audits . pre-approval policies and procedures consistent with sec policies regarding auditor independence , the audit committee has responsibility for appointing , setting compensation and overseeing the work of the independent auditor . our audit committee has adopted certain pre-approval policies and procedures which are more fully described in exhibit 99.2 . 52 part iv item 15. exhibits and financial statement schedules ( a ) financial statements the following are filed as part of this annual report : financial statements the following financial statements of greenpro capital corp. and report of independent registered public accounting firm are presented in the “ f ” pages of this annual report : page audited consolidated financial statements report of independent registered public accounting firms f-2 , f-4 consolidated balance sheets as of december 31 , 2020 and december 31 , 2019 f-5 consolidated statements of operations and comprehensive loss for the years ended december 31 , 2020 and december 31 , 2019 f-6 consolidated statements of changes in stockholders ' equity for the years ended december 31 , 2020 and december 31 , 2019 f-7 consolidated statements of cash flows for the years ended december 31 , 2020 and december 31 , 2019 f-8 notes to consolidated financial statements f-9 – f-32 ( b ) exhibits replace_table_token_8_th 53 10.18 form of loan agreement dated july 17 , 2018 between the company and shenzhen rong jin jia cheng investment limited ( 13 ) 10.19 independent director agreement , dated may 8 , 2019 , by and between the company and louis ramesh ruben ( 14 ) 10.20 independent director agreement , dated october 1 , 2019 , by and between the company and brent lewis glendening ( 15 ) 10.21 independent director agreement , dated october 16 , 2019 , by and between the company and christophe philippe roland bringuier ( 16 ) 10.22 consulting and representation agreement dated march 18 , 2020 between the company and corporate ads , llc * 10.23 consulting services agreement dated may 1 , 2020 between the company and daniel mckinney 10.24 purchase and sale agreement of millennium sapphire dated may 27 , 2020 between the company and daniel mckinney ( 18 ) ( 19 ) 10.25 purchase and sale agreement dated june 29 , 2020 between the company and millennium fine art inc. * 10.26 form of acquisition agreement of ata plus sdn . bhd . dated july 8 , 2020 ( 19 ) 10.27 employment contract dated july 28 , 2020 , by and between greenpro holding limited and loke che chan gilbert * 10.28 employment contract dated july 28 , 2020 , by and between greenpro holding limited and lee chong kuang * 10.29 subscription agreement dated august 30 , 2020 between greenpro venture capital limited and global leaders corporation * 10.30 consulting agreement dated september 30 , 2020 between the company and dennis burns * 10.31 subscription agreement dated october 9 , 2020 between the company and ag opportunities fund spc -ag pre-ipo fund sp1 * 10.32 subscription agreement dated october 9 , 2020 between the company and seah kok wah ( 20 ) 10.33 form of securities purchase agreement dated october 13 , 2020 between the company and firstfire global opportunities fund , llc ( 19 ) 10.34 form of convertible note issued to firstfire global opportunities fund , llc dated october 13 , 2020 ( 19 ) 10.35 form of securities purchase agreement dated october 13 , 2020 between the company and granite global value investments ltd. ( 19 ) 10.36 form of convertible note issued to granite global value investments ltd. dated october 13 , 2020 ( 19 ) 10.37 form of securities purchase agreement dated october 13 , 2020 between the company and streeterville capital , llc ( 19 ) 10.38 form of convertible note issued to streeterville capital , llc dated october 13 , 2020 ( 19 ) 10.39 stock purchase and option agreement of first bullion holdings inc. dated october 19 , 2020 . ( 21 ) 10.40 acquisition agreement dated november 1 , 2020. between the company , ms. lee yuet lye and mr. chia min kiat ( 22 ) 10.41 subscription agreement dated december 16 , 2020 between the company and wong wai hing lena 10.42 subscription agreement dated december 21 , 2020 between greenpro venture capital limited and adventure air race company limited * 10.43 subscription agreement dated december 22 , 2020 between greenpro venture capital limited and adventure air race company limited * story_separator_special_tag the following discussion and analysis of our results of operations and financial condition for fiscal years ended december 31 , 2020 and 2019 , should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this annual report . some of the information contained in this management 's discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business and related financing , includes forward looking statements that involve risks , uncertainties and assumptions . story_separator_special_tag for the years ended december 31 , 2020 and 2019 , related party expenses included in cost of services and general and administrative expenses totaled $ 14,997 and $ 486,587 , respectively . for the years ended december 31 , 2020 and 2019 , related party other income totaled $ 1,934 and $ 9,798 , respectively . amounts due from related parties were $ 62,320 and $ 61,623 as of december 31 , 2020 and 2019 , respectively . amounts due to related parties were $ 1,108,641 and $ 1,009,760 as of december 31 , 2020 and 2019 , respectively . our related parties are mainly those companies in which greenpro venture capital limited or greenpro resources limited owns a certain percentage of the shares of such companies , or those companies that the company can exercise significant influence over those companies in making financial and operating policy decisions . some of the related parties are either controlled by or under common control of mr. loke che chan gilbert or mr. lee chong kuang , directors of the company . one of the related parties is controlled by ms. chen yanhong , a director of some of our subsidiaries . critical accounting policies and estimates use of estimates the preparation of financial statements in conformity with u.s. generally accepted accounting principles requires management to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . significant accounting estimates include certain assumptions related to , among others , the allowance for doubtful accounts receivable , impairment analysis of real estate assets and other long-term assets including goodwill , valuation allowance on deferred income taxes , and the accrual of potential liabilities . actual results may differ from these estimates . revenue recognition the company follows the guidance of accounting standards codification ( asc ) 606 , revenue from contracts . asc 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts , which includes ( 1 ) identifying the contracts or agreements with a customer , ( 2 ) identifying our performance obligations in the contract or agreement , ( 3 ) determining the transaction price , ( 4 ) allocating the transaction price to the separate performance obligations , and ( 5 ) recognizing revenue as each performance obligation is satisfied . the company only applies the five-step model to contracts when it is probable that the company will collect the consideration it is entitled to in exchange for the services it transfers to its clients . the company 's revenue consists of revenue from providing business consulting and corporate advisory services ( “ service revenue ” ) , revenue from the sale of real estate properties , and revenue from the rental of real estate properties . impairment of long-lived assets long-lived assets primarily include real estate held for investment , real estate held for use , and equipment and intangible assets . in accordance with the provision of asc 360 , the company generally conducts its annual impairment evaluation to its long-lived assets , usually in the fourth quarter of each year , or more frequently if indicators of impairment exist , such as a significant sustained change in the business climate . the recoverability of long-lived assets is measured at the reporting unit level . if the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset , a loss is recognized for the difference between the fair value and carrying amount of the asset . 37 recent accounting pronouncements refer to note 1 in the accompanying financial statements . liquidity and capital resources as of december 31 , 2020 , we had working capital deficiency of $ 3,411,175 as compared to working capital deficiency of $ 2,078,026 as of december 31 , 2019. as of december 31 , 2020 , we had total current assets of $ 1,612,113 consisting of cash and cash equivalents of $ 1,086,753 , accounts receivable of $ 191,490 , prepaids and other current assets of $ 190,304 , amounts due from related parties of $ 62,320 and deferred costs of revenue of $ 81,246 , compared to total current assets of $ 1,798,245 as of december 31 , 2019. we had current liabilities of $ 5,023,288 mainly consisting of amounts due to related parties of $ 1,108,641 , accounts payable and accrued liabilities of $ 702,726 , deferred revenue of $ 1,634,075 and derivative liabilities of $ 1,189,786 as of december 31 , 2020 , compared to total current liabilities of $ 3,876,271 as of december 31 , 2019. the company 's net losses were $ 3,752,953 and $ 1,349,478 for the year ended december 31 , 2020 and 2019 , respectively . the increase in net loss was mainly due to a decrease in service revenue of $ 2,324,647. for the year ended december 31 , 2020 , the company incurred a net loss of $ 3,752,953 and used cash in operating activities of $ 1,567,758 , and at december 31 , 2020 , the company had a working capital deficiency of $ 3,411,175. these factors raise substantial doubt about the company 's ability to continue as a going concern within one year of the date that the financial statements are issued . in addition , the company 's independent registered public accounting firm , in its report on our december 31 , 2020 financial statements , has raised substantial doubt about the company 's ability to continue as a going concern .
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results of operations for information regarding our controls and procedures , see part ii , item 9a - controls and procedures , of this annual report . during the years ended december 31 , 2020 and 2019 , we operated in three regions : hong kong , malaysia and china . we derived revenues from rental activities of our commercial properties , sale of properties , and the provision of services . a table further describing our revenue and cost of revenues is set forth below : replace_table_token_2_th 32 comparison of the years ended december 31 , 2020 and 2019 total revenues total revenue was $ 2,254,811 and $ 4,484,822 for the years ended december 31 , 2020 and 2019 , respectively . the decrease of $ 2,230,011 was primarily due to a decrease in the revenue of business services . we expect revenue from our business services segment to decrease in the next few months due to the impact of the covid-19 pandemic . service business revenue revenue from the provision of business services was $ 1,876,954 and $ 4,201,601 for the years ended december 31 , 2020 and 2019 , respectively . it was derived principally from the provision of business consulting and advisory services as well as company secretarial , accounting and financial analysis services . we experienced a decrease in service income as a result of fewer service orders placed from clients during the period due to the impact of the covid-19 pandemic . real estate business rental revenue revenue from rentals was $ 124,128 and $ 93,699 for the years ended december 31 , 2020 and 2019 , respectively . it was derived principally from leasing properties in malaysia and hong kong . we believe our rental income will be stable in the near future .
