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under the residual method , if vsoe of fair value exists for undelivered elements in a multiple-element arrangement , revenues equal to the fair value of the undelivered elements are deferred with the remaining portion of the arrangement consideration generally recognized upon delivery of the software license . for arrangements in which vsoe of fair value does not exist for each software-related undelivered element , revenues for the software license are deferred and not recognized until vsoe of fair value is available for the undelivered element or delivery of each element has occurred . if the only undelivered element is a service , revenues from the delivered element are recognized over the service period . we also enter into multiple-element arrangements that may include a combination of software licenses and various software-related and non-software-related story_separator_special_tag story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0001058290/000105829018000009/ # s1966abe34f16522882dfe02386eb9220 '' style= '' font-family : inherit ; font-size:10pt ; color : # ffffff ; '' > in february 2017 we announced a plan to return $ 3.4 billion to our stockholders over a two-year period . during 2017 , as part of this plan , we entered into multiple accelerated stock repurchase agreements , collectively referred to as the asr , to repurchase $ 1.8 billion of stock and , in may 2017 , initiated a quarterly cash dividend . during 2017 , we paid dividends totaling $ 265 million and , in february 2018 , increased our quarterly dividend to $ 0.20 per share . on an ongoing basis , we review our capital return plan , considering our financial performance and liquidity position , investments required to execute our strategic initiatives , the economic outlook , regulatory changes and other relevant factors . accordingly , we are currently evaluating the impact of the tax cuts and jobs act , or tax reform act , on our capital return plan . the following table sets forth a summary of our financial results for the years ended december 31 , 2017 and 2016 : replace_table_token_7_th the key drivers of our revenue growth in 2017 as compared to 2016 were as follows : solid performance in our communications , media and technology ( previously referred to as other ) , products and resources ( previously referred to as manufacturing/retail/logistics ) and healthcare business segments with revenue growth of 17.7 % , 14.3 % and 10.1 % , respectively ; revenues in our financial services business segment grew 5.0 % as certain banking customers continue to focus on optimizing their cost structure and managing their discretionary spending ; sustained strength in the north american market where revenues grew 8.6 % ; continued penetration of the european and rest of world ( primarily asia pacific ) markets : โฆ in europe , we experienced revenue growth of 11.8 % after a negative currency impact of 1.2 % . specifically , revenues from our rest of europe customers , including revenues from our newly acquired strategic customers , increased 28.8 % inclusive of a positive currency impact of 2.0 % , while within the united kingdom we experienced a decrease in revenues of 2.2 % after a negative currency impact of 3.8 % . revenue growth in the united kingdom was negatively affected by weakness in the banking sector in that country ; โฆ revenues from our rest of world customers increased 20.9 % ; 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 apply digital technologies to transform the way they engage with customers and employees , and to develop innovative products and services and bring them quickly to market . companies are also eager to automate additional aspects of their business to improve their cost structures and increase the quality and velocity of their operations . 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 , including managed services contracts , which are transformational for our customers . such contracts may have longer sales cycles and ramp-up periods and could lead to greater variability in our period to period operating results . _ 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 โ non-gaap financial measures โ for more information and a reconciliation to the most directly comparable gaap financial measures . 33 in 2017 , our operating margin decreased to 16.8 % from 17.0 % in 2016 , while our non-gaap operating margin increased to 19.7 % 3 from 19.5 % 3 in 2016 . the decrease in our gaap operating margin was due to increases in compensation and benefit costs , the impact of realignment charges and an increase in depreciation expense , partially offset by efficiencies of leveraging our cost structure over a larger organization and a reduction in immigration costs . the increase in our non-gaap operating margin was due to efficiencies of leveraging our cost structure over a larger organization and a reduction in immigration costs , partially offset by increases in compensation and benefit costs and an increase in depreciation expense . on december 22 , 2017 , the united states enacted the tax reform act , which significantly revised the u.s. corporate income tax law for tax years beginning after december 31 , 2017 by ( among other provisions ) : reducing the u.s. federal statutory corporate income tax rate from 35 % to 21 % for tax years beginning after december 31 , 2017 ; implementing a modified territorial tax system that includes a one-time transition tax on all accumulated undistributed earnings of foreign subsidiaries ; and providing for a full deduction on future dividends received from foreign affiliates . story_separator_special_tag during 2018 , barring any unforeseen events , we expect the following factors to affect our business and our operating results : demand from our customers for digital services ; our customers ' dual mandate of simultaneously achieving cost savings while investing in transformation and innovation ; continued focus by customers on directing technology spending towards cost containment projects , such as application maintenance , infrastructure services and business process services ; secular changes driven by evolving digital technologies and regulatory changes , including potential regulatory changes with respect to immigration and taxes ; demand from our healthcare customers may continue to be affected by the uncertainty in the regulatory environment ; demand from certain banking customers may continue to be negatively affected by their continued focus on optimizing their cost structure and managing their discretionary spending ; discretionary spending by our retail customers may continue to be affected by weakness in the retail sector ; legal fees and other expenses related to the internal investigation and related matters as described above ; and volatility in foreign currency rates . in response to this environment , we plan to : continue to invest in our digital practice areas of focus across industries and geographies ; continue to invest in our talent base , including through local hiring and re-skilling , and new service offerings , including digital technologies and new delivery models ; partner with our existing customers to garner an increased portion of our customers ' overall technology spend by providing innovative solutions ; focus on growing our business in europe , the middle east , asia pacific and latin america , where we believe there are opportunities to gain market share ; increase our strategic customer base across all of our business segments ; pursue strategic acquisition opportunities that we believe add new technologies , including digital technologies , or platforms that complement our existing services , improve our overall service delivery capabilities , and or expand our geographic presence ; and focus on operating discipline in order to appropriately manage our cost structure . business segments our reportable segments are : financial services , which consists of our banking and insurance operating segments ; healthcare , which consists of our healthcare and life sciences operating segments ; products and resources ( previously referred to as manufacturing/retail/logistics ) , which consists of our retail and consumer goods , manufacturing and logistics , travel and hospitality , and energy and utilities operating segments ; and communications , media and technology ( previously referred to as other ) , which includes our communications and media operating segment and our technology operating segment . 35 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 , 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 , costs related to our realignment program , 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 2017 , 2016 or 2015 . 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 , 2017 the following table sets forth certain financial data for the three years ended december 31 , 2017 : 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 โ non-gaap financial measures โ for more information and a reconciliation to the most directly comparable gaap financial measure . revenues - overall . revenues increased by 9.8 % during 2017 as compared to an increase of 8.6 % in 2016 . the increases in revenues in 2017 and 2016 were primarily attributed to services related to the integration of digital technologies that are reshaping our customers ' business and operating models to align with shifts in consumer preferences , 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 . revenues from new customers contributed $ 208 million and $ 220 million , representing 15.7 % and 20.5 % of the year-over-year revenue growth for 2017 and 36 2016 , respectively . in 2017 , our consulting and technology services revenues increased by 10.9 % and represented 58.1 % of total 2017 revenues , while our outsourcing services revenues increased by 8.4 % and constituted 41.9 % of total revenues .
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executive summary we are one of the world 's leading professional services companies . we are in business to help our customers adapt , compete and grow in the face of continual shifts and disruptions within their markets . we do so by partnering with them to apply technology to transform their business , operating , and technology models , allowing them to achieve the full value of digitizing their entire enterprises . we call this being โ digital at scale. โ when implemented , it enables customers to achieve more efficient and effective operations while reshaping their business models for innovation and growth . our 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 and solutions to specific industries and use an integrated global delivery model that employs customer service teams based at customer locations and delivery teams located at dedicated global and regional 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 . our digital services and solutions are designed 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 .
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for derivative instruments that are designated and qualify as cash flow hedges , the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings ( date of sale ) . gains or losses on cash flow hedges when recognized into income are included in net revenues . interest rate swap contracts โthe company enters into derivative instruments to manage story_separator_special_tag financial condition and results of operations the following management 's discussion and analysis of financial condition and results of continuing operations should be read in conjunction with the company 's financial statements and notes , and other information included elsewhere in this report . when reading this section of this annual report on form 10-k , it is important that you also read the financial statements and related notes thereto . this annual report on form 10-k and certain information incorporated herein by reference contain forward-looking statements within the โ safe harbor โ provisions of the private securities litigation reform act of 1995. see โ forward-looking statements โ . overview the company is a leading provider of engineered lifting solutions . the company reports in a single business segment and has five operating segments . the company designs , manufactures and distributes a diverse group of products that serve different functions and are used in a variety of industries . manitex , inc. ( โ manitex โ ) markets a comprehensive line of boom trucks , truck cranes and sign cranes . manitex 's boom trucks and crane products are primarily used for industrial projects , energy exploration and infrastructure development , including roads , bridges and commercial construction . badger equipment company ( โ badger โ ) is a manufacturer of specialized rough terrain cranes and material handling products . badger primarily serves the needs of the construction , municipality and railroad industries . pm oil and steel s.p.a. ( โ pm โ ) , formerly known as pm group s.p.a. , is a leading italian manufacturer of truck-mounted hydraulic knuckle boom cranes with a 50-year history of technology and innovation , and a product range spanning more than 50 models . its largest subsidiary , oil & steel ( โ o & s โ ) , is a manufacturer of truck-mounted aerial platforms with a diverse product line and an international client base . valla product line of industrial cranes is a full range of precision pick and carry cranes using electric , diesel , and hybrid power options . its cranes offer wheeled or tracked , and fixed or swing boom configurations , with special applications designed specifically to meet the needs of its customers . these products are sold internationally through dealers and into the rental distribution channel . manitex sabre , inc. ( โ sabre โ ) , which is located in knox , indiana , manufactures a comprehensive line of specialized mobile tanks for liquid and solid storage and containment solutions with capacities from 8,000 to 21,000 gallons . its mobile tanks are sold to specialized independent tank rental companies and through the company 's existing dealer network . the tanks are used in a variety of end markets such as petrochemical , waste management and oil and gas drilling . crane and machinery , inc. ( โ c & m โ ) is a distributor of the company 's products as well as terex corporation 's ( โ terex โ ) rough terrain and truck cranes . crane and machinery leasing , inc. ( โ c & m leasing โ ) rents equipment manufactured by the company as well as a limited amount of equipment manufactured by third parties . although c & m is a distributor of terex rough terrain and truck cranes , c & m 's primary business is the distribution of products manufactured by the company . consolidated variable interest entity even though it had no ownership interest in svw crane & equipment company ( together with its wholly owned subsidiary , rental consulting service company , โ svw โ ) , the company had the power to direct the activities that most significantly impact svw 's economic performance . additionally , the company was the primary beneficiary of the svw relationship . svw obtained third party financing , which was effectively guaranteed by the company , on specific cranes the company manufactured and remitted the loan proceeds to the company . other than its business transactions described herein , svw had no other substantial business operations . the company had determined that svw is a variable interest entity ( โ vie โ ) that under current accounting guidance needed to be consolidated in the company 's financial results . svw was consolidated into the company 's financial results beginning in the first quarter of 2016 through the fourth quarter of 2017. by december 31 , 2017 , svw had ceased operations and is therefore not a consolidated vie after december 31 , 2017. income and losses related to vie 's are typically shown in a company 's financial statements as being attributed to a non-controlling interest . other than its transactions between svw and the company , svw had no other substantial business operations . furthermore , the company exercised control and absorbed all losses and received all the income from svw operations . therefore , the company has concluded that income and losses related to the vie are attributable to the shareholders of the company . 19 business overview in 2019 , the annualized order rate for straight-mast cranes was approximately 1,200 units , consistent with 2018 levels . the data that the company has seen indicates that dealer rental utilization and united states commercial construction indices remain at healthy levels . during the third quarter of 2019 , the company launched the manitex branded line of articulating cranes ( โ mac โ ) at a trade show in louisville , kentucky targeting roofing , concrete , general construction and supply industries . story_separator_special_tag our subsidiary in argentina ( โ pm argentina โ ) began accounting for their operations as highly inflationary effective july 1 , 2018 , as required by gaap . under highly inflationary accounting , pm argentina 's functional currency became the euro ( its parent company 's reporting currency ) , and its income statement and balance sheet have been measured in euros using both current and historical rates of exchange . the effect of changes in exchange rates on peso-denominated monetary assets and liabilities has been reflected in earnings in other ( income ) and expense , net and was not material . as of december 31 , 2019 , pm argentina had a small net peso monetary position . net sales of pm argentina were less than 5 percent of our consolidated net sales for the years ended december 31 , 2019 and 2018 , respectively . significant transactions affecting company liquidity in september 2019 , asv was acquired by yanmar american corporation resulting in the company receiving $ 7.05 per share in cash , or $ 7.6 million , for its remaining 1,080,000 shares of asv . during 2018 , the company entered into two transactions that had a significant beneficial impact on the company 's liquidity . in february 2018 , the company sold 1.0 million shares of asv common stock it held for $ 7.0 million and on may 29 , 2018 tadano ltd. purchased approximately 2.9 million shares of the company 's common stock , which generated cash of approximately $ 32.0 million , net of expenses . a portion of the proceeds raised in these two transactions were used to support an increase in working capital , the result of increased revenues . the remaining proceeds are the principal reason cash has increased by $ 16.9 million and debt has decreased by $ 22.9 million since year end . nevertheless , because our availability under our credit lines is limited , it is important that we manage our working capital . the company may need to raise additional capital through debt or equity financings to support our long-term growth strategy , which may include additional acquisitions . there is no assurance that such financing will be available or , if available , on acceptable terms . 23 outstanding borrowings and required payments the following is a summary of our outstanding borrowings at december 31 , 2019 : ( in millions ) replace_table_token_5_th the debt has various maturity dates . see notes 13 through 15 to the financial statements for additional details . change in outstanding debt at december 31 , 2019 , our total debt was reduced by $ 8.2 million to $ 64.8 from $ 73.0 million at december 31 , 2018. the primary difference is attributed to a decrease in the pm debt of $ 8.3 million which was paid off during the year . 24 the following is a summary of changes in debt related to continuing operations : ( in millions ) replace_table_token_6_th cash flows for 2019 and 2018 operating activities for 2019 , operating activities provided $ 3.2 million in cash compared to $ 1.0 million cash provided during 2018. cash used by working capital was $ 1.0 million and $ 5.1 million for 2019 and 2018 , respectively . effective accounts receivable management generated $ 9.3 million cash in 2019 compared to the use of $ 0.3 million cash in 2018 , partially offset by $ 7.6 million cash that was used to pay down accounts payable in 2019 compared to $ 2.8 million provided by accounts payable in 2018. inventory represented a cash outflow of $ 2.4 million and $ 7.3 million for 2019 and 2018 , respectively . investing activities cash provided from investing activities was $ 5.8 million in 2019 which included $ 7.6 million in proceeds from the sale of an interest in an equity investment . cash provided from investing activities was $ 5.8 million in 2018 which included $ 7.0 million proceeds from the sales of a partial interest in an equity investment . cash payments for plant , property and equipment were $ 1.8 million in 2019 compared to payments of $ 1.2 million in 2018 , an increase of $ 0.6 million . financing activities cash flow from financing activities was an outflow of $ 8.0 million for the year ended december 31 , 2019 which included principal loan payments of $ 3.0 million and a reduction in working capital borrowing of $ 3.9 million . cash flow from financing activities was an inflow of $ 11.0 million for the year ended december 31 , 2018 which included net proceeds of $ 31.9 million in connection with the sale of stock to tadano , partially offset by a reduction in borrowing under the u.s. credit facility of $ 12.9 million and decrease in working capital borrowing of $ 5.6 million . contingencies the company is involved in various legal proceedings , including product liability and workers ' compensation matters which have arisen in the normal course of operations . certain cases are at a preliminary stage , and it is not possible to estimate the amount or timing of any cost to the company . the company does not believe that these contingencies in aggregate will have a material adverse effect on the company . additionally , the company has been named as a defendant in several multi-defendant asbestos related product liability lawsuits . in certain instances , the company is indemnified by a former owner of the product line in question . in the remaining cases the plaintiff has , to date , not been able to establish any exposure by the plaintiff to the company 's products . the company is uninsured with respect to these claims but believes that it will not incur any material liability with respect to these to claims .
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results of consolidated operations manitex international , inc. ( in thousands , except share data ) replace_table_token_4_th year ended december 31 , 2019 from continuing operations compared to year ended december 31 , 2018 from continuing operations net loss from continuing operations for the year ended december 31 , 2019 , net loss was $ 8.5 million , which consists of revenue of $ 224.8 million , cost of sales of $ 184.3 million , research and development costs of $ 2.7 million , sg & a costs of $ 43.7 million , interest expense of $ 4.6 million , interest income of $ 0.2 million , a gain in the change in fair value of securities held of $ 5.5 million , foreign currency transaction loss of $ 0.8 million , other income of $ 0.02 million , and income tax expense of $ 2.8 million . for the year ended december 31 , 2018 , net loss was $ 13.2 million , which consists of revenue of $ 242.1 million , cost of sales of $ 198.1 million , research and development costs of $ 2.8 million , sg & a costs of $ 41.5 million , interest expense of $ 5.5 million , interest income of $ 0.2 million , a loss in the change in fair value of securities held of $ 5.5 million , foreign currency transaction loss of $ 0.8 million , other loss of $ 0.4 million , loss in non-marketable equity interest of $ 0.4 million and income tax expense of $ 0.5 million . net revenue and gross profit โfor the year ended december 31 , 2019 , net revenue and gross profit were $ 224.8 million and $ 40.5 million , respectively . gross profit as a percent of net revenues was 18.0 % for the year ended december 31 , 2019. for the year ended december 31 , 2018 , net revenue and gross profit were $ 242.1 million and $ 44.0 million , respectively .
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as of december 31 , 2020 , three companies accounted for 16 % , 11 % and 10 % , respectively , of the company 's outstanding receivables . as of december 31 , 2019 , two companies accounted for 14 % and 13 % , respectively , of the company 's outstanding receivables . ( c ) fixed assets fixed assets are carried at cost less accumulated depreciation and amortization . depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets . f- 7 ( d ) revenue recognition/fee income the company recognizes revenue in accordance with asc 606 , revenue from contracts with customers . the standard provides a single comprehensive revenue recognition model for all contracts with customers and supersedes existing revenue recognition guidance . the revenue standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized . the underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services . asc 606 follows a five-step approach to determining revenue recognition including : 1 ) identification of the contract ; 2 ) identification of the performance obligations ; 3 ) determination of the transaction price ; 4 ) allocation of the transaction price and 5 ) recognition of revenue . the company determined that its license agreements provide for three performance obligations which include : ( i ) the grant of use to its patent portfolio โ grant of use โ , ( ii ) stand-ready technical support ( โ technical support โ ) including the transfer of trade secrets and other know-how , production of materials , scale-up support , analytical testing , etc . , and ( iii ) access to new intellectual property ( โ ip โ ) that may be developed some time during the course of the contract period ( โ new improvements โ ) . given the nature of ip development , such new improvements are on an unspecified basis and can occur and be made available to licensees at any time during the contract period . when a contract includes more than one performance obligation , the company needs to allocate the total consideration to each performance obligation based on its relative standalone selling price or estimate the standalone selling price if it is not observable . a standalone selling price is not available for our performance obligations since we do not sell any of the services separately and there is no competitor pricing that is available . as a consequence , the best method for determining standalone selling price of our grant of use performance obligation is through a comparison of the average royalty rate for comparable license agreements as compared to our license agreements . comparable license agreements must consider several factors including : ( i ) the materials that are being licensed , ( ii ) the market application for the licensed materials , and ( iii ) the financial terms in the license agreements that can increase or decrease the risk/reward nature of the agreement . based on the royalty rate comparison referred to above , any pricing above and beyond the average royalty rate would relate to the technical support and new improvements performance obligations . the company focuses a significant portion of its time and resources to provide the technical support and new improvements services to story_separator_special_tag forward-looking statements information included in this annual report on form 10-k may contain forward-looking statements within the meaning of the private securities litigation reform act of 1995. forward-looking statements are not statements of historical facts , but rather reflect our current expectations concerning future events and results . we generally use the words โ believes , โ โ expects , โ โ intends , โ โ plans , โ โ anticipates , โ โ likely , โ โ will โ and similar expressions to identify forward-looking statements . such forward-looking statements , including those concerning our expectations , involve risks , uncertainties and other factors , some of which are beyond our control , which may cause our actual results , performance or achievements , or industry results , to be materially different from any future results , performance or achievements expressed or implied by such forward-looking statements . these risks , uncertainties and factors include , but are not limited to , those factors set forth in this annual report on form 10-k under โ item 1a . โ risk factors โ above . except as required by applicable law , including the securities laws of the united states , we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . you are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this annual report on form 10-k . in reviewing management 's discussion and analysis of financial condition and results of operations , you should refer to our consolidated financial statements and the notes related thereto . critical accounting policies the following accounting policies are important to understanding our financial condition and results of operations and should be read as an integral part of the discussion and analysis of the results of our operations and financial position . for additional accounting policies , see note 2 to our consolidated financial statements , โ summary of significant accounting policies. โ the company recognizes revenue in accordance with asc 606 , revenue from contracts with customers . story_separator_special_tag net of amounts previously reserved which were fully written off in 2020 , the company has increased its allowance for uncollectible royalty receivables in 2020 until the collectability from certain licensees can be better ascertained in the regions affected by covid-19 . in connection with the covid-19 crisis , congress passed , and the president signed , the coronavirus aid , relief , and economic security act ( โ cares act โ ) which , among other things , provides relief for businesses impacted by the pandemic . the company applied for and received $ 202,052 in proceeds from the paycheck protection program ( โ ppp loan โ ) made available under the cares act . the ppp loan is intended to offer businesses hurt by the covid-19 pandemic economic assistance with the potential for the principal to be forgiven based on certain expenses incurred during the first 24 weeks after the issuance of the ppp loan . the company estimated that the $ 194,140 of the ppp loan principal will be forgiven based on payroll and other expenses incurred through june 30 , 2020. the company estimated that all of the loan will be forgiven when the additional payroll and other expenses incurred from july 1 , 2020 to september 30 , 2020 are included . consequently , the company recorded $ 202,052 as other income for the year ended december 31 , 2020 representing the ppp loan estimated to be forgiven . 38 story_separator_special_tag 10pt times new roman , times , serif ; margin : 0 '' > in connection with the issuance of certain warrants during the third quarter of 2018 , the company recorded a non-cash accounting expense of $ 652,025 in 2019 to mark these warrants to their market through the date that they were reclassified as equity in 2019. in 2019 , the company incurred a loss from the impairment of a fixed asset of $ 50,666 in value of an automobile which was subsequently sold to an employee at fair market value . the company 's net investment income for the year ended december 31 , 2020 was $ 34,473 as compared to $ 43,052 for the year ended december 31 , 2019. the difference was primarily due to higher cash balances available for investment in 2019. the company recorded $ 202,052 of other income for the year ended december 31 , 2020 representing the entire ppp loan estimated to be forgiven through such date . no income tax benefit or expense was recorded for the years ended december 31 , 2020 and 2019. as a consequence of the factors discussed above , the company 's net loss was $ 2,340,864 ( $ 0.07 per common share ) for the year ended december 31 , 2020 as compared to $ 3,808,978 ( $ 0.13 per common share ) for the year ended december 31 , 2019. financial condition , liquidity and capital resources the company has primarily utilized its cash , cash equivalents , and proceeds from sales of our common stock , proceeds from the exercise of options and warrants , and royalty fees collected to fund its research and development , for marketing initiatives , and for other working capital purposes . the company 's working capital and capital requirements depend upon numerous factors , including , but not limited to , the results of research and development activities , competitive and technological developments , the timing and costs of patent filings , and the development of new licensees and changes in the company 's relationship with existing licensees . the degree of dependence of the company 's working capital requirements on each of the foregoing factors can not be quantified ; increased research and development activities and related costs would increase such requirements ; the addition of new licensees may provide additional working capital or working capital requirements , and changes in relationships with existing licensees would have a favorable or negative impact depending upon the nature of such changes . during 2020 , the company 's cash and cash equivalents balance decreased by $ 1,819,255 principally as a result of cash used for operations of $ 2,252,691 and cash used for the purchase of property and equipment of $ 56,536 partially offset by cash generated from the exercise of options and warrants of $ 284,207 and cash proceeds from a ppp loan of $ 202,052. at december 31 , 2020 , the company had cash and cash equivalents of $ 4,772,705 , working capital of $ 5,201,443 and total shareholders ' equity of $ 5,327,005. our quarterly projected cash flow shortfall , based on our current operations , adjusted for any non-recurring cash expenses for the next 12 months , is approximately $ 400,000 - $ 450,000 per quarter . we may eliminate some operating expenses in the future , which will further reduce our cash flow shortfall if needed . we currently expect to have sufficient working capital for the next 34 months of operations . the company expects to use its cash to fund its research and development of spd light valves , its expanded marketing initiatives , and for other working capital purposes . the company believes that its current cash and cash equivalents would fund its operations until mid to late 2023. there can be no assurances that expenditures will not exceed the anticipated amounts or that additional financing , if required , will be available when needed or , if available , that its terms will be favorable or acceptable to the company . the eventual success of the company and generation of positive cash flow will be dependent upon the extent of commercialization of products using the company 's technology by the company 's licensees and payments of continuing royalties on account thereof .
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results of operations overview the majority of the company 's fee income comes from the activities of several licensees participating in the automotive market . the company currently believes that the automotive market will be the largest source of its royalty income over the next several years . the company 's royalty income from this market may be influenced by numerous factors including various trends affecting demand in the automotive industry and the rate of introduction of new technology in oem product lines and the impact of covid-19 . in addition to these macro factors , the company 's royalty income from the automotive market could also be influenced by specific factors such as whether the company 's spd-smartglass technology appears as standard equipment or as an option on a particular vehicle , the number of additional vehicle models that spd-smartglass appears on , the size of each window on a vehicle and the number of windows on a vehicle that use spd-smartglass , fluctuations in the total number of vehicles produced by a manufacturer , and in the percentage of cars within model like produced with spd-smartglass , and changes in pricing or exchange rates . certain license fees , which are paid to the company in advance of the accounting period in which they are earned resulting in the recognition of deferred revenue for the current accounting period , which will be recognized as fee income in future periods . also , licensees offset some or all of their royalty payments on sales of licensed products for a given period by applying these advance payments towards such earned royalty payments . in 2019 and 2020 , the company received royalty revenues from sales of the magic sky control option using the company 's technology to daimler ( as well as sales of spd-smartglass products to mclaren automotive ) that were accretive to the company 's royalty revenue .
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the avls3 collects and displays both vibration and leveling data simultaneously for fast equipment set-up , alignment and real-time equipment diagnostics . strong future sales growth is anticipated for the wafersenseยฎ family of products . 20 our backlog was $ 17.7 million at december 31 , 2019 , an increase from $ 14.4 million at september 30 , 2019 , and $ 13.6 million at december 31 , 2018. the order backlog at december 31 , 2019 and september 30 , 2019 includes a significant order for 3d mrs sensors from an existing oem customer that is scheduled for delivery in the next 18 months . we are forecasting sales of $ 15.0 to $ 16.5 million for the first quarter of 2020. we believe that demand in the smt and semiconductor capital equipment markets will continue to strengthen through 2020. however , a prolonged coronavirus epidemic or an increase in severity of the current outbreak could cause a slow-down in demand for smt and semiconductor capital equipment . we believe that anticipated sales growth of our 3d mrs-enabled products and wafersense sensors should increase our revenues and net income in the future . we believe that we have the resources required to attain our growth objectives , given our available cash and marketable securities balances totaling $ 26.3 million at december 31 , 2019. our ability to implement our strategy effectively is subject to numerous uncertainties and risks , including the risks identified in item 1 a of this annual report on form 10-k. revenues our revenues decreased by 8 % to $ 59.3 million in 2019 , from $ 64.7 million in 2018 , and increased by 21 % to $ 64.7 million in 2018 , from $ 53.3 million in 2017. the following table sets forth , for the years indicated , revenues by product line : replace_table_token_1_th revenues from sales of high precision 3 d and 2 d sensors decreased by $ 9.0 million or 42 % to $ 12.6 million in 2019 , from $ 21.5 million in 2018 , and increased by $ 4.5 million or 26 % to $ 21.5 million in 2018 , from $ 17.1 million in 2017. sales of 3 d mrs sensors decreased by $ 1.8 million or 23 % to $ 6.0 million in 2019 , from $ 7.9 million in 2018 , and increased by $ 3.5 million or 80 % to $ 7.9 million in 2018 , from $ 4.4 million in 2017. the revenue decrease in 2019 resulted from a reduction of purchases by oem customers for high precision 3d and 2d sensors due to weak demand in the global smt and semiconductor capital equipment markets . the revenue increase in 2018 primarily resulted from higher sales of 3d mrs-enabled sensors , reflecting higher adoption rates by our oem customers for these products . sales of 3d mrs-enabled sensors started to rebound in early 2020 , reflecting improving conditions in the market for semiconductor capital equipment . we believe sales of older high precision 2d sensors will also rebound , but recovery may not happen until later in 2020. we believe sales of our 3d mrs enabled sensors , including our next generation ultra-high resolution 3d nanoresolution mrs sensor , will continue to grow in the future , and will represent an increasing percentage of our total high precision 3d and 2d sensor sales . sales of high precision 3 d and 2 d sensors are prone to significant fluctuations , both sequentially and on a year-over-year basis , due to variations in market demand . sales of high precision 3 d and 2 d sensors are dependent on the success of oems and system integrators selling products that incorporate our sensors . revenues from sales of inspection and metrology systems increased by $ 3.1 million or 11 % to $ 32.7 million in 2019 , from $ 29.6 million in 2018 , and increased by $ 4.4 million or 17 % to $ 29.6 million in 2018 , from $ 25.2 million in 2017 . revenues from sales of inspection and metrology systems increased in 2019 and 2018 because higher sales of sq3000 multi-function inspection and measurement systems and 2d mx600 systems for memory module inspection were able to offset lower sales of legacy products . sales of sq3000 multi-function systems increased by $ 4.6 million or 36 % to $ 17.5 million in 2019 , from $ 12.9 million in 2018 , and increased by $ 3.4 million or 36 % to $ 12.9 million in 2018 , from $ 9.5 million in 2017. sales of sq3000 multi-function systems increased in 2019 , despite a global decline in spending for smt and semiconductor capital equipment , because of the competitive advantages offered by our sq3000 multi-function system products , and because many companies are transitioning from 2 d aoi to 3 d aoi to meet the increasingly demanding product inspection and metrology requirements in the smt and semiconductor markets . the market transition away from 2d aoi is expected to result in a 30 % compound annual rate of growth in global sales of 3d aoi systems through 2024. given these market dynamics and because of the competitive advantages inherent in our 3d mrs sensor technology , we anticipate sales of sq3000 multi-function systems will represent an increasing percentage of our total inspection and metrology system sales in the future . sales of mx600 memory module inspection systems increased by $ 2.2 million to $ 3.3 million in 2019 , from $ 1.1 million in 2018. t here were no sales of mx 600 memory module inspection systems in 2017. we recently received our first purchase order for our next generation 3d mrs enabled mx3000 memory module inspection system . this order , which is expected to become revenue in the first quarter of 2020 , was made to a new memory customer . story_separator_special_tag we also continue to enhance our sq3000 multi-function inspection and measurement machines and portfolio of 3d mrs sensor offerings . 22 s elling , general and administrative ( `` s , g & a '' ) expenses were $ 16.0 million or 27 % of revenues in 2019 , $ 16.4 million or 25 % of revenues in 2018 , and $ 15.7 million or 29 % of revenues in 2017. the increase in s , g & a expenses as a percentage of revenues in 2019 primarily reflected our lower revenue levels , offset in part by lower expense levels . the decrease in s , g & a expenses in 2019 was due to lower compensation costs resulting from employee departures and lower bonus accruals and sales commissions resulting from the declines in our revenues and financial performance . the increase in sg & a expenses in 2018 was due to higher bonus accruals and commissions paid to outside channel partners , resulting from increases in our sales and profitability , when compared to 2017. sg & a expenses in 2018 were decreased by a $ 159,000 reduction in our allowance for doubtful accounts , primarily resulting from collection of a receivable that was fully reserved for in a prior period . we do not expect further large reductions in our allowance for doubtful accounts in future periods . interest income and other interest income and other includes interest earned on investments and gains and losses associated with foreign currency transactions , primarily intercompany financing transactions associated with our subsidiaries in the united kingdom , singapore and china . we recognized losses from foreign currency transactions of $ 127,000 in 2019 , compared to gains from foreign currency transactions of $ 72,000 in 2018. provision for income taxes we recorded income tax expense of $ 386,000 in 2019 , compared to income tax expense of $ 752,000 in 2018 . our income tax expense in 2019 reflected an effective income tax rate of approximately 33 % , which was negatively impacted by the global intangible low-taxed income ( gilti ) and an increase in our valuation allowance for deferred income taxes , offset by the favorable benefits from u.s. federal r & d tax credits and a non-cash benefit from completion of an audit of our income taxes in the singapore tax jurisdiction . our income tax expense in 2018 reflected an effective tax rate of approximately 21 % , which was primarily impacted by the gilti , offset by the favorable benefits from u.s. federal r & d tax credits and excess tax benefits from employee share-based compensation . on a recurring basis , our effective tax rate will be significantly impacted by the gilti and u.s. federal r & d tax credits . we have significant deferred tax assets as a result of temporary differences between the taxable income on our tax returns and u.s. gaap income , r & d tax credit carry forwards and federal and state net operating loss carry forwards . a deferred tax asset generally represents future tax benefits to be received when temporary differences previously reported in our consolidated financial statements become deductible for income tax purposes , when net operating loss carry forwards could be applied against future taxable income , or when tax credit carry forwards are utilized on our tax returns . we assess the realizability of our deferred tax assets and the need for a valuation allowance based on the guidance provided in current financial accounting standards . significant judgment is required in determining the realizability of our deferred tax assets . the assessment of whether valuation allowances are required considers , among other matters , the nature , frequency and severity of any current and cumulative losses , forecasts of future profitability , the duration of statutory carry forward periods , our experience with loss carry forwards not expiring unused and tax planning alternatives . in analyzing the need for valuation allowances , we first considered our history of cumulative operating results for income tax purposes over the past three years in each of the tax jurisdictions in which we operate , our financial performance in recent quarters , statutory carry forward periods and tax planning alternatives . finally , we considered both our near-term and long-term financial outlook . after considering all available evidence ( both positive and negative ) , we concluded that recognition of valuation allowances for substantially all of our u.s. and singapore based deferred tax assets was not required at december 31 , 2019 or december 31 , 2018. the valuation allowance recorded against our deferred tax assets increased by $ 122,000 in 2019 , primarily relating to an increase for u.s. federal r & d tax credits expiring in 2020. we file income tax returns in the united states and various state and foreign jurisdictions . our federal income tax returns for years after 2015 are still subject to examination by the internal revenue service . we are no longer subject to state and local income tax examinations for years prior to 2015. the inland revenue authority of singapore recently completed a review of 2016 and 2015 income tax returns . the outcome of these audits did not have a significant impact on our financial position or results of operations . 23 liquidity and capital resources our cash and cash equivalents decreased by $ 3.4 million in 2019. cash provided by operating activities of $ 2.1 million and proceeds of $ 7.8 million from maturities of marketable securities were more than offset by purchases of marketable securities totaling $ 12.0 million and purchases of fixed assets and payment of capitalized patent costs totaling $ 1.5 million . our cash and cash equivalents fluctuate in part because of sales and maturities of marketable securities and investment of cash balances in marketable securities , and from other sources of cash . accordingly , we believe the combined balances of cash and marketable securities provide a more reliable indication of our available liquidity than cash balances alone .
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overview we are a leading global developer and manufacturer of high precision 3d sensors and system products for inspection and metrology . we also develop and manufacture our wafersense ยฎ products , a family of wireless , wafer-shaped sensors that provide measurements of critical factors in the semiconductor fabrication process . we intend to leverage our sensor technologies in the surface mount technology ( smt ) and semiconductor industries to deliver profitable growth . a key element of our strategy is the continued development and sale of high precision 3d sensors and system products based on our proprietary multi-reflection suppression ( mrs ) technology . we believe that our mrs technology is a breakthrough 3d optical technology for high-end inspection and metrology with the potential to significantly expand our markets . another key element in our strategy is the continued development and introduction of new sensor applications for our wafersense ยฎ family of products . our operating results in 2019 were affected by the cyclical , industry-wide slowdown in demand for smt and semiconductor capital equipment as well as uncertainty surrounding the global trade environment . we believe the three months ended september 30 , 2019 marked the trough of the downturn in the smt and semiconductor capital equipment markets , and that industry conditions have started to strengthen . over the longer-term ( i.e. , the next several years ) , we expect a growing number of opportunities in the markets for smt and semiconductor inspection and metrology . we believe that our 3d mrs-enabled sensor and system products and our wafersense ยฎ family products have the potential to expand our presence in the markets for smt and semiconductor capital equipment . manufacturing yield challenges as electronics and semiconductors become more complex are driving the need for more precise inspection and metrology . we believe 3d inspection and metrology represent high-growth segments in both the smt and semiconductor capital equipment markets .
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we produce and distribute our european based fragrance products primarily under license agreements with brand owners , and european based fragrance product sales represented approximately 79 % , 77 % and 82 % of net sales for 2016 , 2015 and 2014 , respectively . we have built a portfolio of prestige brands , which include balmain , boucheron , coach , jimmy choo , karl lagerfeld , lanvin , montblanc , paul smith , s.t . dupont , repetto , rochas and van cleef & arpels , whose products are distributed in over 100 countries around the world . with respect to the company 's largest brands , we own the lanvin brand name for its class of trade , and license the montblanc and jimmy choo brand names . as a percentage of net sales , product sales for the company 's largest brands were as follows : replace_table_token_9_th through our united states operations we also market fragrance and fragrance related products . united states operations represented 22 % , 23 % and 21 % of net sales in 2016 , 2015 and 2014 , respectively . these fragrance products are sold primarily pursuant to license or other agreements with the owners of the abercrombie & fitch , agent provocateur , anna sui , banana republic , bebe , dunhill , french connection , hollister , oscar de la renta , and shanghai tang brands . quarterly sales fluctuations are influenced by the timing of new product launches as well as the third and fourth quarter holiday season . in certain markets where we sell directly to retailers , seasonality is more evident . we sell directly to retailers in france as well as through our own distribution subsidiaries in italy , germany , spain and the united states . we grow our business in two distinct ways . first , we grow by adding new brands to our portfolio , either through new licenses or other arrangements or out-right acquisitions of brands . second , we grow through the introduction of new products and by supporting new and established products through advertising , merchandising and sampling as well as by phasing out existing products that no longer meet the needs of our consumers . the economics of developing , producing , launching and supporting products influence our sales and operating performance each year . our introduction of new products may have some cannibalizing effect on sales of existing products , which we take into account in our business planning . 34 our business is not capital intensive , and it is important to note that we do not own manufacturing facilities . we act as a general contractor and source our needed components from our suppliers . these components are received at one of our distribution centers and then , based upon production needs , the components are sent to one of several third party fillers , which manufacture the finished product for us and then deliver them to one of our distribution centers . as with any global business , many aspects of our operations are subject to influences outside our control . we believe we have a strong brand portfolio with global reach and potential . as part of our strategy , we plan to continue to make investments behind fast-growing markets and channels to grow market share . during 2016 , the economic and political uncertainty and financial market volatility taking place in eastern europe , the middle east and china had a small negative impact on our business , and at this time we do not believe it will significantly affect our overall business for the foreseeable future . however , if the degree of uncertainty or volatility worsens or is prolonged , then there will likely be a negative effect on ongoing consumer confidence , demand and spending and as a result , our business . currently , we believe general economic and other uncertainties still exist in select markets in which we do business , and we continue to monitor global economic uncertainties and other risks that may affect our business . our reported net sales are impacted by changes in foreign currency exchange rates . a strong u.s. dollar has a negative impact on our net sales . however , earnings are positively affected by a strong dollar , because approximately 40 % of net sales of our european operations are denominated in u.s. dollars , while almost all costs of our european operations are incurred in euro . our company addresses certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments . we primarily enter into foreign currency forward exchange contracts to reduce the effects of fluctuating foreign currency exchange rates . we are also carefully monitoring currency trends in the united kingdom as a result of the volatility created from the united kingdom 's decision to exit the european union . we have evaluated our current pricing models and currently we do not expect any significant pricing changes . however , if the devaluation of the british pound worsens , it may affect future gross profit margins from sales in the territory . we do not expect any material losses on accounts receivables to be collected in british pounds as we routinely hedge those amounts . recent important events buyout of license in december 2016 , the company reached an agreement with the balmain brand calling for balmain to buyout the balmain license agreement , effective december 31 , 2016 , in exchange for a payment aggregating 5.4 million ( approximately $ 5.7 million ) . as a result of the buyout , the company recognized a gain of $ 4.7 million and expects to receive the buyout payment by april 30 , 2017. the company has a three month inventory sell-off period ending march 31 , 2017 and balmain has also agreed to purchase all remaining inventory and tangible assets . story_separator_special_tag we record adjustments to the cost of inventories based upon our sales forecast and the physical condition of the inventories . these adjustments are estimates , which could vary significantly , either favorably or unfavorably , from actual results if future economic conditions or competitive conditions differ from our expectations . equipment and other long-lived assets equipment , which includes tools and molds , is recorded at cost and is depreciated on a straight-line basis over the estimated useful lives of such assets . changes in circumstances such as technological advances , changes to our business model or changes in our capital spending strategy can result in the actual useful lives differing from our estimates . in those cases where we determine that the useful life of equipment should be shortened , we would depreciate the net book value in excess of the salvage value , over its revised remaining useful life , thereby increasing depreciation expense . factors such as changes in the planned use of equipment , or market acceptance of products , could result in shortened useful lives . we evaluate indefinite-lived intangible assets for impairment at least annually during the fourth quarter , or more frequently when events occur or circumstances change , such as an unexpected decline in sales , that would more likely than not indicate that the carrying value of an indefinite-lived intangible asset may not be recoverable . when testing indefinite-lived intangible assets for impairment , the evaluation requires a comparison of the estimated fair value of the asset to the carrying value of the asset . the fair values used in our evaluations are estimated based upon discounted future cash flow projections using a weighted average cost of capital of 6.2 % . the cash flow projections are based upon a number of assumptions , including , future sales levels and future cost of goods and operating expense levels , as well as economic conditions , changes to our business model or changes in consumer acceptance of our products which are more subjective in nature . if the carrying value of an indefinite-lived intangible asset exceeds its fair value , an impairment charge is recorded . we believe that the assumptions we have made in projecting future cash flows for the evaluations described above are reasonable and currently no impairment indicators exist for our indefinite-lived intangible assets . however , if future actual results do not meet our expectations , we may be required to record an impairment charge , the amount of which could be material to our results of operations . 38 at december 31 , 2016 indefinite-lived intangible assets aggregated $ 115.8 million . the following table presents the impact a change in the following significant assumptions would have had on the calculated fair value in 2016 assuming all other assumptions remained constant : replace_table_token_10_th intangible assets subject to amortization are evaluated for impairment testing whenever events or changes in circumstances indicate that the carrying amount of an amortizable intangible asset may not be recoverable . if impairment indicators exist for an amortizable intangible asset , the undiscounted future cash flows associated with the expected service potential of the asset are compared to the carrying value of the asset . if our projection of undiscounted future cash flows is in excess of the carrying value of the intangible asset , no impairment charge is recorded . if our projection of undiscounted future cash flows is less than the carrying value of the intangible asset , an impairment charge would be recorded to reduce the intangible asset to its fair value . the cash flow projections are based upon a number of assumptions , including future sales levels and future cost of goods and operating expense levels , as well as economic conditions , changes to our business model or changes in consumer acceptance of our products which are more subjective in nature . in those cases where we determine that the useful life of long-lived assets should be shortened , we would amortize the net book value in excess of the salvage value ( after testing for impairment as described above ) , over the revised remaining useful life of such asset thereby increasing amortization expense . we believe that the assumptions we have made in projecting future cash flows for the evaluations described above are reasonable . product sales of our karl lagerfeld brand have not met with our original expectations . during the fourth quarter of 2016 , the company decided that it will most likely exercise its rights for an early termination of the karl lagerfeld license in 2024 , rather than continue the license through its original expiration in 2032. as a result of the shortened expected life of the license , the company recorded an impairment loss of $ 5.7 million as of december 31 , 2016. in determining the useful life of our lanvin brand names and trademarks , we applied the provisions of asc topic 350-30-35-3. the only factor that prevented us from determining that the lanvin brand names and trademarks were indefinite life intangible assets was item c. โ any legal , regulatory , or contractual provisions that may limit the useful life. โ the existence of a repurchase option in 2025 may limit the useful life of the lanvin brand names and trademarks to the company . however , this limitation would only take effect if the repurchase option were to be exercised and the repurchase price was paid . if the repurchase option is not exercised , then the lanvin brand names and trademarks are expected to continue to contribute directly to the future cash flows of our company and their useful life would be considered to be indefinite . with respect to the application of asc topic 350-30-35-8 , the lanvin brand names and trademarks would only have a finite life to our company if the repurchase option were exercised , and in applying asc topic 350-30-35-8 , we assumed that the repurchase option is exercised .
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results of operations replace_table_token_11_th net sales increased 11 % in 2016 to $ 521.1 million , as compared to $ 468.5 million in 2015. at comparable foreign currency exchange rates , net sales increased 12 % . net sales decreased 6 % in 2015 to $ 468.5 million , as compared to $ 499.3 million in 2014. at comparable foreign currency exchange rates , net sales increased 1.5 % . the average u.s. dollar/euro exchange rates were 1.11 in 2016 and 2015 and 1.33 in 2014. european based prestige product sales increased 11 % in 2016 to $ 404.0 million , as compared to $ 362.7 million in 2015. at comparable foreign currency exchange rates , european based prestige product sales increased 12.5 % . european based prestige product sales decreased 8 % in 2015 to $ 362.7 million , as compared to $ 394.0 million in 2014. at comparable foreign currency exchange rates , european based prestige product sales increased 1.8 % in 2015. in 2016 , montblanc , our largest brand , continued to lead the way in sales growth reaching $ 121.7 million in brand sales , a 25 % increase from the prior year . the successful launch of montblanc legend spirit and the continued popularity of the original legend line were important contributors to montblanc brand sales . our newer brands were also contributors to the increase in net sales . coach brand sales , which commenced in the second half of 2016 , were well ahead of expectations generating $ 23.1 million in incremental sales .
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following discussion is based upon and should be read in conjunction with โ selected financial data โ and โ financial statements and supplementary data. โ see also โ forward-looking statements โ on page 2. overview marine products , through our wholly owned subsidiaries chaparral and robalo , is a leading manufacturer of recreational fiberglass powerboats . our sales and profits are generated by selling the products that we manufacture to a network of independent dealers who in turn sell the products to retail consumers . these dealers are located throughout the continental united states and in several international markets . most of these dealers finance their inventory through third-party floor plan lenders , who pay marine products upon delivery of the products to the dealers . we manage our company by focusing on the execution of the following business and financial strategies : โ manufacturing high-quality , stylish , and innovative powerboats for our dealers and retail consumers , โ providing our independent dealer network appropriate incentives , training , and other support to enhance their success and their customers ' satisfaction , thereby facilitating their continued relationship with us , โ managing our production and dealer order backlog to optimize operating results and reduce risk in the event of a downturn in sales of our products , โ maintaining a flexible , variable cost structure which can be reduced quickly when deemed appropriate , โ focusing on the competitive nature of the boating business and designing our products and strategies in order to grow and maintain profitable market share , โ monitoring the activities and financial condition of our dealers and of the third-party floor plan lenders who finance our dealers ' inventories , โ maximizing stockholder return by optimizing the balance of cash invested in the company 's productive assets , the payment of dividends to stockholders , and the repurchase of the company 's common stock on the open market , and โ aligning the interests of our management and stockholders . in implementing these strategies and attempting to optimize our financial returns , management closely monitors dealer orders and inventories , the production mix of various models , and indications of near term demand such as consumer confidence , interest rates , dealer orders placed at our annual dealer conferences , and retail attendance and orders at annual winter boat show exhibitions . we also consider trends related to certain key financial and other data , including our historical and forecasted financial results , market share , unit sales of our products , average selling price per boat , and gross profit margins , among others , as indicators of the success of our strategies . marine products ' financial results are affected by consumer confidence โ because pleasure boating is a discretionary expenditure , interest rates โ because many retail customers finance the purchase of their boats , and other socioeconomic and environmental factors such as availability of leisure time , consumer preferences , demographics and the weather . during 2012 , overall industry retail sales increases have been modest due to a slow economic recovery , persistent high unemployment , depressed real estate values and continued weak consumer confidence . in spite of these conditions our sales increased significantly in 2012 , due primarily to the introduction of new entry level models in both the chaparral and robalo product lines . the increased production of these smaller value-priced units resulted in improved production efficiencies which were partially offset by generally lower margins on these models . we achieved higher net sales , as well as increased gross and operating profit in 2012 compared to 2011. management will continue to monitor retail demand , dealer inventory levels and the availability of dealer and consumer financing for the purchase of our products and adjust our production levels as deemed appropriate . we continuously monitor our market share in the 18 to 35 foot sterndrive category as one indicator of the success of our strategies and the market 's acceptance of our products . for the nine months ended september 30 , 2012 ( latest data available to us ) , chaparral 's market share in the 18 to 35 foot sterndrive category was 11.7 percent , an increase from our market share in the same category for the nine months ended september 30 , 2011 of 8.3 percent . our market share increased across a broad size range , but was higher among the smaller boats in our market due to the new entry level chaparral models which were first introduced in the fourth quarter of 2011. chaparral 's market share in the 18 to 19 foot category has increased to 11.6 percent during 2012 , compared to 4.0 percent in 2011 , due to the successful launch of these smaller models . the emphasis on these models resulted in a significant increase in unit sales , partially offset by a decrease in average selling price per boat . we will continue to monitor our market share and believe it to be important , but we also believe that maximizing profitability takes precedence over growing our market share . 19 outlook management believes that net sales will be higher in 2013 compared to 2012 and that our operating results will improve . this belief is based on indications that recreational boating retail demand has stabilized and may be improving , the fact that our dealer inventories are at reasonable levels , and that our order backlog remains strong . indications from early winter boat shows are that attendance and sales are moderately higher than at this same time last year . although industry wide retail boat sales remain lower than they were in 2008 , volumes did expand in 2012 and we expect this to continue in 2013. we believe improvements in retail boat sales will be modest due to the continued economic weakness which tends to discourage consumers from purchasing large discretionary goods such as pleasure boats . fluctuations in fuel prices can impact our sales . story_separator_special_tag cash used for financing activities increased only $ 0.1 million in 2011 compared to 2010 . 22 cash requirements management expects that capital expenditures during 2013 will be approximately $ 1.4 million . the company participates in a multiple employer retirement income plan , sponsored by rpc , inc. ( โ rpc โ ) . during 2012 , the company made contributions of $ 714 thousand to this plan in order to achieve the company 's funding objective . we expect that additional contributions to the retirement income plan of approximately $ 50 thousand will be required in 2013. on january 23 , 2013 , the board of directors approved a quarterly dividend of $ 0.03 per common share to stockholders payable march 8 , 2013 to stockholders of record at the close of business on february 8 , 2013. the company has agreements with two employees , which provide for a monthly payment to the employees equal to 10 percent of profits ( defined as pretax income before goodwill amortization and certain allocated corporate expenses ) . in january 2008 , the board of directors authorized an additional 3,000,000 shares that the company may repurchase for a total aggregate authorization of 8,250,000 shares . as of december 31 , 2012 , the company has purchased a total of 5,027,785 shares in the open market under this program and there are 3,222,215 shares that remain available for repurchase . the company has entered into agreements with third-party floor plan lenders where it has agreed , in the event of default by the dealer , to repurchase mpc boats repossessed from the dealer . these arrangements are subject to maximum repurchase amounts and the associated risk is mitigated by the value of the boats repurchased . there were no material repurchases of dealer inventory during 2012. at december 31 , 2012 there were no amounts payable to lenders related to repurchased inventory or repurchased boats remaining in inventory . if dealers experience financial difficulty as a result of the current market conditions , the company may incur repurchase obligations under current programs or programs initiated in the future . see further information regarding repurchase obligations in โ note 9 : commitments and contingencies โ of the consolidated financial statements . the company believes that the liquidity provided by its existing cash and cash equivalents , marketable securities , and cash expected to be generated from operations will provide sufficient capital to meet its requirements for at least the next twelve months . the company 's decisions about the amount of cash to be used for investing and financing purposes are influenced by its capital position and the expected amount of cash to be provided by operations . contractual obligations the following table summarizes the company 's contractual obligations as of december 31 , 2012 : replace_table_token_6_th ( 1 ) operating leases represent agreements for warehouse space and various office equipment . ( 2 ) as part of the normal course of business the company enters into purchase commitments to manage its various operating needs . however , the company does not have any obligations that are non-cancelable or subject to a penalty if canceled . ( 3 ) the company has agreements with various third-party lenders where it guarantees varying amounts of debt for qualifying dealers on boats in inventory . as of december 31 , 2012 , there are no payables outstanding to floor plan lenders . additionally , our liability for unrecognized tax benefits and related interest and penalties was $ 14,000 as of december 31 , 2012. management is unable to make a reasonable estimate as to when cash settlement with the tax authorities might occur due to the uncertainties related to these tax matters . 23 fair value measurements the company 's assets and liabilities measured at fair value are classified in the fair value hierarchy ( level 1 , 2 or 3 ) based on the inputs used for valuation . assets and liabilities that are traded on an exchange with a quoted price are classified as level 1. assets and liabilities that are valued using significant observable inputs in addition to quoted market prices are classified as level 2. the company currently has no assets or liabilities measured on a recurring basis that are valued using unobservable inputs and therefore no assets or liabilities measured on a recurring basis are classified as level 3. for defined benefit plan assets classified as level 3 , the values are computed using inputs such as cost , discounted future cash flows , independent appraisals and market based comparable data or on net asset values calculated by the fund and not publicly available . off balance sheet arrangements to assist dealers in obtaining financing for the purchase of its boats for inventory , the company has entered into agreements with various third-party floor plan lenders whereby the company guarantees varying amounts of debt for qualifying dealers on boats in inventory . the company 's obligation under these guarantees becomes effective in the case of a default under the financing arrangement between the dealer and the third-party lender . the agreements typically provide for the return of all repossessed boats in โ new and unused โ condition subject to normal wear and tear , as defined , to the company , in exchange for the company 's assumption of specified percentages of the debt obligation on those boats , up to certain contractually determined dollar limits which vary by lender . during 2011 , the company became obligated to repurchase inventory at a cost of approximately $ 0.8 million . there were no material repurchases of dealer inventory during 2012. management continues to monitor the risk of additional defaults and resulting repurchase obligation based primarily upon information provided by the third-party floor plan lenders and to adjust the guarantee liability at the end of each reporting period based on information reasonably available at that time . as of december 31 , 2012 , the company believes the fair value of its remaining guarantee liability is immaterial .
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results of operations replace_table_token_4_th year ended december 31 , 2012 compared to year ended december 31 , 2011 net sales . marine products ' net sales increased by $ 42.5 million or 39.9 percent in 2012 compared to 2011. the increase was primarily due to a 62.1 percent increase in the number of boats sold , partially offset by a 15.1 percent decrease in the average gross selling price per boat . unit sales increased dramatically due to sales of our recently introduced chaparral h2o sport and fish & ski boats , as well as our robalo 180 and 200 outboard sport fishing boat . the increased sales of these smaller models also resulted in the decrease in overall average selling prices during 2012 compared to 2011. during 2012 , sales outside of the united states accounted for 20.3 percent of net sales , a slight decrease compared to 21.4 percent of net sales in the prior year . domestic sales increased 42.0 percent and international sales increased 32.6 percent during the period compared to the prior year . the majority of the increase in international sales was due to higher sales volumes in canada due to an expanded dealer network coupled with improvement in the canadian economy while most other international economies continue to struggle . cost of goods sold . cost of goods sold increased 40.0 percent in 2012 compared to 2011. as a percentage of net sales , cost of goods sold was 81.7 percent for 2012 , unchanged compared to 2011 despite increased sales of smaller models , which carry lower margins . the impact of decreased margins was offset by increased production efficiencies due to higher production levels . selling , general and administrative expenses .
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2. restricted assets regulations of the board of governors of the federal reserve system require that the bank maintain minimum reserve balances either on hand or on deposit with the federal reserve bank of san francisco ( `` frb `` ) , based on a percentage of deposits . the amounts of such balances as of march 31 , 2016 and 2015 were $ 1.0 million and $ 951,000 , respectively , which were in compliance with minimum reserve requirements . 3. investment securities the amortized cost and approximate fair value of investment securities consisted of the following at the dates indicated ( in thousands ) : replace_table_token_33_th march 31 , 2015 available for sale : trust preferred $ 1,919 $ - $ ( story_separator_special_tag general management 's discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the company . the information contained in this section should be read in conjunction with the consolidated financial statements and accompanying notes thereto contained in item 8 of this form 10-k and the other sections contained in this form 10-k. this section contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) . these measures include net interest income on a fully tax equivalent basis and net interest margin on a fully tax equivalent basis . management uses these non-gaap measures in its analysis of the company 's performance . the tax equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a 34 % tax rate . management believes that it is a standard practice in the banking industry to present net interest income and net interest margin on a fully tax equivalent basis , and accordingly believes that providing these measures may be useful for peer comparison purposes . these disclosures should not be viewed as substitutes for the results determined to be in accordance with gaap , nor are they necessarily comparable to non-gaap performance measures that may be presented by other companies . critical accounting policies the company has established various accounting policies that govern the application of accounting principles generally accepted in the united states of america in the preparation of the company 's consolidated financial statements . the company has identified policies that due to judgments , estimates and assumptions inherent in those policies are critical to an understanding of the company 's consolidated financial statements . these policies relate to the methodology for the determination of the allowance for loan losses , the valuation of investment securities , the valuation of reo and foreclosed assets , goodwill valuation and the calculation of income taxes . these policies and the judgments , estimates and assumptions are described in greater detail in subsequent sections of management 's discussions and analysis contained herein and in the notes to the consolidated financial statements contained in item 8 of this form 10-k. in particular , note 1 of the notes to consolidated financial statements , `` summary of significant accounting policies , '' describes generally the company 's accounting policies . management believes that the judgments , estimates and assumptions used in the preparation of the company 's consolidated financial statements are appropriate given the factual circumstances at the time . however , given the sensitivity of the company 's consolidated financial statements to these critical accounting policies , the use of other judgments , estimates and assumptions could result in material differences in the company 's results of operations or financial condition . allowance for loan losses the allowance for loan losses is maintained at a level sufficient to provide for probable loan losses based on evaluating known and inherent risks in the loan portfolio . the allowance is provided based upon the company 's ongoing quarterly assessment of the pertinent factors underlying the quality of the loan portfolio . these factors include changes in the size and composition of the loan portfolio , delinquency levels , actual loan loss experience , current economic conditions and detailed analysis of individual loans for which full collectability may not be assured . the detailed analysis includes techniques to estimate the fair value of loan collateral and the existence of potential alternative sources of repayment . the allowance consists of specific , general and unallocated components . the specific component relates to loans that are considered impaired . for loans that are classified as impaired , an allowance is established when the discounted cash flows or collateral value of the impaired loan is lower than the carrying value of that loan . the general component covers non-impaired loans based on the company 's risk rating system and historical loss experience adjusted for qualitative factors . the company calculates its historical loss rates using the average of the last four quarterly 24-month periods . the company calculates and applies its historical loss rates by individual loan types in its portfolio . these historical loss rates are adjusted for qualitative and environmental factors . an unallocated component is maintained to cover uncertainties that the company believes have resulted in incurred losses that have not yet been allocated to specific elements of the general and specific components of the allowance for loan losses . such factors include uncertainties in economic conditions and in identifying triggering events that directly correlate to subsequent loss rates , changes in appraised value of underlying collateral , risk factors that have not yet manifested themselves in loss allocation factors and historical loss experience data that may not precisely correspond to the current portfolio or economic conditions . the unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio . the appropriate allowance level is estimated based upon factors and trends identified by the company as of the date of the filing of the financial statements . story_separator_special_tag 48 although the determination of whether an impairment is other-than-temporary involves significant judgment , the underlying principle used is based on positive evidence indicating that an investment 's carrying value is recoverable within a reasonable period of time that outweighs negative evidence to the contrary . evidence that is objectively determinable and verifiable is given greater weight than evidence that is subjective and or not verifiable . evidence based on future events will generally be less objective as it is based on future expectations and therefore is generally less verifiable or not verifiable at all . factors considered in evaluating whether a decline in value is other-than-temporary include , ( a ) the length of time and the extent to which the fair value has been less than amortized cost , ( b ) the financial condition and near-term prospects of the issuer and ( c ) the company 's intent and ability to retain the investment for a period of time . other factors that may be considered include the ratings by recognized rating agencies ; capital strength and other near-term prospects of the issuer and recommendation of investment advisors or market analysts . in situations in which the security 's fair value is below amortized cost but it continues to be probable that all contractual terms of the security will be satisfied , the decline is solely attributable to noncredit factors , and the company asserts that it has positive intent and ability to hold that security to maturity , no otti is recognized . valuation of reo and foreclosed assets real estate properties acquired through foreclosure are recorded at fair value less estimated costs to sell . fair value is generally determined by management based on a number of factors , including third-party appraisals of fair value in an orderly sale . accordingly , the valuation of reo is subject to significant external and internal judgment . any differences between management 's assessment of fair value , less estimated costs to sell , and the carrying value of the loan at the date of acquisition are charged to the allowance for loan losses . at the acquisition date , any write ups , where the fair value less estimated costs to sell exceeds the loan basis , are first recovered through the allowance for loan losses if there was a prior charge-off and then applied to any outstanding accrued interest . if no prior charge-off or accrued interest is present , the amount is recorded as gain on transfer of reo . management periodically reviews reo values to determine whether the property continues to be carried at the lower of its recorded book value or fair value , net of estimated costs to sell . any further decreases in the value of reo are considered valuation adjustments and trigger a corresponding charge to non-interest expense in the consolidated statements of income . expenses from the maintenance and operations of reo are included in other non-interest expense . income taxes the company estimates tax expense based on the amount it expects to owe various tax authorities . accrued taxes represent the net estimated amount due or to be received from taxing authorities . in estimating accrued taxes , management assesses the relative merits and risks of the appropriate tax treatment of transactions taking into account statutory , judicial and regulatory guidance in the context of our tax position . we determine our deferred income taxes using the balance sheet method , under which the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities , and changes in tax rates and laws are recognized in the period in which they occur . deferred income tax expense or benefit is recorded based on changes in deferred tax assets and liabilities between periods . the company records net deferred tax assets to the extent these assets will more likely than not be realized . in making the determination whether a deferred tax asset is more likely than not to be realized , management seeks to evaluate all available positive and negative evidence including the possibility of future reversals of existing taxable temporary differences , projected future taxable income , tax planning strategies and recent financial results . for additional information see notes 1 and 11 of the notes to the consolidated financial statements in item 8 of this form 10-k. operating strategy story_separator_special_tag strength of the company 's customer service and relationship banking approach . the company believes that one of its strengths is that its employees are also significant shareholders through the company 's employee stock ownership ( `` esop '' ) and 401 ( k ) plans . disciplined franchise expansion . the company believes opportunities currently exist within its market area to grow its franchise . the company anticipates organic growth as the local economy and loan demand strengthens through its marketing efforts and as a result of the opportunities being created as a result of the consolidation of financial institutions occurring in its market area . the company may also seek to expand its franchise through the selective acquisition of individual branches , loan purchases and whole bank transactions that meet its investment and market objectives . the company expects to gradually expand its operations further in the portland , oregon metropolitan area which has a population of approximately two million people . the company will continue to be disciplined as it pertains to future expansion focusing on the pacific northwest markets it knows and understands . comparison of financial condition at march 31 , 2016 and 2015 cash , including interest-earning accounts , totaled $ 55.4 million at march 31 , 2016 compared to $ 58.7 million at march 31 , 2015. the company has deployed a portion of its excess cash balances into investment securities to earn higher yields than cash held in interest-earning accounts based on its asset/liability program and liquidity objectives in order to maximize earnings .
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fiscal year 2016 marked the 93 rd anniversary since the bank began operations in 1923. the primary business strategy of the company is to provide comprehensive banking and related financial services within its primary market area . the historical emphasis had been on residential real estate lending . since 1998 , however , the company has been diversifying its loan portfolio through the expansion of its commercial and construction loan portfolios . at march 31 , 2016 , commercial and construction loans represented 79.3 % of total loans . commercial lending , including commercial real estate loans , typically has higher credit risk , greater interest margins and shorter terms than residential lending which can increase the loan portfolio 's profitability . the primary business strategy of the company is to provide comprehensive banking and related financial services within its primary market area . the company 's goal is to deliver returns to shareholders by managing problem assets , increasing higher-yielding assets ( in particular commercial real estate and commercial business loans ) , increasing core deposit balances , reducing expenses , hiring experienced employees with a commercial lending focus and exploring expansion opportunities . the company seeks to achieve these results by focusing on the following objectives : 49 focusing on asset quality . the company is focused on monitoring existing performing loans , resolving nonperforming loans and selling foreclosed assets . the company has aggressively sought to reduce its level of nonperforming assets through write-downs , collections , modifications and sales of nonperforming loans and reo . the company has taken proactive steps to resolve its nonperforming loans , including negotiating repayment plans , forbearances , loan modifications and loan extensions with borrowers when appropriate , and accepting short payoffs on delinquent loans , particularly when such payoffs result in a smaller loss than foreclosure .
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our software applications and pega platform can be deployed on pega-managed , partner-managed , or customer-managed cloud architectures . our clients include global 3000 companies and government agencies that seek to manage complex enterprise systems and customer service issues with greater agility and cost-effectiveness . our strategy is to sell a client a series of licenses , each focused on a specific purpose or area of operations , in support of longer term enterprise-wide digital transformation initiatives . our license revenue is primarily derived from sales of our applications and our pega platform . our cloud revenue is derived from the licensing of our hosted pega platform and software application environments . our consulting services revenue is primarily related to new license implementations . we offer training for our clients and partners at our regional training facilities and at third-party facilities , including client sites . our online training through pegaacademy provides an alternative way to learn our software in a virtual environment . we believe that this online training will continue to expand the number of trained experts at a faster pace . sales to clients based outside of the united states of america ( ยu.s.ย ) represented an average of 44 % of our total revenue for the last three fiscal years . see note 17 , ยgeographic information and major clients , ย included in the notes to consolidated financial statements included in item 8 of this annual report on form 10-k for further detail on our geographic revenues . at the end of june 2016 , the united kingdom ( the ยu.k.ย ) held a referendum in which u.k. voters approved an exit from the european union ( the ยe.u.ย ) , commonly referred to as ยbrexitย . while brexit has not had a meaningful impact on our business momentum , it has resulted in a sharp decline in the value of the british pound , slightly reducing revenue during 2016 , but with no material impact on our results of operations . prolonged weakening of the british pound relative to the u.s. dollar may adversely affect our revenue and results of operations in future periods . we continue to expand our sales and marketing capacity to achieve broader market coverage , with sales and marketing costs representing 37 % , 35 % , and 35 % of revenue during 2016 , 2015 , and 2014 , respectively . we are investing heavily in research and development to expand and improve our software offerings , with research and development costs representing 19 % , 19 % , and 18 % of revenue during 2016 , 2015 , and 2014. in evaluating the financial condition and operating performance of our business , management focuses on the following key performance factors : replace_table_token_6_th 27 ( 1 ) reflects the impacts of the early adoption of asu 2016-09. see note 2 ยsignificant accounting policiesยnew accounting pronouncementsย included in the notes to consolidated financial statements in item 8 of this annual report on form 10-k for additional information related to this adoption . ( 2 ) see the table below for the composition of recurring revenue . recurring revenue increased to 53 % of total revenue in 2016 compared to 50 % in 2015. our business may continue to shift towards the recurring revenue streams of term and cloud licenses . as a result of this shift , gross profit , operating income , net income , and earnings per share may grow slower than historical trends due to more license revenue being recognized over longer periods . replace_table_token_7_th another key performance factor as we shift towards recurring revenue is license and cloud backlog . it is computed by adding deferred license and cloud revenue recorded on the balance sheet ( see note 11 ยdeferred revenueย in the notes to consolidated financial statements ) and client license and cloud contractual commitments , which are not on our balance sheet because we have not yet invoiced our clients , nor have we recognized the associated revenues ( see the table of future cash receipts in liquidity and capital resourcesยcash provided by operating activities ) . license and cloud backlog may vary in any given period depending on the amount and timing of when the arrangements are executed , as well as the mix between perpetual , term , and cloud license arrangements , which may depend on our clients ' deployment preferences . replace_table_token_8_th ( 1 ) excludes future revenue from committed maintenance and service arrangements . to grow our business , we intend to : lead the platform market for business applications for customer engagement and operational excellence ; 28 continue to grow market share by developing and delivering robust applications for marketing , sales , service , and operations that can work together seamlessly with maximum differentiation and minimal customization ; execute new-market growth initiatives , further expanding coverage within the global 3000 ; and build out our digital platform and continue to invest in awareness marketing to support the way today 's clients want to buy . whether or not we are successful depends , in part , on our ability to : successfully execute our marketing and sales strategies ; appropriately manage our expenses as we grow our organization ; develop new products or product enhancements ; and successfully incorporate acquired technologies into our applications and unified pega platform . we also regularly evaluate acquisitions or investment opportunities in complementary businesses , services and technologies , and intellectual property rights in an effort to expand and enhance our product offerings . on april 11 , 2016 , we acquired openspan , inc. ( ยopenspanย ) , a privately held software provider of robotic process automation and workforce analytics software for $ 48.8 million in cash , net of $ 1.8 million in cash acquired . subsequent to the acquisition we unified the pega robotic automation with our pega platform for case and business process management and our portfolio of crm applications . story_separator_special_tag the total change in the fair value of our foreign currency forward contracts recorded in other expense , net , during 2016 , 2015 , and 2014 was a loss of $ 5.6 million , $ 1 million , and $ 0.5 million respectively . see note 4 ยderivative instrumentsย in the notes to consolidated financial statements included in item 8 of this annual report on form 10-k for discussion on our use of forward contracts . provision for income taxes replace_table_token_20_th 34 the provision for income taxes represents current and future amounts owed for federal , state , and foreign taxes . 2016 compared to 2015 the decrease in the effective income tax rate for 2016 compared to 2015 was primarily due to the impact of the adoption of asu 2016-09 , which decreased income tax expense by $ 6.7 million . the adoption of asu 2016-09 significantly impacts both the timing and method of how the tax effects of share-based awards are recognized . asu 2016-09 requires the income tax effects to be recognized in the provision for income taxes when the awards vest or are settled whereas previously such income tax benefits were recognized as part of additional paid-in capital and could not be recognized until they were realized through a reduction in income taxes payable . see note 2 ยsignificant accounting policiesย ยnew accounting pronouncementsย included in the notes to consolidated financial statements in item 8 of this annual report on form 10-k for additional information related to this adoption . as of december 31 , 2016 , we had approximately $ 22.7 million of total unrecognized tax benefits , which will decrease our effective tax rate if recognized . we expect that the changes in the unrecognized benefits within the next twelve months will be approximately $ 0.1 million , which relate to the expiration of the applicable statute of limitations and will reduce our effective tax rate if recognized . 2015 compared to 2014 the increase in effective income tax rate for 2015 compared to 2014 was primarily due to a $ 2.3 million decrease in the benefit related to income generated in foreign jurisdictions that are subject to tax at a lower rate than the u.s. statutory rate . as of december 31 , 2015 , we had approximately $ 24 million of total unrecognized tax benefits , which would decrease our effective tax rate if recognized . liquidity and capital resources replace_table_token_21_th replace_table_token_22_th ( 1 ) the adoption of asu 2016-09 eliminates the requirement to reclassify excess tax benefits from operating activities to financing activities in the consolidated statements of cash flows . we elected to adopt this requirement retrospectively . as a result , we reclassified $ 5.3 million , and $ 3.4 million from financing activities to operating activities for the years ended december 31 , 2015 and 2014 , respectively . see note 2 ยsignificant accounting policiesยnew accounting pronouncementsย included in the notes to consolidated financial statements in item 8 of this annual report on form 10-k for additional information related to this adoption . 35 the decreases in cash and cash equivalents during the years ended december 31 , 2016 and 2015 were driven by the increases in trade accounts receivable , largely due to the timing of collections and the large amounts of new and annual license and maintenance billings , and the increases in cash used in financing activities , primarily for share repurchases . the increase in cash and cash equivalents during the year ended december 31 , 2014 was driven by the increase in cash provided by operating activities . cash provided by operating activities is our primary source of liquidity . we use this source to fund our capital expenditures and acquisitions , investments , dividend payments , and share repurchase program . we believe that our current cash , cash equivalents , and cash flow from operations will be sufficient to fund our operations and our share repurchase program for at least the next 12 months . there can be no assurance that changes in our plans or other events affecting our operations will not result in materially accelerated or unexpected cash requirements . we evaluate acquisition opportunities from time to time , which if pursued , could require use of our funds . in october , 2013 , we acquired antenna , and $ 0.8 million was paid in the first quarter of 2014 representing the remaining merger consideration related to the final working capital adjustment . during 2014 , we completed three acquisitions for $ 6.3 million in cash , inclusive of $ 2.1 million in cash acquired , and $ 1.1 million in additional cash consideration which was paid in 2015 to the selling shareholders of one of the three companies acquired in 2014. during 2015 and 2016 , we also paid $ 0.5 million and $ 0.3 million , respectively , in additional cash consideration to the selling shareholders of another one of the three companies acquired in 2014 , based on the achievement of certain performance milestones . the final cash payment of $ 0.3 million was made in january 2017 to the same selling shareholders based on the achievement of additional performance milestones through the end of 2016. in april 2016 , we acquired openspan for $ 48.8 million in cash , net of cash acquired . as of december 31 , 2016 , $ 7.4 million of the cash consideration remains in escrow for up to an 18-month period after the acquisition as security for the indemnification obligations of the selling shareholders . as of december 31 , 2016 , approximately $ 51.8 million of our cash and cash equivalents was held in our foreign subsidiaries . if it becomes necessary to repatriate these funds , we may be required to pay u.s. tax , net of any applicable foreign tax credits , upon repatriation . we consider the earnings of our foreign subsidiaries to be permanently reinvested and , as a result , u.s. taxes on such earnings are not provided .
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results of operations replace_table_token_9_th revenue software license revenue replace_table_token_10_th the mix between perpetual and term license arrangements executed in a particular period varies based on client needs . a change in the mix may cause our revenues to vary materially from period to period . a higher proportion of term license arrangements executed would result in more license revenue being recognized over longer periods . additionally , some of our perpetual license arrangements include extended payment terms or additional rights of use , which also result in the recognition of revenue over longer periods . the aggregate value of new license agreements executed also fluctuates quarter to quarter . 29 term license revenue as a percentage of total license revenue increased during 2016 compared to 2015. if this trend continues , it will result in slower license revenue growth as we continue to build license backlog . 2016 compared to 2015 the decrease in perpetual license revenue was primarily due to the lower average value of perpetual license arrangements executed during 2016 compared to 2015 and the acceleration of the recognition of $ 4.6 million in revenue in the fourth quarter of 2015 from an existing license arrangement which was being recognized ratably . the aggregate value of revenue expected to be recognized and payments due in future periods under noncancellable perpetual licenses periods was $ 31.7 million as of december 31 , 2016 compared to $ 33.5 million as of december 31 , 2015. see the table of future cash receipts in liquidity and capital resourcesยcash provided by operating activities .
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our actual results may differ materially from those contained in any forward-looking statements . segment level discussion of the results is disclosed in a manner consistent with the organization structure at the end of the presented period . overview berry plastics group , inc. ( โ berry , โ โ we , โ or the โ company โ ) is a leading provider of value-added plastic consumer packaging and engineered materials with a track record of delivering high-quality customized solutions to our customers . representative examples of our products include specialty closures , prescription vials , specialty films , adhesives , corrosion protection materials , as well as drink cups , thin-wall containers , and bottles . we sell our products predominantly into stable , consumer-oriented end-markets , such as healthcare , personal care , and food and beverage . we believe that we have created one of the largest product libraries in our industry , allowing us to be a comprehensive solution provider to our customers . our customers consist of a diverse mix of leading global , national , mid-sized regional and local specialty businesses . the size and scope of our customer network allows us to introduce new products we develop or acquire to a vast audience that is familiar with our brand . in fiscal 2015 , no single customer represented more than approximately 2 % of net sales and our top ten customers represented 16 % of net sales . we believe our manufacturing processes and our ability to leverage our scale to reduce expenses on items , such as raw materials , position us as a low-cost manufacturer relative to our competitors . 10 story_separator_special_tag debt from future interest rate volatility . the agreement swapped the greater of a three-month variable libor contract or 1.00 % for a fixed annual rate of 1.7185 % , with an effective date in december 2015 and expiration in june 2019. recent acquisitions our acquisition strategy is focused on improving our long-term financial performance , enhancing our market positions , and expanding our existing and complementary product lines . we seek to obtain businesses for attractive post-synergy multiples , creating value for our stockholders from synergy realization , leveraging the acquired products across our customer base , creating new platforms for future growth , and assuming best practices from the businesses we acquire . the company has included the expected benefits of acquisition integrations and restructuring plans within our unrealized synergies , which are in turn recognized in earnings after an acquisition has been fully integrated or the restructuring plan is completed . while the expected benefits on earnings is estimated at the commencement of each transaction , once the execution of the plan and integration occur , we are generally unable to accurately estimate or track what the ultimate effects have been due to system integrations and movements of activities to multiple facilities . as historical business combinations and restructuring plans have not allowed us to accurately separate realized synergies compared to what was initially identified , we measure the synergy realization based on the overall segment profitability post integration . fiscal 2014 acquisitions in fiscal 2014 , the company completed 3 acquisitions which included the rexam healthcare containers and closures business ( โ c & c โ ) for a purchase price of $ 133 million , net of cash acquired , graphic flexible packaging llc 's flexible plastics and films business for a purchase price of $ 61 million , net of cash acquired , and a controlling interest ( 75 % ) in qingdao p & b co. , ltd. for a purchase price of $ 35 million , net of cash acquired . see note 2 to the consolidated financial statements for further discussion on the respective acquisitions . 11 avintiv inc. in october 2015 , the company acquired 100 % of the capital stock of โ avintiv โ for a purchase price of approximately $ 2.3 billion which is preliminary and subject to adjustment . avintiv is one of the world 's leading developers , producers , and marketers of nonwoven specialty materials used in hygiene , infection prevention , personal care , and high-performance solutions . with 23 locations in 14 countries , an employee base of over 4,500 people , and the broadest range of process technologies in the industry , avintiv 's strategically located manufacturing facilities position it as a global supplier to many of the same leading consumer and industrial product manufacturers that berry supplies and utilize similar key raw materials as berry 's existing business . to finance the purchase , the company issued $ 400 million aggregate principal amount of 6.0 % second priority senior secured notes due 2022 and entered into an incremental assumption agreement to increase the commitments under the company 's existing term loan credit agreement by $ 2.1 billion due 2022. see note 17 to the consolidated financial statements for further discussion on the avintiv acquisition . discussion of results of operations for fiscal 2015 compared to fiscal 2014 replace_table_token_4_th the net sales decrease of $ 77 million from fiscal 2014 is primarily attributed to a 3 % base volume decline primarily related to soft customer demand , selling price decreases of 2 % due to the pass through of lower raw material costs , and a 1 % negative impact from foreign currency changes partially offset by net sales from businesses acquired in the last twelve months . the operating income increase of $ 92 million from fiscal 2014 is primarily attributed to a $ 42 million improvement in the relationship of net selling price to raw material and freight costs , $ 6 million of operating income from businesses acquired in the last twelve months , a $ 17 million decrease in depreciation and amortization expense , a $ 19 million improvement in operating performance in manufacturing , and a $ 56 million decrease in business integration expenses . story_separator_special_tag senior secured notes and corresponding issuance of the 5ยฝ % second priority senior secured notes in may 2014. replace_table_token_12_th we recorded an income tax expense of $ 36 million in fiscal 2015. the effective tax rate for fiscal 2015 compared to fiscal 2014 is impacted by discrete items , the inclusion of certain international entities for which a full valuation allowance is recognized , and $ 20 million of federal and state research and development tax credits recognized in fiscal 2014. discussion of results of operations for fiscal 2014 compared to fiscal 2013 replace_table_token_13_th net sales increased from $ 4,647 million in fiscal 2013 to $ 4,958 million in fiscal 2014. this increase is primarily attributed to net sales from businesses acquired in the last twelve months of 4 % and selling price increases of 4 % due to higher resin prices partially offset by base volume declines . operating income decreased from $ 386 million in fiscal 2013 to $ 316 million in fiscal 2014. this decrease is primarily attributed $ 27 million of raw material and freight cost inflation in excess of net selling price increases , $ 19 million from base volume declines described above , a $ 2 million increase in depreciation and amortization expense , and a $ 57 million increase in business integration expense . the $ 57 million increase in business integration expense primarily consisted of an increase in restructuring and impairment costs of $ 16 million , an increase of $ 9 million related to major innovation start-up costs and the remaining $ 32 million primarily being costs attributed to manufacturing inefficiencies associated with the 2014 cost reduction plan and acquisition integration costs . manufacturing inefficiencies represent abnormal period costs including wasted materials , unplanned facility or equipment downtime , and excess labor incurred at both rationalized and receiving facilities . replace_table_token_14_th net sales in the rigid open top segment decreased from $ 1,127 million in fiscal 2013 to $ 1,110 million in fiscal 2014 due to base volume declines of 5 % and product realignment of 1 % partially offset by net selling price increases of 4 % . the volume decline was primarily attributed to softness in thermoformed drink cups and container product offerings . 14 operating income for the rigid open top segment decreased from $ 123 million in fiscal 2013 to $ 34 million in fiscal 2014. this decrease is primarily attributed to $ 18 million from base volume declines , $ 10 million decline in operating performance in manufacturing , $ 1 million increase in selling , general and administrative expenses , a $ 12 million decline in the relationship of net selling price to raw material and freight costs , and a $ 48 million increase in business integration expense primarily consisting of an increase in restructuring and impairment costs of $ 12 million , an increase of $ 9 million related to major innovation start-up costs and the remaining $ 27 million primarily being costs attributed to manufacturing inefficiencies associated with the 2014 cost reduction plan . these manufacturing inefficiencies represent abnormal period costs including wasted materials , unplanned facility or equipment downtime , and excess labor incurred at both rationalized and receiving facilities . replace_table_token_15_th net sales in the rigid closed top segment increased from $ 1,387 million in fiscal 2013 to $ 1,469 million in fiscal 2014 as a result of net selling price increases of 2 % and c & c acquisition volume of 4 % . operating income for the rigid closed top segment increased from $ 130 million in fiscal 2013 to $ 132 million in fiscal 2014. the increase is attributed to a $ 6 million decline in the relationship of net selling price to raw material costs , $ 1 million attributed to negative product mix , $ 3 million increase in business integration expenses attributed to acquisition integration , and $ 1 million loss from businesses acquired in the last twelve months offset by $ 1 million decrease in depreciation and amortization , a $ 7 million improvement in operating performance in manufacturing and a $ 5 million improvement in selling , general and administrative expenses . replace_table_token_16_th the engineered materials segment net sales increased from $ 1,397 million in fiscal 2013 to $ 1,455 million in fiscal 2014 as a result of net selling price increases of 4 % and base volume growth of 1 % partially offset by exited business of 1 % . operating income for the engineered materials segment increased from $ 116 million in fiscal 2013 to $ 125 million in fiscal 2014. this increase is primarily attributed to a $ 19 million improvement in manufacturing operating performance , $ 2 million decline in restructuring expense , a $ 5 million decline in acquisition integration expense , and a $ 4 million decline in selling , general and administrative expenses partially offset by $ 14 million of raw material cost inflation in excess of net selling prices , $ 2 million from exited business , and a $ 5 million increase in depreciation and amortization expense . replace_table_token_17_th the flexible packaging segment net sales increased from $ 736 million in fiscal 2013 to $ 924 million in fiscal 2014 as a result of businesses acquired in the last twelve months of 22 % , product realignment of 1 % and net selling price increases of 5 % partially offset by a 2 % volume decline attributed to soft customer demand .
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executive summary business . during fiscal 2015 , we operated in the following four segments : rigid open top , rigid closed top ( together our rigid packaging business ) , engineered materials , and flexible packaging . the rigid packaging business sells primarily containers , foodservice items , closures , overcaps , bottles , prescription containers , and tubes . our engineered materials segment primarily sells pipeline corrosion protection solutions , tapes and adhesives , polyethylene based film products , and can liners . the flexible packaging segment primarily sells high barrier , multilayer film products , as well as finished flexible packages such as printed pouches . raw material trends . our primary raw material is plastic resin . polypropylene and polyethylene account for approximately 90 % of our plastic resin pounds purchased . plastic resins are subject to price fluctuations , including those arising from supply shortages and changes in the prices of natural gas , crude oil and other petrochemical intermediates from which resins are produced . the average industry prices , as published in chem data , per pound were as follows by fiscal year : replace_table_token_3_th due to differences in the timing of passing through resin cost changes to our customers on escalator/de-escalator programs , segments are negatively impacted in the short term when plastic resin costs increase and are positively impacted in the short term when plastic resin costs decrease . this timing lag in passing through raw material cost changes could affect our results as plastic resin costs fluctuate . outlook . the company is impacted by general economic and industrial growth , plastic resin availability and affordability , and general industrial production . our business has both geographic and end market diversity , which reduces the effect of any one of these factors on our overall performance .
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it also includes a โ significant items โ section that summarizes key issues important for a complete understanding of performance trends . key consolidated balance sheet and income statement trends are discussed . all earnings per share data are reported on a diluted basis . for additional insight on financial performance , please read this section in conjunction with the โ business segment discussion. โ significant items earnings comparisons among the three years ended december 31 , 2017 , 2016 , and 2015 were impacted by a number of significant items summarized below . 1. mergers and acquisitions . significant events relating to mergers and acquisitions , and the impacts of those events on our reported results , were as follows : during 2017 , $ 154 million of noninterest expense and $ 2 million of noninterest income was recorded related to the acquisition of firstmerit . this resulted in a negative impact of $ 0.09 per common share in 2017. during 2016 , $ 282 million of noninterest expense and $ 1 million of noninterest income was recorded related to the acquisition of firstmerit . this resulted in a negative impact of $ 0.20 per common share in 2016. during 2015 , $ 9 million of noninterest expense was recorded related to the acquisition of macquarie equipment finance , inc. , which was rebranded huntington technology finance . also during 2015 , $ 4 million of noninterest expense and $ 3 million of noninterest income was recorded related to the sale of huntington asset advisors , inc. , huntington asset services , inc. , and unified financial services , inc. this resulted in a net negative impact of $ 0.01 per common share in 2015 . 2. federal tax reform-related tax benefit . significant events relating to federal tax reform-related tax benefits , and the impacts of those events on our reported results , were as follows : during 2017 , $ 123 million of federal tax reform-related tax benefit was recorded as provision for income taxes . this resulted in a positive impact of $ 0.11 per common share in 2017 . 3. litigation reserve . significant events relating to our litigation reserve , and the impacts of those events on our reported results , were as follows : during 2016 , a $ 42 million reduction to litigation reserves was recorded as other noninterest expense . this resulted in a positive impact of $ 0.03 per common share in 2016. during 2015 , $ 38 million of net additions to litigation reserves were recorded as other noninterest expense . this resulted in a negative impact of $ 0.03 per common share in 2015 . 4. franchise repositioning related expense . significant events relating to franchise repositioning , and the impacts of those events on our reported results , were as follows : during 2015 , $ 8 million of franchise repositioning related expense was recorded as non-interest expense . this resulted in a negative impact of $ 0.01 per common share in 2015 . 37 the following table reflects the earnings impact of the above-mentioned significant items for periods affected by this results of operations discussion : replace_table_token_9_th ( 1 ) based upon the annual average outstanding diluted common shares . net interest income / average balance sheet our primary source of revenue is net interest income , which is the difference between interest income from earning assets ( primarily loans , securities , and direct financing leases ) , and interest expense of funding sources ( primarily interest-bearing deposits and borrowings ) . earning asset balances and related funding sources , as well as changes in the levels of interest rates , impact net interest income . the difference between the average yield on earning assets and the average rate paid for interest-bearing liabilities is the net interest spread . noninterest-bearing sources of funds , such as demand deposits and shareholders ' equity , also support earning assets . the impact of the noninterest-bearing sources of funds , often referred to as โ free โ funds , is captured in the net interest margin , which is calculated as net interest income divided by average earning assets . both the net interest margin and net interest spread are presented on a fully-taxable equivalent basis , which means that tax-free interest income has been adjusted to a pretax equivalent income , assuming a 35 % tax rate . the following table shows changes in fully-taxable equivalent interest income , interest expense , and net interest income due to volume and rate variances for major categories of earning assets and interest-bearing liabilities : replace_table_token_10_th ( 1 ) the change in interest rates due to both rate and volume has been allocated between the factors in proportion to the relationship of the absolute dollar amounts of the change in each . ( 2 ) calculated assuming a 35 % tax rate . 38 replace_table_token_11_th ( 1 ) fte yields are calculated assuming a 35 % tax rate . ( 2 ) for purposes of this analysis , nonaccrual loans are reflected in the average balances of loans . ( 3 ) yield/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories . 39 replace_table_token_12_th ( 1 ) fte yields are calculated assuming a 35 % tax rate . ( 2 ) for purposes of this analysis , nonaccrual loans are reflected in the average balances of loans . ( 3 ) yield/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories . 40 2017 versus 2016 fully-taxable equivalent ( fte ) net interest income for 2017 increased $ 640 million , or 27 % , from 2016 . this reflected the impact of 21 % average earning asset growth , a 14 basis point increase in the nim to 3.30 % , partially offset by 24 % average interest-bearing liability growth . average earning asset growth included a $ 10.4 billion , or 18 % , increase in average loans and leases and a $ 6.1 story_separator_special_tag 41 noninterest income the following table reflects noninterest income for the past three years : replace_table_token_13_th 2017 versus 2016 noninterest income for 2017 increased $ 157 million , or 14 % , from the prior year , reflecting the full year impact of the firstmerit acquisition . card and payment processing income increased $ 37 million , or 22 % , due to higher credit and debit card related income and underlying customer growth . trust and investment management services increased $ 33 million , or 27 % , and service charges on deposit accounts increased $ 29 million , or 9 % , reflecting market growth and ongoing customer acquisition . other income increased $ 28 million , or 18 % , primarily reflecting increases in servicing income , mezzanine lending , loan syndication fees and commitment fees . capital markets fees increased $ 16 million , or 27 % , reflecting our ongoing strategic focus on expanding the business . bank owned life insurance increased $ 9 million , or 16 % . gain on sale of loans increased $ 9 million , or 19 % , as a result of continued expansion of our sba lending business during 2017 which more than offset gains in the prior year from our balance sheet optimization strategy and the auto securitization completed in the 2016 fourth quarter . these increases were partially offset by a $ 4 million decline in securities gains and a $ 3 million decline in insurance income . 2016 versus 2015 noninterest income for 2016 increased $ 111 million , or 11 % , from the prior year , reflecting the impact of the firstmerit acquisition . service charges on deposit accounts increased $ 44 million , or 16 % , reflecting the benefit of continued new customer acquisition . card and payment processing income increased $ 26 million , or 18 % , due to higher credit and debit card related income and underlying customer growth . mortgage banking income increased $ 16 million , or 15 % , reflecting a 24 % increase in mortgage origination volume . gain on sale of loans increased $ 14 million , or 43 % , reflecting an increase of $ 6 million in sba loan sales gains . in addition , there was a $ 7 million gain on non-relationship c & i and cre loan sales , which was related to the balance sheet optimization strategy completed in the 2016 fourth quarter . 42 replace_table_token_14_th replace_table_token_15_th replace_table_token_16_th 43 2017 versus 2016 reported noninterest expense for 2017 increased $ 306 million , or 13 % , from the prior year , reflecting the full year impact of the first merit acquisition . personnel costs increased $ 175 million , or 13 % , primarily reflecting the full year impact of the addition of colleagues from firstmerit . net occupancy expense increased $ 59 million , or 39 % , primarily reflecting $ 52 million of acquisition-related expense . other expense increased $ 47 million , or 26 % , reflecting the full impact of firstmerit . amortization of intangibles increased $ 26 million , or 87 % , reflecting the full year impact of amortizing firstmerit related intangibles . deposit and other insurance expense increased $ 24 million , or 44 % , reflecting the increase in the assessment base . partially offsetting these increases , professional services decreased $ 36 million , or 34 % reflecting a reduction in legal and consultation fees partially attributable to acquisition-related expense . 2016 versus 2015 reported noninterest expense for 2016 increased $ 432 million , or 22 % , from the prior year . personnel costs increased $ 227 million , or 20 % , reflecting an increase in the number of average full-time equivalent employees largely related to the in-store branch expansion and the addition of colleagues from firstmerit . outside data processing and other services increased $ 74 million , or 32 % , reflecting $ 46 million of acquisition-related expense and ongoing technology investments . professional services increased $ 55 million , or 110 % , reflecting $ 58 million of acquisition-related expense . equipment expense increased $ 40 million , or 32 % , reflecting $ 25 million of acquisition-related expense . net occupancy expense increased $ 31 million , or 25 % , reflecting $ 15 million of acquisition-related expense . partially offsetting these increases , other expense decreased $ 17 million , or 8 % reflecting a $ 42 million reduction to litigation reserves which was predominately offset by a $ 40 million contribution in the 2016 fourth quarter to achieve the philanthropic plans related to firstmerit . provision for income taxes ( this section should be read in conjunction with note 1 and note 17 of the notes to consolidated financial statements . ) 2017 versus 2016 the provision for income taxes was $ 208 million for 2017 and 2016 . both years included the benefits from tax-exempt income , tax-advantaged investments , general business credits , investments in qualified affordable housing projects , excess tax deductions for stock-based compensation , and capital losses . 2017 also includes a $ 123 million tax benefit related to the federal tax reform enacted on december 22 , 2017 , which is primarily attributed to the revaluation of net deferred tax liabilities at the lower statutory federal income tax rate . as of december 31 , 2017 and 2016 there was no valuation allowance on federal deferred taxes . in 2017 and 2016 there was essentially no change recorded in the provision for state income taxes , net of federal , for the portion of state deferred tax assets and state net operating loss carryforwards that are more likely than not to be realized . at december 31 , 2017 , we had a net federal deferred tax liability of $ 57 million and a net state deferred tax asset of $ 25 million . we file income tax returns with the irs and various state , city , and foreign jurisdictions .