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we feel we are now well-positioned in key markets , with high-quality , low-cost production in growth markets , substantially lower fixed costs in mature markets , and continued strength in new product development , technical product support , and manufacturing technology . because of pricing pressures and industry overcapacity , the machine clothing and paper industries will continue to face top line pressure . despite continued market pressure on revenue , the business retains the potential for maintaining stable earnings in the future . it has been a significant generator of cash , and we seek to maintain the cash-generating potential of this business by maintaining the low costs that we have achieved through continuous focus on cost reduction initiatives , and competing vigorously by using our differentiated and technically superior products to reduce our customers ' total cost of operation and improve their paper quality . the aec segment provides significant growth potential for our company both near and long term . our strategy is to grow by focusing our proprietary 3d-woven technology , as well as our non-3d technology capabilities , on high-value aerospace ( both commercial and defense ) applications , while at the same time performing successfully on our portfolio of growth programs . aec ( including albany safran composites , llc ( asc ) , in which our customer safran group owns a 10 percent noncontrolling interest ) supplies a number of customers in the aerospace industry . aec 's largest aerospace customer is the safran group and sales to safran , through asc , ( consisting primarily of fan blades and cases for cfm 's leap engine ) accounted for approximately 19 percent of the company 's consolidated net sales in 2018. aec , through asc , also supplies 3d-woven composite fan cases for the ge9x engine . aec 's current portfolio of non-3d programs includes 25 components for the f-35 , fuselage components for the boeing 787 , components for the ch-53k helicopter , vacuum waste tanks for boeing 7-series aircraft , and missile bodies for lockheed martin 's jassm air-to-surface missiles . aec is actively engaged in research to develop new applications in both commercial and defense aircraft engine and airframe markets . consolidated results of operations effective january 1 , 2018 , the company adopted the provisions of asc 606 , “ revenue from contracts with customers ” , using the modified retrospective ( or cumulative effect ) method for transition . under this transition method , periods prior to 2018 are not restated . the following table summarizes the effect on various financial statement line items that resulted from the adoption of asc 606 : replace_table_token_5_th the company acquired the outstanding shares of harris corporation 's composite aerostructures business for $ 187 million in cash , plus the assumption of certain liabilities , on april 8 , 2016. as the acquisition occurred during the year , the company 's 2016 results of operations include only a portion of the year , which can affect comparability amongst periods . the acquired entity , located in salt lake city ( slc ) , utah , is part of the aec segment . management believes that the acquisition broadened and deepened aec 's products , experience and manufacturing capabilities , and significantly increased opportunities for future growth . the following table presents operational results of the acquired entity that are included in the consolidated statements of income : replace_table_token_6_th 26 net sales the following table summarizes our net sales by business segment : replace_table_token_7_th the following table summarizes 2018 net sales by business segment , excluding the impact of asc 606 and currency translation effects : replace_table_token_8_th 2018 vs. 2017 · changes in currency translation rates had the effect of increasing net sales by $ 8.5 million ( 0.9 % of net sales ) , compared to 2017. that currency translation effect was principally due to the euro being stronger in 2018 as compared to 2017 . · excluding the effect of changes in currency translation rates : § consolidated net sales increased 12.8 % . excluding the additional effect of asc 606 , net sales increased 13.6 % . § net sales in mc increased 2.6 % . excluding the additional effect of adopting asc 606 , net sales increased 3.3 % , principally due to global growth in sales for packaging and tissue grades . § net sales in aec increased 34.7 % . excluding the additional effect of adopting asc 606 , net sales increased 35.9 % , primarily driven by growth in the leap , boeing 787 , f-35 , and ch-53k programs . 2017 vs. 2016 · changes in currency translation rates had the effect of increasing net sales by $ 3.7 million ( 0.4 % of net sales ) , compared to 2016. that currency translation effect was principally due to the effect on european sales that resulted from the euro strengthening in the second half of 2017 . · excluding the effect of changes in currency translation rates : § consolidated net sales increased 10.3 % . § net sales in mc increased $ 5.1 million , or 0.9 % . § net sales in aec increased $ 75.0 million , or 38.0 % . 27 · the increase in mc net sales was due to the growth in tissue , packaging and pulp grades , which more than offset declines in the publication grades . · the increase in aec net sales was principally due to : § slc sales increased $ 41.1 million . the 2016 slc acquisition occurred in the second quarter of 2016 , resulting in an additional quarter of sales in 2017. the slc sales increase was also due to the ramping up of key programs . story_separator_special_tag · changes in currency translation rates increased mc stg & r expenses by $ 1.1 million , of which approximately $ 0.7 million was attributable to the brazilian real which strengthened during 2017. the remainder of the increase was principally attributable to the stronger euro . · aec stg & r expenses decreased $ 0.7 million , principally due to the net effect of the following individually significant items : § 2016 slc acquisition expenses were $ 5.4 million . there was no comparable item in 2017 . § stg & r expenses of the slc business were $ 1.5 million higher in 2017 , principally due to the timing of the acquisition in 2016 . § stg & r expenses were $ 2.3 million higher in 2017 due to expansion of our facilities outside of the u.s. research and development the following table is a subset of the stg & r table above and summarizes expenses associated with internally funded research and development by business segment : replace_table_token_11_th restructuring in addition to the items discussed above affecting gross profit , and stg & r expenses , operating income was affected by restructuring costs of $ 15.6 million in 2018 , $ 13.5 million in 2017 , and $ 8.5 million in 2016 . 30 the following table summarizes restructuring expense by business segment : replace_table_token_12_th in 2017 , the company announced a proposal to close its mc production facility in sélestat , france , and the proposal was approved by the french labor ministry in 2018. the restructuring program was driven by the company 's need to balance manufacturing capacity with demand . we recorded restructuring expense of $ 1.1 million in 2017 and $ 10.7 million in 2018 , which included severance and outplacement costs for the approximately 50 positions that were terminated under this plan . to date , we have recorded $ 11.8 million of restructuring charges related to these actions . annual cost savings associated with this action principally resulted in lower cost of goods sold in 2018. in 2016 , the company discontinued research and development activities at its mc facility in sélestat , france , which resulted in $ 2.2 million of restructuring expense in 2016. in 2017 and 2018 , we recorded additional restructuring charges of $ 1.6 million and $ 1.0 million , respectively , principally related to additional termination benefits paid to former employees . to date , we have recorded $ 4.8 million of restructuring charges related to these actions . in 2017 , the company initiated work force reductions in aec locations in salt lake city , utah and rochester , new hampshire . the 2017 and 2018 restructuring charges include expenses of $ 5.0 million and $ 1.1 million , respectively . to date , we have recorded $ 6.1 million of restructuring charges related to these actions . aec restructuring charges in 2018 included expenses related to the discontinuation of certain manufacturing processes in salt lake city , resulting in a non-cash restructuring charge of $ 1.7 million , and an additional $ 0.2 million for severance . the non-cash restructuring charge results from an impairment of related manufacturing equipment . the company has decided to dispose of that equipment by sale and the impairment charge reflects management 's estimate of proceeds that may be recovered in the sale . as of december 31 , 2018 , the asset value , net of the impairment charge , is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets . in 2017 , the company decided to discontinue the bear claw® line of hydraulic fracturing components used in the oil and gas industry . this decision resulted in a non-cash restructuring charge of $ 4.5 million for the write-off of intangible assets and equipment , and a $ 2.8 million charge to cost of goods sold for the write-off of inventory . aec restructuring expenses in 2016 were principally related to the consolidation of legacy programs into boerne , texas . in 2015 , the company announced a plan to discontinue manufacturing operations at its mc manufacturing facility in göppingen , germany . in 2016 and 2017 , we recorded additional restructuring charges of $ 2.6 and $ 0.8 million , respectively , related to the final closure of the plant . for more information on our restructuring charges , see note 5 to the consolidated financial statements in item 8 , which is incorporated herein by reference . 31 operating income the following table summarizes operating income/ ( loss ) by business segment : replace_table_token_13_th other earnings items replace_table_token_14_th interest expense interest expense increased $ 1.0 million in 2018 principally due to an increase in average debt outstanding . the higher debt balances related to funding expansion of the aec business . see “ liquidity and capital resources ” for further discussion of borrowings and interest rates . other expense , net the change in other expense , net included the following individually significant items : · in 2018 , we recorded a $ 2.2 million charge related to the settlement of a portion of our non-u.s. defined benefit pension plan liabilities and a curtailment gain of $ 0.7 million related to the restructuring in sélestat , france . · foreign currency revaluations of cash and intercompany balances resulted in gains of $ 0.1 million in 2018 , losses of $ 4.6 million in 2017 , and gains of $ 3.5 million in 2016 . · in 2016 , we recorded a $ 2.5 million charge related to the theft of cash at the company 's subsidiary in japan . in 2017 , we recorded a gain of $ 2.0 million based on an insurance settlement related to that theft . income taxes the company has operations which constitute a taxable presence in 18 countries outside of the united states .
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cash flow summary replace_table_token_17_th ( a ) includes accounts receivable , contract assets , inventories , and accounts payable . 39 operating activities cash provided by operating activities was $ 132.5 million in 2018 , compared to $ 64.2 million in 2017 , and $ 80.9 million in 2016. the net increase in cash provided by operating activities in 2018 was due to increased profitability in both mc and aec , partially offset by increases in working capital . in 2018 , the company made a $ 5 million voluntary contribution to its u.s. pension plan resulting in that plan being close to fully funded . growth in aec has resulted in working capital increases $ 26.0 million in 2018 , $ 21.0 million in 2017 , and $ 41.8 million in 2016. additionally , the noncurrent receivables held by aec have resulted in a use of cash of $ 12.2 million in 2018 , $ 18.8 million in 2017 and $ 14.0 million in 2016. changes in long-term liabilities , deferred taxes and other liabilities resulted in an increase to cash flows of $ 3.5 million in 2018 , a use of cash of totaling $ 11.4 million in 2017 , and an increase of cash totaling $ 0.7 million in 2016. the amount reported for 2017 was principally due to an amendment to a long-term agreement with a licensor for the a380 program . that agreement resulted in a $ 3.0 million cash payment , plus a $ 4.9 million reduction in the present value of the obligation to the supplier . cash paid for income taxes was $ 28.1 million , $ 23.7 million , and $ 23.4 million in 2018 , 2017 , and 2016 , respectively . at december 31 , 2018 , the company had $ 197.8 million of cash and cash equivalents , of which $ 144.2 million was held by subsidiaries outside of the united states .
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this update is effective for annual periods beginning after december 15 , 2019 , and interim periods within those periods , and early adoption 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 elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and financial performance , includes forward-looking statements that are based on current beliefs , plans and expectations and involve risks , uncertainties and assumptions . you should read the `` special note regarding forward-looking statements '' and `` risk factors '' section of this annual report on form 10-k for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are dedicated to transforming the care continuum for patients suffering from debilitating and chronic autoimmune diseases by enabling timely differential diagnosis and optimizing therapeutic intervention . we have developed and are commercializing a portfolio of innovative testing products under our avise ® brand , several of which are based on our proprietary cb-caps technology . our goal is to enable rheumatologists to improve care for patients through the differential diagnosis , prognosis and monitoring of complex autoimmune and autoimmune-related diseases , including sle and ra . our strategy includes leveraging our portfolio of testing products to market therapeutics through our sales channel , targeting the approximately 5,000 rheumatologists across the united states . our business model of integrating testing products and therapeutics positions us to offer targeted solutions to rheumatologists and , ultimately , better serve patients . we currently market 10 testing products under our avise ® brand that allow for the differential diagnosis , prognosis and monitoring of complex autoimmune and autoimmune-related diseases . our lead testing product , avise ® ctd , enables differential diagnosis for patients presenting with symptoms indicative of a wide variety of ctds and other related diseases with overlapping symptoms . we commercially launched avise ® ctd in 2012 and revenue from this product comprised 70 % and 82 % of our revenue for the years ended december 31 , 2020 and 2019 , respectively . there is an unmet need for rheumatologists to add clarity in their ctd clinical evaluation , and we believe there is a significant opportunity for our tests that enable the differential diagnosis of these diseases , particularly for potentially life-threatening diseases such as sle . we are leveraging our portfolio of testing products to establish partnerships with leading pharmaceutical companies , academic research centers and patient advocacy organizations . in december 2018 we entered into the janssen agreement to exclusively promote simponi ® in order to advance our integrated testing and therapeutics strategy and we began direct promotion of simponi ® in january 2019. our simponi ® promotion efforts contributed approximately $ 5.1 million and $ 1.5 million in revenue for the years ended december 31 , 2020 and 2019 , respectively , with our quarterly tiered promotion fee based on the incremental increase in total prescribed units above a predetermined average baseline . see `` -janssen promotion agreement '' below for additional terms of the agreement . we also have agreements with gsk , covance inc. and parexel , among others , that leverage our testing products and or the information generated from such tests . we provide gsk , a leader in lupus therapeutics , our test result data to provide market insight into and help increase awareness of the benefits of early and accurate diagnosis of sle and lupus nephritis , and monitoring disease activity . we partner with academic research centers and patient advocacy organizations , such as brigham and women 's hospital , hospital for special surgery , and duke university as well as the lupus foundation of america , to help improve the quality of life for people affected by autoimmune diseases through programs of research , education , support and advocacy . we plan to pursue additional strategic partnerships that are synergistic with our evolving portfolio of testing products . we perform all of our avise ® tests in our approximately 8,000 square foot clinical laboratory , which is certified by clia and accredited by cap , and located in vista , california . our laboratory is certified for performance of high-complexity testing by cms in accordance with clia . we are approved to offer our products in all 50 states . our clinical laboratory reports all avise ® testing product results within five business days . in the fourth quarter of 2020 , we completed the build-out of approximately 2,000 additional square feet to our clinical laboratory . 