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financial performance review in 2017 , we reported net income of $ 1.2 billion , a 67 % increase from the prior year . earnings per common share on a diluted basis for the year was $ 1.00 , up 43 % from the prior year . reported net income was impacted by the firstmerit acquisition with related expenses totaling $ 152 million pre-tax , or $ 0.09 per common share and federal tax reform-related tax benefit totaling $ 123 million , or $ 0.11 per common share . fully-taxable equivalent net interest income was $ 3.1 billion , up $ 0.6 billion , or 27 % . this reflected the impact of 21 % average earning asset growth , 24 % average interest-bearing liability growth , and a 14 basis point increase in the nim to 3.30 % . the average earning asset growth included a $ 10.4 billion , or 18 % , increase in average loans and leases and a $ 6.1 billion , or 34 % , increase in average securities , both of which were affected by the full year impact of the firstmerit acquisition . the net interest margin expansion reflected a 27 basis point positive impact from the mix and yield on earning assets and a 3 basis point increase in the benefit from noninterest-bearing funding , partially offset by a 16 basis point increase in funding costs . the provision for credit losses was $ 201 million , up $ 10 million , or 5 % . the increase in provision expense over the prior year was primarily the result of loan growth . noninterest income was $ 1.3 billion , up $ 157 million , or 14 % , from the prior year reflecting the full year impact of the first merit acquisition .
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derivatives are typically entered into as hedges for changes in interest rates , currency exchange rates , and other risks . when the company determines to designate a derivative instrument as a cash flow hedge , the company formally documents the hedging relationship and its risk management objective and strategy for undertaking the hedge , the hedging instrument , the hedged item , the nature of the risk being hedged , how the hedging instrument 's effectiveness in offsetting the hedged risk will be assessed , and a description of the method of measuring ineffectiveness . the company also formally assesses , both at the hedge 's inception and on an ongoing basis , whether story_separator_special_tag this financial review presents our operating results for each of our three most recent fiscal years and our financial condition at december 30 , 2013. except for historical information contained herein , the following discussion contains forward-looking statements which are subject to known and unknown risks , uncertainties and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements . we discuss such risks , uncertainties and other factors throughout this report and specifically under item 1a of part i of this report , risk factors . in addition , the following discussion should be read in connection with the information presented in our consolidated financial statements and the related notes to our consolidated financial statements . overview and recent developments we are a leading global provider of time-critical and technologically complex printed circuit board ( pcb ) products and backplane assemblies ( pcbs populated with electronic components ) , which serve as the foundation of sophisticated electronic products . we provide our customers time-to-market and advanced technology products and offer a one-stop manufacturing solution to customers from engineering support to prototype development through final volume production . we serve a diversified customer base in various markets throughout the world , including manufacturers of networking/communications infrastructure products , touch screen tablets and mobile media devices and smartphones . we also serve aerospace and defense , high-end computing , and industrial/medical industries . our customers include both original equipment manufacturers ( oems ) and electronic manufacturing services ( ems ) providers . beginning in 2013 , we operate on a 52 or 53 week year ending on the monday nearest december 31. fiscal 2013 was 52 weeks and ended on december 30 , 2013. prior to 2013 , our fiscal year always ended on december 31. we provide our customers a limited warranty for defective pcbs . during the second quarter of 2013 , we became aware of a specific product quality issue . this quality issue was resolved in the second quarter of 2013. between the second and third quarters of 2013 , we recorded $ 8.0 million for this claim which negatively impacted both net sales and gross profit . given the unique and specific nature of this claim , we do not believe this represents a trend . our asia pacific operating segment revenue experiences fluctuations , caused in part by seasonal patterns in the computer and cellular phone industries , which together have become a significant portion of the end markets we serve . this seasonality typically results in higher net sales in the third and fourth quarters due to end customer demand to meet fourth quarter sales of consumer electronics products . labor costs represent a significant portion of our total manufacturing costs . our labor costs in the people 's republic of china ( prc ) have increased rapidly over the past number of years and , in particular , the past two years , as a result of mandated increases in the minimum wage and increased compensation offered to our labor force and due to the reduction of overtime hours that we implemented to meet standards required by some of our global customers . these increases in labor costs have reduced the gross and operating margins of our asia pacific operating segment . we believe annual labor rate increases together with increased pricing pressures from our principal customers and the reduction in our first quarter and second quarter operating leverage due to the seasonal nature of our business will occur each year for the foreseeable future and may further reduce gross and operating margins in our asia pacific operating segment . on june 17 , 2013 , we completed the sale of our 70.2 % controlling equity interest in sye to our non-controlling partner , shengyi technology co. ltd. ( sytech ) , for 702 million chinese rmb or $ 114.5 million . we recognized a gain on the sale of sye of $ 17.9 million . consideration net of cash sold was $ 67.2 million . additionally , we acquired sytech 's 20.0 % non-controlling equity interest in dmc for 180 million chinese rmb or $ 29.4 million . both sye and dmc manufacture conventional pcbs and are located in dongguan , china . on september 6 , 2013 , we announced our plan to cease production at our suzhou , china facility and lay off 774 employees at this site . as a result , we recorded $ 3.4 million in separation costs for the year ended december 30 , 2013 , which have been classified as restructuring charges in our consolidated statement of 37 operations . additionally , in conjunction with the announcement to shutdown the suzhou , china facility , we determined that certain long-lived assets , primarily consisting of machinery and equipment , were impaired . as a result , we recorded a charge for the impairment of long-lived asset in the amount of $ 10.8 million for the year ended december 30 , 2013. while our customers include both oems and ems providers , we measure customers based on oem companies as they are the ultimate end customers . sales to our 10 largest customers accounted for 54 % , 47 % and 46 % of our net sales in 2013 , 2012 and 2011 , respectively . story_separator_special_tag when the market value of inventory is less than the carrying value , the inventory cost is written down to its estimated net realizable value , thereby establishing a new cost basis . our inventory requirements may change based on our projected customer demand , market conditions , technological and product life cycle changes , longer or shorter than expected usage periods , and other factors that could affect the valuation of our inventories . we maintain certain finished goods inventories near certain key customer locations in accordance with agreements with those customers . although this inventory is typically supported by valid purchase orders , should these customers ultimately not purchase these inventories , our results of operations and financial condition would be adversely affected . sales returns and allowances we derive revenues primarily from the sale of pcbs and backplane assemblies using customer-supplied engineering and design plans . we recognize revenue when persuasive evidence of a sales arrangement exists , the sales terms are fixed or determinable , title and risk of loss have transferred , and collectability is reasonably assured ย generally when products are shipped to the customer . we provide our customers a limited right of 39 return for defective pcbs and backplane assemblies . we accrue an estimate for sales returns and allowances at the time of sale using our judgment based on historical results and anticipated returns as a result of current period sales . to the extent actual experience varies from our historical experience , revisions to these allowances may be required . long-lived assets we have significant long-lived tangible and intangible assets consisting of property , plant and equipment , definite-lived intangibles , and goodwill . we review these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . in addition , we perform an impairment test related to goodwill at least annually . as necessary , we make judgments regarding future cash flow forecasts in the assessment of impairment . during the fourth quarter of each year , and when events and circumstances warrant an evaluation , we perform our annual impairment assessment of goodwill , which may require the use of a fair-value based analysis . we determine the fair value of our reporting units based on discounted cash flows and market approach analyses as considered necessary . we consider factors such as the state of the economy and reduced expectations for future cash flows coupled with a decline in our market capitalization for a sustained period as indicators for potential goodwill impairment . if the reporting unit 's carrying amount exceeds its estimated fair value , a second step must be performed to measure the amount of the goodwill impairment loss , if any . the second step compares the implied fair value of the reporting unit 's goodwill , determined in the same manner as the amount of goodwill recognized in a business combination , with the carrying amount of such goodwill . if the carrying amount of the reporting unit 's goodwill exceeds the implied fair value of that goodwill , an impairment loss is recognized in an amount equal to that excess . for the year ended december 31 , 2012 our assessment of goodwill impairment indicated that the carrying value of goodwill for our asia pacific reporting unit , in our asia pacific operating segment , was in excess of fair value , and therefore goodwill was impaired . additionally , for the year ended december 31 , 2011 our assessment of goodwill impairment indicated that the carrying value of goodwill for our shanghai backplane assembly reporting unit , in our north america operating segment , was in excess of fair value , and therefore goodwill was impaired . see note 6 to our consolidated financial statements . we also assess other long-lived assets , specifically definite-lived intangibles and property , plant and equipment , for potential impairment given similar impairment indicators . when indicators of impairment exist related to our long-lived tangible assets and definite-lived intangible assets , we use an estimate of the undiscounted net cash flows and comparison to like-kind assets , as appropriate , in measuring whether the carrying amount of the assets is recoverable . measurement of the amount of impairment , if any , is based upon the difference between the asset 's carrying value and estimated fair value . fair value is determined through various valuation techniques , including cost-based , market and income approaches as considered necessary , which involve judgments related to future cash flows and the application of the appropriate valuation model . during the years ended 2013 , 2012 and 2011 , we recorded impairment charges to reduce the carrying value of certain long-lived assets in the asia pacific operating segment . see notes 6 and 7 to our consolidated financial statements . assets held for sale ย we classify assets to be sold as assets held for sale when ( i ) we have approved and commit to a plan to sell the asset , ( ii ) the asset is available for immediate sale in its present condition and is ready for sale , ( iii ) an active program to locate a buyer and other actions required to sell the asset have been initiated , ( iv ) the sale of the asset is probable , ( v ) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value , and ( vi ) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn . assets classified as held for sale are recorded at the lower of the carrying amount or fair value less the cost to sell . assets held for use ย if a decision to dispose of an asset or a business is made and the held for sale criteria are not met , it is considered held for use .
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results of operations the following table sets forth the relationship of various items to net sales in our consolidated statement of operations : replace_table_token_11_th we manage our worldwide operations based on two geographic operating segments : 1 ) asia pacific , which consists of five pcb fabrication plants and one drilling facility and 2 ) north america , which consists of seven domestic pcb fabrication plants , including a facility that provides follow-on value-added services primarily for one of the pcb fabrication plants , and one backplane assembly plant in shanghai , china , which is managed in conjunction with our u.s. operations . each segment operates predominantly in the same industry with production facilities that produce similar customized products for their customers and use similar means of product distribution . 42 the following table compares net sales by reportable segment for the years ended 2013 , 2012 and 2011 : replace_table_token_12_th net sales total net sales increased $ 19.5 million , or 1.4 % , from $ 1,348.7 million for the year ended december 31 , 2012 to $ 1,368.2 million for the year ended december 30 , 2013. net sales for the asia pacific segment , excluding inter-segment sales , increased $ 8.2 million , or 1.0 % , from $ 839.2 million for the year ended december 31 , 2012 to $ 847.4 million in the year ended december 30 , 2013. this increase was primarily due to new customer programs in our cellular phone end market and an increase in average pcb selling price of 12 % , which was driven by increased layer count and a product mix shift towards products utilizing advanced technology pcbs .
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the following discussion should be read in conjunction with โ selected financial data โ and the historical financial statements and the related notes thereto included elsewhere in this annual report on form 10-k. the following discussion contains , in addition to historical information , forward-looking statements that include risks and uncertainties . our actual results may differ materially from those expressed or contemplated in those forward-looking statements as a result of certain factors , including those set forth under the headings โ forward-looking statements โ and โ risk factors โ elsewhere in this annual report on form 10-k. business walker & dunlop , inc. is a holding company , and we conduct the majority of our operations through walker & dunlop , llc , our operating company . we are one of the leading commercial real estate services and finance companies in the united states , with a primary focus on multifamily lending , debt brokerage , and property sales . we originate , sell , and service a range of multifamily and other commercial real estate financing products to owners and developers of commercial real estate across the country , provide multifamily property sales brokerage services in various regions throughout the united states , and engage in commercial real estate investment management activities . we originate and sell multifamily loans through the programs of fannie mae , freddie mac , ginnie mae , and hud , with which we have licenses and long-established relationships . we retain servicing rights and asset management responsibilities on nearly all loans that we originate for the agencies ' programs . we are approved as a fannie mae dus lender nationally , a freddie mac optigo seller/servicer nationally for conventional , seniors housing , and targeted affordable housing , a hud map lender nationally , a hud section 232 lean lender nationally , and a ginnie mae issuer . we broker and service loans for several life insurance companies , cmbs issuers , commercial banks , and other institutional investors , in which cases we do not fund the loan but rather act as a loan broker . we fund loans for the agencies ' programs , generally through warehouse facility financings , and sell them to investors in accordance with the related loan sale commitment , which we obtain at rate lock . proceeds from the sale of the loan are used to pay off the warehouse facility . the sale of the loan is typically completed within 60 days after the loan is closed , and we retain the right to service substantially all of these loans . in cases where we do not fund the loan , we act as a loan broker and service some of the loans . our mortgage bankers who focus on loan brokerage are engaged by borrowers to work with a variety of institutional lenders to find the most appropriate loan . these loans are then funded directly by the institutional lender , and for those brokered loans we service , we collect ongoing servicing fees while those loans remain in our servicing portfolio . the servicing fees we typically earn on brokered loan transactions are substantially lower than the servicing fees we earn for servicing agency loans . we recognize revenue when we make simultaneous commitments to originate a loan to a borrower and sell that loan to an investor . the revenues earned reflect the fair value attributable to loan origination fees , premiums on the sale of loans , net of any co-broker fees , and the fair value of the expected net cash flows associated with servicing the loans , net of any guaranty obligations retained . we also recognize revenue when we receive the origination fee from a brokered loan transaction . other sources of revenue include ( i ) net warehouse interest income we earn while the loan is held for sale through one of our warehouse facilities , ( ii ) net warehouse interest income from loans held for investment while they are outstanding , ( iii ) sales commissions for brokering the sale of multifamily properties , and ( iv ) asset management fees from our investment management activities . we retain servicing rights on substantially all the loans we originate and sell , and generate revenues from the fees we receive for servicing the loans , from the interest income on escrow deposits held on behalf of borrowers , and from other ancillary fees . servicing fees set at the time an investor agrees to purchase the loan are generally paid monthly for the duration of the loan and are based on the unpaid principal balance of the loan . our fannie mae and freddie mac servicing arrangements generally provide for prepayment fees to us in the event of a voluntary prepayment . for loans serviced outside of fannie mae and freddie mac , we typically do not share in any such payments . โ we are currently not exposed to unhedged interest rate risk during the loan commitment , closing , and delivery process . the sale or placement of each loan to an investor is negotiated concurrently with establishing the coupon rate for 25 the loan . we also seek to mitigate the risk of a loan not closing . we have agreements in place with the agencies that specify the cost of a failed loan delivery , in the event we fail to deliver the loan to the investor . to protect us against such fees , we require a deposit from the borrower at rate lock that is typically more than the potential fee . the deposit is returned to the borrower only once the loan is closed . any potential loss from a catastrophic change in the property condition while the loan is held for sale using warehouse facility financing is mitigated through property insurance equal to replacement cost . we are also protected contractually from an investor 's failure to purchase the loan . story_separator_special_tag during the second quarter of 2018 , the company acquired jcr , the operator , registered investment adviser , and general partner of private commercial real estate investment funds focused on the management of debt , preferred equity , and mezzanine equity investments in private middle-market commercial real estate funds and separately managed accounts . the acquisition of jcr , a wholly owned subsidiary of the company , is part of our strategy to grow and diversify the company by growing our investment management platform . jcr 's current assets under management ( โ aum โ ) of $ 1.2 billion primarily consist of assets held in three managed funds : fund iii , fund iv , fund v , and separate accounts managed for life insurance companies . aum for fund iii and fund iv consist of both unfunded commitments and funded investments , aum for fund v consists of unfunded commitments , and aum for the separate accounts consist entirely of funded investments . unfunded commitments are highest during the fund raising and investment phases . aum disclosed in this annual report on form 10-k may differ from regulatory assets under management disclosed on jcr 's form adv . jcr typically receives management fees based on limited partner capital commitments , unfunded investment commitments , and funded investments . additionally , with respect to fund iii , fund iv , and fund v , jcr receives a percentage of the profits above the fund expenses and preferred return specified in the fund offering agreements . over the past several years , we have purchased the rights to service hud loans with an aggregate $ 4.3 billion unpaid principal balance from third-party servicers for a total of $ 52.7 million . the acquisition of these servicing rights substantially increased our hud servicing portfolio and led to our being one of the largest servicers of hud commercial real estate loans as of december 31 , 2019. we expect the servicing rights acquisitions to have the following benefits : โ reduce the average cost to service each loan as we leverage our existing servicing platform , โ provide new borrower relationships , โ provide opportunities for additional loan origination volume when these loans mature or prepay , and โ produce a stable stream of cash revenues over the estimated lives of the portfolios . as of december 31 , 2019 , our servicing portfolio was $ 93.2 billion , up 9 % from december 31 , 2018 , making it the 7 th largest commercial/multifamily primary and master servicing portfolio in the nation according to the mortgage bankers ' association 's ( โ mba โ ) 2019 year-end survey ( the โ survey โ ) . our servicing portfolio includes $ 40.0 billion of loans serviced for fannie mae and $ 32.6 billion for freddie mac , making us the 2 nd and 3 rd largest primary cashier servicer of fannie mae and freddie mac loans in the nation , respectively , according to the survey . also included in our servicing portfolio is $ 10.0 billion of hud loans , the 2 nd largest hud primary and master servicing portfolio in the nation according to the survey . the average number of our mortgage bankers increased from 138 during 2018 to 150 during 2019 due to organic growth , contributing to an increase of 5 % in our loan origination volume , from a total of $ 25.3 billion during 2018 to a total of $ 26.6 billion during 2019. fannie mae recently announced that we ranked as its largest dus lender in 2019 , by loan deliveries , and freddie mac recently announced that we ranked as its 3 rd largest freddie mac optigo seller/servicer in 2019 , by loan deliveries . additionally , we were the third largest multifamily lender for hud in 2019 based on map initial endorsements . basis of presentation the accompanying consolidated financial statements include all of the accounts of the company and its wholly owned subsidiaries , and all intercompany transactions have been eliminated . 27 critical accounting policies our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states of america ( โ gaap โ ) , which require management to make estimates and assumptions that affect reported amounts . the estimates and assumptions are based on historical experience and other factors management believes to be reasonable . actual results may differ from those estimates and assumptions . we believe the following critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements . mortgage servicing rights ( โ msrs โ ) . msrs are recorded at fair value at loan sale or upon purchase . the fair value of msrs acquired through a stand-alone servicing portfolio purchase ( โ pmsr โ ) is equal to the purchase price paid . the fair value at loan sale ( โ omsr โ ) is based on estimates of expected net cash flows associated with the servicing rights and takes into consideration an estimate of loan prepayment . initially , the fair value amount is included as a component of the derivative asset fair value at the loan commitment date . the estimated net cash flows are discounted at a rate that reflects the credit and liquidity risk of the omsr over the estimated life of the underlying loan . the discount rates used throughout the periods presented for all omsrs were between 10-15 % and varied based on the loan type . the life of the underlying loan is estimated giving consideration to the prepayment provisions in the loan . our model for omsrs assumes no prepayment while the prepayment provisions have not expired and full prepayment of the loan at or near the point where the prepayment provisions have expired . we record an individual omsr asset ( or liability ) for each loan at loan sale .
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results of operations following is a discussion of our results of operations for the years ended december 31 , 2019 , 2018 and 2017. the financial results are not necessarily indicative of future results . our annual results have fluctuated in the past and are expected to fluctuate in the future , reflecting the interest-rate environment , the volume of transactions , business acquisitions , regulatory actions , and general economic conditions . please refer to the table below , which provides supplemental data regarding our financial performance . โ supplemental operating data replace_table_token_2_th โ replace_table_token_3_th โ 35 supplemental operating data ( continued ) the following table summarizes jcr 's aum as of december 31 , 2019 : replace_table_token_4_th ( 1 ) brokered transactions for life insurance companies , commercial mortgage backed securities issuers , commercial banks , and other capital sources . ( 2 ) for the year ended december 31 , 2019 , includes $ 436.1 million from the interim program jv , $ 321.1 million from the interim program , and $ 178.7 million from jcr separate accounts . for the year ended december 31 , 2018 , includes $ 350.0 million from the interim program jv , $ 643.1 million from the interim program , and $ 166.2 million from jcr separate accounts . for the year ended december 31 , 2017 , includes $ 139.5 million from the interim program jv and $ 177.9 million from the interim program . ( 3 ) this is a non-gaap financial measure . for more information on adjusted ebitda , refer to the section below titled โ non-gaap financial measures. โ ( 4 ) excludes the income and debt financing volume from principal lending and investing . ( 5 ) the fair value of the expected net cash flows associated with the servicing of the loan , net of any guaranty obligations retained , as a percentage of agency volume . ( 6 ) brokered loans serviced primarily for life insurance companies .
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our actual results in future periods may differ from those referred to herein due to a number of factors , including the risks described in the sections entitled โ risk factors โ and โ forward-looking statements โ elsewhere in this report . overview we are a nevada holding company . through our insurance subsidiaries , we provide workers ' compensation insurance coverage to select , small businesses in low to medium hazard industries . workers ' compensation insurance is provided under a statutory system wherein most employers are required to provide coverage for their employees ' medical , disability , vocational rehabilitation , and or death benefit costs for work-related injuries or illnesses . we provide workers ' compensation insurance in 37 states and the district of columbia , with a concentration in california , where over one-half of our business is generated . our revenues are primarily comprised of net premiums earned , net investment income , and net realized gains on investments . we target small businesses , as we believe that this market is traditionally characterized by fewer competitors , more attractive pricing , and stronger persistency when compared to the u.s. workers ' compensation insurance industry in general . we believe we are able to price our policies at levels that are competitive and profitable over the long-term given our expertise in underwriting this market segment . our underwriting approach is to consistently underwrite small business accounts at appropriate and competitive prices without sacrificing long-term profitability and stability for short-term top-line revenue growth . our underwriting results have improved over the past several years . this improvement reflects the increased pricing flexibility afforded to us through the use of multiple writing companies within states and territorial pricing in california . in addition , our ongoing underwriting initiatives , which are described below , have allowed us to expand our operations while also focusing on under-performing classes of business , as needed . pricing on our renewals showed an overall price decrease of 3.3 % for the year ended december 31 , 2017 , versus the rate level in effect on such business a year earlier . despite the competitive market conditions we currently face , through our efforts in 2017 , we believe that we have continued to write attractive business in new and existing states and have strengthened our relationships with our business partners . given the strength of our balance sheet , the execution of our underwriting , claims , and investment strategies , and our active capital management , we believe that we are well positioned for the current market cycle . on august 11 , 2017 , we entered into a stock purchase agreement ( purchase agreement ) with partner reinsurance company of the u.s. ( prus ) with respect to the acquisition ( acquisition ) of all of the outstanding shares of capital stock of partnerre insurance company of new york ( prny ) . the purchase price is equal to the sum of : ( i ) the amount of statutory capital and surplus of prny at closing ( which is currently estimated to be approximately $ 40.0 million ) ; and ( ii ) $ 5.8 million . we expect to fund the acquisition with cash on hand . pursuant to the purchase agreement , all liabilities and obligations of prny existing as of the closing date , whether known or unknown , will be assumed by prus . in addition , partnerre ltd. , the parent company of prus , has provided us with a guaranty that unconditionally , absolutely and irrevocably guarantees the full and prompt payment and performance by prus of all of its obligations , liabilities and indemnities under the purchase agreement and the transactions contemplated thereby . we will not be acquiring any employees or ongoing business operations pursuant to the acquisition . the acquisition is subject to certain closing conditions , including , among other things , approval from the department of financial services of the state of new york . 27 story_separator_special_tag $ 701.4 million , and $ 697.7 million for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . the increase in 2017 was primarily due to increases in new business premium written and final audit premiums , partially offset by declines in renewal business premium , year-over-year . final audit premiums increased $ 10.8 million , compared to 2016 , positively impacted by california assembly bill 2883 ( ab 2883 ) , which limited certain officers ' payroll from being excluded from the calculation of premiums effective january 1 , 2017. in october 2017 , california passed senate bill 189 ( sb 189 ) , which expanded the scope of employees that qualify for these exclusions . sb 189 goes into effect on july 1 , 2018 and is expected to reverse some of the benefits of ab 2883 beginning in 2018. the increase in gross premiums written in 2016 was primarily due to a $ 9.7 million increase in final audit premiums and growth in new business premium , partially offset by lower levels of renewal premiums , year-over-year . the declines in renewal premiums in 2016 , compared to 2015 , were due to declines in the la area of california , partially offset by increases in states outside california , as well as territories outside of the la area of california . net premiums written net premiums written were $ 723.7 million , $ 694.6 million , and $ 689.3 million for the years ended december 31 , 2017 , 2016 , and 2015 , respectively , which included $ 6.0 million , $ 6.8 million , and $ 8.4 million of reinsurance premiums ceded , respectively . the decreases in reinsurance premiums ceded from 2015 to 2017 reflect the increase in our retention on a per occurrence basis under our current excess of loss reinsurance program compared to earlier periods . story_separator_special_tag we analyze our calendar year loss and lae ratio to measure our profitability in a particular year and to evaluate the adequacy of our premium rates charged in a particular year to cover expected losses and lae from all periods , including development ( whether favorable or unfavorable ) of reserves established in prior periods . in contrast , we analyze our accident year loss and lae ratios to evaluate our underwriting performance and the adequacy of the premium rates we charged in a particular year in relation to ultimate losses and lae from insured events occurring during that year . the loss and lae ratios provided in this report are calendar year basis , except where they are expressly identified as accident year loss and lae ratios . losses and lae represents our largest expense item and includes claim payments made , amortization of the deferred gain , lpt reserve adjustments , lpt contingent commission adjustments , estimates for future claim payments and changes in those estimates for current and prior periods , and costs associated with investigating , defending , and adjusting claims . the quality of our financial reporting depends in large part on accurately predicting our losses and lae , which are inherently uncertain as they are estimates of the ultimate cost of individual claims based on actuarial estimation techniques . our indemnity claims frequency ( the number of claims expressed as a percentage of payroll ) continued to decrease year-over-year in 2017 and 2016. in 2017 , we saw a slight downward movement in medical and indemnity costs per claim that are reflected in our current accident year loss estimates . total claims costs have also been reduced by cost savings associated with increased claims settlement activity that continued through 2017. we believe our current accident year loss estimate is adequate ; however , ultimate losses will not be known with any certainty for many years . we assume that increasing medical and indemnity cost trends will continue to impact our long-term claims costs and current accident year loss estimate , which may be offset by rate increases . additional information regarding our reserves for losses and lae is set forth under โ โcritical accounting policiesโreserves for losses and lae. โ overall , losses and lae were $ 417.2 million , $ 417.9 million , and $ 429.4 million for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . the decrease in our losses and lae from 2016 to 2017 was primarily due to a lower current accident year loss estimate year-over-year . net favorable prior accident year loss development in 2017 was $ 18.5 million , which included $ 17.4 million of favorable development on our voluntary risk business and $ 1.1 million of favorable development related to our assigned 31 risk business . the decrease from 2015 to 2016 was primarily related to $ 18.4 million of net favorable prior accident year loss development ( versus $ 7.2 million of net favorable development in 2015 ) , which included $ 17.0 million of favorable development on our voluntary risk business and $ 1.4 million of favorable development related to our assigned risk business . the favorable prior accident year loss development in each period was the result of our determination that adjustments were necessary to reflect observed favorable paid loss trends in each of these years . paid loss trends have been impacted by cost savings associated with accelerated claims settlement activity that continued through 2017. additionally , there were favorable lpt reserve adjustments of $ 3.1 million and $ 6.4 million that decreased losses and lae by those amounts for the years ended december 31 , 2016 and 2015 , respectively . there were no lpt reserve adjustments in 2017. our current accident year loss ratio estimates were 62.4 % , 65.2 % , and 66.2 % for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . the decreasing trend in our current accident year loss estimates reflects the continued impact of key business initiatives , including : accelerating the settlement of open claims ; diversifying our risk exposure across geographic markets ; and leveraging data-driven strategies to target , underwrite , and price profitable classes of business across all of our markets . the current accident year loss estimate for the year ended december 31 , 2016 included the impact of $ 6.5 million in large losses recognized in the second quarter of 2016 , which increased the current accident year loss estimate for that year . excluding the impact from the lpt agreement , losses and lae would have been $ 428.8 million , $ 434.5 million , and $ 449.8 million , or 59.8 % , 62.5 % , and 65.2 % of net premiums earned , for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . the table below reflects losses and lae reserve adjustments and the impact of the lpt on net income before taxes . replace_table_token_17_th underwriting and other operating expenses ratio . underwriting and other operating expenses are those costs that we incur to underwrite and maintain the insurance policies we issue , excluding commission . these expenses include premium taxes and certain other general expenses that vary with , and are primarily related to , producing new or renewal business . these policy acquisition costs are variable based on premiums earned . policyholder dividends , changes in estimates of future write-offs of premiums receivable , general administrative expenses such as salaries and benefits , rent , office supplies , depreciation , and all other operating expenses not otherwise classified separately are also included in underwriting and other operating expenses . these expenses are more fixed in nature and become a smaller percentage of net premiums earned as premiums increase . our underwriting and other operating expenses ratio was 19.5 % , 19.7 % , and 19.5 % , and our underwriting and other operating expenses were $ 139.9 million , $ 136.1 million , and $ 135.2
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results of operations a primary measure of our performance is our ability to increase adjusted stockholders ' equity over the long-term . we believe that this measure is important to our investors , analysts , and other interested parties who benefit from having an objective and consistent basis for comparison with other companies within our industry . the following table shows a reconciliation of our stockholders ' equity on a gaap basis to our adjusted stockholders ' equity . replace_table_token_13_th ( 1 ) adjusted stockholders ' equity is a non-gaap measure consisting of total gaap stockholders ' equity plus the deferred gain , less accumulated other comprehensive income , net . our net income was $ 101.2 million , $ 106.7 million , and $ 94.4 million in 2017 , 2016 , and 2015 , respectively , and our underwriting income was $ 68.0 million , $ 57.3 million , and $ 40.4 million for the same periods , respectively . the key factors that affected our financial performance during the previous two years included : losses and lae decreased slightly in 2017 and 3 % in 2016 , each compared to the previous year ; underwriting and other operating expenses increased 3 % in 2017 and 1 % in 2016 , each compared to the previous year ; net realized gains ( losses ) on investments of $ 7.4 million , $ 11.2 million , and $ ( 10.7 ) million in 2017 , 2016 , and 2015 , respectively ; and income tax expense was $ 42.8 million ( $ 35.8 million excluding the impact of the enactment of tax reform ) , $ 34.0 million , and $ 5.0 million in 2017 , 2016 , and 2015 , respectively .
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the 2018 plan replaced the 2011 plan as the board of directors determined not to make additional awards under the 2011 plan story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve significant risks and uncertainties . 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 set forth in part i , item 1a . risk factors , of this annual report on form 10-k. overview unless otherwise indicated , references to `` xeris , '' the `` company , '' `` we , '' `` our '' and `` us '' in this annual report on form 10-k refer to xeris pharmaceuticals , inc. we are a specialty pharmaceutical company leveraging our novel non-aqueous formulation technology platforms , xerisol and xeriject , to develop and commercialize ready-to-use injectable and infusible drug formulations . we have developed and launched the first ready-to-use , room-temperature stable liquid glucagon formulation that , unlike the current standard of care , can be administered without any preparation or reconstitution . our first product , gvoke , delivers ready-to-use glucagon via a commercially available pre-filled syringe ( `` gvoke pfs '' ) or auto-injector ( `` gvoke hypopen '' ) for the treatment of severe hypoglycemia , a potentially life-threatening condition , in people with diabetes . gvoke was approved by the u.s. food & drug administration ( `` fda '' ) for the treatment of severe hypoglycemia in pediatric and adult patients with diabetes ages two years and older on september 10 , 2019. we began the commercial launch of gvoke pfs in november 2019. gvoke pfs is available in two doses : a 0.5 mg/0.1 ml dose for pediatric patients and a 1 mg/0.2 ml dose for adolescent and adult patients . we expect gvoke hypopen will be commercially available in july 2020 , in the same doses as the gvoke pfs . additionally , in november 2019 , we submitted a marketing authorisation application ( `` maa '' ) to the european medicines agency ( โ ema โ ) for our novel ready-to-use , room temperature stable liquid glucagon formulation for the treatment of severe hypoglycemia in people with diabetes . we are also applying our novel liquid glucagon formulation to the management of hypoglycemia associated with additional intermittent and chronic conditions with significant unmet medical need . finally , we are applying our technology platforms to other commercially available drugs to enable more convenient and patient-friendly subcutaneous ( `` sc '' ) and intramuscular ( `` im '' ) routes of administration including the development of products to address unmet needs in both diabetes and epilepsy . we own the rights to our proprietary formulation technology platforms , gvoke , and our product candidates domestically and internationally , with 114 patents issued globally , including a composition of matter patent covering our ready-to-use glucagon formulation that expires in 2036. we have built our commercial organization , including hiring individuals in commercial operations and sales and marketing , to support the commercial launch of gvoke in the united states . outside the united states we plan to pursue development and commercialization partnerships . we currently contract with third parties for the manufacture , assembly , testing , packaging , storage and distribution of our products . since our inception in 2005 , we have devoted substantially all of our resources to research and development initiatives , undertaking preclinical studies of our product candidates , conducting clinical trials of our most advanced product candidates , organizing and staffing our company , raising capital and initiating the commercialization of our first product , gvoke , which was approved by the fda on september 10 , 2019. we have funded our operations to date primarily with proceeds from the sale of preferred and common stock , debt financing and grant awards . we have received gross proceeds of $ 104.9 million from sales of our preferred stock , $ 12.7 million from grant awards received from the national institutes of health ( `` nih '' ) and other philanthropic organizations , $ 98.3 million from our june 2018 initial public offering ( `` ipo '' ) of our common stock , $ 60.0 million from the amended loan agreement , and $ 60.0 million from our february 2019 public offering . on august 6 , 2019 , we filed a shelf registration statement on form s-3 with the u.s. securities and exchange commission 's ( `` sec '' ) , which covers the offering , issuance and sale by us of up to an aggregate of $ 250.0 million of our common stock , preferred stock , debt securities , warrants and or units , which we refer to as the `` shelf '' . we simultaneously entered into a sales agreement with jefferies llc , as sales agent , to provide for the offering , issuance and sale by us of up to $ 50.0 million of our common stock from time to time in `` at-the-market '' offerings under the shelf . the shelf was declared effective by the sec on august 21 , 2019. in december 2019 , we sold an aggregate of 204,427 shares of common stock under the shelf for gross proceeds of $ 1.8 million . in february 2020 , we completed a public offering and sold 10,299,769 shares of common stock , including 1,299,769 shares pursuant to the underwriters ' option to purchase additional shares of common stock . gross proceeds from the offering were $ 42.7 million . 79 for the years ended december 31 , 2019 and 2018 , we reported net losses of $ 125.6 million and $ 60.1 million , respectively . story_separator_special_tag income tax we have incurred operating losses since inception and therefore do not have any taxable income . as of december 31 , 2019 , we had $ 215.3 million in federal net operating loss carryforwards , $ 147.5 million of various state net operating loss carryforwards , $ 8.3 million in federal research and orphan drug credits that begin to expire in 2025 , and $ 1.0 million of state research and development credits that will begin to expire in 2022 . 81 story_separator_special_tag may have rights , preferences and privileges senior to those of our common stockholders , the terms of the debt could impose significant restrictions on our operations . the failure to raise funds as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies . if additional funding is not secured when required , we may need to delay or curtail our operations until such funding is received , which would have a material adverse impact on our business prospects and results of operations . cash flows replace_table_token_6_th the increase in cash used in operating activities for the year ended december 31 , 2019 was primarily driven by increased spending in research and development and selling , general and administrative operating expenses . for a discussion regarding the increase in spending , 84 refer to `` results of operations '' included in this item 2 , `` management 's discussion and analysis of financial condition and results of operations . '' the increase in net cash used in investing activities for the year ended december 31 , 2019 was primarily due to net sales of investments , the proceeds of which were used primarily to fund our gvoke commercialization activities and research and development . cash provided by financing activities for the year ended december 31 , 2019 was primarily due to the net proceeds from the public offerings of our common stock of $ 57.2 million and net proceeds from the issuance of long-term debt of $ 22.6 million . in the year ended december 31 , 2018 , cash provided by financing activities was primarily due to net proceeds from the initial public offering of our common stock of $ 88.9 million , net proceeds from the issuance of long-term debt of $ 34.7 million and net proceeds from the sale of series c preferred stock of $ 4.4 million . off-balance sheet arrangements as of december 31 , 2019 , we did not have any off-balance sheet arrangements , as defined in item 303 ( a ) ( 4 ) ( ii ) of regulation s-k promulgated by the sec , that have , or are reasonably likely to have , a current or future material effect on our consolidated financial condition , results of operations , liquidity , capital expenditures , or capital resources . critical accounting policies and use of estimates and assumptions our management 's discussion and analysis of our financial condition and results of operations on our financial statements have been prepared in accordance with generally accepted accounting principles ( `` gaap '' ) in the united states . the preparation of these financial statements requires us to make estimates 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 revenues and expenses during the reporting periods . on an ongoing basis , we evaluate our estimates and judgments , including , among others , those related to revenue recognition , clinical trial expenses and stock-based compensation . we base our estimates on historical experience and on various other factors we believe to be appropriate under the circumstances . actual results may differ from these estimates under different assumptions or conditions . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . our significant accounting policies are more fully described in note 2 , `` summary of significant accounting policies . '' revenue recognition we apply the guidance in asc 606 to all contracts with customers within the scope of the standard . we sell our products primarily to pharmaceutical wholesalers . these wholesalers then resell our products to their retail customers , such as pharmacies and mass merchandisers . in addition , we enter into arrangements with payors , group purchasing organizations , and health care providers that provide for government-mandated or privately negotiated discounts and allowances related to our products . revenue is recognized when our customer ( e.g. , a wholesaler ) obtains control of promised goods or services , based on the consideration we expect to receive in exchange for those goods or services . the estimated net sales price is generally based on a list or fixed price less estimates of variable consideration ( e.g. , patient co-pay assistance , prompt payment discounts , payor rebates , chargebacks , service fees and product returns ) . the estimates of variable consideration are subject to a constraint such that some or all of the estimated amount of variable consideration will only be included in the transaction price to the extent that it is probable that a significant reversal of revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved . estimating variable consideration and the related constraint requires the use of significant management judgment and other market data . net sales represent gross product sales less estimated allowances for patient co-pay assistance programs , prompt payment discounts , payor rebates , chargebacks , service fees , and product returns , all of which are recorded at the time of sale to pharmaceutical wholesalers . we apply significant judgments and estimates in determining some of these allowances . if actual results differ from our estimates , we will be required to make adjustments to these allowances in the future .
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results of operations the following table summarizes our results of operations for the years ended december 31 , 2019 and 2018 : replace_table_token_3_th net sales we launched gvoke pfs for the treatment of severe hypoglycemia in people with diabetes in november 2019. total net sales of gvoke pfs were $ 1.6 million for the year ended december 31 , 2019. net sales represent gross product sales less estimated allowances for patient co-pay assistance programs , prompt payment discounts , payor rebates , chargebacks , service fees , and product returns , all of which are recorded at the time of sale to pharmaceutical wholesalers . grant and other income grant and other income decreased by $ 1.3 million for the year ended december 31 , 2019 when compared to the year ended december 31 , 2018 , primarily due to a decrease in clinical work performed on grant programs during the current year , as many of these programs are nearing completion . cost of goods sold the total cost of goods sold related to sales of gvoke pfs was $ 1.6 million for the year ended december 31 , 2019. manufacturing costs for gvoke prior to approval and commercialization were expensed as research and development expenses . 82 research and development expenses the following table summarizes our research and development expenses by functional area ( in thousands ) : replace_table_token_4_th ( 1 ) includes cmc ( chemistry , manufacturing and controls ) , product development , and regulatory expenses . the following table summarizes our research and development expenses by program ( in thousands ) : replace_table_token_5_th research and development expenses increased $ 19.8 million for the year ended december 31 , 2019 when compared to the year ended december 31 , 2018 .
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you are cautioned not to place undue reliance on any forward-looking statements , which speak only as of the date of this form 10-k , or in the case of a document incorporated by reference , as of the date of that document . except as required by law , we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this form 10-k or to reflect the occurrence of unanticipated events . our actual results may differ materially from those discussed in or implied by any of the forward-looking statements as a result of various factors , including but not limited to those listed elsewhere in this form 10-k and those listed in other documents we have filed with the securities and exchange commission . overview biofuel energy corp. ( โ we โ or โ the company โ ) produces and sells ethanol and its related co-products , primarily distillers grain and corn oil . we have historically operated our two dry-mill ethanol production facilities located in wood river , nebraska and fairmont , minnesota . each of these plants has an undenatured nameplate production capacity of approximately 110 million gallons per year ( โ mmgy โ ) . our operations are subject to changes in commodity prices , specifically , the price of our main commodity input , corn , relative to the price of our main commodity product , ethanol , which is known in the industry as the โ crush spread โ . drought conditions in the american midwest significantly impacted the 2012 corn crop and caused a significant reduction in the corn yield . this led to an increase in the price of corn and a corresponding narrowing in the crush spread as ethanol prices did not rise sufficiently with rising corn prices , due to an oversupply of ethanol . as a result , in september 2012 the company decided to idle its fairmont facility until the crush spread improved . due to continued narrow crush spreads , in february 2013 we reduced staffing at the fairmont facility and expect the fairmont facility to remain idle until the 2013 harvest season . in the event crush spreads narrow further , we may choose to curtail operations at our wood river facility or idle the facility and cease operations altogether until such time as crush spreads improve . we are a holding company with no operations of our own , and are the sole managing member of biofuel energy , llc ( the โ llc โ ) , which is itself a holding company and indirectly owns all of our operating assets . as the sole managing member of the llc , biofuel energy corp. operates and controls all of the business and affairs of the llc and its subsidiaries . the company 's ethanol plants are owned and operated by the operating subsidiaries of the llc ( the โ operating subsidiaries โ ) . those operating subsidiaries are party to a credit agreement ( the โ senior debt facility โ ) with a group of lenders , for which first national bank of omaha acts as administrative agent , and substantially all of the assets of the operating subsidiaries are pledged as collateral under the senior debt facility . neither the company nor the llc is a party , either as borrower or guarantor , under the senior debt facility , and none of their respective assets , other than the llc interests in the operating subsidiaries themselves , are pledged as collateral under the senior debt facility . we work closely with cargill , one of the world 's leading agribusiness companies , with whom we have an extensive commercial relationship . at each of our plant locations , cargill has a local grain origination presence and owns adjacent grain storage and handling facilities , which we lease from them . cargill provides corn procurement services , markets the ethanol we produce and provides transportation logistics for our two plants under long-term contracts . we have also from time to time relied upon extensions of payment terms by cargill as a source of liquidity and working capital . see โ โ liquidity and capital resources โ . 32 liquidity and going concern considerations our financial results and cash flows are subject to wide and unpredictable fluctuations in the crush spread . the price of our main co-product , distillers grain , is likewise subject to wide , unpredictable fluctuations , typically in conjunction with changes in the price of corn . the prices of these commodities are volatile and beyond our control . as a result of the volatility of the prices for these and other items , our results fluctuate substantially and in ways that are largely beyond our control . as shown in the accompanying consolidated financial statements , the company incurred a net loss of $ 46.3 million during the year ended december 31 , 2012 , due to narrow commodity margins . narrow commodity margins present a significant risk to our cash flows and liquidity . we have had , and continue to have , limited liquidity , with $ 9.3 million of cash and cash equivalents as of december 31 , 2012 , of which $ 8.6 million was held at the llc and $ 0.7 million was held at the operating subsidiaries , which is subject to the lenders ' liens under the senior debt facility . due to our limited and declining liquidity , our board of directors determined that , in order to preserve cash at the llc , the operating subsidiaries would not make the regularly-scheduled payments of principal and interest that were due under the outstanding senior debt facility on september 28 , 2012 , in an aggregate amount of $ 3.6 million . as a result , the operating subsidiaries received a notice of default from first national bank of omaha , as administrative agent for the lenders under the senior debt facility . story_separator_special_tag distillers grain is sold by the ton and , based upon the amount of moisture retained in the product , can either be sold โ wet โ or โ dry โ . the company has installed corn oil extraction systems at each of the plants which was completed in wood river in december 2011 and in fairmont in january 2012. both operating subsidiaries began generating revenues from corn oil sales in the first quarter of 2012. the corn oil produced at our plants is non-food grade and is used primarily as a feedstock for the production of biodiesel and as an animal feed ingredient . we market the corn oil produced in wood river ourselves , although a portion is often sold to the same third party marketer that purchases our dried distillers grain from that facility . most of the corn oil produced in fairmont was being sold to a biodiesel producer under an off-take agreement . cost of goods sold and gross profit ( loss ) our gross profit ( loss ) is derived from our revenues less our cost of goods sold . our cost of goods sold is affected primarily by the cost of corn and natural gas . the prices of both corn and natural gas are volatile and can vary as a result of a wide variety of factors , including weather , market demand , regulation and general economic conditions , all of which are outside of our control . corn is our most significant raw material cost . rising corn prices may result in lower profit margins because changes in ethanol prices are not necessarily correlated with changes in corn prices and therefore producers are not always able to pass along increased corn costs to customers . the price and availability of corn is influenced by weather conditions and other factors affecting crop yields , farmer planting decisions and general economic , market and regulatory factors . these factors include government policies and subsidies with respect to agriculture and international trade , and global and local demand and supply for corn and for other agricultural commodities for which it may be substituted , such as soybeans . historically , the cash price we pay for corn , relative to the spot price of corn , tends to rise during the spring planting season in april and may as the local basis ( i.e. , discount ) contracts , and tends to decrease relative to the spot price during the fall harvest in october and november as the local basis expands . we also purchase natural gas to power steam generation in our ethanol production process and as fuel for our dryers to dry our distillers grain . natural gas represents our second largest operating cost after corn , and natural gas prices are extremely volatile . historically , the spot price of natural gas tends to be highest during the heating and cooling seasons and tends to decrease during the spring and fall . corn procurement fees paid to cargill are included in our cost of goods sold . other cost of goods sold primarily consists of our cost of chemicals and enzymes , electricity , depreciation , manufacturing overhead and rail car lease expense . 34 general and administrative expenses general and administrative expenses consist of salaries and benefits paid to our management and administrative employees , expenses relating to third party services , travel , office rent , marketing and other expenses , including expenses associated with being a public company , such as fees paid to our independent auditors associated with our annual audit and quarterly reviews , directors ' fees , and listing and transfer agent fees . story_separator_special_tag times , serif ; margin : 0pt 0 ; text-indent : 15pt '' > our cash flows from operating , investing and financing activities during the years ended december 31 , 2012 and 2011 are summarized below ( in thousands ) : replace_table_token_9_th cash provided by operating activities . net cash provided by operating activities was $ 1.5 million for the year ended december 31 , 2012 , compared to $ 23.6 million for the year ended december 31 , 2011. for the year ended december 31 , 2012 , the amount was primarily comprised of a net loss of $ 46.3 million which was offset by working capital sources of $ 18.0 million and non-cash charges of $ 29.8 million , which were primarily depreciation and amortization . working capital sources primarily related to a decrease in accounts receivable of $ 4.3 million and a decrease in inventories of $ 12.8 million . the decrease in both accounts receivable and inventories was primarily a result of shutting down production at our fairmont facility in late september 2012 which resulted in the collection of accounts receivable and the reduction of inventory balances at that plant . for the year ended december 31 , 2011 , the amount was primarily comprised of a net loss of $ 10.4 million which was offset by working capital sources of $ 2.8 million and non-cash charges of $ 31.25 million , which were primarily depreciation and amortization . cash used in investing activities . net cash used in investing activities was $ 0.8 million for the year ended december 31 , 2012 , compared to $ 2.8 million for the year ended december 31 , 2011. the net cash used in investing activities during both periods was for capital expenditures related to various plant improvement projects . cash used in financing activities . net cash used in financing activities was $ 6.4 million for the year ended december 31 , 2012 , compared to $ 13.0 million for the year ended december 31 , 2011. for the year ended december 31 , 2012 , the amount was comprised of $ 6.3 million in principal payments under our senior debt facility and $ 0.1 million in payments of notes payable and capital leases .
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results of operations the following discussion summarizes the significant factors affecting the consolidated operating results of the company for the years ended december 31 , 2012 and 2011. this discussion should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements contained in this annual report on form 10-k. at december 31 , 2012 , the company owned 87.3 % of the llc membership units with the remaining 12.7 % owned by an individual and by certain investment funds affiliated with one of the original equity investors of the llc . as a result , the company consolidates the results of the llc . the amount of income or loss allocable to the 12.7 % holders is reported as noncontrolling interest in our consolidated statements of operations . 35 the following table sets forth net sales , expenses and net loss , as well as the percentage relationship to net sales of certain items in our consolidated statements of operations : replace_table_token_6_th the following table sets forth key operational data for the years ended december 31 , 2012 and 2011 that we believe are important indicators of our results of operations : replace_table_token_7_th year ended december 31 , 2012 compared to the year ended december 31 , 2011 net sales : net sales were $ 463.3 million for the year ended december 31 , 2012 compared to $ 653.1 million for the year ended december 31 , 2011 , a decrease of $ 189.8 million or 29.1 % . this decrease was primarily attributable to a decrease in ethanol revenue of $ 196.7 million , which was partially offset by an increase in co-product revenue of $ 6.9 million .
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the md & a is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and notes thereto included in item 8 - financial statements and supplementary data . the md & a 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 โ management 's discussion and analysis of financial condition and results or operations โ in the company 's annual report on form 10-k for the fiscal year ended december 31 , 2018 filed with the sec on february 8 , 2019. we are a global security and aerospace company principally engaged in the research , design , development , manufacture , integration and sustainment of advanced technology systems , products and services . we also provide a broad range of management , engineering , technical , scientific , logistics , system integration and cybersecurity services . we serve both u.s. and international customers with products and services that have defense , civil and commercial applications , with our principal customers being agencies of the u.s. government . in 2019 , 71 % of our $ 59.8 billion in net sales were from the u.s. government , either as a prime contractor or as a subcontractor ( including 61 % from the department of defense ( dod ) ) , 28 % were from international customers ( including foreign military sales ( fms ) contracted through the u.s. government ) and 1 % were from u.s. commercial and other customers . our main areas of focus are in defense , space , intelligence , homeland security and information technology , including cybersecurity . we operate in four business segments : aeronautics , missiles and fire control ( mfc ) , rotary and mission systems ( rms ) and space . we organize our business segments based on the nature of the products and services offered . we operate in an environment characterized by both complexity in global security and continuing economic pressures in the u.s. and globally . a significant component of our strategy in this environment is to focus on program execution , improving the quality and predictability of the delivery of our products and services , and placing security capability quickly into the hands of our u.s. and international customers at affordable prices . recognizing that our customers are resource constrained , we are endeavoring to develop and extend our portfolio domestically in a disciplined manner with a focus on adjacent markets close to our core capabilities , as well as growing our international sales . we continue to focus on affordability initiatives . we also expect to continue to innovate and invest in technologies to fulfill new mission requirements for our customers and invest in our people so that we have the technical skills necessary to succeed without limiting our ability to return a substantial portion of our free cash flow to our investors in the form of dividends and share repurchases . we define free cash flow as cash from operations as determined under u.s. generally accepted accounting principles ( gaap ) , less capital expenditures as presented on our consolidated statements of cash flows . 2020 financial trends we expect our 2020 net sales to increase in the mid-single digit range from 2019 levels . the projected growth is driven by increased volume at all four business areas . specifically , the increased growth is driven by the f-35 program at aeronautics , increased volume in the tactical and strike missiles and air and missile defense businesses at mfc , sikorsky volume at rms , and hypersonics volume at space . total business segment operating profit margin in 2020 is expected to be approximately 10.8 % ; and cash from operations is expected to be greater than or equal to $ 7.6 billion . the preliminary outlook for 2020 assumes the u.s. government continues to support and fund our key programs . changes in circumstances may require us to revise our assumptions , which could materially change our current estimate of 2020 net sales , operating margin and cash flows . we expect a net fas/cas pension benefit of approximately $ 2.1 billion in 2020 based on a 3.25 % discount rate ( a 100 basis point decrease from the end of 2018 ) , an approximate 21 % return on plan assets in 2019 , a 7.00 % expected long-term rate of return on plan assets in future years , and the revised longevity assumptions released during the fourth quarter of 2019 by the society of actuaries . we do not expect to make any contributions to our qualified defined benefit pension plans in 2020 and anticipate recovering approximately $ 2.0 billion of cas pension cost . as previously announced on july 1 , 2014 , we completed the final step of the planned freeze of our qualified and nonqualified defined benefit pension plans for salaried employees effective january 1 , 2020. the service-based component of the formula used to determine retirement benefits is frozen such that participants are no longer earning further credited service for any period after december 31 , 2019. as a result of these changes , the plans are fully frozen effective january 1 , 2020. retirees already collecting 27 benefits and former employees with a vested benefit were not affected by the change . current employees also will retain all benefits already earned in their pension plan to date . portfolio shaping activities we continuously strive to strengthen our portfolio of products and services to meet the current and future needs of our customers . we accomplish this in part by our independent research and development activities and through acquisition , divestiture and internal realignment activities . we selectively pursue the acquisition of businesses and investments at attractive valuations that will expand or complement our current portfolio and allow access to new customers or technologies . story_separator_special_tag we perform activities in the development , production , modernization , ship integration , test and lifetime support for ships of international customers such as japan , spain , republic of korea , and australia . we have ongoing programs in canada and chile for combat systems equipment upgrades on halifax-class and type 23 frigates . our multi-mission surface combatant ( mmsc ) program provides surface combatant ships for international customers , such as the kingdom of saudi arabia , designed to operate in shallow waters and the open ocean . in our training and logistics solutions portfolio , we have active programs and pursuits in the united kingdom , the kingdom of saudi arabia , canada , egypt , singapore , and australia . we have active development , production , and sustainment support of the s-70i black hawk ยฎ and mh-60 seahawk ยฎ aircraft to foreign military customers , including chile , australia , denmark , taiwan , the kingdom of saudi arabia and colombia . commercial aircraft are sold to customers in the oil and gas industry , emergency medical evacuation , search and rescue fleets , and vip customers in over 30 countries . international customers accounted for 14 % of space 's 2019 net sales . our space business segment includes the operations of awe management limited ( awe ) , which operates the united kingdom 's nuclear deterrent program . the work at awe covers the entire life cycle , from initial concept , assessment and design , through component manufacture and assembly , in-service support and decommissioning , and disposal . in addition , space has an international contract with japan to design and manufacture geostationary communication satellites using the lm2100 satellite platform . status of the f-35 program the f-35 program primarily consists of production contracts , sustainment activities , and new development efforts . production of the aircraft is expected to continue for many years given the u.s. government 's current inventory objective of 2,456 aircraft for the u.s. air force , u.s. marine corps , and u.s. navy ; commitments from our eight international partner countries and four international customers ; as well as expressions of interest from other countries . during 2019 , the f-35 program completed several milestones both domestically and internationally . the u.s. government continued testing the aircraft , including ship trials , mission and weapons systems evaluations , and the f-35 fleet recently surpassed 240,000 flight hours . during 2019 , multiple customers declared initial operating capability including the u.s. navy for its f-35c variant , the united kingdom for its f-35b variant , japan for its f-35a variant , and norway for its f-35a variant . since program inception , we have delivered 491 production f-35 aircraft , demonstrating the f-35 program 's continued progress and longevity . the first 491 f-35 aircraft delivered to u.s. and international customers include 347 f-35a variants , 108 f-35b variants , and 36 f-35c variants . the full-rate production decision , also known formally as milestone c , is expected to be delayed by the dod until initial operational test and evaluation ( iot & e ) activities are complete in the naval air systems command ( navair ) -led joint simulation environment ( jse ) . the jse is used to conduct simulated evaluations of the f-35 in a range of high-threat scenarios . testing is expected to be completed by the end of 2020. the data will be utilized by the u.s. government as part of their evaluation to transition the f-35 program from low rate initial production ( lrip ) into full-rate production . during the fourth quarter of 2019 , the u.s. government and lockheed martin finalized a block buy agreement for the production and delivery of f-35s in lots 12 , 13 and 14 at the lowest aircraft price in the history of the program . this includes amounts previously awarded by the u.s. government in november 2018 for the production of 252 block buy f-35 aircraft . as part of the fourth quarter 2019 agreement , the u.s. government awarded the production of an additional 112 f-35 block buy aircraft . we delivered 134 production aircraft in 2019 to our u.s. and international partner countries , and we have 374 production aircraft in backlog , including orders from our international partner countries . on july 17 , 2019 , the u.s. government suspended turkey 's participation in the f-35 program and initiated the process to formally remove turkey from the program as a result of turkey accepting delivery of the russian s-400 air and missile defense system . to date , the administration has not imposed sanctions on turkish entities involved in the s-400 procurement , although sanctions under the countering america 's adversaries through sanctions act ( caatsa ) remain a risk . additionally , sanctions 29 could be imposed against turkey as a result of future legislation , including the โ promoting american national security and preventing the resurgence of isis act of 2019 โ that was passed out of the senate foreign relations committee on december 11 , 2019. the bill includes significant new sanction provisions targeted at turkey that , if enacted , would directly affect lockheed martin programs in turkey . turkey could implement retaliatory sanctions if the bill moves forward in congress in 2020.we are monitoring these developments and the potential impacts of any sanctions and other actions regarding turkey on the f-35 program and on our other programs involving turkey . depending on the scope and applicability of any sanctions or other actions , the impact could be material to our operations , operating results , financial position or cash flows . turkey is one of eight international partner countries on the f-35 program and previously committed to purchase up to 100 f-35 aircraft , of which six have completed production . turkish suppliers also produce component parts for the f-35 program , many of which are single-sourced .
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consolidated results of operations our operating cycle is primarily long term and involves many types of contracts for the design , development and manufacture of products and related activities with varying delivery schedules . consequently , the results of operations of a particular year , or year-to-year comparisons of sales and profits , may not be indicative of future operating results . the following discussions of comparative results among years should be reviewed in this context . all per share amounts cited in these discussions are presented on a โ per diluted share โ basis , unless otherwise noted . our consolidated results of operations were as follows ( in millions , except per share data ) : replace_table_token_3_th ( a ) for the year ended december 31 , 2018 , operating profit includes a non-cash asset impairment charge of $ 110 million related to our equity method investee , advanced military maintenance , repair and overhaul center llc ( ammroc ) . for the year ended december 31 , 2017 , operating profit includes a $ 64 million charge , which represents our portion of a non-cash asset impairment charge recorded by ammroc . see โ note 1 โ significant accounting policies โ included in our notes to consolidated financial statements for more information . ( b ) for the year ended december 31 , 2018 , operating profit includes $ 96 million of severance and restructuring charges . see โ note 15 โ severance and restructuring charges โ included in our notes to consolidated financial statements for a discussion of 2018 severance and restructuring charges . ( c ) for the years ended december 31 , 2019 and december 31 , 2017 , operating profit includes a previously deferred non-cash gain of approximately $ 51 million and $ 198 million related to properties sold in 2015 . ( d ) for the year ended december 31 , 2019 , operating profit includes a gain of $ 34 million for the sale of our distributed energy solutions business .
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`` risk factors '' and `` special note regarding forward-looking statements '' in this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview alarm.com is the leading platform for the intelligently connected property . we offer a comprehensive suite of cloud-based solutions for smart residential and commercial properties , including interactive security , video monitoring , intelligent automation , energy management and wellness solutions . millions of property owners depend on our technology to intelligently secure , automate and manage their residential and commercial properties . in the last year alone , our platforms processed more than 200 billion data points generated by over 100 million connected devices . we believe that this scale of subscribers , connected devices and data operations makes us the leader in the connected property market . our solutions are delivered through an established network of over 10,000 trusted service providers , who are experts at selling , installing and supporting our solutions . we primarily generate software-as-a-service , or saas , and license revenue through our service provider partners , who resell these services and pay us monthly fees . these service provider contracts typically have an initial term of one year , with subsequent renewal terms of one year . our service provider partners have indicated that they typically have three to five-year service contracts with residential and commercial property owners who use our solutions . we also generate hardware and other revenue , primarily from our service provider partners and distributors . our hardware sales include connected devices that enable our services , such as video cameras , video recorders , gunshot detection sensors , gateway modules and smart thermostats . we believe that the length of our service relationships with residential and commercial property owners , combined with our robust platforms and over 20 years of operating experience , contribute to a compelling business model . our solutions are designed to make both residential and commercial properties safer , smarter and more efficient . our technology platforms support all participants in what we refer to as the connected property market . this market includes the residential and commercial property owners who subscribe to our services , the hardware partners who manufacture devices that integrate with our platforms and the service provider partners who install and maintain our solutions . the alarm.com platform enables our service provider partners to deploy our interactive security , video monitoring , intelligent automation , energy management and wellness solutions as stand-alone offerings or as combined solutions to address the needs of a broad range of customers . 51 executive overview and highlights of 2020 and 2019 results we primarily generate saas and license revenue , our largest source of revenue , through our service provider partners who resell our services and pay us monthly fees . our service provider partners sell , install and support alarm.com solutions that enable residential and commercial property owners to intelligently secure , connect , control and automate their properties . our subscribers consist of all of the properties maintained by those residential and commercial property owners to which we are delivering at least one of our solutions . we derive a portion of our revenue from licensing our intellectual property to third parties on a per customer basis . saas and license revenue represented 64 % , 67 % and 69 % of our revenue in 2020 , 2019 and 2018 , respectively . we also generate saas and license revenue from monthly fees charged to service providers on a per subscriber basis for access to our non-hosted software platform , or software platform . the non-hosted software for interactive security , automation and related solutions is typically deployed and operated by the service provider in its own network operations center . software license revenue represented 6 % , 9 % and 10 % of our revenue in 2020 , 2019 and 2018 , respectively . we also generate revenue from the sale of many types of hardware , including video cameras , video recorders , cellular radio modules , thermostats , image sensors , gunshot detection sensors and other peripherals , that enable our solutions . our hardware and other revenue also includes our revenue from the sale of perpetual licenses that provide our customers in the commercial market the right to use our video surveillance software for an indefinite period of time in exchange for a one-time license fee . our hardware and other revenue also includes our revenue from the sale of licenses that provide our customers the right to use our gunshot detection solution in exchange for license fees . hardware and other revenue represented 36 % , 33 % and 31 % of our revenue in 2020 , 2019 and 2018 , respectively . we typically expect hardware and other revenue to fluctuate as a percentage of total revenue . highlights of our financial performance for the periods covered in this annual report include : saas and license revenue increased 17 % to $ 393.3 million in 2020 from $ 337.4 million in 2019. saas and license revenue increased 16 % to $ 337.4 million in 2019 from $ 291.1 million in 2018. total revenue increased 23 % to $ 618.0 million in 2020 from $ 502.4 million in 2019. total revenue increased 19 % to $ 502.4 million in 2019 from $ 420.5 million in 2018. net income increased 44 % to $ 76.7 million in 2020 from $ 53.3 million in 2019. net income increased 148 % to $ 53.3 million in 2019 from $ 21.5 million in 2018. net income attributable to common stockholders increased 45 % to $ 77.9 million in 2020 from $ 53.5 million in 2019. net income attributable to common stockholders increased 149 % to $ 53.5 million in 2019 from $ 21.5 million in 2018. adjusted ebitda , a non-gaap measurement of operating performance , increased to $ story_separator_special_tag the terms of the 2026 notes are governed by an indenture , or the indenture , by and between alarm.com holdings , inc. and u.s. bank national association , as trustee . the 2026 notes are senior unsecured obligations that do not bear regular interest and the principal amount of the 2026 notes will not accrete . the 2026 notes may bear special interest under specified circumstances related to our failure to comply with our reporting obligations under the indenture . special interest , if any , will be payable semiannually in arrears on january 15 and july 15 of each year , beginning on july 15 , 2021. we received proceeds from the issuance of the 2026 notes of $ 484.3 million , net of $ 15.7 million of transaction fees and other debt issuance costs . we used some of the proceeds to repay the $ 110.0 million outstanding principal balance under our 2017 facility and also used some of the proceeds to pay accrued interest , fees and expenses related to the 2017 facility . we terminated the 2017 facility effective january 20 , 2021. other business metrics we regularly monitor a number of financial and operating metrics in order to measure our current performance and estimate our future performance . our other business metrics may be calculated in a manner different from the way similar business metrics used by other companies are calculated and include the following ( dollars in thousands ) : 53 replace_table_token_1_th saas and license revenue saas and license revenue is a gaap measure that we use to measure our current performance and estimate our future performance . we believe that saas and license revenue is an indicator of the productivity of our existing service provider partner s and their ability to activate and maintain subscribers using our intelligently connected property solutions , our ability to add new service provider partners reselling our solutions , the demand for our intelligently connected property solutions and the pace at which the market for these solutions is growing . adjusted ebitda adjusted ebitda is a non-gaap measure that represents our net income before interest expense , interest income , other income , net , provision for / ( benefit from ) income taxes , amortization and depreciation expense , stock-based compensation expense , secondary offering expense , acquisition-related expense and legal costs and settlement fees incurred in connection with non-ordinary course litigation and other disputes , particularly costs involved in ongoing intellectual property litigation . we do not consider these items to be indicative of our core operating performance . the non-cash items include amortization and depreciation expense and stock-based compensation expense . we do not adjust for ordinary course legal expenses resulting from maintaining and enforcing our intellectual property portfolio and license agreements . adjusted ebitda is a key measure that our management uses to understand and evaluate our core operating performance and trends to generate future operating plans , to make strategic decisions regarding the allocation of capital , and to make investments in initiatives that are focused on cultivating new markets for our solutions . in particular , the exclusion of certain expenses in calculating adjusted ebitda facilitates comparisons of our operating performance on a period-to-period basis and , in the case of exclusion of acquisition-related adjustments and certain historical legal expenses , excludes items that we do not consider to be indicative of our core operating performance . adjusted ebitda is not a measure calculated in accordance with gaap and should not be considered in isolation from , or as a substitute for , financial information prepared in accordance with gaap . please see non-gaap measures in this section for a discussion of the limitations of adjusted ebitda and a reconciliation of adjusted ebitda to net income , the most comparable gaap measurement , for the years ended december 31 , 2020 , 2019 and 2018. saas and license revenue renewal rate our saas and license revenue renewal rate is an operating metric . we measure our saas and license revenue renewal rate on a trailing 12-month basis by dividing ( a ) the total saas and license revenue recognized during the trailing 12-month period from our subscribers on our alarm.com platform who were subscribers on the first day of the period , by ( b ) total saas and license revenue we would have recognized during the period from those same subscribers assuming no terminations , or service level upgrades or downgrades . the saas and license revenue renewal rate represents both residential and commercial properties . our saas and license revenue renewal rate is expressed as an annualized percentage and it is calculated across our entire subscriber base on the alarm.com platform excluding subscribers of service providers that may use one of our other platforms as a substitute for the alarm.com platform . our service provider partners , who resell our services to our subscribers , have indicated that they typically have three to five-year service contracts with our subscribers . our saas and license revenue renewal rate is calculated across our entire subscriber base on the alarm.com platform , including subscribers whose contract with their service provider reached the end of its contractual term during the measurement period , as well as subscribers whose contract with their service provider has not reached the end of its contractual term during the measurement period , and is not intended to estimate the rate at which our subscribers renew their contracts with our service provider partners . we believe that our saas and license revenue renewal rate allows us to measure our ability to retain and grow our saas and license revenue and serves as an indicator of the lifetime value of our subscriber base .
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results of operations the following table sets forth our selected consolidated statements of operations and data as a percentage of revenue for the periods presented ( in thousands ) . certain previously reported amounts in the consolidated statements of operations for the year ended december 31 , 2018 have been reclassified to conform to our current presentation to reflect interest income as a separate line item , which was previously included in other income , net . consolidated statements of operations replace_table_token_2_th _ ( 1 ) excludes amortization and depreciation shown in operating expenses below . ( 2 ) operating expenses include stock-based compensation expense as follows ( in thousands ) : replace_table_token_3_th 59 the following table sets forth the components of cost of revenue as a percentage of revenue : replace_table_token_4_th comparison of years ended december 31 , 2020 to december 31 , 2019 the following tables in this section set forth our selected consolidated statements of operations ( in thousands ) , data for the percentage change and data as a percentage of revenue for the years ended december 31 , 2020 and 2019. revenue replace_table_token_5_th the $ 115.6 million increase in total revenue in 2020 as compared to 2019 was the result of a $ 59.7 million , or 36 % , increase in our hardware and other revenue and a $ 55.9 million , or 17 % , increase in our saas and license revenue . our software license revenue included within saas and license revenue decreased $ 5.4 million to $ 38.0 million in 2020 as compared to $ 43.4 million during 2019 , which decreased primarily due to the result of the continuing transition of customers from non-hosted software to our cloud based hosted platform .
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libor loans bear interest at libor ( adjusted for statutory reserve requirements ) plus an applicable margin , which ranged from 125 to 225 basis points as of december 31 , 2019 , depending on the percentage of the borrowing base utilized . base rate loans bear interest at a rate per annum equal to the greatest of : ( i ) the agent bank 's prime rate ; ( ii ) the federal funds effective rate plus 50 basis points ; or ( iii ) the adjusted libor rate for a one-month interest period plus 100 basis points , plus an applicable margin , which ranged 25 to 125 basis points as of december 31 , 2019 , depending on the percentage of the borrowing base utilized . crp also pays a commitment fee of 37.5 to 50 basis points on unused amounts under its facility . the applicable margins for the libor loans and base rate loans referenced above reflect interest rate reductions that became effective on april 26 , 2019 and are applicable as long as crp 's total leverage ratio ( as described below ) is less than or equal to 3.0 to 1.0. if crp 's leverage ratio exceeds 3.0 to 1.0 in the future , the original applicable margins under the credit agreement would revert to the range from 150 to 250 basis points for libor loans and 50 to 150 basis points for base rate loans , in each case depending on the percentage of the borrowing base utilized . the weighted- 75 centennial resource development , inc. notes to consolidated financial statements ( continued ) average borrowing rate on the credit agreement , exclusive of unused commitment fees and the letter of credit noted above , was 3.7 % and 3.8 % per annum for the years ended december 31 , 2019 and 2018 , respectively . crp 's credit agreement contains restrictive covenants that limit its ability to , among other things : ( i ) incur additional indebtedness ; ( ii ) make investments and loans ; ( iii ) enter into mergers ; ( iv ) make or declare dividends ; ( v ) enter into commodity hedges exceeding a specified percentage of the company 's expected production ; ( vi ) enter into interest rate hedges exceeding a specified percentage of its outstanding indebtedness ; ( vii ) incur liens ; ( viii ) sell assets ; and ( ix ) engage in transactions with affiliates . crp 's credit agreement also requires it to maintain compliance with the following financial ratios : ( i ) a current ratio , which is the ratio of crp 's consolidated current assets ( including unused commitments under its revolving credit facility and excluding non-cash derivative assets and certain restricted cash ) to its consolidated current liabilities ( excluding the current portion of long-term debt under the credit agreement and non-cash derivative liabilities ) , of not less than 1.0 to 1.0 ; and ( ii ) a leverage ratio , which is the ratio of total story_separator_special_tag in the 2018 annual report on form 10-k filed with the sec for a discussion of the results of operations for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 . 53 liquidity and capital resources story_separator_special_tag derivative assets and certain restricted cash ) to its consolidated current liabilities ( excluding the current portion of long-term debt under the credit agreement and non-cash derivative liabilities ) , of not less than 1.0 to 1.0 ; and ( ii ) a leverage ratio , which is the ratio of total funded debt ( as defined in crp 's credit agreement ) to consolidated ebitdax ( as defined in crp 's credit agreement ) for the rolling four fiscal quarter periods ending on such day , of not greater than 4.0 to 1.0. crp was in compliance with these covenants and the financial ratios described above as of december 31 , 2019 and through the filing of this annual report . for further information on our credit agreement , refer to note 4โlong-term debt , item 8 of this annual report . senior notes on november 30 , 2017 , crp issued at par $ 400.0 million of 5.375 % senior notes due 2026 ( the โ 2026 senior notes โ ) and on march 15 , 2019 , crp issued $ 500.0 million of 6.875 % senior notes due 2027 ( the โ 2027 senior notes โ and collectively with the 2026 senior notes the โ senior notes โ ) in 144a private placements . the senior notes are fully and unconditionally guaranteed on a senior unsecured basis by each of crp 's current subsidiaries that guarantee crp 's revolving credit facility . the senior notes are not guaranteed by centennial , nor are we subject to the terms of the indentures governing the senior notes . the indentures governing the senior notes contain covenants that , among other things and subject to certain exceptions and qualifications , limit crp 's ability and the ability of crp 's restricted subsidiaries to : ( i ) incur or guarantee additional indebtedness or issue certain types of preferred stock ; ( ii ) pay dividends on capital stock or redeem , repurchase or retire capital stock or subordinated indebtedness ; ( iii ) transfer or sell assets ; ( iv ) make investments ; ( v ) create certain liens ; ( vi ) enter into agreements that restrict dividends or other payments from their subsidiaries to them ; ( vii ) consolidate , merge or transfer all or substantially all of their assets ; ( viii ) engage in transactions with affiliates ; and ( ix ) create unrestricted subsidiaries . story_separator_special_tag crp was in compliance with these covenants as of december 31 , 2019 and through the filing of this annual report . 55 for further information on our senior notes , refer to note 4โlong-term debt , item 8. financial statements and supplementary data in this annual report . off-balance sheet arrangements we may enter into off-balance sheet arrangements and transactions that can give rise to material off-balance sheet obligations . as of december 31 , 2019 , we had no off-balance sheet arrangements . contractual obligations we routinely enter into or extend operating and transportation agreements , office and equipment leases , drilling rig contracts , among others , in the ordinary course of business . the following table summarizes our obligations and commitments as of december 31 , 2019 to make future payments under long-term contracts for the time periods specified below . replace_table_token_20_th ( 1 ) operating leases include our drilling rig contracts , office rental agreements , and other wellhead equipment . please refer to note 15โleases , item 8. financial statements and supplementary data in this annual report for details on our operating lease commitments . ( 2 ) water disposal agreements consist of contracts for transportation and disposal of produced water from our operated wells . under the terms of these agreements , we are obligated to provide a minimum volume of produced water or else pay for any deficiencies at the prices stipulated in the contracts . the obligations reported above represent our minimum financial commitments pursuant to the terms of these contracts as of december 31 , 2019 . actual expenditures under these contracts may exceed the minimum commitments presented above . ( 3 ) purchase obligations include purchase agreements to buy frac sand , which is used in our well fracture stimulation process . under the terms of these agreements , we are obligated to purchase a minimum volume of frac sand at a fixed sales price . the obligations reported above represent our minimum financial commitments pursuant to the terms of the contracts as of december 31 , 2019 . actual expenditures under these contracts may exceed the minimum commitments presented above . ( 4 ) asset retirement obligations reflect the present value of the estimated future costs associated with the plugging and abandonment of oil and gas wells and the related land restoration in accordance with applicable laws and regulations . ( 5 ) long-term debt consists of the principal amounts of the senior notes and borrowings outstanding under our credit agreement maturing on may 4 , 2023 . ( 6 ) cash interest expense on the senior notes is estimated assuming no principal repayment until the maturity of the instruments . cash interest expense on the credit agreement includes unused commitment fees and assumes no additional principal borrowings , repayments or changes to commitments under the agreement through the instrument due date . ( 7 ) transportation agreements include various firm natural gas transportation contracts whereby we are required to deliver a minimum volume of natural gas or else pay for any deficiencies at prices stipulated in the contracts . the obligations reported above represent minimum financial commitments pursuant to the terms of these contracts . however , our expenditures under these contracts may exceed the minimum commitments presented above . recently issued accounting standards please refer to note 1โbasis of presentation and summary of significant accounting policies , item 8. financial statements and supplementary data in this annual report for a discussion of recently issued accounting standards and their anticipated effect on our business . 56 critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with gaap . the preparation of these statements requires us to make certain assumptions , judgments and estimates that affect the reported amounts of assets , liabilities , revenues and expenses , as well as , the disclosure of contingent assets and liabilities and commitments as of the date of our financial statements . we base our assumptions and estimates on historical experience and other sources that we believe to be reasonable at the time . actual results may vary from our estimates due to changes in circumstances , weather , politics , global economics , commodity prices , production performance , drilling results , mechanical problems , general business conditions , our assumptions and other factors . a summary of our significant accounting policies is detailed in note 1โbasis of presentation and summary of significant accounting policies , item 8. financial statements and supplementary data in this annual report . we have outlined certain of our accounting policies below which require the application of significant judgment by our management . oil and natural gas reserve quantities we use the successful efforts method of accounting for our oil and gas producing activities . the successful efforts method inherently relies on the estimation of proved crude oil , natural gas and ngl reserves . reserve quantities and the related estimates of future net cash flows are used as inputs in our calculation of depletion , evaluation of proved properties for impairment , assessment of expected realizability of our deferred income tax assets and calculation of the standardized measure of discounted future net cash flows . the process of estimating quantities of proved reserves is inherently imprecise and relies on the following : i ) interpretations and judgment of available geological , geophysical , engineering and production data ; ii ) certain economic assumptions , some of which are mandated by the sec , such as commodity prices ; and iii ) assumptions and estimates of underlying inputs such as operating expenses , capital expenditures , plug and abandonment costs and taxes . all of these assumptions may differ substantially from actual results , which could result in a significant change in the estimated reserves and future net cash flows . for
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overview our drilling and completion and land acquisition activities require us to make significant capital expenditures . historically , our primary sources of liquidity have been cash flows from operations , borrowings under crp 's revolving credit facility , and proceeds from offerings of debt or equity securities . to date , our primary use of capital has been for drilling and development capital expenditures and for the acquisition of land and oil and natural gas properties . the following table summarizes our capital expenditures ( โ capex โ ) incurred during the year : ( in millions ) year ended december 31 , 2019 drilling and completion capital expenditures $ 691.4 facilities , infrastructure and other 162.0 land 38.4 total capital expenditures $ 891.8 we continually evaluate our capital needs and compare them to our capital resources . our estimated capital expenditure budget for 2020 is $ 590 million to $ 690 million , of which $ 490 million to $ 550 million is allocated to d & c activity . we expect to fund our capex budget primarily with cash flows from operations and any remaining unfunded portion with either borrowings under our credit agreement or with proceeds received from the contemplated divestiture of our saltwater disposal assets . because we are the operator of a high percentage of our acreage , we can control the amount and timing of these capital expenditures . we could choose to defer or accelerate a portion of our planned capex depending on a variety of factors , including , but not limited to : the success of our drilling activities ; prevailing and anticipated prices for oil and natural gas ; the availability of necessary equipment , infrastructure and capital ; the receipt and timing of required regulatory permits and approvals ; seasonal conditions ; drilling and acquisition costs ; and the level of participation by other working interest owners .
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no single customer accounted for more than 10 % of its revenue during the years ended december 31 , 2015 , 2014 and 2013 , and no single customer accounted for more than 10 % of its accounts receivable at december 31 , 2015 and 2014. recent accounting pronouncements in august 2015 , the financial accounting standards board ( ยfasbย ) issued accounting standards update ( ยasuย ) no . 2015-14 , revenue from contracts with customers : deferral of the effective date ( ยasu 2015-14ย ) , which defers the effective date of asu no . 2014-09 , revenue from contracts with customers ( ยasu 2014-09ย ) by one year . asu 2014-09 , requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and will replace most existing revenue recognition guidance in u.s. gaap when it becomes effective . in doing so , companies will need to use more judgment and make more estimates than under current guidance . these may include identifying performance obligations in the story_separator_special_tag the following discussion and analysis of our financial condition and results of operations together with the section entitled ยselected financial data , ย should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this annual report . in addition to historical financial information , the following discussion and analysis contains forward-looking statements within the meaning of section 21e of the securities exchange act of 1934 , as amended , or the exchange act . these forward-looking statements relate to future events or our future financial performance that involve risks , uncertainties and assumptions . our actual results and timing of events may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those discussed under ยrisk factorsย and elsewhere in this prospectus . please see ยcautionary information regarding forward-looking statementsย at the beginning of this form 10-k for additional information you should consider regarding forward-looking statements . we undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that arises after the date of this report , or to conform such statements to actual results or changes in our expectations . overview we are a commercial stage drug-device company committed to improving the quality of life for patients with ear , nose and throat conditions . we have developed a drug releasing bioabsorbable implant technology that enables targeted and sustained release of therapeutic agents . this targeted drug delivery technology is designed to allow ear , nose and throat , or ent , physicians to improve patient care . our approved and in-development products are designed to treat the spectrum of needs among the estimated 3.5 million u.s. patients who are managed by ent physicians for chronic sinusitis , one of the most prevalent chronic diseases in the united states and one of the most costly conditions for u.s. employers . chronic sinusitis patients include those needing and electing surgery , those who have not had sinus surgery and those that have had one or more surgeries but continue to suffer from symptoms . to address these patient groups , we are : marketing propel ยฎ and propel mini , the first and only steroid releasing implants approved by the u.s. food and drug administration , or fda , for use in patients undergoing surgery for chronic sinusitis . propel has been proven clinically in a meta-analysis of prospective , multicenter , randomized , controlled , double-blind clinical studies to improve surgical outcomes , including a 35 % reduction in the need for postoperative oral steroid and surgical intervention . inserted by a physician into the ethmoid sinuses following sinus surgery , the self-expanding implants are designed to conform to and hold open the surgically enlarged sinus , while gradually releasing an anti-inflammatory steroid over a period of approximately 30 days , before being fully absorbed into the body . seeking approval for the use of propel mini in the frontal sinus . we announced preliminary topline data from the progress trial , designed to evaluate the safety and efficacy of propel mini when placed in the frontal sinuses following surgery , showing that the study met its primary efficacy endpoint and demonstrating a statistically significant 38 % relative reduction in the need for postoperative interventions compared to surgery alone . we submitted a supplemental premarket approval submission to the fda in september 2015 seeking approval to expand the indication of propel mini to treat patients undergoing frontal sinus surgery . conducting clinical trials of resolve , a steroid releasing implant designed to provide a cost-effective , less invasive solution for patients that have had ethmoid sinus surgery yet suffer from recurrent sinus obstruction due to polyps . the resolve implant is designed to be placed in the ethmoid sinus in a procedure conducted in the physician 's office as an alternative to other treatment options such as further medical therapy or revision surgery . we have completed three studies of resolve in a total of 117 patients and in december 2014 , we commenced resolve ii , a phase iii trial enrolling 300 patients to assess the safety and efficacy of the product . conducting clinical trials of nova , a steroid releasing implant designed to fit the ostia , or openings , of the dependent sinuses following enlargement of the sinuses . while sinus enlargement is performed on 52 both revision and primary patients , nova has the potential to provide , in conjunction with balloon openings , a less invasive procedure performed in the physician 's office for patients with primary chronic sinusitis who have not had sinus surgery . story_separator_special_tag we expect r & d expenses to increase in absolute dollars for the foreseeable future as we continue to develop , enhance and commercialize new products and technologies . however , we expect r & d expenses as a percentage of revenue to vary over time depending on the level and timing of initiating new product development efforts as well as our clinical development activities . story_separator_special_tag in july 2014 , and are no longer required to be marked-to-market at each reporting period . liquidity and capital resources overview as of december 31 , 2015 , we had cash , cash equivalents and short-term investments of $ 124.3 million and an accumulated deficit of $ 123.3 million , compared to cash and cash equivalents of $ 48.4 million and an accumulated deficit of $ 96.6 million as of december 31 , 2014. in june 2015 , we completed our follow-on offering , issuing 4,119,300 shares of common stock at an offering price of $ 25.00 per share yielding net proceeds of $ 96.4 million after deducting underwriting discounts and commissions and offering expenses . 56 cash flows replace_table_token_6_th net cash used in operating activities during the year ended december 31 , 2015 , net cash used in operating activities was $ 20.1 million , consisting primarily of a net loss of $ 26.6 million , partially offset by non-cash charges of $ 6.4 million and a decrease in net operating assets of $ 0.1 million . the cash used in operations was primarily due to the ongoing commercialization of propel and propel mini . to support the ongoing commercialization of these products , we continued to expand our sales , marketing and reimbursement organizations . the non-cash charges primarily consisted of stock-based compensation expense . the decrease in net operating assets is primarily due to an increase in accrued compensation , partially offset by an increase in accounts receivable and inventory . during the year ended december 31 , 2014 , net cash used in operating activities was $ 18.0 million , consisting primarily of a net loss of $ 18.4 million and an increase in net operating assets of $ 2.2 million , partially offset by non-cash charges of $ 2.6 million . the cash used in operations was primarily due to the ongoing commercialization of propel and propel mini . to support the ongoing commercialization of these products , we continued to expand our sales , marketing and reimbursement organizations resulting in an increase in accounts receivable , partially offset by an increase in accrued compensation . the non-cash charges primarily consisted of stock-based compensation expense , depreciation and amortization and the change in fair value of convertible preferred stock warrants . during the year ended december 31 , 2013 , net cash used in operating activities was $ 19.1 million , consisting primarily of a net loss of $ 18.4 million and an increase in net operating assets of $ 2.1 million , partially offset by non-cash charges of $ 1.4 million . the cash used in operations was primarily due to the expansion our sales , marketing and reimbursement organizations to support the ongoing commercialization of propel and propel mini resulting in increases in accounts receivable and inventory , partially offset by an increase in accrued compensation due to the growth in our sales , marketing and reimbursement organizations . non-cash charges consisted primarily of depreciation and stock-based compensation . net cash used in investing activities during the year ended december 31 , 2015 , net cash used in investing activities was $ 56.7 million , consisting primarily of net purchases of short-term investments , available-for-sale , of $ 55.1 million . during the year ended december 31 , 2014 , net cash used in investing activities was $ 35.5 million , consisting of purchases of short-term investments , available-for-sale , of $ 35.1 million . during the year ended december 31 , 2013 , net cash used in investing activities was $ 0.5 million , consisting of purchases of property and equipment . 57 net cash provided by financing activities during the year ended december 31 , 2015 , net cash provided by financing activities was $ 98.2 million , consisting primarily of net proceeds from our follow-on offering of $ 96.4 million . during the year ended december 31 , 2014 , net cash provided by financing activities was $ 54.6 million , consisting primarily of net proceeds from our ipo of $ 55.8 million , partially offset by the repayments in full of our equipment loan and capital lease of $ 1.5 million . during the year ended december 31 , 2013 , net cash provided by financing activities was $ 29.8 million , consisting primarily of net proceeds from the issuance of our series d convertible preferred stock of $ 30.1 million . liquidity we currently believe that our existing cash , cash equivalents and short-term investments as of december 31 , 2015 , will be sufficient to meet our capital requirements and fund our operations for at least the next twelve months . if these sources are insufficient to satisfy our liquidity requirements , we may seek to sell additional equity or debt securities or obtain credit facilities . if we raise additional funds by issuing equity securities , our stockholders would experience dilution . debt financing , if available , may involve covenants restricting our operations or our ability to incur additional debt . any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders . additional financing may not be available at all , or in amounts or on terms unacceptable to us . if we are unable to obtain additional financing , we may be required to delay the development , commercialization and marketing of our products .
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results of operations replace_table_token_5_th 54 comparison of years ended december 31 , 2015 and 2014 revenue revenue increased $ 23.0 million , or 60 % , to $ 61.6 million during the year ended december 31 , 2015 , compared to $ 38.6 million during the year ended december 31 , 2014. the growth in revenue was attributable to an increase in unit sales of propel and propel mini from 54,900 units to 85,600 units , or 56 % . the increase in units was driven by an expansion of our sales , marketing and reimbursement organizations . cost of sales and gross margin cost of sales increased $ 2.1 million , or 20 % , to $ 12.3 million during the year ended december 31 , 2015 , compared to $ 10.2 million during the year ended december 31 , 2014. the increase in cost of sales was primarily attributable to the growth in the number of propel and propel mini units sold . gross margin for the year ended december 31 , 2015 , increased to 80 % , compared to 74 % for the year december 31 , 2014. the increase in gross margin was primarily due to the growth in unit sales during the year ended december 31 , 2015 , which allowed us to spread the fixed portion of our manufacturing overhead costs over more production units . the fixed portion of our manufacturing overhead allows our cost of sales to grow at a slower rate than our revenue . selling , general and administrative expenses sg & a expenses increased $ 23.5 million , or 65 % , to $ 59.6 million during the year ended december 31 , 2015 , compared to $ 36.1 million during the year ended december 31 , 2014. the increase in sg & a expenses was primarily due to the build out of our infrastructure to support the ongoing commercialization of propel and propel mini .