77 we market our avise ® testing products using our specialized salesforce . unlike many diagnostic salesforces that are trained only to understand the comparative benefits of their tests , the specialized backgrounds of our salesforce coupled with our comprehensive training enables our sales representatives to interpret results from our de-identified patient test reports and provide unique insights in a highly tailored discussion with rheumatologists . our integrated testing and therapeutics strategy results in a unique opportunity to promote and sell targeted therapies in patient focused sales calls with rheumatologists , including those with whom we have a longstanding relationship and history using our portfolio of testing products . reimbursement for our testing services comes from several sources , including commercial third-party payors , such as insurance companies and health maintenance organizations , government payors , such as medicare , and patients . reimbursement rates vary by product and payor . we continue to focus on expanding coverage among existing contracted rheumatologists and to achieve coverage with commercial payors , laboratory benefit managers and evidence review organizations . story_separator_special_tag in response to the covid-19 pandemic , we have curtailed non-essential travel and equipped most of our employees with the ability to work remotely with the exception of our clinical laboratory employees , and implemented measures to protect the health of our employees and to support the functionality of our clinical laboratory , such as providing personal protective equipment ( including face masks or shields ) and maintaining social distancing . in addition , in the second quarter of 2020 , our salesforce recommenced certain field-based interactions and scaled marketing spend , although access to healthcare providers remains limited and the use of virtual sales tools has increased . from march 2020 through december 31 , 2020 , as a result of the covid-19 pandemic , we terminated our temporary employees and 18 full-time employees , which included three employees at the vice president level . the full extent of which the covid-19 pandemic will directly or indirectly continue to impact our business , results of operations and financial condition , will depend on future developments that are highly uncertain , including as a result of new information that may emerge concerning covid-19 and the actions taken to contain it or treat covid-19 , as well as the economic impact on local , regional , national and international markets . factors affecting our performance in addition to the impact of covid-19 , we believe there are several important factors that have impacted , and that we expect will impact , our operating performance and results of operations , including : ▪ continued adoption of our testing products . since the launch of avise ® ctd in 2012 and through december 31 , 2020 , we have delivered over 487,000 of these tests . for the year ended december 31 , 2020 , 100,450 avise ® ctd tests were delivered , representing an approximate 5 % decline over the same period in 2019. the number of ordering healthcare providers reached a record 2,500 for the year ended december 31 , 2020 , representing approximately 5 % growth over the same period in 2019. in the fourth quarter of 2020 , the number of ordering healthcare providers reached 1,690 compared to 1,707 in the same period in 2019 , and we had a record 635 adopting healthcare providers ( defined as those who previously prescribed at least 11 diagnostic tests in the corresponding period ) compared to 572 in the same period in 2019. a high percentage of adopting healthcare providers continue to order tests in subsequent quarters , as approximately 99 % of adopting healthcare providers from the third quarter of 2020 that order at least one diagnostic test in the fourth quarter of 2020. revenue growth for our testing products will depend on our ability to continue to expand our base of ordering healthcare providers and increase our penetration with existing healthcare providers . ▪ reimbursement for our testing products . our revenue depends on achieving broad coverage and reimbursement for our tests from third-party payors , including both commercial and government payors such as medicare . payment from third-party payors differs depending on whether we have entered into a contract with the payors as a `` participating provider '' or do not have a contract and are considered a `` non-participating provider . '' payors will often reimburse non-participating providers , if at all , at a lower amount than participating providers . we have received a substantial portion of our revenue from a limited number of third-party commercial payors , most of which have not contracted with us to be a participating provider . historically , we have experienced situations where commercial payors proactively reduced the amounts they were willing to reimburse for our tests , and in other situations , commercial payors have determined that the amounts they previously paid were too high and have sought to recover those perceived excess payments by deducting such amounts from payments otherwise being made . when we contract to serve as a participating provider , reimbursements are made pursuant to a negotiated fee schedule and are limited to only covered indications . if we are not able to obtain or maintain coverage and adequate reimbursement from third-party payors , we may not be able to effectively increase our testing volume and revenue as expected . additionally , retrospective reimbursement adjustments can negatively impact our revenue and cause our financial results to fluctuate . 79 ▪ promotion of simponi ® . we began promoting simponi ® in the united states under the janssen agreement in january 2019. our simponi ® promotion efforts contributed approximately $ 5.1 million and $ 1.5 million in revenue for the years ended december 31 , 2020 and 2019 , respectively . we may continue to encounter difficulties in successfully promoting simponi ® and generating significant revenue under the janssen agreement . our ability to effectively promote simponi ® will require us to be successful in a range of activities , including creating demand for simponi ® through our own sales activities as well as those of janssen . in interest of supporting these efforts we plan to continue to evaluate the reach and frequency of our salesforce and the dedication of time and resources to supporting the co-promotion efforts of simponi as compared to other aspects of our business . we expect to encounter difficulties being able to maintain meaningful co-promotion revenue based on sales over the predetermined baseline in 2021 and we may not be successful in materially increasing market share , potentially resulting in the recognition of the minimum promotion fee of $ 0.3 million in the first and second quarter of 2021 , which would cause us to continue to rely on our existing testing products to drive revenue growth . additionally , there is no minimum promotion fee for the second half of 2021 . ▪ development of additional testing products . we rely on sales of our avise ® ctd test to generate the significant majority of our revenue .
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results of operations comparison of the years ended december 31 , 2020 and 2019 : replace_table_token_3_th revenue revenue increased $ 1.6 million , or 3.9 % , for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , primarily due to an increase in revenue to approximately $ 5.1 million from the co-promotion of simponi ® for the year ended december 31 , 2020 compared to approximately $ 1.5 million for the year ended december 31 , 2019. the increase in revenue was partially offset by a decrease in the number of diagnostic tests delivered due in part to impacts of the covid-19 pandemic , coupled with a decrease in average reimbursement per avise ® ctd test . the number of avise ® ctd tests , which accounted for 70 % of revenue for the year ended december 31 , 2020 , decreased to 100,450 tests delivered in the year ended december 31 , 2020 compared to 105,370 tests delivered in the same 2019 period . the number of avise ® ctd tests increased to 28,601 for the three months ended december 31 , 2020 compared to 27,133 tests delivered in the same 2019 period . the adoption of the avise ® ctd test by rheumatologists for the year ended december 31 , 2020 increased to 2,500 ordering healthcare providers as compared to 2,389 ordering healthcare providers in the same 2019 period . the number of ordering healthcare providers decreased to 1,690 for the three months ended december 31 , 2020 compared to 1,707 in the same 2019 period .
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” actual results and experience could differ materially from the anticipated results and other expectations expressed in our forward-looking statements as a result of a number of factors , including but not limited to those discussed in this item and in item 1a - “ risk factors. ” overview business our principal business objective is to enhance shareholder value by achieving predictable and increasing ffo and dividends per share . our prevailing strategy is to focus on long-term investments in a limited number of categories in which we maintain a depth of knowledge and relationships , and which we believe offer sustained performance throughout all economic cycles . our investment portfolio includes ownership of and long-term mortgages on entertainment , education and recreation properties . substantially all of our owned single-tenant properties are leased pursuant to long-term , triple-net leases , under which the tenants typically pay all operating expenses of the property . tenants at our owned multi-tenant properties are typically required to pay common area maintenance charges to reimburse us for their pro-rata portion of these costs . it has been our strategy to structure leases and financings to ensure a positive spread between our cost of capital and the rentals or interest paid by our tenants . we have primarily acquired or developed new properties that are pre-leased to a single tenant or multi-tenant properties that have a high occupancy rate . we have also entered into certain joint ventures and we have provided mortgage note financing . we intend to continue entering into some or all of these types of arrangements in the foreseeable future . historically , our primary challenges have been locating suitable properties , negotiating favorable lease or financing terms ( on new or existing properties ) , and managing our portfolio as we have continued to grow . we believe our management 's knowledge and industry relationships have facilitated opportunities for us to acquire , finance and lease properties . our business is subject to a number of risks and uncertainties , including those described in “ risk factors ” in item 1a of this report . as of december 31 , 2012 , our total assets exceeded $ 2.9 billion ( after accumulated depreciation of approximately $ 0.4 billion ) which included investments in 113 megaplex theatre properties ( including two joint venture properties ) , 38 public charter school properties and various other entertainment and recreation properties located in 36 states , the district of columbia and ontario , canada . the combined owned portfolio consisted of 13.9 million square feet and was 98 % leased . as of december 31 , 2012 , we had invested approximately $ 225.6 million in development land and property under development and approximately $ 455.8 million in mortgage financing for entertainment , education and recreation properties . operating results our total revenue , net income available to common shareholders and funds from operations as adjusted ( `` ffoaa '' ) are detailed below for the years ended december 31 , 2012 and 2011 ( in millions , except per share information ) : replace_table_token_10_th our total revenue , net income available to common shareholders of epr properties and ffoaa per diluted share increased year over year primarily due to investment spending in 2011 and 2012 ( discussed below ) , lower financing rates and favorable percentage revenue related to our interests in water-parks and golf entertainment complexes . our net income available to common shareholders of epr properties was partially offset in both years by impairment charges related to our vineyard and winery properties as we 35 exit that business , as well as preferred share redemption costs . in 2011 , net income available to common shareholders of epr properties was favorably impacted by a gain on the sale of the toronto dundas square entertainment retail center of $ 19.5 million . ffoaa is a non-gaap financial measure . for the definitions and further details on the calculations of ffoaa and certain other non-gaap financial measures , see section below titled `` funds from operations ( ffo ) , funds from operations as adjusted ( ffoaa ) and adjusted funds from operations ( affo ) . '' investment spending overview during 2012 , our total investment spending of $ 298.1 million was an increase of 116 % over our investment spending in 2011. our investment spending in 2011 was lower than it had been historically because of the financial and economic environment at that time . during 2012 , our investment spending in our entertainment segment was $ 121.5 million . as box office performance improved over the latter part of 2011 and 2012 , we were able to find more build-to-suit opportunities available for megaplex theatres at attractive terms with both existing and new tenants . additionally , many megaplex theatre operators are expanding their food and beverage options and are now including in-theatre dining options and alcohol availability . this trend has provided more build-to-suit opportunities for us as well . also , we expanded our investment spending in the family entertainment center category . during 2012 , our investment spending in our education segment was $ 81.4 million and consisted of build-to-suit public charter schools . we continued to establish our position as a leading owner of public charter school real estate and expect this momentum to continue into 2013. we continued to diversify our tenant base , and as of year-end we have 17 different public charter school operators and we expect to continue to expand this number in 2013. as discussed below under `` recent developments , '' certain of our public charter school properties which were operated by our largest tenant in this area , imagine , had their charters revoked and or were closed ; however these events are not expected to impact our ability to collect payments from imagine under their master lease with us . during 2012 , our investment spending in our recreation segment was $ 83.6 million and related primarily to metro ski areas and golf entertainment complexes . story_separator_special_tag estimated unguaranteed residual values at the date of lease inception represent management 's initial estimates of fair value of the leased assets at the expiration of the lease , not to exceed original cost . significant assumptions used in estimating residual values include estimated net cash flows over the remaining lease term and expected future real estate values . the estimated unguaranteed residual value is reviewed on an annual basis or more frequently if necessary . we evaluate the collectibility of our direct financing lease receivable to determine whether it is impaired . a direct financing lease receivable is considered to be impaired when , based on current information and events , it is probable that we will be unable to collect all amounts due according to the existing contractual terms . when a direct financing lease receivable is considered to be impaired , the amount of loss is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the direct financing lease receivable 's effective interest rate or to the value of the underlying collateral , less costs to sell , if such receivable is collateralized . real estate useful lives we are required to make subjective assessments as to the useful lives of our properties for the purpose of determining the amount of depreciation to reflect on an annual basis with respect to those properties . these assessments have a direct impact on our net income . depreciation and amortization are provided on the straight-line method over the useful lives of the assets , as follows : buildings 40 years tenant improvements base term of lease or useful life , whichever is shorter furniture , fixtures and equipment 3 to 25 years 37 impairment of real estate values we are required to make subjective assessments as to whether there are impairments in the value of our rental properties . these estimates of impairment may have a direct impact on our consolidated financial statements . we assess the carrying value of our rental properties whenever events or changes in circumstances indicate that the carrying amount of a property may not be recoverable . certain factors that may occur and indicate that impairments may exist include , but are not limited to : underperformance relative to projected future operating results , tenant difficulties and significant adverse industry or market economic trends . if an indicator of possible impairment exists , a property that is held and used by the company is evaluated for impairment by comparing the carrying amount of the property to the estimated undiscounted future cash flows expected to be generated by the property . if the carrying amount of a property exceeds its estimated future cash flows on an undiscounted basis , an impairment charge is recognized in the amount by which the carrying amount of the property exceeds the fair value of the property . for assets and asset groups that are held for sale , an impairment loss is measured by comparing the fair value of the property , less costs to sell , to the asset ( group ) carrying value . management estimates fair value of our rental properties utilizing independent appraisals and or based on projected discounted cash flows using a discount rate determined by management to be commensurate with the risk inherent in the company . real estate acquisitions upon acquisitions of real estate properties , we record the fair value of acquired tangible assets ( consisting of land , building , tenant improvements , and furniture , fixtures and equipment ) and identified intangible assets and liabilities ( consisting of above and below market leases , in-place leases , tenant relationships and assumed financing that is determined to be above or below market terms ) as well as any noncontrolling interest in accordance with fasb asc topic 805 on business combinations ( “ topic 805 ” ) . in addition , in accordance with topic 805 , acquisition-related costs in connection with business combinations are expensed as incurred , rather than capitalized . allowance for doubtful accounts management makes quarterly estimates of the collectibility of its accounts receivable related to base rents , tenant escalations ( straight-line rents ) , reimbursements and other revenue or income . management specifically analyzes trends in accounts receivable , historical bad debts , customer credit worthiness , current economic trends and changes in customer payment terms when evaluating the adequacy of its allowance for doubtful accounts . in addition , when customers are in bankruptcy , management makes estimates of the expected recovery of pre-petition administrative and damage claims . these estimates have a direct impact on our net income . mortgage notes and other notes receivable mortgage notes and other notes receivable , including related accrued interest receivable , consist of loans that we originated and the related accrued and unpaid interest income as of the balance sheet date . mortgage notes and other notes receivable are initially recorded at the amount advanced to the borrower and we defer certain loan origination and commitment fees , net of certain origination costs , and amortize them over the term of the related loan . interest income on performing loans is accrued as earned . we evaluate the collectibility of both interest and principal for each loan to determine whether it is impaired . a loan is considered to be impaired when , based on current information and events , we determine it is probable that we will be unable to collect all amounts due according to the existing contractual terms . when a loan is considered to be impaired , the amount of loss is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the loan 's effective interest rate or to the fair value of the underlying collateral , less costs to sell , if the loan is collateral dependent .
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results of operations year ended december 31 , 2012 compared to year ended december 31 , 2011 rental revenue was $ 238.4 million for the year ended december 31 , 2012 compared to $ 224.3 million for the year ended december 31 , 2011. rental revenue increased $ 14.1 million from the prior period , of which $ 12.6 million was related to acquisitions completed in 2012 and 2011 , and $ 1.5 million was related to net rent increases on existing properties . percentage rents of $ 1.8 million and $ 1.2 million were recognized during the years ended december 31 , 2012 and 2011 , respectively . straight-line rents of $ 4.6 million and $ 0.7 million were recognized during the years ended december 31 , 2012 and 2011 , respectively . during the year ended december 31 , 2012 , we experienced a decrease of approximately 7.7 % in rental rates on approximately 720,000 square feet with respect to significant lease renewals and new leases on existing properties . additionally , we have funded or have agreed to fund a weighted average of $ 12.24 per square foot in tenant improvements and a weighted average of $ 0.43 per square foot in leasing commissions . tenant reimbursements totaled $ 18.6 million for the year ended december 31 , 2012 compared to $ 18.0 million for the year ended december 31 , 2011 . these tenant reimbursements arise from the operations of our entertainment retail centers . the $ 0.6 million increase is primarily due as an increase in tenant reimbursements at our retail centers in ontario , canada . other income was $ 0.8 million for the year ended december 31 , 2012 compared to $ 0.4 million for the year ended december 31 , 2011 . the $ 0.4 million increase is primarily due to a court settlement payment related to a vineyard property .
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the company will adopt asu story_separator_special_tag management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is a supplement to the accompanying consolidated financial statements and is intended to provide a reader of our financial statements with a narrative from the perspective of management on our businesses , current developments , financial condition , results of operations and liquidity . significant sections of the md & a are as follows : overview . this section , beginning below , provides a description of recent developments we believe are important in understanding our results of operations and financial condition as well as understanding anticipated future trends . it also provides a brief description of significant transactions and events that affect the comparability of financial results and a discussion of the progress being made on our strategic initiatives . consolidated results of operations . this section , beginning on page 37 , provides an analysis of our consolidated results of operations for the three years ended december 31 , 2017 . segment results of operations . this section , beginning on page 43 , provides an analysis of each business segment for the three years ended december 31 , 2017 as well as other businesses , corporate and eliminations . in addition , we discuss significant transactions , events and trends that may affect the comparability of the results being analyzed . liquidity and capital resources . this section , beginning on page 52 , provides an analysis of our cash flows for the three years ended december 31 , 2017 . we also discuss restrictions on cash movements , future commitments and capital resources . critical accounting policies , estimates and recent accounting pronouncements . this section , beginning on page 55 , identifies those accounting principles we believe are most important to our financial results and that require significant judgment and estimates on the part of management in application . we provide all of our significant accounting policies in note 2 to the accompanying consolidated financial statements . other matters . this section , beginning on page 58 , provides a discussion of off-balance sheet arrangements to the extent they exist . in addition , we provide a tabular discussion of contractual obligations , discuss any significant commitments or contingencies and customer concentration . overview our business we are an integrated service provider and marketplace for the real estate and mortgage industries . combining operational excellence with a suite of innovative services and technologies , altisource helps solve the demands of the ever-changing markets we serve . effective january 1 , 2017 , our reportable segments changed as a result of a change in the way our chief executive officer ( our chief operating decision maker ) manages our businesses , allocates resources and evaluates performance , and the related changes in our internal organization . we now report our operations through two new reportable segments : mortgage market and real estate market . in addition , we report other businesses , corporate and eliminations separately . prior to the january 1 , 2017 change in reportable segments , our reportable segments were mortgage services , financial services and technology services . prior year comparable period segment disclosures have been restated to conform to the current year presentation . the mortgage market segment provides loan servicers and originators with marketplaces , services and technologies that span the mortgage lifecycle . the real estate market segment provides real estate consumers and rental property investors with marketplaces and services that span the real estate lifecycle . in addition , the other businesses , corporate and eliminations segment includes businesses that provide post-charge-off consumer debt collection services primarily to debt originators ( e.g. , credit card , auto lending and retail credit ) , customer relationship management services primarily to the utility , insurance and hotel industries and it infrastructure management services . other businesses , corporate and eliminations also includes interest expense and costs related to corporate support functions including executive , finance , law , compliance , human resources , vendor management , facilities , risk management , and sales and marketing costs not allocated to the business units , as well as eliminations between the reportable segments . in addition , the other businesses , corporate and eliminations segment includes the cost of certain facilities not allocated to the business units . we classify revenue in three categories : service revenue , revenue from reimbursable expenses and non-controlling interests . in evaluating our performance , we focus on service revenue . service revenue consists of amounts attributable to our fee-based services and sales of short-term investments in real estate . reimbursable expenses and non-controlling interests are pass-through items for which we earn no margin . reimbursable expenses consist of amounts we incur on behalf of our customers in performing our fee-based services that we pass directly on to our customers without a markup . non-controlling interests represent the earnings 32 of lenders one . lenders one is a mortgage cooperative managed , but not owned , by altisource . lenders one is included in revenue and reduced from net income to arrive at net income attributable to altisource . we have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . strategy and growth businesses we are focused on becoming one of the premier providers of mortgage and real estate marketplaces and related services to a broad and diversified customer base . within the mortgage and real estate market segments , we facilitate transactions and provide products , solutions and services related to home sales , home purchases , home rentals , home maintenance , mortgage originations and mortgage servicing . each of our strategic businesses provides altisource the potential to grow and diversify our customer and revenue base . we believe these businesses operate in very large markets and directly leverage our core competencies and distinct competitive advantages . a further description of our four strategic businesses follows . story_separator_special_tag in january 2018 , ocwen disclosed that it and nrz entered into new agreements to accelerate the implementation of certain parts of their july 2017 arrangement in order to achieve the intent of the july 2017 agreements sooner while ocwen continues the process of obtaining the third party consents necessary to transfer the subject msrs to nrz . on august 28 , 2017 , altisource , through its licensed subsidiaries , entered into the brokerage agreement with nrz which extends through august 2025. under this agreement and related amendments , altisource remains the exclusive provider of brokerage services for reo associated with the subject msrs when ocwen transfers such msrs to nrz or when nrz acquires both an additional economic interest in such msrs and the right to designate the broker for reo properties in such portfolios . the brokerage agreement provides that altisource is the exclusive provider of brokerage services for reo associated with the subject msrs , irrespective of the sub-servicer . nrz 's brokerage subsidiary will receive a cooperative brokerage commission on the sale of certain reo properties from these portfolios subject to certain exceptions . on august 28 , 2017 , altisource and nrz also entered into the services loi to enter into a services agreement , setting forth the terms pursuant to which altisource would remain the exclusive service provider of fee-based services for the subject msrs through august 2025. the services loi was amended to continue through february 28 , 2018 ( with a further automatic extension through march 31 , 2018 provided that the parties continue to negotiate the services agreement in good faith ) . the brokerage agreement can be terminated by altisource if the services agreement is not signed between altisource and nrz during the term of the services loi . the brokerage agreement may otherwise only be terminated upon the occurrence of certain specified events . termination events include , but are not limited to , a breach of the terms of the brokerage agreement ( including , without limitation , the failure to meet performance standards and non-compliance with law in a material respect ) , the failure to maintain licenses which failure materially prevents performance of the contract , regulatory allegations of non-compliance resulting in an adversarial proceeding against nrz , voluntary or involuntary bankruptcy , appointment of a receiver , disclosure in a form 10-k or form 10-q that there is significant uncertainty about altisource 's ability to continue as a going concern , failure to maintain a specified level of cash and an unapproved change of control . following the execution of the services agreement , we anticipate that revenue from nrz would increase and revenue from ocwen would decrease . as subject msrs continue to transfer from ocwen to nrz , we anticipate that nrz will become our largest customer . had all of the subject msrs been transferred to nrz and the brokerage agreement and the services agreement with nrz were in place as of january 1 , 2017 , we estimate that approximately 50 % of our 2017 revenue would have been related to nrz . there can be no assurance that the parties will reach an agreement with respect to the terms of the services agreement or that a services agreement will be entered into on a timely basis or at all . ocwen has disclosed that it is subject to a number of ongoing federal and state regulatory examinations , cease and desist orders , consent orders , inquiries , subpoenas , civil investigative demand , requests for information and other actions and is subject to pending legal proceedings , some of which include claims against ocwen for substantial monetary damages . for example , on may 15 , 34 2017 , ocwen disclosed that on april 20 , 2017 , the cfpb and the state of florida filed separate complaints in the united states district court for the southern district of florida against ocwen alleging violations of federal consumer financial law and , in the case of florida , florida statutes . as another example , on may 15 , 2017 , ocwen also disclosed that on april 28 , 2017 , the commonwealth of massachusetts filed a lawsuit against ocwen in the superior court for the commonwealth of massachusetts alleging violations of state consumer financial laws relating to ocwen 's servicing business , including lender-placed insurance and property preservation fees . ocwen disclosed that the complaints seek to obtain permanent injunctive relief , consumer redress , refunds , restitution , disgorgement , damages , civil penalties , costs and fees and other relief . the forgoing or other matters could result in , and in some cases , have resulted in , adverse regulatory or other actions against ocwen . previous regulatory actions against ocwen resulted in subjecting ocwen to independent oversight of its operations and placing certain restrictions on its ability to acquire servicing rights . in addition to the above , ocwen may become subject to future federal and state regulatory investigations , cease and desist orders , consent orders , inquiries , subpoenas , civil investigative demands , requests for information , other matters or legal proceedings , any of which could also result in adverse regulatory or other actions against ocwen . the foregoing may have significant adverse effects on ocwen 's business and or our continuing relationship with ocwen . for example , ocwen may be required to alter the way it conducts business , including the parties it contracts with for services ( including it and software services ) , it may be required to seek changes to its existing pricing structure with us , it may lose its non-gse servicing rights or subservicing arrangements or may lose one or more of its state servicing or origination licenses . additional regulatory actions or adverse financial developments may impose additional restrictions on or require changes in ocwen 's business that could require it to sell assets or change its business operations .
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segment results of operations effective january 1 , 2017 , our reportable segments changed as a result of a change in the way our chief operating decision maker manages our businesses , allocates resources and evaluates performance , and the related changes in our internal organization . see item 1 of part i , “ reportable segments , ” for additional information regarding changes in our reportable segments . prior year comparable period segment disclosures have been restated to conform to the current year presentation . the following section provides a discussion of pretax results of operations of our business segments . transactions between segments are accounted for as third party arrangements for purposes of presenting segment results of operations . financial information for our segments was as follows : replace_table_token_17_th replace_table_token_18_th 43 replace_table_token_19_th 44 mortgage market revenue revenue by business unit was as follows for the years ended december 31 : replace_table_token_20_th we recognized service revenue of $ 754.1 million for the year ended december 31 , 2017 , a 3 % decrease compared to the year ended december 31 , 2016 . the decrease in service revenue was primarily a result of the reduction in the size of ocwen 's portfolio and number of delinquent loans in its portfolio resulting from loan repayments , loan modifications , short sales , reo sales and other forms of resolution in the servicer solutions business .