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our chlor alkali products and vinyls segment is a commodity business where all supplier products are similar and price is the major supplier selection criterion . we have little or no ability to influence prices in the large , global commodity markets . our chlor alkali products and vinyls segment produces some of the most widely used chemicals in the world that can be upgraded into a wide variety of downstream chemical products used in many end-markets . cyclical price swings , driven by changes in supply/demand , can be abrupt and significant and , given capacity in our chlor alkali products and vinyls segment , can lead to significant changes in our overall profitability . the epoxy segment consumes products manufactured by the chlor alkali products and vinyls segment . the epoxy segment 's upstream and midstream products are predominately commodity markets . we have little or no ability to influence prices in these large , global commodity markets . while competitive differentiation exists through downstream customization and product development opportunities , pricing is extremely competitive with a broad range of competitors across the globe . winchester also has a commodity element to its business , but a majority of winchester ammunition is sold as a branded consumer product where there are opportunities to differentiate certain offerings through innovative new product development and enhanced product performance . while competitive pricing versus other branded ammunition products is important , it is not the only factor in product selection . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 7 % in 2019 and 6 % in 2018 . restructuring charges in 2019 included $ 58.9 million of non-cash impairment charges for equipment and facilities associated with the closure of a chlor alkali plant and a vdc production facility , both in freeport , tx . restructuring charges in 2019 and 2018 were also associated with the march 2016 closure of 433,000 tons of chlor alkali capacity across three separate locations and the december 2018 decision to permanently close the ammunition assembly operations at our winchester facility in geelong , australia . 28 other operating income for the year ended december 31 , 2018 included an $ 8.0 million insurance recovery for a second quarter 2017 business interruption at our freeport , tx vinyl chloride monomer facility partially offset by a $ 1.7 million loss on the sale of land . earnings ( losses ) of non-consolidated affiliates for the year ended december 31 , 2018 reflect a $ 21.5 million non-cash impairment charge . interest expense for the year ended december 31 , 2019 was impacted by a lower level of average debt outstanding partially offset by higher interest rates compared to the year ended december 31 , 2018. interest expense for the years ended december 31 , 2019 and 2018 included $ 17.0 million and $ 16.0 million , respectively , of accretion expense related to the ethylene payment discount expected to be paid on or about the fourth quarter of 2020. interest expense was reduced by capitalized interest of $ 10.8 million and $ 6.0 million for 2019 and 2018 , respectively . non-operating pension income includes all components of pension and other postretirement income ( costs ) other than service costs . non-operating pension income was lower for the year ended december 31 , 2019 , primarily due to an increase in pension benefit guaranty corporation fees associated with our domestic qualified defined benefit pension plan . the effective tax rate for 2019 included benefits associated with the finalization of the internal revenue service ( irs ) review of years 2013 to 2015 u.s. income tax claims , stock-based compensation , prior year tax positions , foreign tax law changes , a remeasurement of deferred taxes due to a decrease in our state effective tax rates and a change in tax contingencies . the effective tax rate also included expenses associated with a net increase in the valuation allowance primarily related to foreign deferred tax assets and liabilities . these factors resulted in a net $ 19.4 million tax benefit . after giving consideration to these items , the effective tax rate for 2019 of 16.8 % was lower than the 21 % u.s. federal statutory rate primarily due to state taxes and a net increase in the valuation allowance related to losses in foreign jurisdictions , partially offset by foreign income taxes and favorable permanent salt depletion deductions . the effective tax rate for 2018 included benefits associated with the u.s. tax cuts & jobs act ( 2017 tax act ) , stock-based compensation , changes in tax contingencies , a foreign dividend payment , changes associated with prior year tax positions and the remeasurement of deferred taxes due to a decrease in our state effective tax rates . the effective tax rate also included expenses associated with a net increase in the valuation allowance related to deferred tax assets in foreign jurisdictions and the remeasurement of deferred taxes due to changes in our foreign tax rates . these factors resulted in a net $ 2.9 million tax benefit , of which $ 3.8 million related to the increase of the 2017 tax act benefit . after giving consideration to these items , the effective tax rate for 2018 of 25.7 % was higher than the 21 % u.s. federal statutory rate primarily due to state and foreign income taxes , foreign income inclusions and a net increase in the valuation allowance related to current year losses in foreign jurisdictions , partially offset by favorable permanent salt depletion deductions . 2018 compared to 2017 sales for 2018 were $ 6,946.1 million compared to $ 6,268.4 million in 2017 , an increase of $ 677.7 million , or 11 % . chlor alkali products and vinyls sales increased by $ 485.9 million primarily due to increased pricing for caustic soda , edc , chlorine and other chlorine-derivatives , partially offset by lower caustic soda volumes and a less favorable product mix . story_separator_special_tag these factors resulted in a net $ 452.3 million tax benefit , of which $ 437.9 million was a provisional benefit from the 2017 tax act . after giving consideration to these items , the effective tax rate for 2017 of 17.1 % was lower than the 35 % u.s. federal statutory rate , primarily due to favorable permanent salt depletion deductions . 30 segment results we define segment results as income ( loss ) before interest expense , interest income , other operating income ( expense ) , non-operating pension income , other income ( expense ) and income taxes , and includes the operating results of non-consolidated affiliates . consistent with the guidance in asc 280 โ segment reporting , โ we have determined it is appropriate to include the operating results of non-consolidated affiliates in the relevant segment financial results . we have three operating segments : chlor alkali products and vinyls , epoxy and winchester . the three operating segments reflect the organization used by our management for purposes of allocating resources and assessing performance . chlorine used in our epoxy segment is transferred at cost from the chlor alkali products and vinyls segment . sales and profits are recognized in the chlor alkali products and vinyls segment for all caustic soda generated and sold by olin . replace_table_token_2_th ( 1 ) earnings ( losses ) of non-consolidated affiliates are included in the chlor alkali products and vinyls segment results consistent with management 's monitoring of the operating segment . the losses of non-consolidated affiliates were $ 19.7 million for the year ended december 31 , 2018 , which reflect a $ 21.5 million non-cash impairment charge recorded during 2018. the earnings of non-consolidated affiliates were $ 1.8 million for the year ended december 31 , 2017 . ( 2 ) environmental ( expense ) income for the year ended december 31 , 2019 included $ 4.8 million of an environmental insurance-related settlement gain . environmental ( expense ) income for the year ended december 31 , 2018 included pre-tax insurance recoveries for environmental costs incurred and expensed in prior periods of $ 111.0 million . environmental ( expense ) income is included in cost of goods sold in the consolidated statements of operations . ( 3 ) other corporate and unallocated costs for the years ended december 31 , 2019 , 2018 and 2017 included costs associated with the implementation of the information technology project of $ 77.0 million , $ 36.5 million and $ 5.3 million , respectively . ( 4 ) restructuring charges for the year ended december 31 , 2019 included $ 58.9 million of non-cash impairment charges for equipment and facilities associated with the closure of a chlor alkali plant and a vdc production facility , both in freeport , tx . restructuring charges for the year ended december 31 , 2019 and 2018 included costs associated with permanently closing the ammunition assembly operations at our geelong , australia facility in december 2018. restructuring charges for the years ended december 31 , 2019 , 2018 and 2017 also included costs associated with the 31 march 2016 closure of 433,000 tons of chlor alkali capacity across three separate locations and permanently closing a portion of the becancour , canada chlor alkali facility in 2014 . ( 5 ) acquisition-related costs for the years ended december 31 , 2018 and 2017 were related to the integration of the acquired business and consisted of advisory , legal , accounting and other professional fees . ( 6 ) other operating income for the year ended december 31 , 2018 included an $ 8.0 million insurance recovery for a second quarter 2017 business interruption at our freeport , tx vinyl chloride monomer facility partially offset by a $ 1.7 million loss on the sale of land . other operating income for the year ended december 31 , 2017 included a gain of $ 3.3 million from the sale of a former manufacturing facility . ( 7 ) interest expense for the years ended december 31 , 2019 , 2018 and 2017 included $ 17.0 million , $ 16.0 million and $ 3.9 million , respectively , of accretion expense related to the ethylene payment discount expected to be paid on or about the fourth quarter of 2020. interest expense was reduced by capitalized interest of $ 10.8 million , $ 6.0 million and $ 3.0 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . ( 8 ) non-operating pension income reflects the adoption of asu 2017-07 and includes all components of pension and other postretirement income ( costs ) other than service costs , which are allocated to the operating segments based on their respective estimated census data . operating segment results for 2017 have been restated to reflect this accounting change . ( 9 ) other income for the year ended december 31 , 2019 included a gain of $ 11.2 million on the sale of our equity interest in a non-consolidated affiliate . chlor alkali products and vinyls 2019 compared to 2018 chlor alkali products and vinyls sales for 2019 were $ 3,420.1 million compared to $ 3,986.7 million for 2018 , a decrease of $ 566.6 million , or 14 % . the sales decrease was primarily due to lower product pricing , primarily caustic soda , and lower volumes . chlor alkali products and vinyls generated segment income of $ 336.7 million for 2019 compared to $ 637.1 million for 2018 , a decrease of $ 300.4 million , or 47 % . the decrease in chlor alkali products and vinyls segment income was primarily due to lower product prices ( $ 449.4 million ) , primarily caustic soda , and lower volumes ( $ 53.0 million ) , partially offset by lower raw material and operating costs ( $ 138.1 million ) and lower maintenance turnaround costs ( $ 42.4 million ) .
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recent developments and highlights 2019 overview net loss was $ 11.3 million for the year ended december 31 , 2019 compared to net income of $ 327.9 million for 2018 . the decrease in results from the prior year was primarily due to lower chlor alkali products and vinyls segment results , non-cash restructuring charges of $ 58.9 million , the 2018 pretax insurance recoveries of $ 111.0 million for environmental costs incurred and expensed in prior years and increased costs associated with the information technology project . in 2017 , we began a multi-year implementation of new enterprise resource planning , manufacturing and engineering systems , and related infrastructure ( collectively , the information technology project ) . on december 11 , 2019 , we announced that we had made the decision to permanently close a chlor alkali plant with a capacity of 230,000 tons and our vinylidene chloride ( vdc ) production facility , both in freeport , tx . these closures are expected to be completed before the end of 2020. for the year ended december 31 , 2019 , we recorded pretax restructuring charges of $ 58.9 million for the impairment of equipment and facilities related to these actions . chlor alkali products and vinyls generated segment income of $ 336.7 million for 2019 compared to $ 637.1 million for 2018 . chlor alkali products and vinyls segment income was lower than in the prior year primarily due to lower caustic soda pricing partially offset by lower raw material and operating costs . the year ended december 31 , 2019 also included lower maintenance turnaround costs . chlor alkali products and vinyls segment income included depreciation and amortization expense of $ 470.4 million and $ 473.1 million in 2019 and 2018 , respectively .
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the company has estimated that the carrying story_separator_special_tag overview aaron 's , inc. ( โ we โ , โ our โ , โ us โ , โ aaron 's โ or the โ company โ ) is a leading specialty retailer of consumer electronics , computers , furniture , household appliances and accessories . our major operating divisions are the aaron 's sales & lease ownership division , the homesmart division and the woodhaven furniture industries division , which manufactures and supplies the majority of the upholstered furniture and bedding leased and sold in our stores . aaron 's has demonstrated strong revenue growth over the last three years . total revenues have increased from $ 2.013 billion in 2011 to $ 2.235 billion in 2013 , representing a compound annual growth rate of 5.4 % . total revenues for the year ended december 31 , 2013 increased $ 21.8 million , or 1.0 % , over the prior year . the majority of our growth comes from the opening of new sales and lease ownership stores and increases in same store revenues from previously opened stores . the company 's franchised store activity and company-operated store activity for sales & lease ownership , homesmart and rimco stores is summarized as follows : replace_table_token_4_th 1 in january 2014 , we sold our 27 company-operated rimco stores and the rights to five franchised rimco stores . we added a net of 46 company-operated sales and lease ownership stores in 2013 . we spend on average approximately $ 700,000 to $ 800,000 in the first year of operation of a new store , which includes purchases of lease merchandise , investments in leasehold improvements and financing first-year start-up costs . our new sales and lease ownership stores typically achieve revenues of approximately $ 1.1 million in their third year of operations . comparable stores open more than three years normally achieve approximately $ 1.4 million in revenues , which we believe represents a higher unit revenue volume than the typical rent-to-own store . most of our stores are cash flow positive in the second year of operations . we also use our franchise program to help us expand our sales and lease ownership concept more quickly and into more areas than through opening only company-operated stores . our franchisees added a net of 32 stores in 2013 , which was impacted by our purchase of 10 franchised stores during 2013 . franchise royalties and other related fees represent a growing source of high margin revenue for us . total revenues from franchise royalties and fees for the year ended december 31 , 2013 increased from $ 63.3 million in 2011 to $ 68.6 million in 2013 , representing a compounded annual growth rate of 4.1 % . total revenues from franchise royalties and fees for the year ended december 31 , 2013 increased $ 1.9 million , or 2.9 % , over the prior year . 24 same store revenues . we believe the changes in same store revenues are a key performance indicator . this indicator is calculated by comparing revenues for the year to revenues for the prior year for all stores open for the entire 24-month period , excluding stores that received lease agreements from other acquired , closed or merged stores . key components of net earnings in this management 's discussion and analysis section , we review our consolidated results . for the years ended december 31 , 2013 , 2012 and 2011 , some of the key revenue and cost and expense items that affected earnings were as follows : revenues . we separate our total revenues into five components : lease revenues and fees , retail sales , non-retail sales , franchise royalties and fees , and other . lease revenues and fees include all revenues derived from lease agreements at company-operated stores , including agreements that result in our customers acquiring ownership at the end of the terms . retail sales represent sales of both new and returned lease merchandise from our stores . non-retail sales mainly represent new merchandise sales to our aaron 's sales & lease ownership franchisees . franchise royalties and fees represent fees from the sale of franchise rights and royalty payments from franchisees , as well as other related income from our franchised stores . other revenues primarily relate to revenues from leasing real estate properties to unrelated third parties , as well as other miscellaneous revenues . retail cost of sales . retail cost of sales represents the original or depreciated cost of merchandise sold through our company-operated stores . non-retail cost of sales . non-retail cost of sales primarily represents the cost of merchandise sold to our franchisees . operating expenses . operating expenses include personnel costs , selling costs , occupancy costs and delivery , among other expenses . legal and regulatory expense/ ( income ) . legal and regulatory expense relates to significant accruals for loss contingencies for pending legal and regulatory proceedings . legal and regulatory income results from significant reductions in previously accrued reserves . retirement and vacation charges . retirement and vacation charges represent costs primarily associated with the retirement of the company 's chief operating officer and a change in the company 's vacation policies in 2013 , as well as costs associated with the retirement of the company 's founder and former chairman of the board in 2012 . depreciation of lease merchandise . depreciation of lease merchandise reflects the expense associated with depreciating merchandise held for lease and leased to customers by our company-operated stores . other operating expense ( income ) , net . other operating expense ( income ) , net consists of gains or losses on sales of company-operated stores and delivery vehicles , impairment charges on assets held for sale and gains or losses on other dispositions of property , plant and equipment . critical accounting policies revenue recognition . lease revenues are recognized in the month they are due on the accrual basis of accounting . story_separator_special_tag management regularly assesses the company 's insurance deductibles , monitors our litigation and regulatory exposure with the company 's attorneys and evaluates its loss experience . the company establishes an accrued liability for legal and regulatory proceedings when the company determines that a loss is both probable and the amount of the loss can be reasonably estimated . legal fees and expenses associated with the defense of all of our litigation are expensed as such fees and expenses are incurred . income taxes . the calculation of our income tax expense requires significant judgment and the use of estimates . we periodically assess tax positions based on current tax developments , including enacted statutory , judicial and regulatory guidance . in analyzing our overall tax position , consideration is given to the amount and timing of recognizing income tax liabilities and benefits . in applying the tax and accounting guidance to the facts and circumstances , income tax balances are adjusted appropriately through the income tax provision . reserves for income tax uncertainties are maintained at levels we believe are adequate to absorb probable payments . actual amounts paid , if any , could differ significantly from these estimates . we use the liability method of accounting for income taxes . under this 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 . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . valuation allowances are established , when necessary , to reduce deferred tax assets when we expect the amount of tax benefit to be realized is less than the carrying value of the deferred tax asset . fair value . for the valuation techniques used to determine the fair value of financial assets and liabilities on a recurring basis , as well as assets held for sale , which are recorded at fair value on a nonrecurring basis , refer to note 4 in the consolidated financial statements . 26 story_separator_special_tag style= '' vertical-align : bottom ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; padding-right:2px ; '' > 66,655 63,255 1,920 2.9 3,400 5.4 manufacturing 106,523 95,693 89,430 10,830 11.3 6,263 7.0 other 1,562 3,014 5,539 ( 1,452 ) ( 48.2 ) ( 2,525 ) ( 45.6 ) revenues of reportable segments 2,336,365 2,305,386 2,105,537 30,979 1.3 199,849 9.5 elimination of intersegment revenues ( 103,834 ) ( 95,150 ) ( 89,430 ) ( 8,684 ) ( 9.1 ) ( 5,720 ) ( 6.4 ) cash to accrual adjustments 2,100 2,591 ( 3,529 ) ( 491 ) ( 19.0 ) 6,120 173.4 total revenues from external customers $ 2,234,631 $ 2,212,827 $ 2,012,578 $ 21,804 1.0 % $ 200,249 9.9 % 1 segment revenue consists of lease revenues and fees , retail sales and non-retail sales . 2 segment revenue consists of franchise royalties and fees . year ended december 31 , 2013 versus year ended december 31 , 2012 sales and lease ownership . sales and lease ownership segment revenues increased $ 8.1 million to $ 2.076 billion due to a 3.9 % increase in lease revenues and fees , partially offset by a 13.3 % decrease in non-retail sales . lease revenues and fees within the sales and lease ownership segment increased due to a net addition of 118 company-operated stores since the beginning of 2012 and a .6 % increase in same store revenues . non-retail sales decreased primarily due to less demand for product by franchisees . homesmart . homesmart segment revenues increased $ 7.6 million to $ 62.8 million due to a 13.3 % increase in lease revenues and fees . lease revenues and fees within the homesmart segment increased due to a net addition of 10 homesmart stores since the beginning of 2012 and a 9.3 % increase in same store revenues . rimco . rimco segment revenues increased $ 3.9 million to $ 20.6 million primarily due to a 26.3 % increase in lease revenues and fees , primarily attributable to the addition of 11 company-operated stores since the beginning of 2012 . in january of 2014 , the company sold the 27 company-operated rimco stores and the rights to five franchised rimco stores . franchise . franchise segment revenues increased $ 1.9 million to $ 68.6 million primarily due to an increase in royalty income from franchisees . franchise royalty income increased due to the net addition of 68 franchised stores since the beginning of 2012 and a 1.5 % increase in same store revenues of existing franchised stores . other . revenues in the โ other โ segment include revenues from leasing space to unrelated third parties in the corporate headquarters building , revenues of the aaron 's office furniture division through the date of sale in august 2012 and revenues from several minor unrelated activities . year ended december 31 , 2012 versus year ended december 31 , 2011 sales and lease ownership . sales and lease ownership segment revenues increased $ 147.8 million to $ 2.068 billion due to a 7.5 % increase in lease revenues and fees and a 9.4 % increase in non-retail sales . lease revenues and fees within the sales and lease ownership segment increased due to a net addition of 92 company-operated stores since the beginning of 2011 and a 5.1 % increase in same store revenues . non-retail sales increased primarily due to net additions of 84 franchised stores since the beginning of 2011 . homesmart . homesmart segment revenues increased $ 39.6 million to $ 55.2 million due to the net addition of 75 homesmart stores since the beginning of 2011 . homesmart segment revenues for 2012 also benefitted from the inclusion of 12 months of revenue attributable to the 68 homesmart stores that were added primarily during the second half of 2011 . 28 rimco .
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results of operations as of december 31 , 2013 , the company had five operating and reportable segments : sales and lease ownership , homesmart , rimco , franchise and manufacturing . in all periods presented , rimco has been reclassified from the sales and lease ownership segment to the rimco segment . in january of 2014 , the company sold the 27 company-operated rimco stores and the rights to five franchised rimco stores . the company 's sales and lease ownership , homesmart , rimco and franchise segments accounted for substantially all of the operations of the company and , therefore , unless otherwise noted only material changes within these four segments are discussed . the production of our manufacturing segment , consisting of the woodhaven furniture industries division , is primarily leased or sold through the company-operated and franchised stores , and consequently , substantially all of that segment 's revenues and earnings before income taxes are eliminated through the elimination of intersegment revenues and intersegment profit . results of operations โ years ended december 31 , 2013 , 2012 and 2011 replace_table_token_5_th nmfโcalculation is not meaningful 27 revenues information about our revenues by reportable segment is as follows : change year ended december 31 , 2013 vs. 2012 2012 vs. 2011 ( in thousands ) 2013 2012 2011 $ % $ % revenues : sales and lease ownership 1 $ 2,076,269 $ 2,068,124 $ 1,920,372 $ 8,145 .4 % $ 147,752 7.7 % homesmart 1 62,840 55,226 15,624 7,614 13.8 39,602 253.5 rimco 1 20,596 16,674 11,317 3,922 23.5 5,357 47.3 franchise 2 68,575 < td
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prior to the adoption of the new revenue recognition standard in 2018 , we recognized revenue for development fees upon execution of new development agreements and for story_separator_special_tag general this mangagement 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) , which contains forward-looking statements , should be read in conjunction with our audited consolidated financial statements and related notes in part iv , item 15 of this report , the โ risk factors โ included in part i , item 1a of this report and the cautionary statements included throughout this report . the inclusion of supplementary analytical and related information herein may require us to make estimates and assumptions to enable us to fairly present , in all material respects , our analysis of trends and expectations with respect to our results of operations and financial position . the following md & a includes a discussion comparing our results in fiscal 2019 to fiscal 2018. for a discussion comparing our results from fiscal 2018 to fiscal 2017 , refer to โ management 's discussion and analysis of financial condition and results of operations โ in part ii , item 7 of our annual report on form 10-k for the fiscal year ended january 1 , 2019 , filed with the sec on march 4 , 2019. the cheesecake factory incorporated is a leader in experiential dining . we are culinary forward and relentlessly focused on hospitality . we currently own and operate 294 restaurants throughout the united states and canada under brands including the cheesecake factoryยฎ , north italiaยฎ and a collection within our frc subsidiary . internationally , 26 the cheesecake factoryยฎ restaurants operate under licensing agreements . our bakery division operates two facilities that produce quality cheesecakes and other baked products for our restaurants , international licensees and third-party bakery customers . on october 2 , 2019 , we completed the acquistion of north italia and the remaining business of fox restaurant concepts llc ( โ frc โ ) , including flower child and all other frc brands ( the โ acquisition โ ) . the results of operations , financial position and cash flows of the acquired businesses are included in our consolidated financial statements as of the acquisition date . ( see note 2 of notes to consolidated financial statements in part i , item 1 of this report for further discussion of the acquisition . ) overview our strategy is driven by our commitment to customer satisfaction and is focused primarily on menu innovation , service and operational execution to continue to differentiate ourselves from other restaurant concepts , as well as to drive competitively strong performance that is sustainable . financially , we are focused on prudently managing expenses at our restaurants , bakery facilities , frc headquarters and corporate support center , and leveraging our size to make the best use of our purchasing power . investing in new company-owned restaurant development is our top capital allocation priority , with a focus on opening our concepts in premier locations within both new and existing markets . for the cheesecake factory concept , we target an average cash-on-cash return on investment of approximately 20 % to 25 % at the unit level . we target an average cash-on-cash return on investment of about 35 % for the north italia concept and 25 % to 30 % for the frc concepts . returns are affected by the cost to build restaurants , the level of revenues that each restaurant can deliver and our ability to maximize the profitability of restaurants . investing in new restaurant development that meets our return on investment criteria is expected to support achieving mid-teens company-level return on invested capital . our overall revenue growth is primarily driven by revenues from new restaurant openings and increases in comparable restaurant sales . changes in comparable restaurant sales come from variations in customer traffic , as well as in average check . for the cheesecake factory concept , our strategy is to increase comparable restaurant sales by growing average check and stabilizing customer traffic through ( 1 ) continuing to offer innovative , high quality menu items that offer customers a wide range of options in terms of flavor , price and value ( 2 ) focusing on service and hospitality with the goal of delivering an exceptional customer experience and ( 3 ) continuing to provide our customers with convenient options for off-premise dining . we are continuing our efforts on a number of initiatives , including a greater focus on increasing customer throughput in our restaurants , leveraging the success of our gift card program , working with a third party to provide delivery services for our restaurants , increasing customer awareness of our online ordering capabilities , augmenting our marketing programs , enhancing our training programs and leveraging our customer satisfaction measurement platform . 34 average check is driven by menu price increases and or changes in menu mix . we generally update the cheesecake factory restaurant menus twice a year , and our philosophy is to use price increases to help offset key operating cost increases in a manner that balances protecting both our margins and customer traffic levels . we plan to continue targeting menu price increases of approximately 2 % to 3 % annually , utilizing a market-based strategy to help mitigate cost pressure in higher-wage geographies , and expect near-term increases to be at the higher end of this range . margins are subject to fluctuations in commodity costs , labor , restaurant-level occupancy expenses , general and administrative ( `` g & a '' ) expenses and preopening expenses . our objective is to stabilize our margins , and longer-term to drive margin expansion , by maintaining flat restaurant-level margins at the cheesecake factory concept , leveraging our bakery operations , international and consumer packaged goods royalty revenue streams and g & a expense over time , and optimizing our restaurant portfolio . story_separator_special_tag ( 2 ) represents our share of pre-acquisition losses incurred by north italia and flower child . 38 ( 3 ) represents gain related to the acquisition of the remaining equity interests in north italia and flower child . ( see note 2 and note 18 of notes to consolidated financial statements in part iv , item 15 of this report for further discussion of the acquisition and income taxes , respectively . ) ( 4 ) represents our costs incurred to effect and integrate the acquisition . ( see note 2 of notes to consolidated financial statements in part iv , item 15 of this report for further discussion of the acquisition . ) ( 5 ) represents changes in the fair value of the acquisition-related deferred consideration and contingent consideration and compensation liabilities , as well as amortization of acquired definite-lived licensing agreements . ( see note 2 of notes to consolidated financial statements in part iv , item 15 of this report for further discussion of the acquisition . ) ( 6 ) based on the federal statutory rate and an estimated blended state tax rate , the tax effect on all adjustments other than the gain on investment in unconsolidated affiliates assumes a 26 % tax rate for fiscal 2019 and 2018 and a 40 % tax rate for fiscal 2017 . ( 7 ) represents a benefit to our income tax provision related to the tax act in fiscal 2017 . ( see note 18 of notes to consolidated financial statements in part iv , item 15 of this report for further discussion of income taxes . ) ( 8 ) adjusted diluted net income per share may not add due to rounding . fiscal 2020 outlook this discussion contains forward-looking statements within the meaning of the private securities litigation reform act of 1995 , as codifed in section 27a of the securities act , and section 21e of the echange act and should be read in conjunction with our consolidated financial statements and related notes in part iv , item 15 of this report , the โ risk factors โ included in part i , item 1a of this report and the cautionary statements included throughout this report . for fiscal 2020 , we estimate adjusted diluted net income per share will be between $ 2.70 and $ 2.86 based on an assumed comparable sales range of 1 % to 2 % at the cheesecake factory restaurants and approximately $ 425 million in revenue contributed by north italia and frc . this adjusted diluted net income per share range excludes acquisition-related costs and contingent consideration , compensation and amortization , which we expect will be approximately $ 8 million and $ 4 million , respectively . for fiscal 2020 , we estimate food inflation of about 2 % , wage rate inflation of approximately 5.5 % and an effective tax rate of approximately 9 % . in fiscal 2020 , we plan new unit growth to accelerate with as many as 20 new restaurants . this includes six the cheesecake factory restaurants , six north italia restaurants and eight restaurants within the frc subsidiary , which includes as many as four flower child locations . we also expect as many as four locations to open internationally under licensing agreements . we expect fiscal 2020 net capital expenditures to range between $ 130 million and $ 140 million to support anticipated new unit growth and ongoing maintenance needs . we will also have a $ 17.3 million cash outflow for acquisition-related deferred consideration . liquidity and capital resources our corporate financial objectives are to maintain a sufficiently strong and conservative balance sheet to support our operating initiatives and unit growth while maintaining financial flexibility to provide the financial resources necessary to protect and enhance the competitiveness of our restaurant and bakery brands and to provide a prudent level of financial capacity to manage the risks and uncertainties of conducting our business operations under various economic and industry cycles . our ongoing capital requirements are principally related to our restaurant expansion plans , ongoing maintenance of our restaurants and bakery facilities , and investment in our corporate and information technology infrastructures . โ 39 similar to many restaurant and retail chain store operations , we utilize operating lease arrangements for all of our restaurant locations . we believe our operating lease arrangements continue to provide appropriate leverage for our capital structure in a financially efficient manner . however , we are not limited to the use of lease arrangements as our only method of opening new restaurants . accordingly , our lease arrangements reduce , to some extent , our capacity to utilize funded indebtedness in our capital structure . historically , we have obtained capital from our ongoing operations , public stock offerings , credit facilities , stock option exercises and construction contributions from our landlords . our requirement for working capital is not significant , since our restaurant customers pay for their food and beverage purchases in cash or cash equivalents at the time of sale , and we are able to sell many of our restaurant inventory items before payment is due to the suppliers of such items . the following table presents , for the periods indicated , a summary of our key cash flows from operating , investing and financing activities ( in millions ) : โ replace_table_token_8_th โ during fiscal 2019 , our cash and cash equivalents increased by $ 31.8 million to $ 58.4 million . this increase was primarily attributable to cash provided by operating activities and borrowings on our credit facility , partially offset by cash paid for the acquisition , additions to property and equipment , dividend payments and treasury stock purchases . capital expenditures for new restaurants , including locations under development as of each fiscal year-end , were $ 40.5 million , $ 58.6 million and $ 76.5 million for fiscal 2019 , 2018 and 2017 , respectively .
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results of operations the following table presents , for the periods indicated , information from our consolidated statements of income expressed as percentages of revenues . โ replace_table_token_6_th โ 35 fiscal 2019 compared to fiscal 2018 revenues revenues increased 6.5 % to $ 2 , 482.7 million for fiscal 2019 compared to $ 2,332.3 million for fiscal 2018 , primarily due to additional revenue related to the acquired restaurants , new restaurant openings and positive comparable restaurant sales . revenue contribution from the acquired concepts in the fourth quarter of fiscal 2019 , including comparable restaurant sales growth of approximately 4 % for north italia , totaled $ 92.0 million . comparable sales at the cheesecake factory restaurants increased by 0.8 % , or $ 17.5 million , from fiscal 2018. this compares to the casual dining industry which had approximately flat comparable sales , as measured by knapp track . the cheesecake factory comparable sales growth was driven by average check growth of 4.0 % ( based on an increase of 3.1 % in menu pricing and a 0.9 % positive change in mix ) , partially offset by a decline in customer traffic of 3.2 % . we implemented effective menu price increases of approximately 1.6 % in both the first and third quarters of fiscal 2019. the cheesecake factory average sales per restaurant operating week increased 0.8 % to $ 207,310 in fiscal 2019 from $ 205,660 in fiscal 2018. total operating weeks at the cheesecake factory restaurants increased 1.7 % to 10,520 in fiscal 2019 compared to 10,344 in the prior year . north italia average sales per restaurant operating week for the fourth quarter was $ 125,960 based on 280 operating weeks . restaurants become eligible to enter our comparable sales base in their 19th month of operation . at december 31 , 2019 , there were nine the cheesecake factory restaurants not yet in our comparable sales base .
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( incorporated by reference to the company 's quarterly report on form 10-q for the quarter ended june 30 , story_separator_special_tag story_separator_special_tag percentage rent of $ 1.5 million for 2017 . lease no . 2 expires in 2026 and includes 47 communities , including independent living communities , assisted living communities and snfs . at december 31 , 2017 , the annualized rental income for lease no . 2 included percentage 62 rent of $ 2.2 million for 2017 . lease no . 3 expires in 2028 and includes 17 communities , including independent living and assisted living communities . at december 31 , 2017 , the annualized rental income for lease no . 3 included percentage rent of $ 0.8 million for 2017 . lease no . 4 expires in 2032 and includes 29 communities , including independent living communities , assisted living communities and snfs . at december 31 , 2017 , the annualized rental income for lease no . 4 included percentage rent of $ 1.0 million for 2017 . lease no . 5 expires in 2028 and includes nine senior living communities . percentage rent under this lease commenced january 1 , 2018. for more information about our dealings and relationships with five star , and about the risks which may arise as a result of these related person transactions , please see โ risk factorsโrisks related to our relationships with rmr inc. , rmr llc and five star โ in part i , item 1a of this annual report on form 10-k , โ management 's discussion and analysis of financial condition and results of operationsโrelated person transactions โ in part ii , item 7 of this annual report on form 10-k and note 5 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. pacifica senior living , llc : we lease eight assisted living communities to affiliates of pacifica senior living , llc , or pacifica , a privately owned company , until 2023. the rent payable to us under these leases is scheduled to increase at agreed upon times during the lease term . a large majority of the tenants ' revenues at these senior living communities is derived from private resources . another affiliate of pacifica has provided limited guarantees of these leases and these lease obligations are secured by deposits totaling approximately $ 3.8 million . on january 31 , 2018 , the tenant of one of these senior living communities notified us that it will not pay the rent due for the applicable community . the annual rent we received for the applicable community in 2017 was approximately $ 2.0 million , including $ 0.1 million of straight line rent adjustments . we hold a security deposit of $ 0.6 million for the rent due for the applicable community and a limited guarantee for one year 's rent at the applicable community . we are currently investigating the circumstances of this default and we expect to have negotiations with pacifica about the modification or termination of this defaulted lease and our collection of guaranteed amounts due to us under this defaulted lease . generations llc : we lease one independent living community to a subsidiary of generations llc , a privately owned company , until 2030. the rent payable to us under this lease is scheduled to increase at agreed upon times during the lease term . a large majority of this tenant 's revenues at this senior living community is derived from private resources . generations llc provides a limited guarantee of this lease . radiant senior living , inc. : we lease four assisted living communities to subsidiaries of radiant senior living , inc. , a privately owned company , until 2023 and 2024. the rent payable to us under these leases is scheduled to increase at agreed upon times during the lease terms . a large majority of our tenants ' revenues at these senior living communities is derived from private resources . these lease obligations are secured by security deposits totaling approximately $ 0.2 million . stellar senior living , llc : we lease five senior living communities that include independent and assisted living units to subsidiaries of stellar senior living , llc until 2027 and 2028. at december 31 , 2017 , the annualized rental income for this lease included percentage rent of $ 0.2 million for 2017 based on increases in gross revenues at these communities . a large majority of our tenants ' revenues at these senior living communities is derived from private resources . the owner of stellar senior living , llc personally guarantees this lease . brookdale senior living , inc. : we lease 18 assisted living communities to a subsidiary of brookdale senior living , inc. until 2032. at december 31 , 2017 , the annualized rental income for this lease included percentage rent of $ 1.9 million based on increases in gross revenues at these communities . a large majority of our tenant 's revenues at these senior living communities is derived from private resources . brookdale senior living , inc. guarantees the rent due to us under this lease . senior living communities , llc : we lease one independent living community to a subsidiary of senior living communities , llc , a privately owned company , until 2033. at december 31 , 2017 , the annualized rental income for this lease included percentage rent of $ 0.3 million for 2017 based on increases in gross revenues at this community . a large majority of our tenant 's revenues at this senior living community is derived from private resources . an affiliate of the tenant guarantees this lease . morningstar senior living , llc : we lease one independent living community to a subsidiary of morningstar senior living , llc , a privately owned company , until 2028. the rent payable to us under this lease is scheduled to increase at agreed upon times during the lease term . story_separator_special_tag for more information about our management and pooling agreements with five star , including the effects of certain of our property acquisitions and dispositions on these arrangements , please see note 5 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k , and for more information about our dealings and relationships with five star generally , and the risks which may arise as a result of these related person transactions , please see โ risk factorsโrisks related to our relationships with rmr inc. , rmr llc and five star โ in part i , item 1a of this annual report on form 10-k , โ management 's discussion and analysis of financial condition and results of operationsโrelated person transactions โ in part ii , item 7 of this annual report on form 10-k and note 7 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. mobs . at december 31 , 2017 , we owned 125 mobs ( 151 buildings ) located in 28 states and washington , d.c. these properties range in size from 1,700 to 1.1 million square feet and have a total of 12.1 million square feet . leases at these properties have current terms expiring between 2018 and 2035 , plus renewal options in some cases . the annualized rental income payable to us by tenants of these mobs is $ 381.4 million per year , including scheduled increases and reimbursements of certain operating and tax expenses and excluding lease value amortization . during the year ended december 31 , 2017 , we entered mob lease renewals for 1,134,194 square feet and new mob leases for 174,567 square feet , at weighted average rental rates that were 2.3 % above rents previously charged for the same space . weighted average lease terms for leases entered during 2017 were 5.9 years . commitments for tenant improvements , leasing commission costs and concessions for leases we entered during 2017 totaled $ 26.6 million , or $ 20.31 per square foot on average ( approximately $ 3.41 per square foot per year of the lease term ) . 65 the following chart presents a summary of our mobs by state as of december 31 , 2017 : replace_table_token_9_th ( 1 ) represents the gross book value of real estate assets before depreciation and purchase price allocations , less impairment write downs , if any . ( 2 ) annualized rental income is based on our mob rents pursuant to existing leases as of december 31 , 2017 . annualized rental income includes straight line rent adjustments and estimated recurring expense reimbursements for certain net and modified gross leases and excludes lease value amortization . 66 the following chart presents information concerning our mob tenants that represent 1 % or more of total mob annualized rental income as of december 31 , 2017 ( dollars in thousands ) : replace_table_token_10_th ( 1 ) annualized rental income is based on our mob rents pursuant to existing leases as of december 31 , 2017 . annualized rental income includes straight line rent adjustments and estimated recurring expense reimbursements for certain net and modified gross leases and excludes lease value amortization . ( 2 ) the property leased by this tenant is owned by a joint venture in which we own a 55 % equity interest . rental income presented includes 100 % of rental income as reported under gaap . wellness centers ( included in โ all other operations โ ) . the following chart presents a summary of our wellness center leases as of december 31 , 2017 ( dollars in thousands ) . this summary should be read in conjunction with the more detailed description of our leases set forth below . replace_table_token_11_th ( 1 ) annualized rental income is based on rents pursuant to existing leases as of december 31 , 2017 , including straight line rent adjustments and excluding lease value amortization . 67 starmark holdings , llc . we lease six wellness centers to subsidiaries of starmark holdings , llc , a private company . these properties operate under the brand wellbridge and the leases are guaranteed by starmark . these leases have current terms expiring in 2023 and require aggregate annualized rental income of $ 7.5 million , plus consumer price index based increases . the lease obligations for four of these wellness centers are secured by security deposits totaling approximately $ 1.2 million . life time fitness , inc. we lease four wellness centers to a subsidiary of life time fitness , inc. life time fitness , inc. is a private company and guarantees the lease . the lease has a current term expiring in 2028 and requires aggregate annualized rental income of approximately $ 10.6 million . portfolio lease expiration schedules . the following tables set forth information regarding our lease expirations as of december 31 , 2017 ( dollars in thousands ) : replace_table_token_12_th average remaining lease term for our triple net leased senior living communities , mobs and wellness center properties ( weighted by annualized rental income ) : 8.0 years . ( 1 ) annualized rental income is based on rents pursuant to existing leases as of december 31 , 2017 , including estimated percentage rents , straight line rent adjustments , estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our mobs and wellness centers . rental income amounts also include 100 % of rental income as reported under gaap from a property owned by a joint venture in which we own a 55 % equity interest . ( 2 ) excludes rent received from our managed senior living communities leased to our trss .
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financial condition and results of operations . the following discussion should be read in conjunction with our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. we are a reit organized under maryland law . at december 31 , 2017 , we owned 440 properties ( 466 buildings ) located in 42 states and washington , d.c. at december 31 , 2017 , the undepreciated carrying value of our properties , which represents the gross book value of our real estate assets before depreciation and purchase price allocations , less impairment write downs , was $ 8.5 billion , excluding four senior living communities classified as held for sale . for the year ended december 31 , 2017 , 97 % of our noi came from properties where a majority of the revenues are derived from our tenants ' and residents ' private resources . portfolio overview the following tables present an overview of our portfolio ( dollars in thousands , except investment per unit or square foot data ) : replace_table_token_6_th 60 tenant/managed property operating statistics ( 8 ) replace_table_token_7_th ( 1 ) represents the gross book value of real estate assets before depreciation and purchase price allocations , less impairment write downs , if any . amounts exclude investment carrying value of four senior living communities classified as held for sale as of december 31 , 2017 , which are included in other assets in our consolidated balance sheets . ( 2 ) represents carrying value of investment divided by number of living units or rentable square feet , as applicable , at december 31 , 2017 . ( 3 ) noi is defined and calculated by reportable segment . our definition of noi and our reconciliation of net income to consolidated noi are included below under the heading โ non-gaap financial measures โ . ( 4 ) senior living communities are categorized by the type of living units which constitute a majority of the living units at the community .
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on november 1 , 2013 , penn contributed to glpi , through a series of internal corporate restructurings , substantially all of the assets and liabilities associated with penn 's real property interests and real estate development business , as well as the assets and liabilities of hollywood casino baton rouge and hollywood casino perryville , which are referred to as the `` trs properties , '' and then spun-off glpi to holders of penn 's common and preferred stock in a tax-free distribution . the company elected on its u.s. federal income tax return for its taxable year that began on january 1 , 2014 to be treated as a reit and the company , together with an indirect wholly-owned subsidiary of the company , glp holdings , inc. , jointly elected to treat each of glp holdings , inc. , louisiana casino cruises , inc. and penn cecil maryland , inc. as a `` taxable reit subsidiary '' effective on the first day of the first taxable year of glpi as a reit . as a result of the spin-off , glpi owns substantially all of penn 's former real property assets and leases back most of those assets to penn for use by its subsidiaries , under the penn master lease , and glpi also owns and operates the trs properties through its indirect wholly-owned subsidiary , glp holdings , inc. the assets and liabilities of glpi were recorded at their respective historical carrying values at the time of the spin-off . in april 2016 , the company acquired substantially all of the real estate assets of pinnacle for approximately $ 4.8 billion . glpi leases these assets back to pinnacle , under a triple-net lease with an initial term of 10 years with no purchase option , followed by five 5-year renewal options ( exercisable by pinnacle ) on the same terms and conditions . see note 4 to the consolidated financial statements for further details surrounding the pinnacle acquisition . glpi 's primary business consists of acquiring , financing , and owning real estate property to be leased to gaming operators in triple-net lease arrangements . as of december 31 , 2017 , glpi 's portfolio consisted of 38 gaming and related facilities , including the trs properties , the real property associated with 20 gaming and related facilities operated by penn , the real property associated with 15 gaming and related facilities operated by pinnacle and the real property associated with the casino queen in east st. louis , illinois . these facilities are geographically diversified across 14 states and contain approximately 15.2 million of rentable square feet . as of december 31 , 2017 , our properties were 100 % occupied . we expect to grow our portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms . for example , on december 17 , 2017 , the company entered into agreements to purchase two additional properties , plainridge park casino and belterra park gaming & entertainment from penn and pinnacle , respectively . we will acquire these properties in connection with the proposed acquisition of pinnacle by penn pursuant to a definitive agreement and plan of merger between them , also dated december 17 , 2017. subject to and concurrently with the completion of the merger , we have agreed to , among other things , amend our master lease with pinnacle to allow for the sale by pinnacle of the operating assets at ameristar casino hotel kansas city , ameristar casino resort spa st. charles and belterra casino resort to boyd and to enter into a new master lease agreement with boyd on terms similar to the company 's existing leases . the transaction is expected to add additional annual rental revenue of approximately $ 46 million upon closing . the transaction which is subject to regulatory approval is expected to close in the second half of 2018. additionally , we believe we have the ability to leverage the expertise our management team has developed over the years to secure additional avenues for growth beyond the gaming industry . as of december 31 , 2017 , the majority of our earnings are the result of the rental revenues we receive from our triple-net master leases with penn and pinnacle . additionally , we have rental revenue from the casino queen property which is 39 leased back to a third party operator on a triple-net basis and the meadows property which is leased to pinnacle under a triple-net lease separate from the pinnacle master lease . in addition to rent , the tenants are required to pay the following executory costs : ( 1 ) all facility maintenance , ( 2 ) all insurance required in connection with the leased properties and the business conducted on the leased properties , including coverage of the landlord 's interests , ( 3 ) taxes levied on or with respect to the leased properties ( other than taxes on the income of the lessor ) and ( 4 ) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties . additionally , in accordance with asc 605 , we record revenue for the real estate taxes paid by our tenants on the leased properties with an offsetting expense in general and administrative expense within the consolidated statement of income , as we believe we are the primary obligor . similarly , we record revenue for the ground lease rent paid by our tenants with an offsetting expense in general and administrative expense within the consolidated statement of income as we have concluded that as the lessee we are the primary obligor under the ground leases . we sublease these ground leases back to our tenants , who are responsible for payment directly to the landlord . story_separator_special_tag to determine if the building portion of a lease triggers capital lease treatment we conduct the four lease tests in asc 840 outlined below . if a lease meets any of the four criteria below , it is accounted for as a capital lease . 1 ) transfer of ownership - the lease transfers ownership of the property to the lessee by the end of the lease term . this criterion is met in situations in which the lease agreement provides for the transfer of title at or shortly after the end of the lease term in exchange for the payment of a nominal fee , for example , the minimum required by statutory regulation to transfer title . 2 ) bargain purchase option - the lease contains a bargain purchase option , which is a provision allowing the lessee , at its option , to purchase the leased property for a price which is sufficiently lower than the expected fair value of the property at the date the option becomes exercisable . in addition , the exercise of the option must be reasonably assured at lease inception . 3 ) lease term - the lease term is equal to 75 percent or more of the estimated economic life of the leased property . however , if the beginning of the lease term falls within the last 25 percent of the total estimated economic life of the leased property , including earlier years of use , this criterion shall not be used for purposes of classifying the lease . this test is conducted on a property by property basis . 4 ) minimum lease payments - the present value of the minimum lease payments at the beginning of the lease term , excluding that portion of the payments representing executory costs such as insurance , maintenance , and taxes to be paid by the lessor , including any profit thereon , equals or exceeds 90 % of the fair value of the leased property to the lessor at lease inception less any related investment tax credit retained by the lessor and expected to be realized by the lessor . if the beginning of the lease term falls within the last 25 % of the total estimated economic life of the leased property , including earlier years of use , this criterion shall not be used for purposes of classifying the lease . the tests outlined above , as well as the resulting calculations , require subjective judgments , such as determining , at lease inception , the fair value of the assets , the residual value of the assets at the end of the lease term , the likelihood a tenant will exercise all renewal options ( in order to determine the lease term ) , the estimated remaining economic life of the leased assets , the incremental borrowing rate of the lessee and the interest rate implicit in the lease . a slight change in estimate or judgment can result in a materially different financial statement presentation . our net investment in the direct financing lease is evaluated for impairment as necessary , if indicators of impairment are present , to determine if there has been an-other-than-temporary decline in the residual value of the property or a change in the lessee 's credit worthiness . income taxes we elected on our u.s. federal income tax return for our taxable year that began on january 1 , 2014 to be treated as a reit and we , together with an indirect wholly-owned subsidiary of the company , glp holdings , inc. , jointly elected to treat each of glp holdings , inc. , louisiana casino cruises , inc. and penn cecil maryland , inc. as a `` taxable reit subsidiary '' effective on the first day of the first taxable year of glpi as a reit . we intend to continue to be organized and to operate in a manner that will permit us to qualify as a reit . to qualify as a reit , we must meet certain organizational and operational requirements , including a requirement to distribute at least 90 % of our annual reit taxable income to shareholders determined without regard to the dividends paid deduction and excluding any net capital gain , meet the various other requirements imposed by the code relating to matters such as operating results , asset holdings , distribution levels , and diversity of stock ownership . as a reit , we generally will not be subject to federal income tax on income that we distribute as dividends to our shareholders . if we fail to qualify as a reit in any taxable year , we will be subject to u.s. federal income tax , including any applicable alternative minimum tax , on our taxable income at regular corporate income tax rates , and dividends paid to our shareholders would not be deductible by us in computing taxable income . any resulting corporate liability could be substantial and could 43 materially and adversely affect our net income and net cash available for distribution to shareholders . unless we were entitled to relief under certain code provisions , we also would be disqualified from re-electing to be taxed as a reit for the four taxable years following the year in which we failed to qualify to be taxed as a reit . it is not possible to state whether in all circumstances we would be entitled to this statutory relief . our trs properties are able to engage in activities resulting in income that would be not qualifying income for a reit . as a result , certain activities of the company which occur within our trs properties are subject to federal and state income taxes . real estate investments real estate investments primarily represent land and buildings leased to the company 's tenants . real estate investments that we received in connection with the spin-off were contributed to us at penn 's historical carrying amount .