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no tax audits were commenced or were in process during the years ended december 31 , 2020 and 2019. no tax related interest or penalties were incurred during the years ended december 31 , 2020 and 2019. the company 's federal , new york state and city , and state of california income tax returns filed since inception remain subject to examination . note 6 – notes payable during the years ended december 31 , 2020 and 2019 , the company recorded cash interest expense of $ 207,092 and $ 114,946 , respectively , and non-cash amortization of debt discount and debt issuance costs of $ 915,994 and $ 625,310 , respectively , which is included in interest expense on the consolidated statement of operations . as of december 31 , 2020 and 2019 , the company had $ 4,599 and $ 117,912 , respectively , of accrued interest related to notes payable . during the years ended december 31 , 2020 and 2019 , the company recorded cash interest expense – related parties of $ 46,171 and $ 4,204 , respectively , and non-cash amortization of debt discount and debt issuance costs – related parties of $ 357,201 and $ 75,635 , respectively . as of december 31 , 2020 and 2019 , the company had $ 0 and $ 4,204 , respectively , of accrued interest - related parties related notes payable . f- 16 kubient , inc. notes to consolidated financial statements for the years ended december 31 , 2020 and 2019 during the years ended december 31 , 2020 and 2019 , the company made aggregate principal repayments of notes payable of $ 95,000 and $ 90,427 , respectively , and $ 150,000 and $ 56,367 , respectively , of repayments of notes payable – related party . notes payable during the year ended december 31 , 2018 , the company story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes thereto included elsewhere in this annual report . this discussion and analysis contains forward-looking statements that are based upon current expectations and involve risks , assumptions and uncertainties . overview kubient , a delaware corporation , was incorporated in may 2017 to solve some of the most significant problems facing the global digital advertising industry . our experienced team of marketing and technology veterans has developed the audience cloud , a modular , highly scalable , transparent , cloud-based software platform for real-time trading of digital , programmatic advertising . our platform 's open marketplace gives both advertisers ( ad space buyers ) and publishers ( ad space sellers ) the ability to use machine learning in the most critical parts of any programmatic advertising inventory auction , while simultaneously and significantly reducing those advertisers and publishers ' exposure to fraud , even in a pre-bid environment . by becoming a one stop shop for advertisers and publishers , providing them with the technology to deliver meaningful messages to their target audience , all in one place , on a single platform that is computationally efficient , transparent , and as safely fraud-free as possible , we believe that our platform ( and the application of its machine learning algorithms ) leads to increased publisher revenue , lower advertiser cost , reduced latency and increased economic transparency during the advertising auction process . furthermore , we believe that our technology allows advertisers to reach entire audiences rather than buying single impressions from disparate sources . we call this approach audience-based marketing . combining this approach with our proprietary solutions for fraud prevention and the reduction of latency in auctions , we are confident that we are poised to alter the status quo as the next generation of the industry 's advertising inventory auction infrastructure . 17 story_separator_special_tag ebitda is a financial measure that is not calculated in accordance with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) . management believes that because adjusted ebitda excludes ( a ) certain non-cash expenses ( such as depreciation , amortization and stock-based compensation ) and ( b ) expenses that are not reflective of the company 's core operating results over time ( such as stock-based compensation expense ) , this measure provides investors with additional useful information to measure the company 's financial performance , particularly with respect to changes in performance from period to period . the company 's management uses ebitda and adjusted ebitda ( a ) as a measure of operating performance , ( b ) for planning and forecasting in future periods , and ( c ) in communications with the company 's board of directors concerning the company 's financial performance . the company 's presentation of ebitda and adjusted ebitda are not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation and should not be used by investors as a substitute or alternative to net income or any measure of financial performance calculated and presented in accordance with u.s. gaap . instead , management believes ebitda and adjusted ebitda should be used to supplement the company 's financial measures derived in accordance with u.s. gaap to provide a more complete understanding of the trends affecting the business . although adjusted ebitda is frequently used by investors and securities analysts in their evaluations of companies , adjusted ebitda has limitations as an analytical tool , and investors should not consider it in isolation or as a substitute for , or more meaningful than , amounts determined in accordance with u.s. gaap . story_separator_special_tag the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as the reported expenses during the reporting periods . the accounting estimates that require our most significant , difficult and subjective judgments have an impact on revenue recognition , the determination of share-based compensation and financial instruments . we evaluate our estimates and judgments on an ongoing basis . actual results may differ materially from these estimates under different assumptions or conditions . the following is not intended to be a comprehensive list of all of our accounting policies or estimates . our significant accounting policies are more fully described in note 2 to our consolidated financial statements included elsewhere in this annual report . revenue recognition the company maintains a contract with each customer and supplier , which specify the terms of the relationship and potential access to the company 's platform . the company provides a service to its customers ( the buy-side ad networks who work for advertisers ) by connecting advertisers and publishers . for this service , the company earns a percentage of the amount that is paid by the advertiser , who wants to run a digital advertising campaign , which , in some cases , is reduced by the amount paid to the publisher , who wants to sell its ad space to the advertiser . the transaction price is determined based on the consideration to which it expects to be entitled , including the impact of any implicit price concessions over the course of the contract . the company 's performance obligation is to facilitate the publication of advertisements . the performance obligation is satisfied at the point in time that the ad is placed . subsequent to a bid being won , the associated fees are generally not subject to refund or adjustment . historically , any refunds and adjustments have not been material . the revenue recognized is the amount the company is responsible to collect from the customer related to the placement of an ad ( the “ gross billing ” ) , less the amount the company remits to the supplier for the ad space ( the “ supplier cost ” ) , if any . the determination of whether the company is the principal or agent , and hence whether to report revenue on a gross basis equal to the gross billing or on a net basis for the difference between the gross billing and supplier cost , requires judgment . the company acts as an agent in arranging via its platform for the specified good ( the ad space ) to be purchased by the advertiser , as it does not control the goods or services being transferred to the end customer , it does not take responsibility for the quality or acceptability of the ad space , it does not bear inventory risk , nor does it have discretion in establishing price of the ad space . as a result , the company recognizes revenue on a net basis for the difference between the gross billing and the supplier cost . 22 the company invoices customers on a monthly basis for the amount of gross billings in the relevant period . invoice payment terms , negotiated on a customer-by- customer basis , are typically between 45 to 90 days . however , for certain agency customers with sequential liability terms as specified by the interactive advertising bureau , ( i ) payments are not due to the company until such agency customers has received payment from its customers ( ii ) the company is not required to make a payment to its supplier until payment is received from the company 's customer and ( iii ) the supplier is responsible to pursue collection directly with the advertiser . as a result , once the company has met the requirements of each of the five steps under asc 606 , the company 's accounts receivable are recorded at the amount of gross billings which represent amounts it is responsible to collect and accounts payable , if applicable , are recorded at the amount payable to suppliers . in the event step 1 under asc 606 is not met , the company does not record either the accounts receivable or accounts payable . accordingly , both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis . accounts receivable and accounts payable accounts receivable are carried at their contractual amounts , less an estimate for uncollectible amounts . management estimates the allowance for bad debts based on existing economic conditions , the financial conditions of the customers , and the amount and age of past due accounts . receivables are considered past due if full payment is not received by the contractual due date . past due accounts are generally written off against the corresponding accounts payable in the event that the company 's contract contains sequential liability terms , with the excess receivable being written off against the allowance for bad debts only after all collection attempts have been exhausted . accounts receivable are recorded at the amount the company is responsible to collect from the customer . in the event that the company does not collect the gross billing amount from the customer , the company generally is not contractually obligated to pay the associated supplier cost . intangible assets intangible assets are comprised of costs to acquire and develop computer software , including ( i ) the costs to acquire third-party data which is used to improve the company 's artificial intelligence platform for client use as well as ( ii ) the costs to acquire third-party software as well as the related source code . the intangible assets have estimated useful lives of two years
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results of operations year ended december 31 , 2020 compared with year ended december 31 , 2019 replace_table_token_1_th net revenues for the year ended december 31 , 2020 , net revenues increased by $ 2,722,394 or 1,533 % , to $ 2,900,029 from $ 177,635 for the year ended december 31 , 2019. the increase was primarily due to approximately $ 1,300,000 of revenue generated in connection with beta testing of kai , our fraud detection service , which commenced during the 2020 period , as well as approximately $ 1,496,000 of net revenue generated from one new customer in the 2020 period . we do not expect to generate future revenue from our beta testing of kai . that being said , we do expect that revenues will increase , in part , based upon customers adopting our kai product in the future , however , we can not provide any assurance of this . technology for the year ended december 31 , 2020 , technology expenses increased by $ 658,350 or 44 % , to $ 2,144,406 from $ 1,486,056 for the year ended december 31 , 2019. the increase is primarily due to an increase of approximately $ 410,000 of compensation expenses resulting from increased headcount , one-time bonuses earned by certain employees in connection with their efforts that led to the successful completion of the ipo and follow-on offering , which bonuses were approved by our board of directors during the year ended december 31 , 2020 , as well as additional compensation in connection with our salary reduction program , approximately $ 295,000 in amortization expense of our intangible assets , and increased cloud hosting and subscription costs of approximately $ 120,000 , partially offset by the decrease in other technology expense of approximately $ 215,000 due to the termination of consulting services .
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” in addition , because the following discussion includes numerous forward-looking statements relating to us , our results of operations , financial condition and business , reference is made to the information set forth in the section of part i immediately preceding item 1 above under the caption “ forward-looking statements. ” overview cal-maine foods , inc. ( “ we , ” “ us , ” “ our , ” or the “ company ” ) is primarily engaged in the production , grading , packaging , marketing and distribution of fresh shell eggs . our fiscal year end is the saturday nearest to may 31 which was june 1 , 2019 ( 52 weeks ) , june 2 , 2018 ( 52 weeks ) , and june 3 , 2017 ( 53 weeks ) for the most recent three fiscal years . our operations are fully integrated . we hatch chicks , grow and maintain flocks of pullets ( female chickens , under 18 weeks of age ) , layers ( mature female chickens ) and breeders ( male and female birds used to produce fertile eggs to be hatched for egg production flocks ) , manufacture feed , and produce , process and distribute shell eggs . we are the largest producer and marketer of shell eggs in the u.s. we market the majority of our shell eggs in the southwestern , southeastern , mid-western , and mid-atlantic regions of the u.s. we market shell eggs through our extensive distribution network to a diverse group of customers , including national and regional grocery store chains , club stores , foodservice distributors , and egg product consumers . our operating results are directly tied to egg prices , which are highly volatile and subject to wide fluctuations , and are outside of our control . for example , the urner-barry southeastern regional large egg market price per dozen eggs , for our fiscal 2006-2019 ranged from a low of $ 0.55 during fiscal 2006 to a high of $ 3.00 during fiscal 2018. the shell egg industry has traditionally been subject to periods of high profitability followed by periods of significant loss . in the past , during periods of high profitability , shell egg producers tended to increase the number of layers in production with a resulting increase in the supply of shell eggs , which generally caused a drop in shell egg prices until supply and demand returned to balance . as a result , our financial results from year to year may vary significantly . shorter term , retail sales of shell eggs historically have been greatest during the fall and winter months and lowest during the summer months . our need for working capital generally is highest in the last and first fiscal quarters ending in may/june and august/september , respectively , when egg prices are normally at seasonal lows . prices for shell eggs fluctuate in response to seasonal factors and a natural increase in shell egg production in the spring and early summer . shell egg prices tend to increase with the start of the school year and are highest prior to holiday periods , particularly thanksgiving , christmas , and easter . consequently , we generally experience lower sales and net income in our first and fourth fiscal quarters ending in august/september and may/june , respectively . because of the seasonal and quarterly fluctuations , comparisons of our sales and operating results between different quarters within a single fiscal year are not necessarily meaningful comparisons . from april through june 2015 , our industry experienced a significant avian influenza ( “ ai ” ) outbreak , primarily in the upper midwestern u.s. there were no positive tests for ai at any of our locations . based on several published industry estimates , we believe approximately 12 % of the national flock of laying hens was affected . during april through june 2015 , the affected laying hens were either destroyed by the disease or euthanized . the usda data showed the supply of laying hens decreased substantially . since that time , it recovered and eventually exceeded pre-ai levels by late 2016. in 2017 , the national flock grew approximately 1 % over the prior year 's levels . in 2018 flock levels began to grow at more rapid pace , ending the year approximately 3 % higher than 2017. this growth has continued as recent usda reports show the hatch rate increased 2 % year over year for the first five months of calendar 2019. given this trend , the increase in the u.s. laying hen flock and excess shell egg supply could continue to create pricing pressure . 22 egg prices increased significantly during the summer and fall of 2015. the average urner-barry thursday prices for the large market ( i.e . generic shell eggs ) in the southeastern region for the months of june through november 2015 was $ 2.32 per dozen , with a peak of $ 2.97 in august . subsequent to november 2015 , shell egg prices declined . the urner barry price index ( `` ub index '' ) hit a decade-low level in both our fiscal 2016 fourth quarter and our fiscal 2017 second quarter . in fiscal 2018 , non-specialty shell egg prices rebounded significantly due to strong demand before falling again in fiscal 2019 based on oversupply issues . these fluctuations illustrate the volatility of our industry . our net average selling price per dozen shell eggs for fiscal 2019 decreased to $ 1.265 compared to $ 1.397 for fiscal 2018 , including a decrease in non-specialty shell egg prices to $ 1.041 in fiscal 2019 compared to $ 1.226 in fiscal 2018 . we are one of the largest producers and marketers of value-added specialty shell eggs in the u.s. for accounting purposes , we classify nutritionally enhanced , cage-free , organic and brown eggs as specialty shell eggs . specialty shell eggs have been a significant and growing segment of the market in recent years . story_separator_special_tag total dozens sold in fiscal 2019 were 1,038.9 million , an increase of 1.2 million dozen , or 0.1 % , compared to 1,037.7 million sold in fiscal 2018 story_separator_special_tag style= '' font-family : inherit ; font-size:11pt ; '' > 26 cost of sales cost of sales consists of costs directly related to producing , processing and packing shell eggs , purchases of shell eggs from outside producers , processing and packing of liquid and frozen egg products and other non-egg costs . farm production costs are those costs incurred at the egg production facility , including feed , facility , hen amortization , and other related farm production costs . the following table presents the key variables affecting our cost of sales : replace_table_token_5_th cost of sales for the fiscal year ended june 1 , 2019 was $ 1,138.3 million , a decrease of $ 3.6 million , or 0.3 % , compared to $ 1,141.9 million for fiscal 2018 . comparing fiscal 2019 to fiscal 2018 , average cost per dozen purchased from outside shell egg producers decreased while cost of feed ingredients and dozens produced increased . for the 2019 fiscal year we produced 84.4 % of the eggs sold by us , as compared to 84.2 % for the previous year . feed cost for fiscal 2019 was $ 0.415 per dozen , compared to $ 0.394 per dozen for the prior fiscal year , an increase of 5.3 % . the increase in feed costs was primarily related to less favorable crop conditions in the south central u. s. , which resulted in higher ingredient prices at some of our larger feed mill operations . the increase in feed cost per dozen resulted in an increase in cost of sales of $ 18.4 million for fiscal 2019 compared with fiscal 2018 . for the thirteen weeks ended june 1 , 2019 , compared to the thirteen weeks ended june 2 , 2018 , cost of sales decreased $ 34.1 million , or 11.3 % , from $ 301.9 million in the fourth quarter of fiscal 2018 , to $ 267.8 million in the fourth quarter of fiscal 2019. average cost per dozen purchased from outside shell egg producers decreased 42.3 % due to significantly lower egg selling prices in the quarter . feed cost per dozen for the fourth quarter of fiscal 2019 was $ 0.411 , compared to $ 0.416 for the same quarter of fiscal 2018 , a decrease of 1.2 % . gross profit , as a percentage of net sales , was 16.4 % for fiscal 2019 , compared to 24.0 % for fiscal 2018 . the decrease resulted primarily from lower selling prices for non-specialty eggs . 27 selling , general , and administrative expenses replace_table_token_6_th selling , general and administrative expenses ( `` sg & a '' ) , which include costs of marketing , distribution , accounting and corporate overhead , were $ 174.8 million in fiscal 2019 , a decrease of $ 4.5 million , or 2.5 % , compared to fiscal 2018 . as a percent of net sales , selling , general and administrative expense increased from 11.9 % in fiscal 2018 to 12.8 % in fiscal 2019 , due to the decrease in net sales in fiscal 2019 . payroll and overhead increased $ 1.2 million , or 3.1 % , compared to the same period of last year primarily due to annual salary increases . as a percentage of net sales , payroll and overhead is 2.8 % and 2.5 % for fiscal 2019 and 2018 , respectively . as a percentage of net sales , delivery expense is 3.9 % and 3.5 % for fiscal 2019 and 2018 , respectively . other expenses decreased $ 5.2 million , or 16.7 % , primarily due to reduced legal expense as a result of the company 's settlement of several antitrust claims in the prior year . the fiscal 2018 amount also included costs associated with preparation for the company 's special shareholders meeting held in july 2018. insurance expense , which is also a part of other expenses , was flat year over year due to decreases in the company 's liability for incurred but not reported claims being offset by overall increases in premiums for fiscal 2019 compared with fiscal 2018. replace_table_token_7_th sg & a expense was $ 42.3 million for the thirteen weeks ended june 1 , 2019 , a decrease of $ 7.4 million , or 14.8 % , compared to $ 49.7 million for the thirteen weeks ended june 2 , 2018 . the decrease in specialty egg expense for the fiscal 2019 fourth quarter is attributable to the timing of advertising and promotions as well as a decrease in specialty egg dozens sold resulting in decreased franchise expense . payroll and overhead decreased $ 526,000 , or 5.2 % , compared to the same period of last year due to timing of bonus accruals . stock compensation expense relates to the amortization of compensation expense for grants of restricted stock and is dependent on the closing prices of the company 's stock on the grant dates . the weighted average grant date fair value of our restricted stock awards at june 1 , 2019 , was $ 43.20 , a 2.1 % increase over the value of $ 42.30 at june 2 , 2018 . other expenses decreased 27.6 % from $ 8.4 million for the thirteen weeks ended june 2 , 2018 to $ 6.1 million for the same period of fiscal 2019 primarily due to a reduction in the liability for incurred but not reported insurance claims at june 1 , 2019 as well as a reduction in legal expenses . 28 legal settlement expense legal settlement expense for fiscal 2019 was $ 2.3 million compared to $ 80.8 million for fiscal 2018 , primarily reflecting settlements of antitrust claims against the company .
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resulting in an increase in net sales of $ 1.7 million for fiscal 2019 compared with the prior year . net average selling price of shell eggs decreased from $ 1.397 per dozen for fiscal 2018 to $ 1.265 per dozen for fiscal 2019 , a decrease of $ 0.132 per dozen , or 9.4 % , primarily reflecting an abundance of eggs in the market . the decrease in sales price in fiscal 2019 from fiscal 2018 resulted in a corresponding decrease in net sales of approximately $ 137.1 million . our operating results are significantly affected by wholesale shell egg market prices , which are outside of our control . small changes in production or demand levels can have a large effect on shell egg prices . egg products accounted for approximately 3 % of our net sales . these revenues were $ 41.5 million for the fiscal year ended june 1 , 2019 compared with $ 43.5 million for the fiscal 2018 . the table below represents an analysis of our non-specialty and specialty , as well as co-pack specialty , shell egg sales . following the table is a discussion of the information presented in the table . replace_table_token_4_th 25 non-specialty shell eggs include all shell egg sales not specifically identified as specialty or co-pack specialty shell egg sales . this market is characterized generally by an inelasticity of demand , and small increases in production or decreases in demand can have a large adverse effect on prices and vice-versa . in fiscal 2019 , non-specialty shell eggs represented approximately 61.4 % of our shell egg revenue , compared to 65.6 % for fiscal 2018 , reflecting the large decrease in net average selling price for non-specialty eggs from $ 1.226 per dozen in fiscal 2018 to $ 1.041 per dozen in fiscal 2019 .
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the allowances are based on the company 's regular assessment of the credit-worthiness and financial condition of specific customers , as well as its historical experience with bad debts and customer deductions , receivables aging , current economic trends , geographic or country-specific risks and the financial condition of its distribution channels . inventories inventories are stated at the lower of cost or market . costs are computed under the standard cost method , which approximates actual costs determined on the first-in , first-out basis . story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these statements as a result of certain factors , including those set forth above in item 1a , risk factors , and below in item 7a , quantitative and qualitative disclosures about market risk . please read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included under item 8 of this annual report on form 10-k. overview of our company logitech is a world leader in designing , manufacturing and marketing products that have an everyday place in people 's lives , connecting them to the digital experiences they care about . more than 35 years ago logitech created products to improve experiences around the pc platform , and now it is designing products that enable better experiences consuming , sharing and creating any digital content ( e.g. , music , gaming , video ) , whether it is on a computer , mobile device or in the cloud . logitech 's brands of include logitech , jaybird , logitech g and ultimate ears . our products participate in five large markets that all have growth opportunities : music , gaming , video collaboration , smart home and creativity & productivity . we sell our products to a broad network of domestic and international customers , including direct sales to retailers and e-tailers , and indirect sales through distributors . our worldwide channel network includes consumer electronics distributors , retailers , mass merchandisers , specialty electronics stores , computer and telecommunications stores , value-added resellers and online merchants . we operate in a single operating segment : peripherals . in fiscal years prior to fiscal year 2016 , we operated in two segments : peripherals , including retail and oem products ; and lifesize video conferencing . during fiscal year 2016 , we divested the lifesize video conferencing segment , and exited the oem business . our financial results treat the lifesize segment as discontinued operations for all the periods presented in this annual report on form 10-k. from time to time , we may seek to partner with , or acquire when appropriate , companies that have products , personnel , and technologies that complement our strategic direction . we continually review our product offerings and our strategic direction in light of our profitability targets , competitive conditions , changing consumer trends and the evolving nature of the interface between the consumer and the digital world . on september 15 , 2016 , we acquired saitek product line for a total consideration of approximately $ 13.0 million ( the `` saitek acquisition '' ) . the saitek acquisition is expected to enhance the breadth and depth of our product offerings and expand our engineering capabilities in simulation products . on april 20 , 2016 , we acquired jaybird llc of salt lake city , utah ( `` jaybird '' ) for a purchase price of $ 54.2 million , including a working capital adjustment and payment of a line-of-credit on behalf of jaybird , along with an additional earn-out of up to $ 45 million in cash based on achievement of growth targets over two years ( the `` jaybird acquisition '' ) . jaybird is a leader in wireless audio wearables for sports and active lifestyles , and the acquisition of jaybird expands our long-term growth potential in our music market . on december 28 , 2015 , we and lifesize , inc. , a wholly owned subsidiary of logitech which holds the assets of our lifesize video conferencing business , entered into a stock purchase agreement with three venture capital firms . immediately following the december 28 , 2015 closing of the transaction , the venture capital firms held 62.5 % of the outstanding shares of lifesize , which resulted in a divestiture of the lifesize video conferencing business by us . the historical results of operations and the financial position of lifesize are included in the consolidated financial statements of logitech and are reported as discontinued operations within this annual report on form 10-k. we exited our oem business during our fiscal quarter ended december 31 , 2015. the results of our oem business are included in our financial statements as part of continuing operations for the nine months ended december 31 , 2015 and prior periods . there is no revenue and cost associated with this business in future periods . summary of financial results our total net sales for fiscal year 2017 increased 10 % in comparison to fiscal year 2016 due to an increase in retail sales , partially offset by a decrease in oem sales as a result of exiting the oem business in the third quarter ended december 31 , 2015. the results of operations for jaybird and saitek have been included in our consolidated logitech international s.a. | fiscal 2017 form 10-k | 39 statements of operations from the acquisition date . for fiscal year 2017 , jaybird and saitek contributed a total of $ 65.7 million of net sales . retail sales during fiscal year 2017 increased 14 % compared to fiscal year 2016 . retail sales increased 12 % , 19 % and 11 % in the americas ( `` amr '' ) , emea and asia pacific , respectively . story_separator_special_tag although these estimates are based on management 's best knowledge of current events and actions that may impact us in the future , actual results could differ from those estimates . management has discussed the development , selection and disclosure of these critical accounting estimates with the audit committee of the board of directors . we believe the following accounting estimates are most critical to our business operations and to an understanding of our financial condition and results of operations , and reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements . accruals for customer programs we record accruals for cooperative marketing arrangements , customer incentive programs , pricing programs and