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executive summary financial highlights we reported net revenues and income from operations of $ 971.3 million and $ 605.5 million , respectively , for the year ended december 31 , 2017 , compared to $ 828.3 million and $ 480.6 million , respectively , for the year ended december 31 , 2016 . the major factors affecting our results for the year ended december 31 , 2017 , as compared to the year ended december 31 , 2016 , were : during april 2016 , we acquired substantially all of pinnacle 's real estate assets . these assets are leased back to pinnacle under a master lease which is bifurcated between an operating lease and a direct financing lease , resulting in the recognition of rental income for the land assets leased to pinnacle and income from a direct financing lease for the building assets leased to pinnacle . additionally , during september 2016 , we acquired the real estate assets of the meadows and leased these assets to pinnacle under a single property triple-net lease and during may of 2017 , we acquired the real estate assets of bally 's casino tunica ( subsequently re-branded as the 1 st jackpot casino ) and resorts casino tunica ( the `` tunica properties '' ) and leased these assets to penn under the penn master lease . rental revenue and income from the direct financing lease were $ 829.2 million and $ 684.2 million for the years ended december 31 , 2017 and 2016 , respectively .
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compensation expense related to awards to employees and nonemployees with service-based vesting conditions is recognized on a straight-line basis based on the estimated grant date fair value story_separator_special_tag financial condition and results of operations you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the audited financial statements and the notes thereto included elsewhere in this annual report on form 10-k. in addition , you should read the โ risk factors โ and โ information regarding forward-looking statements โ sections of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a leading clinical-stage biotechnology company seeking to improve lives through the curative potential of gene therapy . our gene therapy product candidates are designed to deliver genes to cells to address genetic defects or to enable cells in the body to produce therapeutic proteins that are intended to impact disease . through a single administration , our gene therapy product candidates are designed to provide long-lasting effects , potentially significantly altering the course of disease and delivering improved patient outcomes . overview of product candidates we have developed a broad pipeline of gene therapy programs using our proprietary adeno-associated virus ( aav ) gene therapy delivery platform ( nav technology platform ) to address genetic diseases through two modalities : aav-mediated antibody delivery and monogenic gene replacement . the aav-mediated antibody delivery modality is designed to treat serious and chronic diseases by delivering the genes necessary for the sustained production of therapeutic antibodies in vivo . our monogenic gene replacement approach builds upon the well-understood mechanism of replacing a dysfunctional or missing gene with a functional copy of the gene in order to enable sustained production of necessary proteins . gene therapy using nav vectors for aav-mediated antibody delivery rgx-314 : we are developing rgx-314 as a novel , single-administration gene therapy for the treatment of wet age-related macular degeneration ( wet amd ) , diabetic retinopathy ( dr ) , and other additional chronic retinal conditions which cause total or partial vision loss . we are advancing two separate routes of administration of rgx-314 to the eye , through a standardized subretinal delivery procedure as well as by delivery to the suprachoroidal space using the scs microinjector licensed from clearside biomedical , inc. we have enrolled 42 patients in the phase i/iia clinical trial of rgx-314 for the treatment of wet amd and have reported positive interim data for all five dose level cohorts . we expect to initiate a pivotal program for the subretinal delivery of rgx-314 for the treatment of wet amd in the second half of 2020. we plan to initiate a phase ii trial for the suprachoroidal delivery of rgx-314 using the scs microinjector for the treatment of wet amd in the first half of 2020 and expect to report interim data from cohort 1 of the trial by the end of 2020. additionally , we expect to submit an ind for a phase ii trial of the suprachoroidal delivery of rgx-314 using the scs microinjector for the treatment of dr by the end of 2020 , and expect to report interim data in 2021. aav-mediated antibody expression for the treatment of neurodegenerative diseases : we have established a research program in partnership with neurimmune ag ( neurimmune ) to jointly develop and commercialize novel gene therapies using nav vectors to deliver human antibodies for chronic neurodegenerative diseases , with an initial focus on diseases associated with the accumulation and deposition of the microtubule-associated protein tau ( tauopathies ) and alpha-synuclein ( alpha-synucleinopathies ) . we expect to provide a program update in the second half of 2020. aav-mediated antibody expression for the treatment of hereditary angioedema ( hae ) : we are developing a novel , one-time treatment utilizing a nav vector to deliver a gene encoding for a therapeutic antibody that targets and binds to plasma kallikrein , a key protein left unregulated in patients with hae . hae is a chronic and severe disease characterized by recurring severe swelling ( angioedema ) , most commonly in the face , airway , intestines and limbs . we expect to select a lead product candidate in the first half of 2020 and provide a program update in the second half of 2020. gene therapy programs for the potential treatment of rare monogenic diseases rgx-501 : we are developing rgx-501 for the treatment of homozygous familial hypercholesterolemia ( hofh ) , a severe genetic disease characterized by premature and aggressive plaque buildup , life threatening coronary artery disease and aortic valve disease predominantly due to abnormalities in the function or expression of the receptor for low-density lipoprotein ( ldl-c ) . we have completed dosing of patients in the expanded second cohort of the phase i/ii clinical trial 76 for rgx-501 with corticosteroid prophylaxis , and we plan to assess ldl-c after all patients have completed steroid prophylaxis treatment . we expect to provide interim data in the first half of 2020. rgx-121 : we are developing rgx-121 for the treatment of the neurological symptoms of mucopolysaccharidosis type ii ( mps ii ) , a severe genetic lysosomal storage disease caused by deficiency of iduronate-2-sulfatase ( ids ) , an enzyme that is responsible for breakdown of cellular waste products . initial data from the first cohort demonstrated consistent and sustained reduction in heparan sulfate ( hs ) in the cerebral spinal fluid ( csf ) and available data support early signs of neurocognitive stability . story_separator_special_tag cost of revenues our cost of revenues consists primarily of upstream fees due to our licensors as a result of revenue generated from the licensing of our nav technology platform , including sublicense fees , milestone payments and royalties on net sales of licensed products . sublicense fees are based on a percentage of license fees received by us from nav technology licensees and are recognized in the period that the underlying license revenue is recognized . milestone payments are payable to licensors upon the achievement of specified milestones by nav technology licensees and are recognized in the period the milestone is achieved or deemed probable of achievement . royalties are based on a percentage of net sales of licensed products by nav technology licensees and are recognized in the period that the underlying sales occur . future costs of revenues are uncertain due to the nature of our license agreements and significant fluctuations in cost of revenues may occur from period to period . research and development expense our research and development expense primarily consists of : salaries and personnel-related costs , including benefits , stock-based compensation and travel , for our scientific personnel performing research and development activities ; costs related to executing preclinical studies and clinical trials ; costs related to acquiring , developing and manufacturing materials for preclinical studies and clinical trials ; fees paid to consultants and other third-parties who support our product candidate development ; other costs in seeking regulatory approval of our product candidates ; and allocated facility-related costs , depreciation expense and other overhead . up-front fees incurred in obtaining technology licenses for research and development activities , as well as associated milestone payments , are expensed as incurred if the technology licensed has no alternative future use . we plan to increase our research and development expenses for the foreseeable future as we continue development of our product candidates . our current and planned research and development activities include the following : a phase i/iia clinical trial and a planned pivotal program to evaluate the safety and efficacy of the subretinal delivery of rgx-314 for the treatment of wet amd ; planned phase ii clinical trials to evaluate the safety and efficacy of the suprachoroidal delivery of rgx-314 using the scs microinjector for the treatment of wet amd and dr ; a phase i/ii clinical trial to evaluate the safety and efficacy of rgx-501 for the treatment of hofh ; 78 a phase i/ii clinical trial to evaluate the safety and efficacy of rgx-121 for the treatment of mps ii ; a phase i clinical trial to evaluate the safety and efficacy of rgx-111 for the treatment of mps i ; preclinical research and development and a planned clinical trial for rgx-181 for the treatment of cln2 ; preclinical research and development for potential product candidates to treat neurodegenerative diseases , including tauopathies and alpha-synucleinopathies , under our collaboration with neurimmune ; preclinical research and development for potential product candidates to treat hae ; preclinical research and development for potential product candidates to treat neuromuscular disorders ; preclinical research and development for potential product candidates addressing other diseases across a range of therapeutics areas ; continued investment in advanced manufacturing analytics and process development activities ; and continued acquisition and manufacture of clinical trial materials in support of our anticipated clinical trials . the following table summarizes our research and development expenses incurred during the years ended december 31 , 2019 , 2018 and 2017 ( in thousands ) : replace_table_token_3_th expenses incurred in the development of rgx-181 were included in unallocated external expenses through the second quarter of 2018. unallocated external expenses include direct costs not identifiable with a specific lead product candidate , including costs associated with our research and development platform , process development , manufacturing analytics and preclinical research and development for prospective product candidates and new technologies . we typically utilize our employee and infrastructure resources across our development programs . we do not allocate personnel and other internal costs , such as facilities and other overhead costs , to specific product candidates or development programs . general and administrative expense our general and administrative expense consists primarily of salaries and personnel-related costs , including employee travel , benefits and stock-based compensation , for employees performing functions other than research and development . this includes certain personnel in executive , commercial , corporate development , finance , legal , human resources , information technology and administrative support functions . other general and administrative expenses include facility-related and overhead costs not otherwise allocated to research and development expense , professional fees for accounting , legal and advisory services , expenses associated with obtaining and maintaining patents , insurance costs , costs of our information systems and other commercial and general corporate activities . we expect that our general and administrative expense will continue to increase as we continue to develop , and potentially commercialize , our product candidates . other income interest income from licensing 79 in accordance with our revenue recognition policy , interest income from licensing consists of imputed interest recognized from significant financing components identified in our license agreements with nav technology licensees . investment income investment income consists of interest income earned and gains and losses realized from our cash equivalents and marketable securities , as well as unrealized gains and losses on marketable equity securities . cash equivalents are comprised of money market mutual funds and highly liquid debt securities with original maturities of 90 days or less at acquisition . marketable securities are comprised of available-for-sale debt securities and equity securities . critical accounting policies and significant judgments and estimates this management 's discussion and analysis of financial condition and results of operations is based on our financial statements , which we have prepared in accordance with accounting principles generally accepted in the united states .
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results of operations comparison of the years ended december 31 , 2019 and 2018 replace_table_token_4_th license and royalty revenue . license and royalty revenue decreased by $ 183.3 million , from $ 218.5 million for the year ended december 31 , 2018 to $ 35.2 million for the year ended december 31 , 2019. the decrease was primarily attributable to the following : $ 176.1 million of non-recurring license revenue recognized in 2018 under our amended march 2014 license agreement with avexis for the development and commercialization of treatments for sma ; and $ 35.6 million of non-recurring license revenue recognized in 2018 under our november 2018 license agreement with abeona therapeutics inc. ( abeona ) for the development and commercialization of treatments for various diseases . the decrease was partially offset by $ 20.8 million of royalty revenue recognized in 2019 related to net sales of zolgensma . commercial sales of zolgensma commenced in the second quarter of 2019. we are eligible to receive a milestone payment of $ 80.0 million from avexis upon the achievement of $ 1.0 billion in cumulative net sales of zolgensma . 84 research and development expense . research and development expenses increased by $ 40.3 million , from $ 83.9 million for the year ended december 31 , 2018 to $ 124.2 million for the year ended december 31 , 2019. the increase was primarily attributable to the following : an increase of $ 15.6 million for personnel costs as a result of increased headcount of research and development personnel , including a $ 5.4 million increase in stock-based compensation expense ; an increase of $ 8.2 million for external costs associated with clinical trial activities for our lead product candidates ; an increase of $ 6.0 million for laboratory costs and facilities used by research and development personnel , including a $ 3.1 million increase in depreciation expense allocated to research and development functions ; an increase
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other recent accounting pronouncements issued by the fasb , ( including its emerging issues task force ) , the american institute of certified public accountants , and the sec did not , or are not believed by the company to , have a material impact on the company 's consolidated story_separator_special_tag the following discussion and analysis of our financial condition , results of operations , and cash flows should be read in conjunction with the audited consolidated financial statements and the related notes thereto included elsewhere in this annual report on form 10-k. this section generally discusses the fiscal years ended march 31 , 2020 and 2019 items and comparisons between these fiscal years . discussions of the fiscal year ended march 31 , 2018 items and comparisons between the fiscal years ended march 31 , 2019 and 2018 that are not included in this annual report on form 10-k can be found in item 7 of part ii , โ management 's discussion and analysis of financial condition and results of operations , โ of our annual report on form 10-k for the fiscal year ended march 31 , 2019 filed with the united states securities and exchange commission on may 24 , 2019. business overview we are a healthcare company focused on redefining care for women and for men . our lead product candidate is relugolix , a once-daily , oral , gonadotropin-releasing hormone ( โ gnrh โ ) receptor antagonist for which we have successfully completed multiple phase 3 clinical studies across three distinct indications . we are preparing for potential commercial launches in the u.s. of relugolix combination tablet ( relugolix 40 mg , estradiol 1.0 mg and norethindrone acetate 0.5 mg ) for women with heavy menstrual bleeding associated with uterine fibroids or pain associated with endometriosis and relugolix monotherapy tablet ( 120 mg ) for men with advanced prostate cancer , in anticipation of u.s. food and drug administration ( โ fda โ ) approval to market in these indications . we submitted our new drug application ( โ nda โ ) to the fda for relugolix monotherapy tablet for the treatment of men with advanced prostate cancer in april 2020 , and currently expect to submit an nda to the fda for relugolix combination tablet for the treatment of women with heavy menstrual bleeding associated with uterine fibroids in may 2020. we announced positive results from the first of two replicate phase 3 clinical studies evaluating relugolix combination therapy in women with pain 57 associated with endometriosis , and expect to announce top-line results from the second study in the second quarter of calendar year 2020. in addition , we are developing mvt-602 , an oligopeptide kisspeptin-1 receptor agonist , for the treatment of female infertility as a part of assisted reproduction . takeda pharmaceuticals international ag ( โ takeda โ ) , a subsidiary of takeda pharmaceutical company limited , the originator of relugolix , granted us a worldwide license to develop and commercialize relugolix ( excluding japan and certain other asian countries ) and an exclusive right to develop and commercialize mvt-602 in all countries worldwide . on march 30 , 2020 , we entered into an exclusive license agreement with gedeon richter plc . ( โ richter โ ) for richter to commercialize relugolix combination tablet for uterine fibroids and endometriosis in certain territories outside of the u.s. under this agreement , we have retained all of our rights to relugolix combination tablet in the u.s. and canada , as well as rights to relugolix in other therapeutic areas outside of women 's health . in march 2020 , we submitted a marketing authorisation application ( โ maa โ ) to the european medicines agency ( โ ema โ ) for relugolix combination tablet in uterine fibroids . the maa submission has completed validation and is now under evaluation by the ema . additional information regarding our business and product candidates is included in part i. item 1. , โ business , โ of this annual report on form 10-k. since our inception , we have devoted substantially all of our efforts to identifying and in-licensing our product candidates , organizing and staffing our company , raising capital , preparing for and advancing the clinical development of our product candidates and preparing for potential future regulatory approvals and commercialization of relugolix combination tablet and relugolix monotherapy tablet . on december 27 , 2019 , sumitovant biopharma ltd. ( โ sumitovant โ ) , a subsidiary of sumitomo dainippon pharma co. , ltd. ( โ sumitomo dainippon pharma โ ) , became our majority shareholder and a related party after acquiring approximately 50.2 % of our common shares outstanding on december 27 , 2019 . these common shares were acquired from our former majority shareholder , roivant sciences ltd. ( โ roivant , โ โ rsl , โ or โ former majority shareholder โ ) at the closing of a transaction between roivant and sumitomo dainippon pharma . as of march 31 , 2020 , sumitovant directly , and sumitomo dainippon pharma indirectly , own approximately 52.1 % of our outstanding common shares . as a result of the transfer of these common shares , roivant no longer beneficially owns any of our common shares . fiscal year ended march 31 , 2020 and recent clinical and business highlights the following summarizes our fiscal year ended march 31 , 2020 and recent clinical and business highlights . additional information regarding our relugolix and mvt-602 clinical programs is included in part i. item 1. , โ business , โ of this annual report on form 10-k. relugolix clinical programs phase 3 program for the treatment of advanced prostate cancer ( hero ) โฆ on april 21 , 2020 , we announced the submission of an nda to the fda for once-daily , oral relugolix monotherapy tablet ( 120 mg ) for the treatment of men with advanced prostate cancer . the nda submission was supported by efficacy and safety data from the phase 3 hero study , a randomized pivotal study comparing relugolix monotherapy versus leuprolide acetate . story_separator_special_tag โฆ we completed enrollment of 638 patients in the spirit 1 study and currently expect to report top-line results from the spirit 1 study in the second quarter of calendar year 2020. ovulation inhibition study โฆ on april 22 , 2020 , we announced results from an open-label , single-arm ovulation inhibition study consisting of a pre-treatment period to confirm ovulatory status , an 84-day treatment period ( three cycles ) to assess the effects of relugolix combination therapy on ovulation inhibition , and a post-treatment follow-up period to determine the time to the return of ovulation . ovulation inhibition was based on the hoogland-skouby scale . in this study , relugolix combination therapy achieved 100 % ovulation inhibition in 67 healthy women with no women ovulating during the 84-day treatment period , as evaluated by the hoogland-skouby assessment scale ( score < 5 ) . furthermore , 100 % of women resumed ovulation or menses upon discontinuation of treatment with an average time to ovulation of 23.5 days . 59 bioequivalence study of relugolix combination therapy and relugolix combination tablet โฆ on july 23 , 2019 , we announced that a separate clinical study of our relugolix combination tablet met all required and pre-specified criteria for bioequivalence to the two tablets ( relugolix 40 mg plus estradiol 1.0 mg and norethindrone acetate 0.5 mg ) used in our phase 3 uterine fibroid and endometriosis clinical studies , providing data necessary to include the once-daily dosing regimen of relugolix combination tablet in our nda and maa submissions for the treatment of heavy menstrual bleeding associated with uterine fibroids and endometriosis . corporate on june 4 , 2019 , we completed an underwritten public equity offering of 17,424,243 of our common shares at a public offering price of $ 8.25 per common share . after deducting the underwriting discounts and commissions and offering costs paid by us , the net proceeds to us in connection with the underwritten public equity offering were approximately $ 134.5 million . on december 27 , 2019 , sumitovant became our majority shareholder and a related party after acquiring 45,008,604 of our outstanding common shares , representing approximately 50.2 % of our common shares outstanding on december 27 , 2019 . the se common shares were acquired from our former majority shareholder , roivant , at the closing of a transaction between roivant and sumitomo dainippon pharma . as of may 14 , 2020 , sumitovant directly , and sumitomo dainippon pharma indirectly , own 48,468,472 of our outstanding common shares , representing approximately 53.9 % of our common shares outstanding on may 14 , 2020 . o n december 27 , 2019 , w e entered into an investor rights agreement with sumitomo dainippon pharma and sumitovant that provides certain protections for our minority shareholders for so long as sumitomo dainippon pharma or certain of its affiliates beneficially own more than 50 % of our common shares . pursuant to the investor rights agreement , among other things , we agreed , at the request of sumitovant , to register for sale , under the securities act of 1933 , common shares beneficially owned by sumitovant , subject to specified conditions and limitations . in addition , we agreed to periodically provide sumitovant ( i ) certain financial statements , projections , capitalization summaries and other information and ( ii ) access to our books , records , facilities , and employees . on december 27 , 2019 , we , and our subsidiary , myovant sciences gmbh ( โ msg โ ) , entered into a loan agreement with sumitomo dainippon pharma ( the โ sumitomo dainippon pharma loan agreement โ ) under which sumitomo dainippon pharma agreed to make revolving loans to us in an aggregate principal amount of up to $ 400.0 million , subject to the terms of the sumitomo dainippon pharma loan agreement . through march 31 , 2020 , we have borrowed $ 113.7 million under the sumitomo dainippon pharma loan agreement , which was used to repay all outstanding obligations of us and our subsidiaries to hercules capital , inc. ( โ hercules โ ) and novaquest capital management ( โ novaquest โ ) and to satisfy certain other fees and expenses . as of march 31 , 2020 , approximately $ 286.3 million of borrowing capacity remained available to us under the sumitomo dainippon pharma loan agreement . in april 2020 , we borrowed an additional $ 80.0 million under the sumitomo dainippon pharma loan agreement . the interest rate for any draws under the sumitomo dainippon pharma loan agreement is the 3-month london interbank offered rate ( โ libor โ ) plus a margin of 3 % . on march 30 , 2020 , we entered into an exclusive license agreement with richter for richter to commercialize relugolix combination tablet for uterine fibroids and endometriosis in certain territories outside of the u.s. we have retained all of our rights to relugolix combination tablet in the u.s. and canada , as well as rights to relugolix in other therapeutic areas outside of women 's health . on march 31 , 2020 , we received an upfront payment of $ 40.0 million , which is included in current deferred revenue on our audited consolidated balance sheet , and are eligible to receive up to $ 40.0 million in regulatory milestones ( of which $ 10.0 million was received in april 2020 ) and up to $ 107.5 million in sales-related milestones , and tiered royalties on net sales following regulatory approval . we have also agreed to assist richter in transferring manufacturing technology from our contract manufacturing organizations to enable richter to manufacture relugolix combination tablet . if requested by richter , we have agreed to supply richter with quantities of relugolix combination tablet for its territories pursuant to our agreements with our contract manufacturing organizations .
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results of operations the following table summarizes our results of operations for the years ended march 31 , 2020 and 2019 , respectively ( in thousands ) : replace_table_token_0_th research and development expenses for the years ended march 31 , 2020 and 2019 , our r & d expenses consisted of the following ( in thousands ) : replace_table_token_1_th r & d expenses decreased by $ 30.0 million , to $ 192.6 million , for the year ended march 31 , 2020 compared to $ 222.6 million for the year ended march 31 , 2019 . r & d expenses in both periods primarily include expenses related to our phase 3 clinical programs , manufacturing expenses , as well as personnel-related expenses for employees engaged in r & d activities . r & d expenses for the year ended march 31 , 2019 reflected a ramp up in relugolix phase 3 study costs primarily related to study enrollment , whereas r & d expenses for the year ended march 31 , 2020 reflect declining relugolix phase 3 study costs as certain studies are in the process of winding down . the decrease in relugolix phase 3 study costs of approximately $ 50.9 million were partially offset by increases in other r & d expenses related predominantly to regulatory activities in connection with regulatory submissions for relugolix combination tablet and relugolix monotherapy tablet in multiple indications and jurisdictions and the build out of our medical affairs organization in connection with preparations for our anticipated commercial launches , as well as increases in personnel expenses , share-based compensation expense , and other r & d expenses .
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the meanings of the federal securities laws . these statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements . for a detailed discussion of these risks and uncertainties , see the โ risk factors โ section in item 1a of part i of this form 10-k. we caution the reader not to place undue reliance on these forward-looking statements , which reflect management 's analysis only as of the date of this form 10-k. we undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this form 10-k. overview we are a biopharmaceutical company with a focus on the development and commercialization of innovative products to enhance cancer care . we in-license from pfizer the global development and commercialization rights to pb272 ( neratinib ( oral ) ) , pb272 ( neratinib ( intravenous ) ) and pb357 . neratinib is a potent irreversible tki that blocks signal transduction through the epidermal growth factor receptors , her1 , her2 and her4 . currently , we are primarily focused on the development and commercialization of the oral version of neratinib , and our most advanced drug candidates are directed at the treatment of her2-positive breast cancer and her2 mutated cancers . we believe neratinib has clinical application in the treatment of several other cancers as well , including other tumor types that over-express or have a mutation in her2 , such as breast cancer , cervical cancer , lung cancer or other solid tumors . prior to 2017 , our efforts and resources were focused primarily on acquiring and developing our pharmaceutical technologies , raising capital and recruiting personnel . in 2017 , the fda approved nerlynx , formally known as pb272 ( neratinib ( oral ) ) , for the extended adjuvant treatment of adult patients with early stage her2-overexpressed/amplified breast cancer following trastuzumab-based therapy . in 2018 , the ec granted marketing authorization for nerlynx in the european union for the extended adjuvant treatment of adult patients with early state hormone receptor positive her-2-overexpressed/amplified breast cancer and who are less than one year from the completion of prior adjuvant trastuzumab-based therapy . we have entered into exclusive sub-license agreements with various parties to pursue regulatory approval , if necessary , and commercialize nerlynx , if approved , in various specified regions outside of the united states , including europe ( excluding russia and ukraine ) , australia , canada , china , southeast asia , south korea , and various countries and territories in central and south america . we plan to continue to pursue commercialization of nerlynx in other countries outside the united states , if approved . our expenses to date have been related to hiring staff , commencing company-sponsored clinical trials and the build out of our corporate infrastructure and , since 2017 , the commercial launch of nerlynx . accordingly , our success depends not only on the safety and efficacy of our product candidates , but also on our ability to finance product development . to date , our major sources of working capital have been proceeds from product and license revenue , public offerings of our common stock , proceeds from our credit facility and sales of our common stock in private placements . impact of covid-19 our priorities during the covid-19 pandemic are protecting the health and safety of our employees while continuing our mission to develop and commercialize innovative products to enhance cancer care . substantially all geographic regions in which our u.s. sales force operates have imposed , and those regions or other regions in which our sales force operates may in the future impose , โ shelter-in-place โ orders , quarantines or similar orders or restrictions to control the spread of covid-19 . these types of restrictions may deter or prevent cancer patients from traveling to see their doctors and result in a decline in revenue for nerlynx , our only commercial product . additionally , our commercial team and sales force have limited travel and personal interactions with physicians and customers , including visits to healthcare provider offices due to limitations that have been imposed at certain hospitals and medical facilities , and are currently conducting a large percentage of promotional activities virtually . these types of restrictions have adversely impacted our ability to engage with our customers and have adversely impacted sales of nerlynx , our only commercial product , and they may continue to do so . the respective commercial teams of certain of the companies to which we sub-license the commercial rights to nerlynx , and on which we rely for our international sales , have chosen or have been forced to take similar action , and other sub-licensees of nerlynx may choose or be forced to take similar action . furthermore , the covid-19 pandemic has resulted in dramatic increases in unemployment rates , which may result in a substantial number of people becoming uninsured or underinsured . any of these developments may have an adverse effect on our revenue . we have observed disruptions in patient enrollments in the united states and in our summit basket trial . if the covid-19 pandemic continues to spread in the geographies in which we are conducting clinical trials , we may experience additional disruptions in those clinical trials , which could have a material adverse impact on our clinical trial plans and timelines . 63 our ability to continue to operate without any significant negative impacts will in part depend on the length and severity of the covid-19 pandemic and our ability to protect our employees and our supply chain . we continue to follow and monitor recommended actions of government and health authorities to protect our employees worldwide . for the year ended december 31 , 2020 , we and our key third-party suppliers and manufacturers were able to broadly maintain operations . we rely exclusively on third-party manufacturers to manufacture nerlynx . story_separator_special_tag on september 8 , 2020 , the claims administrator submitted its final claims report to the court and , on october 9 , 2020 , the claims administrator submitted its supplemental claims report . our estimate of the legal verdict expense and the associated legal expense accrual for the hsu lawsuit remained unchanged for the quarter ended december 31 , 2020. the claims report asserts $ 50.5 million in damages , which is larger than the amount previously estimated . we intend to challenge these claims and estimate that the damages could range from $ 24.8 million to $ 51.4 million . as a result , we increased our estimate of the legal accrual on a prospective basis beginning in the third quarter of 2020 to $ 24.8 million , resulting in an additional $ 15.7 million legal verdict expense in 2020. the total amount of aggregate class-wide damages still remains uncertain and will be ascertained only after an extensive claims challenge process and the exhaustion of any appeals . additionally , we incurred approximately $ 0.1 million in legal verdict expense related to class action administrator services and pre-judgment interest for the hsu lawsuit and approximately $ 0.4 million in post-judgment interest for the eshelman lawsuit . our estimate of the legal verdict expense and the associated legal expense accrual for the hsu lawsuit remained unchanged for the quarter ended december 31 , 2020. for the year ended december 31 , 2019 , we recognized approximately $ 16.4 million in legal verdict expense related to the eshelman v. puma biotechnology , inc. , et al . verdict . the legal verdict expense of $ 16.4 million for the year ended december 31 , 2019 was the result of our initial estimate of the total damages payable in the matter of $ 22.4 million , net of $ 6.0 million in insurance reimbursements . loss on debt extinguishment for the year ended december 31 , 2019 , we recognized approximately $ 8.1 million in loss on debt extinguishment related to the one-time fees paid in connection with our debt refinancing during the second quarter of 2019 . 67 non-gaap financial measures : in addition to our operating results , as calculated in accordance with u.s. generally accepted accounting principles , or gaap , we use certain non-gaap financial measures when planning , monitoring , and evaluating our operational performance . the following table presents our net loss and net loss per share , as calculated in accordance with gaap , as adjusted to remove the impact of stock-based compensation . for the years ended december 31 , 2020 and 2019 , stock-based compensation represented approximately 61.0 % and 75.8 % of our net loss , respectively . our management believes that these non-gaap financial measures are useful to enhance understanding of our financial performance , are more indicative of our operational performance and facilitate a better comparison among fiscal periods . these non-gaap financial measures are not , and should not be viewed as , substitutes for gaap reporting measures . reconciliation of gaap net loss to non-gaap adjusted net loss and gaap net loss per share to non-gaap adjusted net loss per share ( in thousands except share and per share data ) replace_table_token_10_th liquidity and capital resources the following table summarizes our liquidity and capital resources as of and for the years ended december 31 , 2020 and december 31 , 2019 and is intended to supplement the more detailed discussion that follows : replace_table_token_11_th operating activities we recorded net losses of approximately $ 60.0 million and $ 75.6 million for the years ended december 31 , 2020 and 2019 , respectively . we reported positive cash flows from operating activities of approximately $ 0.8 million for the year ended december 31 , 2020 and reported positive cash flows from operating activities of $ 22.4 million for the year ended december 31 , 2019 . 68 net cash provided by operating activities for the year ended december 31 , 20 20 included a net loss of $ 6 0.0 million , adjusted for non-cash items of approximately $ 36.6 million for stock-based compensation expense , approximately $ 10.0 million for depreciation and amortization , and $ 1.0 million for a provision for credit loss expense . further changes in cash flows from operations included an increase in accrued expenses of approximately $ 19 . 3 million , a de crease in accounts receivable , net of approximately $ 2.4 million , and a decrease in prepaid expenses and other of approximately $ 2.3 million . these changes were offset by a decrease in accounts payable of approximately $ 7.1 million , a n in crease in other current assets of approximately $ 3.1 million , and an increase in inventory , net of approximately $ 0.3 million , and other immaterial fluctuations . net cash used in operating activities for the year ended december 31 , 2019 , included a net loss of $ 75.6 million adjusted for non-cash items of approximately $ 57.3 million for stock-based compensation expense and approximately $ 8.1 million for depreciation and amortization , approximately $ 8.0 million for debt extinguishment fees and a loss of approximately $ 1.2 million for the impairment of an operating lease asset . further changes in cash flows from operations included an increase in accrued expenses of approximately $ 22.6 million , an increase in post-marketing commitment liability of approximately $ 9.0 million , a decrease in other current assets of approximately $ 1.5 million and a decrease in prepaid expenses and other of approximately $ 0.6 million . these changes were offset by an increase in accounts receivable , net of approximately $ 8.1 million , a decrease in accounts payable of approximately $ 1.5 million , an increase in inventory , net of approximately $ 0.5 million , and an increase in deferred rent of approximately $ 0.2 million . investing activities during the year ended december 31 , 2020 , cash provided by investing activities was approximately $ 23.4 million .
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results of operations the following summarizes our results of operations for the years ended december 31 , 2020 and 2019. for discussion related to the results of operations and changes in financial condition for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , please refer to item 7 of part ii , โ management 's discussion and analysis of financial condition and results of operations โ in our annual report for the year ended december 31 , 2019 , which was filed with the united states securities and exchange commission on february 28 , 2020. total revenue total revenue was approximately $ 225.1 million for the year ended december 31 , 2020 , compared to $ 272.3 million for the year ended december 31 , 2019. product revenue , net product revenue , net was approximately $ 196.7 million for the year ended december 31 , 2020 , compared to $ 211.6 million for the year ended december 31 , 2019. the decrease in product revenue , net was attributable to a volume decrease of approximately 21 % in bottles of nerlynx sold and an increase in variable consideration from approximately 14 % of gross product revenue for the year ended december 31 , 2019 to approximately 16 % of gross product revenue for the year ended december 31 , 2020 , partially offset by an increase in gross selling price that occurred in the first quarter of 2020 and again in the third quarter of 2020. the increase in variable consideration is primarily due to an increase in government rebates .
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our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument . we categorize financial assets and liabilities recorded at fair value in the consolidated balance sheets as follows : level story_separator_special_tag 2013 and 2012 , and our consolidated results of operations for the three years in the period ended december 31 , 2013 , and where appropriate , factors that may affect future financial performance . this analysis should be read in conjunction with our audited consolidated financial statements , notes thereto and selected consolidated financial data appearing elsewhere in this report . cautionary statement regarding forward-looking information all statements , trend analyses and other information contained in this report and elsewhere ( such as in filings by us with the sec , press releases , presentations by us or our management or oral statements ) relative to markets for our products and trends in our operations or financial results , as well as other statements including words such as `` anticipate '' , `` believe '' , `` plan '' , `` estimate '' , `` expect '' , `` intend '' and other similar expressions , constitute forward-looking statements . we caution that these statements may and often do vary from actual results and the differences between these statements and actual results can be material . accordingly , we can not assure you that actual results will not differ materially from those expressed or implied by the forward-looking statements . factors that could contribute to these differences include , among other things : general economic conditions and other factors , including prevailing interest rate levels and stock and credit market performance which may affect ( among other things ) our ability to sell our products , our ability to access capital resources and the costs associated therewith , the fair value of our investments , which could result in impairments and other than temporary impairments , and certain liabilities , and the lapse rate and profitability of policies ; customer response to new products and marketing initiatives ; changes in federal income tax laws and regulations which may affect the relative income tax advantages of our products ; increasing competition in the sale of annuities ; regulatory changes or actions , including those relating to regulation of financial services affecting ( among other things ) bank sales and underwriting of insurance products and regulation of the sale , underwriting and pricing of products ; and the risk factors or uncertainties listed from time to time in our filings with the sec . for a detailed discussion of these and other factors that might affect our performance , see item 1a of this report . story_separator_special_tag credits are recorded as part of the change in fair value of derivatives , and are largely offset by an expense for interest credited to annuity policyholder account balances . see critical accounting policiesโpolicy liabilities for fixed index annuities and financial conditionโderivative instruments . our profitability depends in large part upon the amount of assets under our management , investment spreads we earn on our policyholder account balances , our ability to manage our investment portfolio to maximize returns and minimize risks such as interest rate changes and defaults or impairment of investments , our ability to manage interest rates credited to policyholders and costs of the options purchased to fund the annual index credits on our fixed index annuities , our ability to manage the costs of acquiring new business ( principally commissions to agents and bonuses credited to policyholders ) and our ability to manage our operating expenses . 20 results of operations for the three years ended december 31 , 2013 annuity deposits by product type collected during 2013 , 2012 and 2011 , were as follows : replace_table_token_7_th annuity deposits before coinsurance ceded increased 7 % during 2013 compared to 2012 and decreased 22 % during 2012 compared to 2011 . we attribute the continuing significant sales of our products to several factors including the highly competitive rates on our products , our continued strong relationships with our national marketing organizations and field force of licensed independent insurance agents , the increased attractiveness of safe money products in volatile markets , lower interest rates on competing products such as bank certificates of deposit and product enhancements including a new generation of guaranteed income lifetime withdrawal benefit riders . we attribute the decrease in annuity deposits in 2012 compared to 2011 to certain competitors who were more aggressive in their product pricing . in addition , sales for 2011 benefited from higher demand in advance of rate decreases implemented during that period . the extent to which our high level of sales will be sustained in future periods is uncertain . we believe our existing statutory capital and surplus and the statutory surplus we expect to generate internally through statutory earnings will support a higher level of new business growth than in previous years . however , while we have the capital resources to accept more business than was sold in 2013 , our capacity is not unlimited and sales growth must be matched with available resources to maintain desired financial strength ratings from credit rating agencies and in particular , a.m. best company . should sales growth accelerate to levels that can not be supported by internal capital generation , we would intend to obtain capital from external sources to facilitate such growth . net income , in general , has been positively impacted by the growth in the volume of business in force and the investment spread earned on this business . the average amount of annuity liabilities outstanding ( net of annuity liabilities ceded under coinsurance agreements ) increased 14 % to $ 29.5 billion for the year ended december 31 , 2013 compared to $ 26.0 billion in 2012 and 16 % for the year ended december 31 , 2012 compared to $ 22.4 billion in 2011 . story_separator_special_tag as an example of another limitation of operating income , it does not include the decrease in cash flows expected to be collected as a result of credit loss otti . therefore , our management and board of directors also separately review net realized investment gains ( losses ) and analyses of our net investment income , including impacts related to otti write-downs , in connection with their review of our investment portfolio . in addition , our management and board of directors examine net income as part of their review of our overall financial results . net realized gains ( losses ) on investments and net impairment losses recognized in operations fluctuate from year to year based upon changes in the interest rate and economic environment and the timing of the sale of investments or the recognition of other than temporary impairments . the amounts disclosed in the reconciliation in item 6. selected consolidated financial data are net of related reductions in amortization of deferred sales inducements and deferred policy acquisition costs and income taxes . 22 amounts attributable to the fair value accounting for fixed index annuity derivatives and embedded derivatives fluctuate from year to year based upon changes in the fair values of call options purchased to fund the annual index credits for fixed index annuities and changes in the interest rates used to discount the embedded derivative liability . the amounts disclosed in the reconciliation in item 6. selected consolidated financial data are net of related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs and income taxes . the significant changes in the impact from this item disclosed in the reconciliation in item 6. selected consolidated financial data relate primarily to changes in the discount rates used to estimate our embedded derivative liabilities , which increased in 2013 as a result of an increase in the general level of interest rates during 2013 , and decreased in 2009 through 2012 as a result of decreases in the general level of interest rates during those years . the impact of unlocking on operating income , including the impact of account balance true ups and adjustments to future period assumptions for interest margins and surrenders , was as follows : replace_table_token_9_th the revision of assumptions in 2013 and 2012 used in determining liabilities for living income benefit riders had the same effect on operating income as it had on net income as discussed previously . premiums and other considerations decreased 41 % to $ 45.3 million in 2013 and 36 % to $ 76.7 million in 2012 from $ 118.9 million in 2011 . these revenues are comprised of life insurance premiums and premiums from life contingent single premium immediate annuities including life contingent supplemental contracts issued upon annuitization of deferred annuities . life insurance premiums have remained consistent throughout the periods presented while premiums from life contingent single premium immediate annuities ( $ 34.8 million , $ 63.8 million and $ 106.8 million in 2013 , 2012 and 2011 , respectively ) have decreased over the periods because we have adjusted the rates offered on these products to be less competitive in the low interest rate environment . annuity product charges ( surrender charges assessed against policy withdrawals and fees deducted from policyholder account balances for lifetime income benefit riders ) increased 16 % to $ 103.6 million in 2013 and 17 % to $ 89.0 million in 2012 from $ 76.2 million in 2011 . the components of annuity product charges are set forth in the table that follows : replace_table_token_10_th the increases in annuity product charges were primarily attributable to increases in fees assessed for lifetime income benefit riders due to a larger volume of business in force subject to the fee . see interest sensitive and index product benefits below for corresponding expense recognized on lifetime income benefit riders . the increase in surrender charges in 2013 was primarily attributable to surrender charges of $ 4.7 million deducted from california policyholders surrendering their policies as a condition of receiving certain benefits in a national class action lawsuit settlement . the decrease in surrender charges in 2012 was primarily attributable to reductions in withdrawals subject to a surrender charge . the lower amount of withdrawals in 2013 and 2012 was influenced by the continuing low interest rate environment . net investment income increased 8 % to $ 1.4 billion in 2013 and 6 % to $ 1.3 billion in 2012 from $ 1.2 billion in 2011 . the increases were principally attributable to the growth in our annuity business and corresponding increases in our invested assets . average invested assets excluding derivative instruments ( on an amortized cost basis ) increased 14 % to $ 27.8 billion in 2013 and 16 % to $ 24.4 billion in 2012 compared to $ 21.0 billion in 2011 . the average yield earned on average invested assets was 4.98 % , 5.28 % and 5.80 % for 2013 , 2012 and 2011 , respectively . 23 the decrease in yield earned on average invested assets in 2013 and 2012 was attributable to yields on investments purchased in those periods and 2011 being lower than the overall portfolio yield . in addition , net investment income and average yield were negatively impacted by a lag in reinvestment of proceeds from bonds called for redemption during 2013 , 2012 and 2011 into new assets causing excess liquidity held in low yielding cash and other short-term investments . the average balance held in cash and short-term investments was $ 1.0 billion , $ 1.7 billion and $ 387.0 million in 2013 , 2012 and 2011 , respectively . the average yield on our cash and short-term investments was 0.38 % in 2013 and 0.25 % in 2012 . additionally , net investment income and average yield was positively impacted by prepayment and fee income received resulting in additional net investment income in 2013 and 2012 of $ 15.7 million and $ 14.8 million , respectively .
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executive summary since our formation in 1995 , we have emphasized industry leading customer service to both our distribution force and our policyholders . we believe this to be a major part of our ability to attract production from our independent agent network as well as maintain a low rate of policy surrenders . excellent customer service teamed with our ability to design innovative insurance products that provide principal protection and tax deferred growth have continued to result in significant sales of our annuity products . in 2013 , our sales increased 7 % to $ 4.2 billion which has resulted in cash and investments in excess of $ 31 billion at december 31 , 2013 . our sales for the last five years have ranged from $ 3.7 billion to $ 5.1 billion and we have exceeded $ 4 billion in sales in three of those years . we have applied a conservative investment strategy to the annuity deposits we continue to manage which has provided reliable returns on our invested assets . our profitability has also been driven by maintaining an efficient operation . we are currently in the midst of an unprecedented period of low interest rates . in response to this persistent low interest rate environment , we have been reducing policyholder crediting rates for new annuities and existing annuities since the fourth quarter of 2011. spread results for 2013 and 2012 reflect the benefit from these reductions ; however , the reductions in cost of money were offset by continued lower yields available on investments including those purchased with the reinvestment of proceeds from calls of callable bonds in our investment portfolio . we expect to continue to manage policyholder crediting rates with the objective of restoring our investment spread to our 3.00 % target .