product returns . an allowance against accounts receivable is recorded for accruals and program activity related to our direct customers and indirect customers who receive payments for program activity through our direct customers . a liability is recorded for accruals and program activity related to our indirect customers who receive payments directly and do not have a right of offset against a receivable balance . the estimated cost of these programs is usually recorded as a reduction of revenue . if we receive a separately identifiable benefit from the customer and can reasonably estimate the fair value of that benefit , such cost is reflected in operating expenses . significant management judgment and estimates must be used to determine the cost of these programs in any accounting period . certain customer programs require management to estimate the percentage of those programs which will not be claimed or will not be earned by customers based on historical experience and on the specific terms and conditions of particular programs . the percentage of these customer programs that will not be claimed or earned is commonly referred to as `` breakage '' . cooperative marketing arrangements . we enter into customer marketing programs with many of our distribution and retail customers , and with certain indirect partners , allowing customers to receive a credit equal to a set percentage of their purchases of our products , or a fixed dollar credit for various marketing programs . the objective of these arrangements is to encourage advertising and promotional events to increase sales of our products . accruals for these marketing arrangements are recorded at the later of the date the revenue is recognized or the date the incentive is offered , based on negotiated terms , historical experience and inventory levels in the channel . customer incentive programs . customer incentive programs include performance-based incentives and consumer rebates . we offer performance-based incentives to our distribution customers , retail customers and indirect partners based on pre-determined performance criteria . accruals for performance-based incentives are recognized as a reduction of the sale price at the time of sale . estimates of required accruals are determined based on negotiated terms , consideration of historical experience , anticipated volume of future purchases , and inventory levels in the channel . consumer rebates are offered from time to time at our discretion for the primary benefit of logitech international s.a. | fiscal 2017 form 10-k | 41 end-users . accruals for the estimated costs of consumer rebates and similar incentives are recorded at the later of time of sale or when the incentive is offered , based on the specific terms and conditions . pricing programs . we have agreements with certain customers that contain terms allowing price protection credits to be issued in the event of a subsequent price reduction . at our discretion , we also offer special pricing discounts to certain customers . special pricing discounts are usually offered only for limited time periods or for sales of selected products to specific indirect partners . our decision to make price reductions is influenced by product life cycle stage , market acceptance of products , the competitive environment , new product introductions and other factors . accruals for estimated expected future pricing actions are recognized at the time of sale based on analysis of historical pricing actions by customer and by product , inventories owned by and located at distributors and retailers , current customer demand , current operating conditions , and other relevant customer and product information , such as stage of product life-cycle . returns . we grant limited rights to return products . return rights vary by customer , and range from just the right to return defective product to stock rotation rights limited to a percentage of sales approved by management . estimates of expected future product returns are recognized at the time of sale based on analyses of historical return trends by customer and by product , inventories owned by and located at distributors and retailers , current customer demand , current operating conditions , and other relevant customer and product information . upon recognition , we reduce sales and cost of goods sold for the estimated return . return trends are influenced by product life cycle status , new product introductions , market acceptance of products , sales levels , product sell-through , the type of customer , seasonality , product quality issues , competitive pressures , operational policies and procedures , and other factors . return rates can fluctuate over time , but are sufficiently predictable to allow us to estimate expected future product returns . in connection with our sales growth strategy in emea , we expanded our use of performance-based programs in the region in fiscal years 2016 and 2017. during fiscal 2017 , as customer incentive , cooperative marketing and pricing programs offered in fiscal year 2016 began to expire , emea experienced a significant increase in the rate of breakage on the related accruals as compared to historical levels . after considering the breakage data available through march 31 , 2017 , we revised our estimates of breakage associated with fiscal year 2017 customer incentive , cooperative marketing and pricing programs that have not yet expired as of year end .
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results of operations net sales net sales by channel for fiscal years 2017 , 2016 and 2015 were as follows ( dollars in thousands ) : replace_table_token_8_th retail : during fiscal year 2017 , retail sales increased 14 % , in comparison to fiscal year 2016 . if currency exchange rates had been constant in 2017 and 2016 , our constant dollar retail sales growth rate would have been 14.9 % . we grew across almost all our product categories . video collaboration , music , gaming , and smart home grew double digits . we recorded a benefit of $ 14.4 million primarily due to a change in estimated breakage attributable to customer incentive , cooperative marketing and pricing program accruals in emea . during fiscal year 2016 , retail sales increased 3 % , in comparison to fiscal year 2015. if currency exchange rates had been constant in 2016 and 2015 , our constant dollar retail sales growth rate would have been 9 % . the increase in sales was driven by double digit growth in mobile speakers , gaming and video collaboration product categories . oem : as we exited our oem business in december 2015 , there was no revenue during fiscal year 2017. during fiscal year 2016 , oem sales decreased 40 % compared to fiscal year 2015 . the decline was primarily due to the exit from our oem business and there was no revenue during the quarter ended march 31 , 2016. sales denominated in other currencies although our financial results are reported in u.s. dollars , a portion of our sales were generated in currencies other than the u.s. dollar , such as the euro , chinese renminbi , japanese yen , canadian dollar , taiwan dollar , british pound and australian dollar .
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sales to samsung , the company 's largest single end customer ( through direct sales and distributors ) , accounted for approximately 10 % , 10 % and 14 % of net revenues in fiscal years 2018 story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included in part iv , item 15 ( a ) , the risk factors included in part i , item 1a , and the “ forward-looking statements ” and other risks described herein and elsewhere in this annual report . overview we are a global company with manufacturing facilities in the united states , the philippines and thailand , and sales offices and design centers throughout the world . we design , develop , manufacture and market linear and mixed-signal integrated circuits , commonly referred to as analog circuits , for a large number of customers in diverse geographical locations . the analog market is fragmented and characterized by diverse applications , a great number of product variations and , with respect to many circuit types , relatively long product life cycles . the major end-markets in which we sell our products are the automotive , communications and data center , computing , consumer and industrial markets . we are incorporated in the state of delaware . critical accounting policies the methods , estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements . the securities and exchange commission ( “ sec ” ) has defined the most critical accounting policies as the ones that are most important to the presentation of our financial condition and results of operations , and that require us to make our most difficult and subjective accounting judgments , often as a result of the need to make estimates of matters that are inherently uncertain . based on this definition , our most critical accounting policies include revenue recognition , which impacts the recording of net revenues ; valuation of inventories , which impacts costs of goods sold and gross margins ; the assessment of recoverability of long-lived assets , which impacts impairment of long-lived assets ; assessment of recoverability of intangible assets and goodwill , which impacts impairment of goodwill and intangible assets ; accounting for income taxes , which impacts the income tax provision ; and assessment of litigation and contingencies , which impacts charges recorded in cost of goods sold , selling , general and administrative expenses and income taxes . these policies and the estimates and judgments involved are discussed further below . we have other significant accounting policies that either do not generally require estimates and judgments that are as difficult or subjective , or it is less likely that such accounting policies would have a material impact on our reported results of operations for a given period . our significant accounting policies are described in note 2 to the consolidated financial statements included in this annual report . revenue recognition we recognize revenue for sales to direct customers and sales to distributors upon shipment , provided that persuasive evidence of a sales arrangement exists , the price is fixed or determinable , title and risk of loss has transferred , collectability of the resulting receivable is reasonably assured , there are no customer acceptance requirements and we do not have any significant post-shipment obligations . we estimate returns for sales to direct customers and distributors based on historical return rates applied against current period gross revenue . specific customer returns and allowances are considered within this estimate . accounts receivable from direct customers and distributors are recognized and inventory is relieved upon shipment as title to inventories generally transfers upon shipment , at which point we have a legally enforceable right to collection under normal terms . accounts receivable related to consigned inventory is recognized when the customer takes title to such inventory from its consigned location , at which point inventory is relieved , title transfers , and we have a legally enforceable right to collection under the terms of our agreement with the related customers . we estimate potential future returns and sales allowances related to current period product revenue . management analyzes historical returns , changes in customer demand and acceptance of products when evaluating the adequacy of returns and sales allowances . estimates made by us may differ from actual returns and sales allowances . these differences may materially impact reported revenue and amounts ultimately collected on accounts receivable . historically , such differences have not been material . an allowance for distributor credits covering price adjustments is estimated based on our historical experience rates and also considering economic conditions and contractual terms . to date , actual distributor claims activity has been materially consistent with the provisions we have made based on our historical experience rates . the company had historically recognized a portion of revenue through certain distributors at the time the distributor resold the product to its end customer ( also referred to as the sell-through basis of revenue recognition ) given the difficulty in estimating the ultimate price of these product shipments and amount of potential returns . the company continuously reassesses its ability to 24 reliably estimate the ultimate price of these products and the amount of potential returns and , over the past several years , has made investments in its systems and updates to processes around its distribution channel to improve the quality of the information for preparing such estimates . as a result of this continuous reassessment , the company recognizes all revenue from distributors upon shipment to the distributor ( also referred to as the sell-in basis of revenue recognition ) as of second quarter of fiscal year 2018. inventories inventories are stated at the lower of ( i ) standard cost , which approximates actual cost on a first-in-first-out basis , or ( ii ) net realizable value . story_separator_special_tag under asc 740-10 , a tax position is recognized in the financial statements when it is more likely than not , based on the technical merits , that the position will be sustained upon examination , including resolution of any related appeals or litigation processes . a tax position that meets the recognition threshold is then measured to determine the largest amount of the benefit that has a greater than 50 % likelihood of being realized upon settlement . although we believe that our computation of tax benefits to be recognized and realized are reasonable , no assurance can be given that the final outcome will not be different from what was reflected in our income tax provisions and accruals . such differences could have a material impact on our net income and operating results in the period in which such determination is made . see note 16 : “ income taxes ” in the notes to consolidated financial statements included in part iv , item 15 ( a ) of this annual report for further information related to asc 740-10. we evaluate our deferred tax asset balance and record a valuation allowance to reduce the net deferred tax assets to the amount that is more likely than not to be realized . in the event it is determined that the deferred tax assets to be realized in the future would be in excess of the net recorded amount , an adjustment to the deferred tax asset valuation allowance would be recorded . this adjustment would increase income in the period such determination was made . likewise , should it be determined that all or part of the net deferred tax asset would not be realized in the future , an adjustment to increase the deferred tax asset valuation allowance would be charged to income in the period such determination is made . in assessing the need for a valuation allowance , historical levels of income , expectations and risks associated with estimates of future taxable income and ongoing prudent and practicable tax planning strategies are considered . realization of our deferred tax asset is dependent primarily upon future taxable income in the u.s. and certain foreign jurisdictions . our judgments regarding future profitability may change due to future market conditions , changes in u.s. or international tax laws and other factors . these changes , if any , may require material adjustments to the net deferred tax asset and an accompanying reduction or increase in net income in the period in which such determinations are made . litigation and contingencies from time to time , we receive notices that our products or manufacturing processes may be infringing the patent or other intellectual property rights of others , notices of stockholder litigation or other lawsuits or claims against us . we periodically assess each matter in order to determine if a contingent liability in accordance with asc no . 450 , contingencies ( “ asc 450 ” ) , should be recorded . in making this determination , management may , depending on the nature of the matter , consult with internal and external legal counsel and technical experts . we expense legal fees associated with consultations and defense of lawsuits as incurred . based on the information obtained , combined with management 's judgment regarding all of the facts and circumstances of each matter , we determine whether a contingent loss is probable and whether the amount of such loss can be estimated . should a loss be probable and estimable , we record a contingent loss in accordance with asc 450. in determining the amount of a contingent loss , we take into consideration advice received from experts in the specific matter , the current status of legal proceedings , settlement negotiations which may be ongoing , prior case history and other factors . should the judgments and estimates made by management be incorrect , we may need to record additional contingent losses that could materially adversely impact our results of operations . alternatively , if the judgments and estimates made by management are incorrect and a particular contingent loss does not occur , the contingent loss recorded would be reversed thereby favorably impacting our results of operations . story_separator_special_tag level of selling , general and administrative expenditures as a percentage of net revenues will vary from period to period , depending on the level of net revenues and our success in recruiting sales and administrative personnel needed to support our operations . impairment of long-lived assets 28 impairment of long-lived assets was $ 0.9 million in fiscal year 2018 and $ 7.5 million in fiscal year 2017 , which represented less than 0.1 % and 0.3 % of net revenues , respectively . the $ 6.6 million decrease was primarily due to impairments of certain investments in privately held companies in fiscal year 2017. the company uses various inputs to evaluate investments in privately held companies including valuations of recent financing events as well as other information regarding the issuer 's historical and forecasted performance . the company reached its conclusion regarding the asset impairment due to changes , during the fiscal year 2017 , in the financial condition of certain investments in privately held companies which indicated an other than temporary impairment . impairment of long-lived assets was $ 7.5 million in fiscal year 2017 and $ 160.6 million in fiscal year 2016 , which represented 0.3 % and 7.3 % of net revenues , respectively . the $ 153.1 million decrease was primarily due to the classification of our wafer manufacturing facility in san antonio , texas as held for sale in the first quarter of fiscal year 2016 which was written down to fair value , less cost to sell , resulting in an impairment of $ 157.7 million . for further details of the asset impairments , please refer to note 10 : “ impairment of long-lived assets ” in our consolidated financial statements included in part iv , item 15 ( a ) to this annual report .