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โ f-12 the company uses price swap contracts to reduce price volatility associated with certain of its oil sales . with respect to the company 's fixed price swap contracts , the counterparty is required to make a payment to the company if the settlement price for any settlement period is less than the swap price , and the company is required to make a payment to the counterparty if the settlement price for any settlement period is greater than the swap price . the company 's derivative contracts are based upon reported settlement prices on commodity exchanges , with crude oil derivative settlements based on new york mercantile exchange west texas intermediate ( โ nymex wti โ ) pricing . the counterparty to the company 's derivative contract is merrill lynch commodities , inc. , which the company believes is an acceptable credit risk . the fair value of swaps is generally determined using established index prices and other sources which are based upon , among other things , futures prices and time to maturity . as of march 31 , 2015 the company does not have any open crude oil derivative positions with respect to future production . the net fair value of the company 's derivative assets and liabilities and their locations on the consolidated balance sheet are as follows for the years ended march 31 : 2015 2014 current assets : derivative instruments $ - $ - noncurrent assets : derivative instruments - $ - total assets $ - $ - current liabilities : derivative instruments $ - $ 44,981 noncurrent liabilities : derivative instruments - $ - total liabilities $ - $ 44,981 none of the company 's derivatives have been designated as hedges . as such , all changes in fair value are immediately recognized in earnings . the following summarizes the loss on derivative instruments story_separator_special_tag the following discussion is intended to provide information relevant to an understanding of our financial condition , changes in our financial condition and our results of operations and cash flows and should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this form 10-k. liquidity and capital resources and commitments historically , we have funded our operations , acquisitions , exploration and development expenditures from cash generated by operating activities , bank borrowings and issuance of common stock . our primary financial resource is our base of oil and gas reserves . we pledge our producing oil and gas properties to secure our revolving line of credit . we do not have any delivery commitments to provide a fixed and determinable quantity of our oil and gas under any existing contract or agreement . our long term strategy is on increasing profit margins while concentrating on obtaining reserves with low cost operations by acquiring and developing oil and gas properties with potential for long-lived production . we focus our efforts on the acquisition of royalties and working interest , non-operated properties in areas with significant development potential . for the year ending march 31 , 2015 , cash flow from operations was $ 1,176,979 , a 35 % decrease when compared to the corresponding period of fiscal 2014. net cash of $ 3,525,000 was provided by the line of credit ; net cash of $ 4,774,705 was used for activity associated with oil and gas properties and other property and equipment ; and cash of $ 57,089 was provided by settlement of derivatives . accordingly , net cash decreased $ 59,998 . 26 we had working capital of $ 166,650 as of march 31 , 2015 compared to working capital of $ 522,216 as of march 31 , 2014 , a decrease of $ 355,566 for the reasons set forth below . acquisitions effective august 2014 , mexco purchased various royalty interests for $ 200,000 covering 43 wells in 12 counties of eight states . of these oil and gas reserves , approximately 54 % are in texas and 10 % in lousiana where there is acreage available for further development by horizontal drilling and fracturing . these royalty interests are free of expenses to mexco for drilling and operations . effective september 2014 , mexco purchased various royalty interests ranging from .0018 % to 1.1 % revenue interests at a price of $ 580,000 covering approximately 580 wells in 87 counties of eight states . of this oil and gas production , virtually all is natural gas . mexco believes that there is potential for further development of several of these royalties . these royalty interests are free of expenses to mexco for drilling and operations . approximately 90 % of the net revenue from these royalties is produced by 157 wells located in the barnett shale of the fort worth basin of texas . also included are interests in 423 wells in alabama , arkansas , kansas , louisiana , mississippi , north dakota , oklahoma and texas . effective october 2014 , mexco purchased for $ 525,000 long lived non-operated working interests of 12.5 % ( approximately 10 % net revenue interest ) . six wells are producing oil from the lower tubb formation in pecos county , texas . these wells are on 20-acre spacing with four additional proven undeveloped locations at approximately 3,600 foot depth on the 190 acres . the operator has agreed to pay for the drilling and completion costs of one additional well and fracture treatment of one of the existing wells , as well as pay all operating expenses of all wells on these leases . in addition , mexco will receive 100 % of the gross disposal fees from one disposal well located on these properties paid by an adjacent operator . mexco would be responsible for payment of the cost of drilling and completion on the balance of any development wells . story_separator_special_tag derivative losses of $ 99,262 were recorded during the year ended march 31 , 2014. this amount reflects $ 54,281 of realized losses and $ 44,981 of unrealized losses resulting from our oil swap agreement . income taxes . there was an income tax expense of $ 11,750 in fiscal 2014 compared to an income tax benefit of $ 31,504 in fiscal 2013. the effective tax rate for fiscal 2014 was 4 % compared to ( 15 % ) for fiscal 2013. contractual obligations we have no off-balance sheet debt or unrecorded obligations and have not guaranteed the debt of any other party . the following table summarizes future payments we are obligated to make based on agreements in place as of march 31 , 2015 : replace_table_token_10_th ( 1 ) these amounts represent the balances outstanding under the bank line of credit . these repayments assume that interest will be paid on a monthly basis , no additional funds will be drawn and does not include estimated interest of $ 159,326 less than 1 year , $ 477,978 1-3 years and $ 265,544 over 3 years . ( 2 ) the lease amount represents the monthly rent amount for our principal office space in midland , texas under one three year lease agreement effective april 1 , 2013 and a second three year lease agreement effective april 1 , 2014. the total obligation for the remainder of the leases is $ 37,100 which includes $ 9,240 billed to and reimbursed by our majority shareholder for his portion of the shared office space . alternative capital resources although we have primarily used cash from operating activities and funding from the line of credit as our primary capital resources , we have in the past , and could in the future , use alternative capital resources . these could include joint ventures , carried working interests and the sale of assets and or issuances of common stock through a private placement or public offering of our common stock . other matters critical accounting policies and estimates in preparing financial statements , management makes informed judgments , estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period . on an ongoing basis , management reviews its estimates , including those related to litigation , environmental liabilities , income taxes , fair value and determination of proved reserves . changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates . the following represents those policies that management believes are particularly important to the financial statements and that require the use of estimates and assumptions to describe matters that are inherently uncertain . full cost method of accounting for crude oil and natural gas activities . sec regulation s-x defines the financial accounting and reporting standards for companies engaged in crude oil and natural gas activities . two methods are prescribed : the successful efforts method and the full cost method . we have chosen to follow the full cost method under which all costs associated with property acquisition , exploration and development are capitalized . we also capitalize internal costs that can be directly identified with acquisition , exploration and development activities and do not include any costs related to production , general corporate overhead or similar activities . the carrying amount of oil and gas properties also includes estimated asset retirement costs recorded based on the fair value of the asset retirement obligation ( `` aro '' ) when incurred . 30 gain or loss on the sale or other disposition of oil and gas properties is not recognized , unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves of oil and natural gas attributable to a country . under the successful efforts method , geological and geophysical costs and costs of carrying and retaining undeveloped properties are charged to expense as incurred . costs of drilling exploratory wells that do not result in proved reserves are charged to expense . depreciation , depletion , amortization and impairment of crude oil and natural gas properties are generally calculated on a well by well or lease or field basis versus the `` full cost '' pool basis . additionally , gain or loss is generally recognized on all sales of crude oil and natural gas properties under the successful efforts method . as a result our financial statements will differ from companies that apply the successful efforts method since we will generally reflect a higher level of capitalized costs as well as a higher dd & a rate on our crude oil and natural gas properties . at the time it was adopted , management believed that the full cost method would be preferable , as earnings tend to be less volatile than under the successful efforts method . however , the full cost method makes us more susceptible to significant non-cash charges during times of volatile commodity prices because the full cost pool may be impaired when prices are low . these charges are not recoverable when prices return to higher levels . our crude oil and natural gas reserves have a relatively long life . however , temporary drops in commodity prices can have a material impact on our business including impact from the full cost method of accounting . ceiling test . companies that use the full cost method of accounting for oil and gas exploration and development activities are required to perform a ceiling test each quarter . the full cost ceiling test is an impairment test to determine a limit , or ceiling , on the book value of oil and gas properties .
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results of operations fiscal 2015 compared to fiscal 2014 we had a net loss of $ 340,986 for the year ended march 31 , 2015 compared to net income of $ 301,113 for the year ended march 31 , 2014. oil and gas sales . revenue from oil and gas sales was $ 3,336,826 for the year ended march 31 , 2015 , a 16 % decrease from $ 3,994,295 for the year ended march 31 , 2014. this resulted from a decrease in oil and gas prices partially offset by an increase in oil and gas production . the following table sets forth our oil and gas revenues , production quantities and average prices received during the fiscal years ended march 31 : replace_table_token_8_th ( a ) after giving effect to our derivative instruments , the average sales price per bbl of oil was $ 73.48 for year ended march 31 , 2015. after giving effect to our derivative instruments , the average sales price per bbl of oil was $ 93.33 for year ended march 31 , 2014. production and exploration . production costs were $ 1,300,820 in fiscal 2015 , a 6 % increase from $ 1,231,814 in fiscal 2014. this was the result of an increase in lease operating expenses resulting from acquisitions of working interests of non-operated properties partially offset by a decrease in production taxes due to the decrease in oil and gas revenue . 28 depreciation , depletion and amortization . depreciation , depletion and amortization ( โ dd & a โ ) expense was $ 1,362,862 in fiscal 2015 , an 18 % increase from $ 1,151,482 in fiscal 2014. this was due to an increase in oil and gas production and an increase in the full cost pool partially offset by an increase in oil and gas reserves . general and administrative expenses .
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significant changes in consumer behavior with regard to the means by which consumers obtain video entertainment and information in response to digital media competition could have a material adverse effect on our business , results of operations and financial condition or otherwise disrupt our business . in particular , consumers have shown increased interest in viewing certain video programming in any place , at any time and or on any broadband-connected device they choose . online content providers may cause our subscribers to disconnect our services ( โ cord cutting โ ) , downgrade to smaller , less expensive programming packages ( โ cord shaving โ ) or elect to purchase through these online content providers a certain portion of the services that they would have historically purchased from us , such as pay per view movies , resulting in less revenue to us . we implement new marketing promotions from time to time that are intended to increase our gross new pay-tv subscriber activations . during 2015 and early 2016 , we launched various marketing promotions offering certain dish branded pay-tv programming packages without a price increase for a limited time period . during the third quarter 2016 , we launched our flex pack skinny bundle with a core package of programming consisting of more than 50 channels and the choice of one of eight themed add-on channel packs , which include local broadcast networks and kids , national and regional sports and general entertainment programming . subscribers can also add or remove additional channel packs to best suit their entertainment needs . during 2017 , we launched โ tuned in to you โ and the accompanying โ spokeslistener โ campaign . while we plan to implement these and other new marketing efforts , there can be no assurance that we will ultimately be successful in increasing our gross new pay-tv subscriber activations . additionally , in response to our efforts , we may face increased competitive pressures , including aggressive marketing , more aggressive retention efforts , bundled discount offers combining broadband , video and or wireless services and other discounted promotional offers . in addition , our gross new pay-tv subscriber activations , net pay-tv subscriber additions and pay-tv churn rate continue to be negatively impacted by stricter customer acquisition and retention policies for our dish branded pay-tv subscribers , including an increased emphasis on acquiring and retaining higher quality subscribers , as well as increased competitive pressures , including aggressive marketing , more aggressive retention efforts , bundled discount offers combining broadband , video and or wireless services and other discounted promotional offers . our pay-tv subscriber base has been declining due to , among other things , the factors described above . there can be no assurance that our pay-tv subscriber base will not continue to decline . in the event that our pay-tv subscriber base continues to decline , it could have a material adverse long-term effect on our business , results of operations , financial condition and cash flow . 66 programming our ability to compete successfully will depend , among other things , on our ability to continue to obtain desirable programming and deliver it to our subscribers at competitive prices . programming costs represent a large percentage of our โ subscriber-related expenses โ and the largest component of our total expense . we expect these costs to continue to increase , and certain programming costs are rising at a much faster rate than wages or inflation , especially for local broadcast channels . the rates we are charged for retransmitting local broadcast channels have been increasing substantially and may exceed our ability to increase our prices to our customers . in addition , programming costs continue to increase due to contractual price increases and the renewal of long-term programming contracts on less favorable pricing terms . going forward , our margins may face pressure if we are unable to renew our long-term programming contracts on acceptable pricing and other economic terms or if we are unable to pass these increased programming costs on to our customers . increases in programming costs generally cause us to increase the rates that we charge to our subscribers , which could in turn cause our existing pay-tv subscribers to disconnect our service or cause potential new pay-tv subscribers to choose not to subscribe to our service . additionally , even if our subscribers do not disconnect our services , they may purchase through new and existing online content providers a certain portion of the services that they would have historically purchased from us , such as pay-per-view movies , resulting in less revenue to us . furthermore , our gross new pay-tv subscriber activations , net pay-tv subscriber additions and pay-tv churn rate may be negatively impacted if we are unable to renew our long-term programming carriage contracts before they expire . in the past , our gross new pay-tv subscriber activations , net pay-tv subscriber additions and pay-tv churn rate have been negatively impacted as a result of programming interruptions and threatened programming interruptions in connection with the scheduled expiration of programming contracts with content providers , including , among others , tribune broadcasting company ( โ tribune โ ) during the second and third quarters of 2016. we can not predict with any certainty the impact to our gross new pay-tv subscriber activations , net pay-tv subscriber additions and pay-tv churn rate resulting from similar programming interruptions or threatened programming interruptions that may occur in the future . as a result , we may at times suffer from periods of lower gross new pay-tv subscriber activations , lower net pay-tv subscriber additions or higher net pay-tv subscriber losses , and higher pay-tv churn rates . story_separator_special_tag operations and customer service while competitive factors have impacted the entire pay-tv industry , our relative performance has also been driven by issues specific to us . in the past , our subscriber growth has been adversely affected by signal theft and other forms of fraud and by our operational inefficiencies . to combat signal theft and improve the security of our broadcast system , we use microchips embedded in credit card sized access cards , called โ smart cards , โ or security chips in our dbs receiver systems to control access to authorized programming content ( โ security access devices โ ) . we expect that future replacements of these devices may be necessary to keep our system secure . to combat other forms of fraud , among other things , we monitor our independent third-party distributors ' and independent third-party retailers ' adherence to our business rules . while we have made improvements in responding to and dealing with customer service issues , we continue to focus on the prevention of these issues , which is critical to our business , financial condition and results of operations . to improve our operational performance , we continue to make investments in staffing , training , information systems , and other initiatives , primarily in our call center and in-home service operations . these investments are intended to help combat inefficiencies introduced by the increasing complexity of our business , improve customer satisfaction , reduce churn , increase productivity , and allow us to scale better over the long run . we can not be certain , however , that our spending will ultimately be successful in improving our operational performance . changes in our technology we have been deploying dbs receivers that utilize 8psk modulation technology with mpeg-4 compression technology for several years . these technologies , when fully deployed , will allow improved broadcast efficiency , and therefore allow increased programming capacity . many of our customers today , however , do not have dbs receivers that use mpeg-4 compression technology . in addition , given that all of our hd content is broadcast in mpeg-4 , any growth in hd penetration will naturally accelerate our transition to these newer technologies and may increase our subscriber acquisition and retention costs . all new dbs receivers that we purchase from echostar have mpeg-4 compression with 8psk modulation technology . 67 in addition , from time to time , we change equipment for certain subscribers to make more efficient use of transponder capacity in support of hd and other initiatives . we believe that the benefit from the increase in available transponder capacity outweighs the short-term cost of these equipment changes . share exchange agreement on january 31 , 2017 , we and our indirect wholly-owned subsidiaries dnllc and dollc , entered into the share exchange agreement with echostar , eb holdco , eb splitco , et splitco , and etllc . pursuant to the share exchange agreement , among other things : ( i ) echostar will complete the steps necessary for certain assets and liabilities of the transferred businesses to be transferred to eb splitco and et splitco ; and ( ii ) echostar will transfer to us 100 % of the equity of eb splitco and et splitco , and in exchange , we will transfer the echostar tracking stock to echostar and the hssc tracking stock to hssc . the financial results related to the share exchange agreement are not included in our consolidated financial statements for all periods presented as the closing of the transaction is subject to various conditions and is not expected to close prior to february 28 , 2017. see note 18 to our consolidated financial statements in this annual report on form 10-k for further information . explanation of key metrics and other items subscriber-related revenue . โ subscriber-related revenue โ consists principally of revenue from basic , premium movie , local , hd programming , pay-per-view , latino and international subscriptions ; broadband services ; equipment rental fees and other hardware related fees , including fees for dvrs , fees for broadband equipment , equipment upgrade fees and additional outlet fees ; advertising services ; fees earned from our in-home service operations and other subscriber revenue . certain of the amounts included in โ subscriber-related revenue โ are not recurring on a monthly basis . equipment sales and other revenue . โ equipment sales and other revenue โ principally includes the non-subsidized sales of dbs accessories to independent third-party retailers and other independent third-party distributors of our equipment and revenue from equipment sales and other agreements with echostar . subscriber-related expenses . โ subscriber-related expenses โ principally include programming expenses , which represent a substantial majority of these expenses . โ subscriber-related expenses โ also include costs for pay-tv and broadband services incurred in connection with our in-home service and call center operations , billing costs , refurbishment and repair costs related to dbs receiver systems and broadband equipment , subscriber retention , other variable subscriber expenses and monthly wholesale fees paid to broadband providers . satellite and transmission expenses . โ satellite and transmission expenses โ includes the cost of leasing satellite and transponder capacity from echostar and the cost of digital broadcast operations provided to us by echostar , including satellite uplinking/downlinking , signal processing , conditional access management , telemetry , tracking and control , and other professional services . โ satellite and transmission expenses โ also includes executory costs associated with capital leases and costs associated with transponder leases and other related services . in addition , โ satellite and transmission expenses โ includes costs associated with our sling tv services including , among other things , streaming delivery technology and infrastructure . cost of sales - equipment and other . โ cost of sales - equipment and other โ primarily includes the cost of non-subsidized sales of dbs accessories to independent third-party retailers and
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financial highlights 2016 consolidated results of operations and key operating metrics ยท revenue of $ 15.095 billion ยท pay-tv arpu of $ 88.66 ยท net income attributable to dish network of $ 1.450 billion and basic and diluted earnings per share of common stock of $ 3.12 and $ 3.05 , respectively . ยท gross new pay-tv subscriber activations of approximately 2.614 million ยท pay-tv sac of $ 643 ยท loss of approximately 392,000 net pay-tv subscribers ยท pay-tv churn rate of 1.83 % ยท loss of approximately 43,000 net broadband subscribers consolidated financial condition as of december 31 , 2016 ยท cash , cash equivalents and current marketable investment securities of $ 5.359 billion ยท total assets of $ 28.092 billion ยท total long-term debt and capital lease obligations of $ 16.479 billion 62 business segments we currently operate two primary business segments : ( 1 ) pay-tv and broadband and ( 2 ) wireless . pay-tv and broadband we offer pay-tv services under the dish brand and the sling brand . we had 13.671 million pay-tv subscribers in the united states as of december 31 , 2016 and are the nation 's fourth largest pay-tv provider . competition has intensified in recent years as the pay-tv industry has matured . to differentiate our dish branded pay-tv service from our competitors , we introduced the hopper whole-home dvr during 2012 and have continued to add functionality and simplicity for a more intuitive user experience . our hopper and joeyยฎ whole-home dvr promotes a suite of integrated features and functionality designed to maximize the convenience and ease of watching tv anytime and anywhere . it also has several innovative features that a consumer can use , at his or her option , to watch and record television programming , through their televisions , internet-connected tablets , smartphones and computers .
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csg has agreed to pay chembio milestone development payments during 2015. dpp ยฎ malaria poc rapid test : chembio was awarded a grant from the bill & melinda gates foundation in january 2015 to expedite the feasibility testing and development of a dpp ยฎ malaria poc rapid diagnostic to accurately identify individuals infected with plasmodium falciparum parasite . chembio 's dpp ยฎ technology was selected for this grant due to its exceptional sensitivity and potential to aid the foundation in its goal of eradicating malaria . to achieve this goal , diagnostics must be capable of detecting the malaria parasite in infected , but asymptomatic people . current poc rapid diagnostics tests lack sufficient sensitivity to identify all individuals with transmissible infections . additionally , chembio 's product pipeline includes a multiplex test that detects p24 hiv antigen as well as hiv 1/2 antibodies , and a rapid test for the detection of hepatitis-c antibodies . these products are currently in development to meet the performance claims required for the u.s. market . 23 regulatory activities dppยฎ hiv 1/2 screening assay for use with oral fluid or blood samples โ we received food and drug administration ( fda ) approval of our pre-marketing application ( pma ) for this product in december 2012. in october 2014 , the fda granted the waiver for dppยฎ hiv 1/2 assay for oral fluid , fingerstick whole blood and venous whole blood under the clinical laboratory improvement amendments of 1988 ( clia ) regulations . dppยฎ hiv-syphilis โ we have developed this product for international and u.s. marketing . for the international market , the product has been registered in mexico , and successfully launched and sold in this region . in february 2015 , this product was granted approval from the brazilian anvisa . we have submitted this product both for evaluation by the cdc , acting on behalf of the united states agency of international development , and the who , which has accepted this product to be evaluated for pre-qualification in its global procurement scheme . in october 2014 , who conducted a three day audit of our facilities as follow up to pre-qualification activities for the dppยฎ hiv-syphilis assay , including other products submitted for pre-qualification through who . no major non-conformances were identified during this audit , and we continue to work with who to obtain pre-qualification approval status for this device . we continue to pursue an fda submission for this product , and are in the progress of studies to evaluate a version that has been developed for the us market , to meet the performance requirements for a combination test to detect both hiv and syphilis , including a `` reverse '' algorithm that is currently in clinical use in the united states for syphilis testing . there can be no assurance that any of the aforementioned research & development and or regulatory products or activities will result in any product approvals or commercialization , nor that any of the existing research and development activities , or any new potential development programs or collaborations will materialize or that they will meet regulatory or any other technical requirements and specifications , and or that if continued , will result in completed products , or that such products , if they are successfully completed , can or will be successfully commercialized . recent events on january 19 , 2015 , the company entered into a 2015 omnibus agreement ( the `` omnibus agreement '' ) with statsure diagnostic systems , inc. ( `` sds '' ) to acquire certain rights from , and to settle certain matters with , sds . prior to execution of the omnibus agreement , sds owned 50 percent of the rights to the sure checkยฎ hiv 1/2 assay ( the `` barrel product '' ) pursuant to the `` 2-way agreement '' , as defined below , and subject to the `` 3-way agreement '' , as defined below . the `` 2-way agreement '' is defined as the joint hiv barrel product commercialization agreement , dated as of september 29 , 2006 , as amended , between chembio and sds , that establishes the respective rights of chembio and sds concerning the barrel product . the `` 3-way agreement '' is defined as the hiv barrel license , marketing and distribution agreement , dated as of september 29 , 2006 , as amended , among chembio , sds and alere inc. ( `` alere '' ) , which grants to alere exclusive u.s. marketing and distribution rights , through may 31 , 2016 , to the barrel product . pursuant to the omnibus agreement , beginning june 1 , 2016 , chembio will own full rights to the sure checkยฎ hiv 1/2 assay , including a perpetual , non-exclusive , transferable , sub-assignable license , and including sales , marketing , distribution and trademark rights , subject to the terms of the 3-way agreement . chembio paid $ 400,000 to sds in exchange for these rights . in addition certain amounts owed by sds to chembio were exchanged for manufacturing equipment owned by sds . the license will be amortized over its useful life and the equipment will be depreciated over its excepted life . for all sales of the barrel product made by chembio outside the united states from july 1 , 2014 until the close of business on may 31 , 2016 , sds will receive an amount equal to 30 % of chembio 's net sales . for all sales of the barrel product made by sds outside the u.s. prior to the close of business on may 31 , 2016 , chembio will receive an amount equal to 30 % of sds ' net sales . calculation of `` net sales '' will be based on the amount of revenues received , reduced by costs , royalties and sales commissions incurred . story_separator_special_tag 26 other income and expense : replace_table_token_7_th other income ( expense ) for the year ended december 31 , 2014 decreased approximately $ 13,000 , primarily due to a loss on the sales of a fixed asset of $ 5,700 from a gain on the sale of a fixed asset $ 7,500 in the same period in 2013. income tax ( benefit ) provision : for the year ended december 31 , 2014 the company recognized a $ ( 413,000 ) income tax benefit and increased its deferred tax assets by $ ( 403,000 ) . for the year ended december 31 , 2013 , the company charged $ 487,000 to income tax expense and reduced the deferred tax asset by $ 458,000. the effective tax rate used to recognize the benefit in 2014 was 26.6 % compared to a 47.8 % rate used in 2013 to record the amount charged . in both years non-deductible expenses for tax purposes accounted for most of the difference from the standard 34 % u.s. tax rate . the company maintains a full valuation allowance on research and development tax credits . material changes in financial condition replace_table_token_8_th cash decreased by $ 5,036,000 from december 31 , 2013 , primarily due to net cash used in operating activities for the year of 2014. in addition there were increases in accounts receivable , net of allowance , of $ 3,747,000 , inventories of $ 450,000 , fixed assets of $ 1,488,000 before depreciation , deposits and other assets of $ 202,000 and deferred taxes of $ 441,000. we experienced an increase in accounts payable and accrued liabilities of $ 637,000 and deferred revenue of $ 340,000. the increase in accounts receivable was primarily attributable to the higher amount of credit sales at the end of december 2014 versus december of 2013 as well as some extended terms granted to certain customers . the increase in inventories is due to an increase in a component used in our products while a vendor refurbishes their facility . the increase in fixed assets is primarily due to the new warehouse facility . the increase in deposits and other assets is due to additional rental deposits and related capitalized expenses . deferred tax asset increase is related to the provision for income tax benefit . 27 liquidity and capital resources replace_table_token_9_th the company 's cash decreased as of december 31 , 2014 by $ 5,036,000 from december 31 , 2013 , primarily due to net cash used in operating activities and investing activities for year of 2014. the cash used in operations in 2014 was $ 3,820,000 , primarily due to an increase in accounts receivable of $ 3,775,000 , an increase in inventories of $ 450,000 , an increase in other assets of $ 279,000 , a decrease in prepaid and other current assets of $ 33,000 , and a net loss net of non-cash items of $ 326,000 , partially offset by an increase in accounts payable and other accrued liabilities of $ 637,000 and an increase in deferred revenue of $ 340,000. net loss net of non-cash items includes net loss of $ 1,137,000 , $ 403,000 in benefit for income taxes , partially offset by $ 739,000 in depreciation and amortization , an increase in allowance for doubtful accounts of $ 28,000 , and $ 447,000 in share-based compensation . the use of cash from investing activities is primarily the purchase of fixed assets . the increase in cash from financing activities was proceeds from option exercises . fixed asset commitments as of december 31 , 2014 , the company had paid deposits on various pieces of equipment aggregating $ 20,000 which is reflected in other assets on the balance sheet . the company is further committed to additional equipment-purchase obligation of $ 9,000 as various milestones are achieved by the various vendors . 28 recent developments and chembio 's plan of operations for the next twelve months during 2014 , chembio began executing a strategy designed to position the company for future growth . this strategy impacts the entire chembio business , including commercial operations , manufacturing operations , product development , research collaborations , and regulatory affairs . our first step took place in april 2014 , when we made an important decision to terminate our existing u.s. hiv 1/2 stat-pak ยฎ distribution agreement in june 2014. we then established the first ever chembio u.s. sales and marketing team . in october 2014 , we achieved a significant milestone when the fda granted a clia waiver for our lead product , the point-of-care dppยฎ hiv 1/2 assay , for use with oral fluid or blood samples . this waiver , for the first time , granted us the opportunity to market the dppยฎ hiv 1/2 assay to the broad healthcare community . to support our direct sales and marketing initiative , and to ensure a successful launch of this product , we established agreements with a number of premier distribution partners ( e.g. , mckesson/pss , fisher healthcare , henry schein , medline ) for the distribution of both dpp ยฎ hiv 1/2 and hiv 1/2 stat-pak ยฎ assays in the u.s. looking ahead to 2015 , we expect to further expand our commercialization team and distribution partnerships in order to build on the sales initiative we created in 2014. another important achievement during 2014 was our strong performance in latin america , where we saw significant uptake of our dpp ยฎ hiv 1/2 , dpp ยฎ syphilis and our combination dpp ยฎ hiv-syphilis assays .
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overview this discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and related notes . our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period . on an ongoing basis , we review our estimates and assumptions . our estimates are based on our historical experience and other assumptions that we believe to be reasonable under the circumstances . actual results are likely to differ from those estimates under different assumptions or conditions , but we do not believe such differences will materially affect our financial position or results of operations . our critical accounting policies , the policies we believe are most important to the presentation of our financial statements and require the most difficult , subjective and complex judgments , are outlined below in `` critical accounting policies , '' and have not changed significantly . in addition , certain statements made in this report may constitute `` forward-looking statements '' . these forward-looking statements involve known or unknown risks , uncertainties and other factors that may cause the actual results , performance or achievements of the company to be materially different from any future results , performance or achievements expressed or implied by the forward-looking statements . these factors include , among others , 1 ) our ability to obtain necessary regulatory approvals for our products ; and 2 ) our ability to increase revenues and operating income , which is dependent upon our ability to develop and sell our products , general economic conditions , demand for our products , and other factors .
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when we use words like โ seek , โ โ strive , โ โ believe , โ โ expect , โ โ anticipate , โ โ predict , โ โ potential , โ โ continue , โ โ will , โ โ may , โ โ could , โ โ intend , โ โ plan , โ โ target , โ โ project โ and โ estimate โ or similar expressions , we are making forward-looking statements . you should understand that the following important factors , in addition to the risk factors set forth above or elsewhere in this report on form 10-k , could cause our results to differ materially from those expressed in our forward-looking statements . these factors include : โ our ability to retain and expand relationships with existing clients and attract and implement new clients ; โ our reliance on the fees generated by the transaction volume , product sales and technology and agency projects and support of our clients ; โ our reliance on our clients ' projections or transaction volume or product sales ; โ our dependence upon our agreements with international business machines corporation ( โ ibm โ ) and ricoh company limited and ricoh usa , inc. , a strategic business unit within the ricoh family group of companies , ( collectively hereafter referred to as โ ricoh โ ) ; โ our dependence upon our agreements with our major clients ; โ our client mix , their business volumes and the seasonality of their business ; โ our ability to finalize pending client and customer contracts ; โ the impact of strategic alliances and acquisitions ; โ trends in e-commerce , outsourcing , government regulation , both foreign and domestic , and the market for our services ; โ whether we can continue and manage growth ; โ increased competition ; โ our ability to generate more revenue and achieve sustainable profitability ; โ effects of changes in profit margins ; โ the customer and supplier concentration of our business ; โ our reliance on third-party providers and other subcontracted services ; โ the unknown effects of possible system failures and rapid changes in technology ; โ foreign currency risks and other risks of operating in foreign countries ; โ potential litigation ; 31 โ our de pendency upon key personnel ; โ our ability to retain seasonal and temporary workers ; โ the impact of new accounting standards and changes in existing accounting rules or the interpretations of those rules ; โ our ability to raise additional capital or obtain additional financing ; โ our ability , and the ability of our subsidiaries , to borrow under current financing arrangements and maintain compliance with debt covenants ; โ our relationship with , and our guarantees of , certain of the liabilities and indebtedness of our subsidiaries ; and โ taxation on the sale of our products and provision of our services . we have based these statements on our current expectations about future events . although we believe the expectations reflected in our forward-looking statements are reasonable , we can not guarantee these expectations will actually be achieved . in addition , some forward-looking statements are based upon assumptions as to future events that may not prove to be accurate . therefore , actual outcomes and results may differ materially from what is expected or forecasted in such forward-looking statements . we undertake no obligation to update publicly any forward-looking statement for any reason , even if new information becomes available or other events occur in the future . there may be additional risks we do not currently view as material or that are not presently known . in evaluating these statements , you should consider various factors , including the risks set forth in the section entitled โ risk factors. โ key transactions and events during 2014 , we were impacted by the following key transactions and events that also affect comparability of our results to other periods : โ implemented a significant new contract with a united states government agency . โ announced and began a comprehensive merger and acquisition strategy to enhance our service offering , diversify our operations and expand our global opportunities , which resulted in the acquisitions described below . โ acquired the outstanding capital stock of rev solutions , inc. and revtech solutions india private limited ( collectively โ rev โ ) on september 3 , 2014. the results of operations of rev have been included in our consolidated financial statements since the acquisition date . โ acquired the outstanding capital stock of livearealabs , inc. ( โ lal โ ) on september 22 , 2014. the results of operations of lal have been included in our consolidated financial statements since the acquisition date . during 2015 , we were impacted by the following key transactions and events that also affect comparability of our results to prior periods : โ acquired the outstanding capital stock of moda superbe limited ( โ moda โ ) on june 11 , 2015. the results of operations of moda have been included in our consolidated financial statements since the acquisition date . โ completed an asset purchase agreement with crossview , inc. ( โ crossview โ ) and its shareholders on august 5 , 2015. the results of operations of crossview have been included in our consolidated financial statements since the acquisition date . overview we are a global provider of omni-channel commerce solutions . comprised of a broad range of technology , critical infrastructure and professional services , we provide our clients with best-of-breed capabilities offered as a complete end-to-end solution or on an ร la carte basis . we provide these solutions and services to major brand name companies and others seeking to optimize their supply chain and to enhance their online and traditional business channels and initiatives . story_separator_special_tag 33 cur rently , we are targeting any growth within our retail model to be through relationships with clients under which we can record service fee revenue ( product revenue net of product cost of revenue ) in our consolidated statement of operations as opposed to pr oduct revenue as generated in the agent or flash model above . these relationships are often driven by the sales and marketing efforts of the manufacturers and third party sales partners . in addition , as a result of certain operational restructuring of its business , our primary client relationship operating in the retail model , ricoh , has implemented , and will continue to implement , certain changes in the sale and distribution of ricoh products . the changes have resulted , and are expected to continue to res ult , in reduced product revenues and profitability under our retail model . we continue to monitor and control our costs to focus on profitability . while we are targeting our new service fee contracts to yield incremental gross profit , we also expect to incur incremental investments in technology development , operational and support management and sales and marketing expenses to help generate growth . our expenses comprise primarily four categories : 1 ) cost of product revenue , 2 ) cost of service fee revenue , 3 ) cost of pass-through revenue and 4 ) selling , general and administrative expenses . cost of product revenue โ consists of the purchase price of product sold and freight costs , which are reduced by certain reimbursable expenses . these reimbursable expenses include pass-through customer marketing programs , direct costs incurred in passing on any price decreases offered by vendors to cover price protection and certain special bids , the cost of products provided to replace defective product returned by customers and certain other expenses as defined under the distributor agreements . cost of service fee revenue โ consists primarily of compensation and related expenses for our web-enabled customer contact center services , international fulfillment and distribution services and professional , digital agency and technology services , and other fixed and variable expenses directly related to providing services under the terms of fee based contracts , including certain occupancy and information technology costs and depreciation and amortization expenses . cost of pass-through revenue โ the related reimbursable costs for pass-through expenditures are reflected as cost of pass-through revenue . selling , general and administrative expenses โ consist of expenses such as compensation and related expenses for sales and marketing staff , distribution costs ( excluding freight ) applicable to the supplies distributors business and the retail model , executive , management and administrative personnel and other overhead costs , including certain occupancy and information technology costs and depreciation and amortization expenses . monitoring and controlling our available cash balances and our expenses continues to be a primary focus . our cash and liquidity positions are important components of our financing of both current operations and our targeted growth . 34 story_separator_special_tag gross profit as a percentage of service fees was 29.4 % in 2014 and 31.7 % in 2013. the gross profit percentage in each period included the benefit of higher margin project activity . additionally , 2014 included certain incremental expenses incurred to prepare for and support certain client solutions for the fourth quarter holiday volumes , while 2013 included an incremental benefit of $ 1.2 million applicable to certain client transition related agreements . selling , general and administrative expenses ( โ sg & a โ ) . sg & a expenses were $ 47.7 million , or 19.3 % of total revenues in 2014 and $ 46.2 million , or 19.1 % of total revenues in 2013. the year ended december 31 , 2014 included $ 1.1 million of sg & a expenses for our consolidated acquisitions , rev and lal , and a $ 0.5 million increase in stock based compensation expense compared to 2013 partially offset by decreases in certain personnel related expenses . the year ended december 31 , 2014 also included $ 1.7 million of incremental professional fees and other expenses associated with our mergers and acquisition activity . sg & a expenses for 2014 and 2013 include approximately $ 1.0 million and $ 2.5 million , respectively , of restructuring and acquisition related charges . excluding the restructuring and acquisition related charges in 2014 and 2013 and amortization of acquired identifiable intangible assets , sg & a expenses were 18.1 % and 18.1 % of total revenues in 2014 and 2013 , respectively . income taxes . we recorded a tax provision associated with state income taxes and the majority of our international operations . a valuation allowance was provided for the majority of our domestic net deferred tax assets , which are primarily related to our net operating loss carryforwards , and for certain foreign deferred tax assets . in 2014 we recorded a deferred tax benefit applicable to a change in our valuation allowance following our rev and lal acquisitions under the related purchase accounting adjustments . we expect we will continue to record an income tax provision associated with state income taxes and the majority of our international operations . supplies distributors and its subsidiaries we conduct a portion of our retail business model operations through supplies distributors and its subsidiaries , which act as distributors/resellers of various ricoh and other products . we conduct these services through transaction management services agreements under which pfs provides transaction management and fulfillment services to supplies distributors and its subsidiaries . in addition to supplies distributors being our wholly-owned subsidiary , we have also provided supplies distributors with a subordinated loan that , as of december 31 , 2015 , had an outstanding balance of $ 2.5 million . 37 supplies distributors paid us dividends of $ 0.9 million , $ 1 . 8 million and $ 1 . 5 million in 2015 , 201 4 and 201 3 , respectively . supplies distributors has received lender approval to pay dividends of approximately $ 0.9 million in 201 6 .
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results of operations the following table discloses certain financial information for the periods presented , expressed in terms of dollars , dollar change , percentage change and as a percentage of total revenue ( in millions ) . replace_table_token_3_th ( 1 ) represents the percent of product revenue , net . ( 2 ) represents the percent of service fee revenue . ( 3 ) represents the percent of pass-through revenue . year ended december 31 , 2015 compared to year ended december 31 , 2014 product revenue , net . product revenue decreased $ 16.6 million , or 22.1 % , in 2015 as compared to 2014. this reduction in revenue is primarily due to the operational restructuring by ricoh of its business , including discontinuance of certain product lines , which has resulted , and is expected to continue to result , in lower product revenue from the sale of ricoh products . we currently expect product revenue to continue to decline and be approximately $ 45 million to $ 50 million in 2016. service fee revenue . service fee revenue increased $ 47.8 million , or 35.6 % , in 2015 as compared to 2014. the increase in service fee revenue for the year ended december 31 , 2015 as compared to 2014 was primarily due to the impact of expanded and new client relationships , including service fee revenues generated by ( 1 ) a full year of support operations for a significant new contract with a united states government agency versus a partial year in 2014 and ( 2 ) our acquired subsidiaries rev and lal , beginning in september 2014 , moda in june 2015 and crossview in august 2015 , partially offset by the conclusion or reduction of operations of certain client programs during 2015. the change in service fee revenue , excluding pass-through revenue , is shown below ( $ millions ) : replace_table_token_4_th 35 when considering client relationships , we define an existing client
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as discussed in note c of our notes to the consolidated financial statements , we acquired tech blend in november 2017 , and the purchase price allocation included separately identifiable intangible assets of $ 29 million . definite-lived intangible assets , which are comprised of trademarks , customer relationships and developed technologies , are amortized over their estimated useful lives and are reviewed for impairment when indication of potential impairment exists , such as a significant reduction in cash flows associated with the assets . we recognized an impairment on intangible assets associated with the purification solutions business in the second fiscal quarter of 2018 , which is discussed in detail below under the heading โ purifications solutions goodwill and long-lived assets impairment charges โ . goodwill is comprised of the purchase price of business acquisitions in excess of the fair value assigned to the net tangible and identifiable intangible assets acquired . goodwill is not amortized , but is reviewed for impairment annually as of may 31 , or when events or changes in the business environment indicate that the carrying value of the reporting unit may exceed its fair value . a reporting unit , for the purpose of the impairment test , is at or below the operating segment level , and constitutes a business for which discrete financial information is available and regularly reviewed by segment management . reinforcement materials , and the fumed metal oxides and specialty compounds businesses within performance chemicals , which are considered separate reporting units , carried our goodwill balances as of may 31 , 2018. the purification solutions reporting unit has no remaining goodwill balance subsequent to the goodwill impairment charge recorded in the second quarter of fiscal 2018. as part of the tech blend acquisition , goodwill of $ 33 million was generated and is reflected in the specialty compounds reporting unit . for the purpose of the goodwill impairment test , we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value , an additional quantitative evaluation is performed . alternatively , we may elect to proceed directly to the quantitative goodwill impairment test . if based on the quantitative evaluation the fair value of the reporting unit is less than its carrying amount , a goodwill impairment loss would result . the goodwill impairment loss would be the amount by which the carrying value of the reporting unit , including goodwill , exceeds its fair value , limited to the total amount of goodwill allocated to that reporting unit . the fair value of a reporting unit is based on discounted estimated future cash flows . the fair value is also benchmarked against a market approach using the guideline public companies method . the assumptions used to estimate fair value include management 's best estimates of future growth rates , operating cash flows , capital expenditures and discount rates over an estimate of the remaining operating period at the reporting unit level . refer to the discussion under the heading โ purification solutions goodwill and long-lived assets impairment charges โ for details on the purification solutions goodwill impairment test and the resulting charge recorded in the second quarter of fiscal 2018 and refer to note g of our notes to the consolidated financial statements for the results of our annual goodwill impairment test performed as of may 31 , 2018. long-lived assets impairment our long-lived assets primarily include property , plant and equipment , intangible assets , long-term investments and assets held for rent . the carrying values of long-lived assets are reviewed for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be recoverable . to test for impairment of assets , we generally use a probability-weighted estimate of the future undiscounted net cash flows of the assets over their remaining lives to determine if the value of the asset is recoverable . long-lived assets are grouped with other assets and liabilities at the lowest level for which independent identifiable cash flows are determinable . 26 an asset impairment is recognized when the carrying value of the asset is not recoverable based on the analysis described above , in which case the asset i s written down to its fair value . if the asset does not have a readily determinable market value , a discounted cash flow model may be used to determine the fair value of the asset . in circumstances when an asset does not have separate identifiable cash flo ws , an impairment charge is recorded when we no longer intend to use the asset . in the second quarter of fiscal 2018 , we determined that the long-lived asset group of purification solutions was not recoverable and accordingly , we recorded an impairment cha rge for the carrying value in excess of the fair value of the asset group , as described below under the heading โ purification solutions goodwill and long-lived assets impairment charges โ . purification solutions goodwill and long-lived assets impairment charges during the second quarter of fiscal 2018 as a result of the impairment tests performed on goodwill and long-lived assets of the purification solutions reporting unit , we recorded impairment charges and an associated tax benefit in the consolidated statements of operations as follows : three months ended march 31 , 2018 ( in millions ) goodwill impairment charge $ 92 long-lived assets impairment charge 162 benefit for income taxes ( 30 ) impairment charges , net of tax $ 224 in the second quarter of fiscal 2018 , the purification solutions reporting unit experienced further share losses , lower customer demand and declining prices in the mercury removal and north america powdered activated carbon applications , which led us to reassess our previous estimates for expected growth in volumes , prices and margins story_separator_special_tag these liabilities can be affected by the availability of new information , changes in the assumptions on which the accruals are based , unanticipated government enforcement action or changes in applicable government laws and regulations , which could result in higher or lower costs . our current estimate of the cost of our share of existing and future respirator liability claims is based on facts and circumstances existing at this time . developments that could affect our estimate include , but are not limited to , ( i ) significant changes in the number of future claims , ( ii ) changes in the rate of dismissals without payment of pending claims , ( iii ) significant changes in the average cost of resolving claims , ( iv ) significant changes in the legal costs of defending these claims , ( v ) changes in the nature of claims received , ( vi ) changes in the law and procedure applicable to these claims , ( vii ) the financial viability of other parties that contribute to the settlement of respirator claims , ( viii ) a change in the availability of insurance coverage maintained by certain of the other parties that contribute to the settlement of respirator claims , or the indemnity provided by a former owner of the business , ( ix ) changes in the allocation of costs among the various parties paying legal and settlement costs and ( x ) a determination that the assumptions that were used to estimate our share of liability are no longer reasonable . we can not determine the impact of these potential developments on our current estimate of our share of liability for these existing and future claims . accordingly , the actual amount of these liabilities for existing and future claims could be different than the reserved amount . income taxes our business operations are global in nature , and we are subject to taxes in numerous jurisdictions . tax laws and tax rates vary substantially in these jurisdictions and are subject to change based on the political and economic climate in those countries . we file our tax returns in accordance with our interpretations of each jurisdiction 's tax laws . significant judgment is required in determining our worldwide provision for income taxes and recording the related tax assets and liabilities . in the ordinary course of our business , there are operational decisions , transactions , facts and circumstances , and calculations which make the ultimate tax determination uncertain . furthermore , our tax positions are periodically subject to challenge by taxing authorities throughout the world . we have recorded reserves for taxes and associated interest and penalties that may become payable in future years as a result of audits by tax authorities . any significant impact as a result of changes in underlying facts , law , tax rates , tax audit , or review could lead to adjustments to our income tax expense , our effective tax rate , and or our cash flow . for instance , on december 22 , 2017 , the u.s. enacted significant changes to federal income tax law affecting us . refer to the discussion under the heading โ tax reform โ in note r of our notes to the consolidated financial statements ( โ note r โ ) . 28 we record benefits for uncertain tax posi tions based on an assessment of whether the position is more likely than not to be sustained by the taxing authorities . if this threshold is not met , no tax benefit of the uncertain tax position is recognized . if the threshold is met , the tax benefit that is recognized is the largest amount that is greater than 50 % likely of being realized upon ultimate settlement . this analysis presumes the taxing authorities ' full knowledge of the positions taken and all relevant facts , but does not consider the time valu e of money . we also accrue for interest and penalties on these uncertain tax positions and include such charges in the income tax provision in the consolidated statements of operations . additionally , we have established valuation allowances against a variety of deferred tax assets , including net operating loss carry-forwards , foreign tax credits , and other income tax credits . valuation allowances take into consideration our ability to use these deferred tax assets and reduce the value of such items to the amount that is deemed more likely than not to be recoverable . our ability to utilize these deferred tax assets is dependent on achieving our forecast of future taxable operating income over an extended period of time . we review our forecast in relation to actual results and expected trends on a quarterly basis . failure to achieve our operating income targets may change our assessment regarding the recoverability of our net deferred tax assets and such change could result in a valuation allowance being recorded against some or all of our net deferred tax assets . an increase in a valuation allowance would result in additional income tax expense , while a release of valuation allowances in periods when these tax attributes become realizable would reduce our income tax expense . significant accounting policies we have other significant accounting policies that are discussed in note a in item 8 below . certain of these policies include the use of estimates , but do not meet the definition of critical because they generally do not require estimates or judgments that are as difficult or subjective to measure . however , these policies are important to an understanding of the consolidated financial statements . recently issued accounting pronouncements refer to the discussion in note b of our notes to the consolidated financial statements . results of operations cabot is organized into four reportable business segments : reinforcement materials , performance chemicals , purification solutions , and specialty fluids .