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results of operations 26 the following table sets forth certain consolidated statements of income data expressed as a percentage of net revenues for the periods indicated : replace_table_token_5_th the following table shows pre-tax stock-based compensation included in the components of the consolidated statements of income reported above as a percentage of net revenues for the periods indicated : replace_table_token_6_th net revenues we reported net revenues of $ 2,480.1 million , $ 2,295.6 million and $ 2,194.7 million in fiscal years 2018 , 2017 and 2016 , respectively . our net revenues in fiscal year 2018 increased by 8.0 % compared to our net revenues in fiscal year 2017 . revenue from automotive products was up 17 % , primarily driven by increased demand for infotainment , battery management system products for electric vehicles , and driver assistance products . revenue from industrial products was up 13 % , primarily due to higher sales of factory automation products and core industrial products . revenue from consumer products was also up 5 % . the increase in revenue was also partially driven by the 53-week fiscal year 2018 compared to the 52-week fiscal year 2017 . 27 our net revenues in fiscal year 2017 increased by 4.6 % compared to our net revenues in fiscal year 2016 . revenue from automotive products was up 18 % , primarily due to increased demand for infotainment products . revenue from industrial products was up 4 % , primarily driven by shipments of factory automation products . revenue from communications and data center products was up 3 % , due to higher shipments of data center products . these increases were partially offset by a decrease in revenue from consumer products of 2 % , primarily due to lower shipments of smartphone products .
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we believe that our ability to print in a variety of industrial materials , as well as our industry-leading printing capacity ( as measured by build box size and printhead speed ) uniquely position us to serve the needs of industrial customers . as an additive manufacturer , we are an early entrant into an evolving manufacturing technology and marketplace . our strategy has been to position our manufacturing assets , both in terms of our ability and capacity , to prepare for an anticipated increase of customer acceptance of this form of manufacturing . we have made financial support of this growth strategy a priority . we have invested in both our research and development and infrastructure , including capital investment in 3d printing machines , and hiring key personnel . as our infrastructure grows , we intend to shift our strategic focus to opening additional pscs in order to broaden our potential global customer base and to expand our 3d printing capability in an increasing variety of industrial materials . our growth strategy focuses on growing our pscs in order to print more products for our existing customers and gain new customers . by the end of 2015 , we plan to expand our psc network from the current seven locations to fifteen locations . like our current pscs , we plan to locate the additional pscs in major industrial centers near existing and potential customers . while we may adjust based upon market considerations , our current plan includes opening two or more additional psc locations in the first half of 2014. our growth strategy includes using our printed products as an introduction of our technology to facilitate 3d printing machine sales . an important part of reaching these goals is to increase our capability to print in a growing number of industrial materials and increase the job box sizes and production speeds ( volumetric output ) available to our potential customers , which will increase the efficiency and usefulness of our technology . in addition , we use our regional pscs to educate our potential customers and the marketplace about the advantages of 3d printing . we also believe expanding the location of our pscs to high-growth economies and geographic regions that are readily accessible by a significant number of potential customers will help us to increase sales . to better balance our business , we intend to develop our customer base so that revenue is not dependent on any one region 40 ( north america , south america and latin america ( collectively , the americas ) , europe and asia ) . likewise , we intend to balance revenue between our 3d printing machines and 3d printed products , materials and other services . our next generation 3d printing machine platforms have achieved the volumetric output rate and quality necessary to serve industrial markets on a production scale . we believe that there is an opportunity to similarly advance the pre-print and post-print processing phases of product materialization to more fully exploit the transformative power of our 3d printing machines and drive growth . these opportunities relate to both direct and indirect part materialization . for direct metal production , we believe that enhancing pre-print processes , notably design optimization tools and suitable print material availability , can greatly accelerate our capture of market share in the near-term . additionally , enhancements to post-print processing will increase the applications for printed parts . through exmal , we are developing post-print processing technologies to achieve fully dense metal product materialization without the need for infiltration , and we are exploring technology-sharing partnerships to further this initiative . in indirect production utilizing 3d printed molds and cores , advanced performance casting technologies can be leveraged to increase yields and reduce weight of casted products . to address the market opportunity and fill the execution gap , we have developed a suite of processes , many of which are proprietary , for producing high-quality castings through a process that we call excast . excast provides industry guidance and support through all stages of production , from cad at the design stage , through the 3d materialization of molds and cores , metal casting of the end product and rapid delivery to the end-user . finally , we intend to opportunistically identify and , through acquisitions , alliances and or strategic investment , integrate and advance complementary businesses , technologies and capabilities . our goal is to expand the functionality of our products , provide access to new customers and markets , and increase our production capacity . 2013 developments several important corporate developments occurred in 2013 that have had a significant impact on the presentation of our consolidated financial results . exone was formed on january 1 , 2013 , when the ex one company , llc , a delaware limited liability company , merged with and into a delaware corporation , which survived and changed its name to the exone company . as a result of our reorganization on january 1 , 2013 , the ex one company , llc became exone , the common and preferred interest holders of the ex one company , llc became holders of common stock and preferred stock , respectively , of exone , and the subsidiaries of the ex one company , llc became the subsidiaries of exone . the consolidated financial statements include the accounts of exone , its wholly-owned subsidiaries , exone americas llc ( united states ) , exone gmbh ( germany ) , effective in august 2013 , exone property gmbh ( formerly exone holding deutschland gmbh ) ( germany ) , exone kk ( japan ) and through march 27 , 2013 two variable interest entities in which exone was identified as the primary beneficiary , lone star metal fabrication , llc and troy metal fabricating , llc . story_separator_special_tag the pscs utilize our 3d printing machine technology to print products . in addition , our pscs are also full-service operations that provide support and services such as pre-production collaboration prior to printing products for a customer . revenue of materials depends upon the volume of consumables that we sell . sales of our consumables are linked to the number of our 3d printing machines that are installed and active worldwide . sales of consumables are also driven by our customers ' machine usage , which is generally a function of the size of the particular machine and the habits and budget of the particular end-user . larger machines generally use larger amounts of consumables due to their greater capacity and the higher levels of design and manufacturing activity that are typical of an end-user who utilizes a larger machine . cost of sales and gross profit . our cost of sales consists primarily of labor ( including service labor ) , materials ( including consumables ) and overhead to produce 3d printing machines and 3d printed products , materials and other services . also included in cost of sales are license fees ( based upon a percentage of revenue of qualifying products and processes ) for the use of intellectual properties , warranty costs and other overhead associated with our production processes . our 3d printing machines and micromachinery are manufactured at our facilities in germany and the united states . the cost to manufacture machines consists of component parts , labor and production overhead . the cost of 3d printed products , materials and other services consist primarily of the material cost of our printed products , labor and overhead ( including facilities expense and other conversion costs ) . our gross profit is influenced by a number of factors , the most important of which is the volume and mix of our 3d printing machines and micromachinery , products , materials and other services sold . as 3d printing machine and micromachinery sales are cyclical , we will seek to achieve an equal balance in revenue from 3d printing machines and micromachinery and 3d printed products , materials and other services in order to maximize gross profit while managing business risk . in addition , we expect to reduce our cost of sales over time by continued research and development activities directed towards achieving increased efficiencies in the production of 3d printing machines and micromachinery . our pscs will also seek to achieve lower material cost and improve throughput . we are continuously analyzing our supply chain to identify opportunities for better management , in partnership with our customers , in order to reduce the overall cost as a percentage of revenue in this area . operating expenses . our operating expenses consist of research and development expenses and selling , general and administrative expenses . research and development expenses . our research and development expenses consist primarily of salaries and related personnel expenses aimed at developing new machinery and materials . additional costs include the related software and materials , laboratory supplies , and costs for facilities and equipment . research and development expenses are charged to operations as they are incurred . we capitalize the cost of materials , equipment and facilities that have future alternative uses in research and development projects or otherwise . selling , general and administrative expenses . our selling , general and administrative expenses consist primarily of employee-related costs ( salaries and benefits ) of our executive officers , sales and marketing , finance , accounting , information technology and human resources personnel . other significant general and administrative costs include the facility costs related to our headquarters in north huntingdon , pennsylvania and external costs for legal , accounting , consulting and other professional services . 43 interest expense . interest expense consists of the interest cost associated with outstanding long-term debt and financing lease arrangements . we expect our interest expense to continue to decrease as our outstanding debt is lowered over time . included in our business strategy is the consideration of early retirement of debt ( where practicable ) . provision for income taxes . prior to our reorganization , we were organized as a limited liability company . under the provisions of the internal revenue code and similar state provisions , we were taxed as a partnership and were not liable for income taxes . instead , earnings and losses were included in the tax returns of our members . therefore , for periods prior to reorganization , the consolidated financial statements do not reflect a provision for u.s. federal or state income taxes . following our reorganization , we are taxed as a corporation for u.s. federal , state , local and foreign income tax purposes . current statutory tax rates in the jurisdictions in which we operate , the united states , germany and japan , are approximately 39.0 % ( including state taxes ) , 29.5 % and 38.0 % , respectively . story_separator_special_tag ( including legal , audit and other consulting expenses ) , ( iii ) increased personnel costs associated with an increased headcount ( including salaries and related benefits ) in making the transition from a private company to a publicly traded company and ( iv ) increased selling costs ( principally selling commissions for machine sale transactions ) . 46 operating expenses for 2012 were $ 20,215 compared with operating expenses of $ 8,817 in 2011 , an increase of $ 11,398 , or 129.3 % . operating expenses as a percentage of revenue were 70.5 % for 2012 compared with 57.7 % in 2011 , an increase of 12.8 % . research and development expenses for 2012 were $ 1,930 compared with research and development expenses of $ 1,531 in 2011 , an increase of $ 399 , or 26.1 % . this increase was mostly due to ( i ) continued investment in our 3d printing machine technology and ( ii ) increased costs associated with our materials qualification activities .
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results of operations summary net loss attributable to exone for 2013 was $ 6,455 or $ 0.51 per basic and diluted share , compared with a net loss attributable to exone of $ 10,168 for 2012. the decrease in our net loss was principally due to an increase in our revenue and gross profit as a result of a significant increase in 3d printing machine and micromachinery sales for 2013 compared to 2012. net loss attributable to exone for 2012 was $ 10,168 compared with a net loss attributable to exone of $ 8,037 in 2011. the increase in our net loss was due to an increase in our operating expenses from 2012 compared to 2011 , principally due to a non-recurring equity-based compensation charge and professional service fees incurred in preparation for our initial public offering . offsetting the impact of the increase in operating expenses were ( i ) increases in our revenue and gross profit as a result of a significant increase in 3d printing machine sales for 2012 compared to 2011 and a reduction in license fee expense as a result of the amendment to our agreement with mit and ( ii ) a decrease in interest expense as a result of a lower average outstanding debt balance . revenue the following table summarizes revenue by product line for each of the years ending december 31 : replace_table_token_4_th revenue for 2013 was $ 39,480 compared with revenue of $ 28,657 for 2012 , an increase of $ 10,823 , or 37.8 % . this increase was due principally to a higher volume of sales of 3d printing machines and micromachinery ( 29 for 2013 as compared to 13 for 2012 ) , as well as 3d printed products , materials and other services based on a continued increase in customer acceptance of our additive manufacturing technologies .
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