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financial condition and results of operations critical accounting policies our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the united states ( โ gaap โ ) . this preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , and expenses and related disclosure of contingent assets and liabilities . we consider an accounting estimate to be critical to the financial statements if ( i ) the estimate is complex in nature or requires a high degree of judgment and ( ii ) different estimates and assumptions were used , the results could have a material impact on the consolidated financial statements . on an ongoing basis , we evaluate our estimates and the application of our policies . we base our estimates on historical experience , current conditions and on various other assumptions that we believe are 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 . the policies that we believe are critical to the preparation of the consolidated financial statements are presented below . revenue recognition we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price is fixed or determinable and collectability is reasonably assured . we generally are able to ensure that products meet customer specifications prior to shipment . if we are unable to determine that the product has met the specified objective criteria prior to shipment or if title has not transferred because of sales terms , the revenue is considered โ unearned โ and is deferred until the revenue recognition criteria are met .
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the company does not have any minimum capital requirements related to its status as a u.s. corporation in the state of delaware . 9 . stock-based compensation the board of directors of the company adopted an employees ' equity incentive plan ( the โ eeip โ ) in april 1994. the eeip expired story_separator_special_tag the following discussion should be read in conjunction with part ii , item 8 , โ financial statements and supplementary data โ included elsewhere herein . information contained in the following discussion of our results of operations and financial condition contains forward-looking statements within the meaning of section 21e of the exchange act , section 27a of the securities act , and the private securities litigation reform act of 1995 , and , as such , is based on current expectations and is subject to certain risks and uncertainties . the reader should not place undue reliance on these forward-looking statements for many reasons , including those risks discussed under item 1a , โ risk factors , โ and elsewhere in this document . see โ disclosure regarding forward-looking statements โ that precedes part i of this report . we undertake no obligation to publicly update or revise any forward-looking statements as a result of new information , future events or otherwise . references in this item to โ we , โ โ our , โ or โ us โ are to the company and its subsidiaries on a consolidated basis unless the context otherwise requires . the term โ cad โ refers to canadian dollars . amounts presented in this item 7 are rounded . as such , there may be rounding differences in period over period changes and percentages reported throughout this item 7. executive overview overview since our inception in 1992 , we have been primarily engaged in developing and operating gaming establishments and related lodging , restaurant and entertainment facilities . our primary source of revenue is from the net proceeds of our gaming machines and tables , with ancillary revenue generated from hotel , restaurant , bowling and entertainment facilities that are a part of the casinos . we currently own , operate and manage the following casinos through wholly-owned subsidiaries : - the century casino & hotel in edmonton , alberta , canada ; - the century casino calgary , alberta , canada ; - the century casino & hotel in central city , colorado ; and - the century casino & hotel in cripple creek , colorado . we also operate 12 ship-based casinos onboard four cruise lines : oceania cruises , tui cruises , windstar cruises and regent seven seas cruises . the following table summarizes the cruise lines for which we have entered into agreements and the associated ships on which we operate ship-based casinos . cruise line ship oceania cruises regatta oceania cruises nautica oceania cruises insignia * oceania cruises marina oceania cruises riviera tui cruises mein schiff 1 tui cruises mein schiff 2 windstar cruises wind surf windstar cruises wind star windstar cruises wind spirit regent seven seas cruises seven seas voyager regent seven seas cruises seven seas mariner regent seven seas cruises seven seas navigator 27 * our casino operation on board insignia was suspended on april 5 , 2012 , as the vessel was leased by oceania cruises to a different cruise line . we will not operate this ship-based casino as long as the vessel is leased to a different cruise line . we also hold a 33.3 % ownership interest in and actively participate in the management of cpl , the owner and operator of 8 casinos throughout poland . we account for this investment under the equity method . on october 11 , 2012 , our subsidiary century casinos europe gmbh ( โ cce โ ) signed an agreement with lot polish airlines to acquire an additional 33.3 % ownership interest in cpl . upon closing of the transaction , cce will own a 66.6 % ownership interest in cpl . the purc hase price is approximately $ 6.9 million . o n february 21 , 2013 , we borrowed cad 7.3 million ( approximately $ 7.2 million based on the exchange rate in effect on february 21 , 2013 ) from the bmo c redit a greement to pay for the investment . cce has obtained the required approval from polish airports , which is the co-shareholder in cpl , and from the polish minister of finance . we anticipate closing the transaction in early april 2013. the following table summarizes the polish cities in which cpl operate d as of december 31 , 2012 , each casino 's location , number of slots and tables . replace_table_token_3_th cpl obtained an additional gaming license in the city of plock and opened a casino on february 10 , 2013 . plock , one of the oldest cities in poland , has more than 1 3 0,000 inhabitants and is located approximately 62 miles north of warsaw . cpl is also participating in other license applications , including another location in warsaw . decisions from the polish minister of finance on these applications are pending . 28 in december 2010 , we entered into a long-term management agreement to direct the operation of the casino at the radisson aruba resort , casino & spa . we receive a management fee consisting of a fixed fee , plus a percentage of the casino 's ebitda . we were not required to invest any amounts under the management agreement . we recognize in our statement of earnings , foreign currency transaction gains or losses resulting from the translation of casino operations and other transactions that are denominated in a currency other than u.s. dollars . our casinos in canada represent a significant portion of our business , and the revenue generated and expenses incurred by these operations are generally denominated in canadian dollars . a decrease in the value of this currency in relation to the value of the u.s. dollar would decrease the earnings from our foreign operations when translated into u.s. story_separator_special_tag the increase in h otel , food and beverage is due to higher hotel room occupancy , increased customer volumes on the gaming floor and increased showroom event attendance for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. the increase in other revenue is due to increased showroom and comedy club ticket sales for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. total operating costs and expenses increased by $ 0.2 million , or 0.9 % , for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. in cad , total operating costs and expenses increased by $ 0.3 million , or 1.9 % for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. the increase is due to higher advertising , promotional , food and payroll costs of $ 0.7 million offset by a decrease in depreciation expense of $ 0.4 million for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. as a result of the foregoing , earning s from operations increased by $ 0.5 million , or 7.3 % , for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. in cad , earnings f rom operations increased by $ 0 . 5 million , or 8.4 % , for the year ended december 31 , 2012 as compared to the year ended december 31 , 2011. net earnings increased by $ 0.4 million , or 9.1 % , for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 . 33 in cad , net earnings increased by $ 1.0 million , or 24.8 % , for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. the increase in net earnings compared to earnings from operations is due to an increase in foreign currency exchange gains of $ 0.5 million for the year ended december 31 , 2012 , a decrease in interest expense of $ 0.1 million and an increase in income tax expense of $ 0.2 million . calgary replace_table_token_7_th net operating revenue at our prop erty in calgary decreased by ( $ 0.3 ) million , or ( 2.7 % ) , for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. in cad , net operating revenue decreased by ( $ 0.2 ) million , or ( 1 . 8 % ) , due to decreases in gaming , bowling , food and beverage revenue offset by an increase in other revenue for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 g aming revenue decreased in 2012 primarily due to a decrease in baccarat table games hold percentage and lower customer volume during the fourth quarter of 2012 compared to the fourth quarter of 2011. the decrease in gaming revenue during the fourth quarter 2012 was offset by an increase in gaming revenue of $ 0.2 million , or 3.9 % , during the nine months ended september 30 , 2012 compared to the nine months ended september 30 , 2011. the decrease in bowling , food and beverage revenue is due to a decrease in food and beverage revenue from a lower number of showroom events for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. total operating costs and expenses increased by $ 0.2 million , or 1.9 % , for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. in cad , total operating costs and expenses increased by $ 0.3 million , or 3.0 % , due to higher band entertainment costs , promotional , payroll and utility costs as well as increased depreciation costs for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 . beginning in 2013 , the property will host showroom performances from third party vendors only , substantially decreasing marketing costs . 34 as a result of the foregoing , losses from operations increased by $ 0.5 million , or 300.0 % , for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. in cad , losses from op erations increased by $ 0.5 million , or 317.8 % , for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. net losses increased by $ 0.4 million , or 318.3 % , for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. the increase in net loses is due to the foregoing operational items . in cad , net losses increased by $ 0.1 million , or 47 .2 % , for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. the smaller increase in net losses compared to losses from operations is due to an increase in foreign currency exchange gains of $ 0.3 million for the year ended december 31 , 2012 and an increase in the income tax benefit of $ 0.1 million .
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discussion of results year ended december 31 , 201 2 vs. 2011 century casinos , inc. and subsidiaries replace_table_token_5_th net operating revenue increased by $ 1.0 million , or 1.4 % for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 . following is a breakout of net operating revenue by property for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 : ยท net operating revenue at our property in edmonton increased by $ 0.6 million , or 2.6 % . ยท net operating revenue at our property in calgary decreased by ( $ 0.3 ) million , or ( 2.7 % ) . ยท net operating revenue at our property in central city increased by $ 0.5 million , or 2.9 % . ยท net operating revenue at our property in cripple cre ek decreased by ( $ 0.3 ) million , or ( 2.5 % ) . ยท net operating revenue from our ship-based cas inos and other increased by $ 0.4 million , or 6.0 % . o perating costs and expenses decreased by ( $ 0.7 ) million , or ( 1.1 % ) , for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 . following is a breakout of total operating costs and expenses by property for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 : ยท total operating costs and expenses at our proper ty in edmonton increased by $ 0.2 million , or 0.9 % .
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additionally , changes in the market environment and other events that may occur over the life of the investment may cause the gains or losses ultimately realized on these investments to be different than the story_separator_special_tag the following analysis of our financial condition and results of operations should be read in conjunction with our accompanying consolidated financial statements and the notes thereto contained elsewhere in this annual report on form 10-k. historical financial condition and results of operations and percentage relationships among any amounts in the financial statements are not necessarily indicative of financial condition , results of operations or percentage relationships for any future periods . except per share amounts , dollar amounts in the tables included herein are in thousands unless otherwise indicated . overview general we were incorporated under the maryland general corporation law on may 30 , 2001. we operate as an externally managed , closed-end , non-diversified management investment company , and have elected to be treated as a bdc under the 1940 act . in addition , for federal income tax purposes we have elected to be treated as a ric under the code . to continue to qualify as a ric for federal income tax purposes and obtain favorable ric tax treatment , we must meet certain requirements , including certain minimum distribution requirements . we were established for the purpose of investing in debt and equity securities of established private businesses operating in the u.s. our investment objectives are to : ( 1 ) achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses , make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time ; and ( 2 ) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains . to achieve our investment objectives , our investment strategy is to invest in several categories of debt and equity securities , with each investment generally ranging from $ 8 million to $ 30 million , although investment size may vary , depending upon our total assets or available capital at the time of investment . we expect that our investment portfolio over time will consist of approximately 90.0 % debt investments and 10.0 % equity investments , at cost . as of september 30 , 2018 , our investment portfolio was made up of approximately 91.4 % debt investments and 8.6 % equity investments , at cost . we focus on investing in lower middle market companies ( which we generally define as companies with annual earnings before interest , taxes , depreciation and amortization of $ 3 million to $ 15 million ) in the u.s. that meet certain criteria , including , but not limited to , the following : the sustainability of the business ' free cash flow and its ability to grow it over time , adequate assets for loan collateral , experienced management teams with a significant ownership interest in the borrower , reasonable capitalization of the borrower , including an ample equity contribution or cushion based on prevailing enterprise valuation multiples and , to a lesser extent , the potential to realize appreciation and gain liquidity in our equity position , if any . we lend to borrowers that need funds for growth capital or to finance acquisitions or recapitalize or refinance their existing debt facilities . we seek to avoid investing in high-risk , early-stage enterprises . our targeted portfolio companies are generally considered too small for the larger capital marketplace . we invest by ourselves or jointly with other funds and or management of the portfolio company , depending on the opportunity and have opportunistically made several co-investments with our affiliate gladstone investment , a bdc also managed by our adviser , pursuant to an exemptive order granted by the sec . we believe this ability to co-invest will continue to enhance our ability to further our investment objectives and strategies . if we are participating in an investment with one or more co-investors , our investment is likely to be smaller than if we were investing alone . business portfolio and investment activity in general , our investments in debt securities have a term of no more than seven years , accrue interest at variable rates ( generally based on the one-month libor ) and , to a lesser extent , at fixed rates . we seek debt instruments that pay interest monthly or , at a minimum , quarterly , may have a success fee or deferred interest provision and are primarily interest only , with all principal and any accrued but unpaid interest due at maturity . generally , success fees accrue at a set rate and are contractually due upon a change of control of a portfolio company , typically from an exit or sale . some debt securities have deferred interest whereby some portion of the interest payment is added to the principal balance so that the interest is paid , together with the principal , at maturity . this form of deferred interest is often called pik interest . 44 typically , our equity investments consist of common stock , preferred stock , limited liability company interests , or warrants to purchase the foregoing . often , these equity investments occur in connection with our original investment , recapitalizing a business , or refinancing existing debt . during the year ended september 30 , 2018 , we invested $ 67.9 million in ten new portfolio companies and extended $ 38.7 million of investments to existing portfolio companies . in addition , during the year ended september 30 , 2018 , we exited seven portfolio companies through sales and early payoffs . story_separator_special_tag additionally , we issued 2.1 million shares of our 6.00 % series 2024 term preferred stock , par value $ 0.001 per share ( ยseries 2024 term preferred stockย ) at a public offering price of $ 25 per share , for gross proceeds of $ 51.8 million in september 2017 , inclusive of the overallotment , and approximately 2.2 million shares of our common stock for gross proceeds of $ 17.3 million in october 2016 , inclusive of the november 2016 overallotment . additionally , during the year ended september 30 , 2018 , we sold 2,341,296 shares of our common stock under our at-the-market program at a weighted-average price of $ 9.39 per share and raised $ 22.0 million of gross proceeds . refer to ยliquidity and capital resources ย equity ย common stockย and ยliquidity and capital resources ย equity ย term preferred stockย for further discussion of our common stock and mandatorily redeemable preferred stock and ยliquidity and capital resources ย revolving credit facilityย for further discussion of the credit facility . although we were able to access the capital markets historically and in recent years , we believe uncertain market conditions could affect the trading price of our capital stock and thus may inhibit our ability to finance new investments through the issuance of equity . when our common stock trades below nav per common share , as it has often done in previous years , our ability to issue equity is constrained by provisions of the 1940 act , which generally prohibits the issuance and sale of our common stock below nav per common share without first obtaining approval from our stockholders and our independent directors , other than through sales to our then-existing stockholders pursuant to a rights offering . we did not request that our stockholders approve the company 's ability to issue shares of common stock at a price below nav per share at our annual meeting of stockholders held on february 8 , 2018. should we decide to issue shares of common stock at a price below nav per share in the future , we will seek the requisite approval of our stockholders at such time . on november 13 , 2018 , the closing market price of our common stock was $ 9.28 , an 11.5 % premium to our september 30 , 2018 nav per share of $ 8.32. refer to note 15ยsubsequent events in the notes to the consolidated financial statements included elsewhere in this annual report on form 10-k for a discussion of additional capital raised in connection with issuance of the 2023 notes . 46 regulatory compliance our ability to seek external debt financing , to the extent that it is available under current market conditions , is further subject to the asset coverage limitations of the 1940 act , which require us to have an asset coverage ( as defined in sections 18 and 61 of the 1940 act ) of at least 200 % ( currently ) or 150 % ( effective april 10 , 2019 ) on our ยsenior securities representing indebtednessย and our ยsenior securities that are stock.ย on april 10 , 2018 , our board of directors , including a ยrequired majorityย ( as such term is defined in section 57 ( o ) of the 1940 act ) thereof , approved the modified asset coverage requirements set forth in section 61 ( a ) ( 2 ) of the 1940 act , as amended by the small business credit availability act . as a result , the company 's asset coverage requirements for senior securities will be changed from 200 % to 150 % , effective one year after the date of the board of directors ' approval ; or april 10 , 2019. under the current 200 % asset coverage standard , we may borrow debt or issue senior securities in the amount of $ 1.00 for every $ 1.00 of equity in the company . starting from april 10 , 2019 , under the 150 % asset coverage standard , we may borrow debt or issue senior securities in the amount of $ 2.00 for every $ 1.00 of equity in the company . notwithstanding the modified asset coverage requirement under the 1940 act described above , we are separately subject to a minimum asset coverage requirement of 200 % with respect to certain provisions of our credit facility and our series 2024 term preferred stock . as of september 30 , 2018 , our asset coverage on our ยsenior securities representing indebtednessย was 359.0 % and our asset coverage on our ยsenior securities that are stockย was 244.4 % . recent developments debt offering in november 2018 , we completed a public debt offering of $ 57.5 million aggregate principal amount of 6.125 % notes due 2023 ( the ย2023 notesย ) , inclusive of the overallotment , for net proceeds of $ 55.5 million after deducting underwriting discounts , commissions and offering expenses borne by us . the notes will mature on november 1 , 2023 , and may be redeemed in whole or in part at any time or from time to time at the company 's option on or after november 1 , 2020. the 2023 notes are traded under the ticker symbol ยgladdย on the nasdaq global select market . distributions on october 9 , 2018 , our board of directors declared the following monthly cash distributions to common and preferred stockholders : replace_table_token_8_th portfolio and investment activity in october 2018 , our investment in tws acquisition corporation paid off at par for net cash proceeds of $ 2.0 million . in october and november 2018 , we invested a total of $ 1.6 million in 8 th avenue food & provisions , inc. through secured second lien debt . in november 2018 , we invested $ 2.0 million in gobp holdings , inc. ( d/b/a grocery outlet ) through secured second lien debt . in november 2018 , our investment in red ventures , llc paid off at par for net cash proceeds of $ 3.1
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results of operations comparison of the year ended september 30 , 2018 to the year ended september 30 , 2017 replace_table_token_9_th investment income interest income increased by 18.6 % for the year ended september 30 , 2018 , as compared to the prior year . this increase was due primarily to an increase in the weighted average balance outstanding on our interest-bearing portfolio and an increase in the weighted average yield on our interest-bearing portfolio . the weighted average principal balance of our interest-bearing investment portfolio during the year ended september 30 , 2018 , was $ 372.2 million , compared to $ 320.1 million for the prior year , an increase of $ 52.1 million , or 16.3 % . the weighted average yield on our interest-bearing investments is based on the current stated interest rates on interest-bearing investments which increased to 11.8 % for the year ended september 30 , 2018 compared to 11.6 % for the year ended september 30 , 2017 , inclusive of any allowances on interest receivables made during those periods . as of september 30 , 2018 , one portfolio company , francis drilling fluids , ltd. ( ยfdfย ) was on non-accrual status , with an aggregate debt cost basis of approximately $ 26.9 million , or 6.9 % of the cost basis of all debt investments in our portfolio . as of september 30 , 2017 , two portfolio companies , sunshine and alloy die casting co. ( ยadcย ) , were on non-accrual status , with an aggregate debt cost basis of approximately $ 27.9 million , or 7.5 % of the cost basis of all debt investments in our portfolio . 48 other income decreased by 24.9 % during the year ended september 30 , 2018 , as compared to the prior year . this decrease was primarily due to a $ 1.1 million decrease in success fees recognized year over year .
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in addition , other written or oral statements , which constitute forward-looking statements , may be made by or on behalf of the company . words such as ยexpects , ย ยanticipates , ย ยintends , ย ยplans , ย ยbelieves , ย ยseeks , ย ยestimates , ย variations of such words and similar expressions are intended to identify such forward-looking statements . these statements are not guarantees of future performance , and involve certain risks , uncertainties and assumptions , which are difficult to predict . ( see ยitem 1a : risk factorsย above . ) therefore , actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements . the company undertakes no obligation to update publicly any forward-looking statements , whether as a result of new information , future events or otherwise . company overview strategic overview igi is engaged in the formulation , development , manufacture and packaging of topical semi-solid and liquid products for pharmaceutical , cosmeceutical and cosmetic customers . the company 's strategic plan is to build upon this foundation by expanding into the prescription pharmaceutical arena . this strategy will be based upon three initiatives : increasing the current contract manufacturing services business , developing a generic portfolio of formulations in topical dosage forms , and creating unique opportunities around the company 's licensed novasomeยฎ technology and novel dosage forms . 17 the company has structured a new management team to implement this plan . the team brings a wealth of experience in the generic pharmaceutical industry to igi . igi 's facilities and manufacturing equipment have been designed to produce topical and liquid products and support the company 's target prescription dosage forms . contract manufacturing services will continue to be crucial to igi 's success . the customer base for these services is pharmaceutical companies as well as cosmetic , cosmeceutical , and otc product marketers who require product development/manufacturing support . this is a highly-competitive market with a number of larger , greater-resourced companies offering similar services . igi looks to create niche opportunities for itself by providing high quality , customer-oriented service . igi plans to build a prescription pharmaceutical portfolio in the specialty areas of topical dosage forms . this will be accomplished through in-house formulation and development , and submission of andas to the fda . the entire approval process can take 3-5 years before a product is approved , of which the fda approval portion is approximately 18 - 24 months . the company plans to submit multiple andas each year . igi has exclusive rights for the use of novasomeยฎ technology in topical formulations and intends to pursue collaboration opportunities with established pharmaceutical companies seeking to develop topical products with unique properties . in addition , the company will explore line extension opportunities through innovative packaging or alternate dosage forms of existing pharmaceutical molecules . recent events in december 2010 , we completed a $ 6,500,000 private placement for the sale of 5,909,087 shares of the company 's common stock resulting in net proceeds of approximately $ 5,696,000 as more fully described in note 10 to our consolidated financial statements . in december 2010 , we entered into a credit agreement for a $ 3,000,000 credit facility as more fully described in note 6 to our consolidated financial statements . to secure payment of amounts financed , we have granted to the lender a security interest in and against , generally , all of our tangible and intangible assets , except intellectual property . story_separator_special_tag width= '' 136 '' > $ 217 $ 108 $ 109 101 % the tax benefit of $ 222,000 in 2010 and $ 108,000 in 2009 was the result of a sale of a portion of the company 's state tax operating loss carry forwards to a third party , pursuant to a program run by the state of new jersey . there can be no assurance of continuation . replace_table_token_4_th the decrease in net loss attributable to common stockholders for the year ended december 31 , 2010 as compared to the same period in 2009 is due to approximately $ 943,000 of accrued interest and amortization of debt discount and debt issuance costs related to the convertible notes payable issued in connection with the 2009 offering ( see note 8 to our consolidated financial statements ) that were included in interest expense and the dividend accreted for beneficial conversion features of $ 2,488,000 for 2009 , as well as the items noted above , offset by the preferred stock dividends of $ 1,284,000 in 2010 . 19 liquidity and capital resources the company 's business operations have been primarily funded over the past two years through private placements of our capital stock . as described more fully in notes 6 , 8 , 9 and 10 to our consolidated financial statements , we raised an aggregate of $ 7,213,000 through private placements of equity with accredited investors in 2010 and $ 5,304,000 in 2009 principally from private equity investors . in 2010 , we also entered into a $ 3,000,000 line of credit . the company may require additional funding and this funding will depend , in part , on the timing and structure of potential business arrangements . if necessary , the company may continue to seek to raise additional capital through the sale of its equity or through a strategic alliance with a third party . there may also be additional acquisition and growth opportunities that may require external financing . there can be no assurance that such financing will be available on terms acceptable to the company , or at all . story_separator_special_tag on january 29 , 2009 , the secured line of credit with pinnacle mountain partners , llc , which we refer to as pinnacle , a company owned by dr. edward and jane hager , significant stockholders of the company , and in the case of mrs. hager , a director of the company , was amended and extended for a term of six months , which we refer to as the second amendment to loan and security agreement , as more fully described in note 6 to our consolidated financial statements . the company had an outstanding principal balance under the second amendment to loan and security agreement with a face value of $ 500,000 as of may 15 , 2009 and interest expense related to this line of credit was $ 14,065 for the period january 1 , 2009 to may 15 , 2009 ( date of conversion ) . the company 's operating activities used $ 3,013,000 of cash during the year ended december 31 , 2010 compared to $ 3,619,000 used in the comparable period of 2009. the use of cash for the year ended december 31 , 2010 and for the same period of 2009 was substantially a result of the net loss for the period offset by non-cash expense items . the company 's investing activities used $ 195,000 of cash in the year ended december 31 , 2010 compared to $ 736,000 of cash used in investing activities in the comparable period of 2009. the funds used for the year ended december 31 , 2010 were for additional equipment and related services for the analytical area , and the funds used for the year ended december 31 , 2009 were for additional equipment and improvements for the packaging and filling lines . the company 's financing activities provided $ 7,200,000 of cash in the year ended december 31 , 2010 compared to $ 5,308,000 provided in the year ended december 31 , 2009. the cash provided for the year ended december 31 , 2010 is primarily the proceeds of the sale of the company 's common stock as more fully described in note 10 to our consolidated financial statements and the series c convertible preferred stock financing as more fully described in note 9 to the company 's consolidated financial statements . the cash provided for the year ended december 31 , 2009 is mainly from the proceeds of the series b-1 convertible preferred stock financing and the note payable as more fully described in note 8 to the company 's consolidated financial statements . the company 's principal sources of liquidity are cash and cash equivalents of approximately $ 5,116,000 at december 31 , 2010 , the $ 3,000,000 credit facility detailed above and future cash from operations . the company had working capital of $ 6,264,000 at december 31 , 2010. recent pronouncements in april 2010 , the financial accounting standards board , or fasb , provided guidance under asc 605 on defining a milestone and determining when it is appropriate to apply the milestone method of revenue recognition for research and development transactions . vendors can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period the milestone is achieved if the milestone meets all the criteria stated in the guidance to be considered substantive and must be considered substantive in its entirety . the company adopted this standard for the three month period ended june 30 , 2010 and the adoption is not expected to have a material impact on the company 's consolidated financial statements . critical accounting policies and estimates the sec defines ยcritical accounting policiesย as those that require application of management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods . our significant accounting policies are described in note 1 to our consolidated financial statements . not all of these significant accounting policies require management to make difficult , subjective or complex judgments or estimates . however , the following policies could be deemed to be critical within the sec definition . 21 environmental remediation liability on april 6 , 2000 , officials of the new jersey department of environmental protection , which we refer to as dep , inspected the company 's leased storage site in buena , new jersey , and issued notices of violation , which we refer to as novs , relating to the storage of waste materials in a number of trailers at the site . the company established a disposal and cleanup schedule and completed the removal of materials from the site . in march 2006 , the company received a judge 's decision from the office of administrative law , which we refer to as oal , of a fine in the amount of $ 35,000 in respect to the novs the company received from the dep . due to the criminal settlement that was reached between the company and the dep in 2002 , the company had a credit of $ 40,000 to be used against any fines determined as a result of the civil matter , therefore , the company did not have to pay any money to the dep for the settlement amount . the dep subsequently issued a final decision , which accepted the violation findings but rejected the oal judge 's penalty recommendation , reinstituting a previously proposed penalty by the dep of $ 215,000 , less the $ 40,000 credit previously mentioned or $ 175,000. the company appealed this to the superior court of the nj appellate division , which determined that the commission 's decision was reasonable thus affirming the dep commissioner 's decision . this amount of $ 175,000 was accrued for in the fourth quarter of 2007. the company reached a settlement with dep commissioner and agreed to pay the above amount in six equal installments .
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results of operations 2010 compared to 2009 the company had a net loss attributable to common stockholders of $ 4,707,000 , or $ ( 0.20 ) per share , in 2010 compared to a net loss of $ 7,408,000 , or $ ( 0.46 ) per share , in 2009 which resulted from the following : replace_table_token_1_th the increase in product sales for the year ended december 31 , 2010 as compared to the same period in 2009 was primarily due to increased annual product sales to the company 's major customers and product sales to new customers . research and development income will not be consistent and will vary , from period to period , depending on the required timeline of each development project . the increase in research and development income during the year ended december 31 , 2010 as compared to the same period in 2009 is attributable to new customer relationships and their desire to have the company develop , manufacture and package their new products or line extensions and the continued strong relationships with our current customer base . licensing and royalty income decreased due to the decrease in sales of novasome based products marketed by our licensees . the company believes the loss of certain royalties is related to the normal life cycle of the products and that certain royalties of the company may continue to decline . for the years ended costs of sales december 31 , 2010 december 31 , 2009 $ change % change ( in thousands ) cost of sales $ 4,989 $ 3,527 $ 1,462 41 % 18 cost of sales increased by approximately $ 1,292,000 for the year ended december 31 , 2010 as a result of the increase in product sales by 61 % .
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the following table sets forth the fair value hierarchy of vmware 's money market funds and available-for-sale securities , including those securities classified within cash and cash equivalents on the consolidated balance sheet , that were required to be measured at fair value as of december 31 , 2010 ( table in thousands ) : replace_table_token_23_th 85 vmware , inc. notes to consolidated financial statements ( continued ) vmware 's valuation inputs for foreign currency forward contracts are based on quoted prices and quoted pricing intervals from public data sources . these contracts are typically classified within level 2 of the fair value hierarchy and are discussed below in the derivative instruments section . vmware does not have any assets or liabilities that fall into level 3 of the fair value story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations ( ยmd & aย ) should be read in conjunction with our annual consolidated financial statements and notes thereto which appear elsewhere in this annual report on form 10-k. all dollar amounts expressed as numbers in this md & a ( except per share amounts ) are in millions . overview our primary source of revenues is the licensing of virtualization and cloud infrastructure solutions and related support and services for use by businesses and organizations of all sizes and across numerous industries in their information technology ( ยitย ) infrastructure . our virtualization solutions reflect a pioneering approach to computing that separates application software from the underlying hardware to achieve significant improvements in efficiency , agility , availability , flexibility and manageability . our broad and proven suite of virtualization solutions addresses a range of complex it problems that include cost and operational inefficiencies , facilitating access to ยcloud computingย capacity , business continuity , software lifecycle management and corporate end-user computing device management . our solutions run on industry-standard servers and desktop computers and support a wide range of operating system and application environments , as well as networking and storage infrastructures . our solutions enable organizations to aggregate multiple servers , storage infrastructure and networks together into shared pools of capacity that can be allocated dynamically , securely and reliably to applications as needed , increasing hardware utilization and reducing spending . the benefits to our customers include substantially lower it costs , cost-effective high availability across a wide range of applications , and a more automated and resilient systems infrastructure capable of responding dynamically to variable business demands . with our latest platform , vmware vsphere , we are helping companies along the path of cloud computing by providing compatible it infrastructures for both businesses and cloud service providers . although we believe we are currently the leading provider of virtualization infrastructure software solutions , we face competitive threats to our leadership position from a number of companies , some of which have significantly greater resources than we do , which could result in increased pressure to reduce prices on our offerings . as a result , we believe it is important to continue to invest in strategic initiatives related to product research and development , market expansion and associated support functions to expand our industry leadership . we believe that we will be able to continue to meet our product development objectives through continued investment in our existing infrastructure , supplemented with strategic hires and acquisitions , funded through the operating cash flows generated from the sale of our products and services . we believe this is the appropriate priority for the long-term health and growth of our business . our current financial focus is on long-term revenue growth to generate free cash flows 1 to fund our expansion of industry segment share and to evolve our virtualization-based products for data centers , desktop computers and cloud computing through a combination of internal development and acquisitions . we expect to grow our business by broadening our virtualization infrastructure software solutions technology and product portfolio , increasing product awareness , promoting the adoption of virtualization and building long-term relationships with our customers through the adoption of enterprise license agreements ( ยelasย ) . since the introduction in 2009 of vmware vsphere and vmware view 4 , we have introduced more products that build on the vsphere foundation . in the third quarter of 2010 , we released updated versions of vmware vsphere and vmware view , and we plan to continue to introduce additional products in the future . additionally , we have made , and expect to continue to make , acquisitions designed to strengthen our product offerings and or extend our strategy to deliver solutions that can be hosted at customer data centers or at service providers . 1 free cash flows , a non-gaap financial measure , is defined as net cash provided by operating activities plus the excess tax benefits from stock-based compensation , less capital expenditures and capitalized software development costs . each adjusting item is separately presented on our consolidated statements of cash flows . see ยnon-gaap financial measuresย for further information . 44 in evaluating our results , we also focus on operating margin excluding certain expenses included in our total operating expenses calculated in accordance with gaap . the expenses excluded are stock-based compensation , the net effect of the amortization and capitalization of software development costs and certain other expenses consisting of employer payroll taxes on employee stock transactions , amortization of intangible assets and acquisition-related items . we believe this measure reflects our ongoing business in a manner that allows meaningful period-to-period comparisons . we are not currently focused on short-term operating margin expansion , but rather on investing at appropriate rates to support our growth and future product offerings in what may be a substantially more competitive environment . we have developed a multi-channel distribution model to expand our presence and to reach various segments of the industry . in 2010 we derived over 85 % of our sales from our channel partners , which include distributors , resellers , system vendors and systems integrators . story_separator_special_tag we calculate the foreign currency impact on our revenues as the difference between revenues translated at current exchange rates and the same revenues translated at prior-period exchange rates . given that we began to invoice and collect in currencies other than the u.s. dollar during the second quarter of 2009 , we are not able to determine the full year-over-year impact of foreign currency fluctuations on our revenues . the uncertainty and volatility of currency fluctuations will continue to impact our results . in order to manage our exposure to foreign currency fluctuations , since july 2009 , we have entered into foreign currency forward contracts to hedge a portion of our net outstanding monetary assets and liabilities against movements in certain foreign exchange rates . these forward contracts are not designated as hedging instruments under applicable accounting guidance , and therefore all changes in the fair value of the forward contracts are reported in other income ( expense ) , net in the consolidated statements of income . the gains and losses on our foreign currency forward contracts generally offset the majority of the gains and losses associated with the underlying foreign-currency denominated assets and liabilities that we hedge . our relationship with emc as of december 31 , 2010 , emc owned 33,012,000 shares of class a common stock and all 300,000,000 shares of class b common stock , representing approximately 80 % of our total outstanding shares of common stock and 97 % of the combined voting power of our outstanding common stock . in april 2010 , we acquired certain software product technology and expertise from emc 's ionix it management business for cash consideration of $ 175.0. emc retained the ionix brand and will continue to offer customers the products acquired by us , pursuant to the ongoing reseller agreement we have with emc . the net assets and expertise acquired from emc constituted a business and were accounted for as a business combination between entities under common control pursuant to generally accepted accounting principles ( ยgaapย ) . see note e to the consolidated financial statements included elsewhere in this filing for further information . in the fourth quarter of 2010 , we paid $ 10.6 of contingent amounts to emc in accordance with the asset purchase agreement . pursuant to the ongoing reseller arrangement with emc that commenced in 2009 , emc bundles our products and services with emc 's hardware and sells them to end-users . in 2010 and 2009 , we recognized 46 revenues of $ 48.5 and $ 14.1 , respectively , from products and services sold pursuant to our reseller arrangement with emc . as of december 31 , 2010 and 2009 , $ 29.0 and $ 22.4 , respectively , of revenues from products and services sold under the reseller arrangement were included in unearned revenue . in the years ended december 31 , 2010 , 2009 and 2008 , we recognized professional services revenues of $ 60.6 , $ 25.2 and $ 16.9 , respectively , for services provided to emc 's customers pursuant to our contractual agreements with emc . as of december 31 , 2010 and 2009 , $ 5.9 and $ 0.7 , respectively , of revenues from professional services to emc customers were included in unearned revenue . in the years ended december 31 , 2010 , 2009 and 2008 , we recognized revenues of $ 6.1 , $ 5.6 and $ 4.1 , respectively , from server and desktop products and services purchased by emc for internal use pursuant to our contractual agreements with emc . as of december 31 , 2010 and 2009 , $ 19.3 and $ 3.7 , respectively , of revenues from server and desktop products and services purchased by emc for internal use were included in unearned revenue . we purchased storage systems and software , as well as consulting services , from emc for $ 18.4 , $ 9.7 and $ 25.2 in the years ended december 31 , 2010 , 2009 and 2008 , respectively . in certain geographic regions where we do not have an established legal entity , we contract with emc subsidiaries for support services and emc employees who are managed by our personnel . the costs incurred by emc on our behalf related to these employees are passed on to us and we are charged a mark-up intended to approximate costs that would have been charged had we contracted for such services with an unrelated third party . these costs are included as expenses in our consolidated statements of income and primarily include salaries and benefits , travel and rent . additionally , emc historically incurred certain costs on our behalf in the u.s. , which primarily related to a shared system for travel . in the fourth quarter of 2009 , we implemented our own travel system in the u.s. and are now incurring these costs directly . the total cost of the services provided to us by emc as described above was $ 66.4 , $ 95.6 and $ 139.8 in the years ended december 31 , 2010 , 2009 and 2008 , respectively . as calculated under our tax sharing agreement with emc , we paid emc $ 5.1 in 2010 for our portion of emc 's consolidated federal income taxes . under the same tax sharing agreement , emc paid us $ 2.5 in 2010 for a refund of an overpayment related to the consolidated federal and state income taxes for the fiscal year ended december 31 , 2008. in 2009 and 2008 , we paid $ 14.2 and $ 64.3 , respectively , for our portion of emc 's consolidated federal and state income taxes for various periods , as well as the conclusion of the 2005 and 2006 federal income tax audit .
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results of operations revenues our revenues for the years ended 2010 , 2009 and 2008 are as follows : replace_table_token_5_th 49 total revenues were $ 2,857.3 in 2010 , $ 2,023.9 in 2009 and $ 1,881.0 in 2008 , representing year-over-year increases of $ 833.4 or 41 % in 2010 and $ 142.9 or 8 % in 2009. the revenue mix in 2010 reflected an increase in license revenues and an increase in services revenues as compared with 2009. the revenue mix in 2009 reflected a decrease in license revenues and an increase in services revenues as compared with 2008. in 2010 and 2009 , the growth in our services revenues was driven by strong maintenance renewals , multi-year software maintenance contracts sold in previous periods and additional maintenance contracts sold in conjunction with software licenses . our professional services practice has continued to grow in conjunction with the growth of our customer base . during 2010 , we saw improved economic conditions and a corresponding increase in customer spending , which drove our license revenue growth for the year . geographically , both u.s. and international revenues increased in 2010 and 2009 , respectively , as compared with their respective prior years . the decline in license revenues year-over-year in 2009 was a result of customers delaying or reducing their it purchases in response to the macroeconomic environment . license revenues software license revenues were $ 1,401.4 in 2010 , $ 1,029.4 in 2009 and $ 1,178.1 in 2008 , representing a year-over-year increase of $ 372.0 or 36 % in 2010 and a year-over-year decrease of $ 148.7 or 13 % in 2009. we believe license revenues benefited in 2010 from the improving macroeconomic environment , resulting in strong customer demand for the vsphere platform and growing interest in our desktop and management solutions .
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there was no restructuring and integration expense in the year ended december 31 , 2018. in the t & d segment , the relocation of our medium voltage transformer line began as of the end of 2016 , and was completed in the first half of 2017. included in cost of goods sold of t & d segment for the year ended december 31 , 2017 is a restructuring charge of $ 873 related to write off of raw material inventory not relocated from canada to mexico . the following is a 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 appearing elsewhere in this prospectus . 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 discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus , particularly in the sections entitled โ risk factors โ and โ cautionary note regarding forward-looking statements. โ overview we manufacture , sell and service a broad range of specialty electrical transmission , distribution and on-site power generation equipment for applications in the utility , industrial , commercial and backup power markets . we are headquartered in fort lee , new jersey and operate from 11 additional locations in the u.s. , canada and mexico for manufacturing , centralized distribution , engineering , sales and administration . our operations are divided into two reportable segments : transmission & distribution solutions and critical power . our t & d solutions business provides equipment solutions that help customers effectively and efficiently manage their electrical power distribution systems to desired specifications . these solutions are marketed principally through our ptl , jefferson , bemag and pcep brand names . our critical power business provides customers with sophisticated power generation equipment , and an advanced data collection and monitoring platform , the combination of which is used to ensure smooth , uninterrupted power to operations during times of emergency . these solutions are marketed by our operations headquartered in minnesota , currently doing business under the titan brand name . 22 reversal of discontinued operations during the fourth quarter of 2017 , as part of its review of strategic alternatives , the company made the decision to sell its switchgear business operated by pioneer custom electric products , inc. , which is part of t & d solutions segment . on may 2 , 2018 , pioneer custom electric products , inc , a wholly owned subsidiary of pioneer power solutions , inc. , entered into an asset purchase agreement with cleanspark , inc. ( โ cleanspark โ ) , pursuant to which pcep was to sell certain assets comprising the pcep business to cleanspark . the company had agreed to extend the closing of the sale through december 31 , 2018 to allow all parties additional time to satisfy all closing conditions . on december 27 , 2018 , each of pcep and cleanspark signed a third letter agreement ( the โ letter agreement โ ) which further extended the termination date to january 16 , 2019. on january 22 , 2019 , the company and cleanspark executed a merger agreement whereby pioneer critical power , inc. , a wholly owned subsidiary of the company , was sold to cleanspark . on january 22 , 2019 , pcep and cleanspark terminated the asset purchase agreement by mutual written agreement . the company had previously presented the operations of pcep as discontinued operations for all periods presented in its annual report on form 10-k for the year ended december 31 , 2017. due to the change of the circumstances as described above , the company is presenting the results of pcep within continuing operations and including results of the switchgear reporting unit in the t & d solutions segment for all periods presented in the financial statements as of december 31 , 2018. as circumstances allow , the company will execute the sale of pcep . foreign currency exchange rates although we report our results in accordance with u.s. gaap and in u.s. dollars , ptl and bemag are canadian operations whose functional currency is the canadian dollar . as such , the financial position , results of operations , cash flows and equity of these operations are initially consolidated in canadian dollars . their assets and liabilities are then translated from canadian dollars to u.s. dollars by applying the foreign currency exchange rate in effect at the balance sheet date , while the results of their operations and cash flows are translated to u.s. dollars by applying weighted average foreign currency exchange rates in effect during the reporting period . the resulting translation adjustments are included in other comprehensive income or loss . the following table provides actual end of period exchange rates used to translate the financial position of our canadian operations at the end of each period reported . the average exchange rates presented below , as provided by the bank of canada , are indicative of the weighted average rates we used to translate the revenues and expenses of our canadian operations into u.s. dollars ( rates expressed as the number of u.s. dollars to one canadian dollar for each period reported ) : replace_table_token_2_th critical accounting policies use of estimates . the preparation of financial statements in accordance with generally accepted accounting principles in the u.s. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . the financial statements include estimates based on currently available information and our judgment as to the outcome of future conditions and circumstances . story_separator_special_tag changes in accounting principles on january 1 , 2018 , the company adopted accounting standards update 2014-09 , revenue from contracts with customers ( topic 606 ) and accounting standards update 2016-02 , leases ( topic 842 ) . the effects of the adoptions are described in note 2 to the consolidated financial statements . rounding all dollar amounts ( except share and per share data ) presented are stated in thousands of dollars , unless otherwise noted . amounts may not foot due to rounding . 24 story_separator_special_tag style= '' font-size : 10pt '' > on december 22 , 2017 , the u.s. enacted the tax cuts and jobs act ( โ u.s . tax reform โ ) that lowers the statutory tax rate on u.s. earnings , taxes historic foreign earnings at a reduced rate of tax , establishes a quasi-territorial tax system and enacts new taxes associated with global operations . 28 as part of tax reform , the u.s. has enacted a minimum tax on foreign earnings ( โ global intangible low-taxed income โ ) which is now being reflected in the income tax expense . the decrease in our effective tax rate during 2018 primarily reflects the impact of the tax cuts and jobs act enactment and the recognition of a valuation allowance of $ 1.6 million and $ 4.7 million for the years ended december 31 , 2018 and 2017 , respectively . net loss per share we generated a net loss of $ 5.7 million for the year ended december 31 , 2018 , as compared to net loss of $ 9.2 million during the year ended december 31 , 2017. in 2018 , our net loss per basic and diluted share was $ 0.65 , as compared to a net loss of $ 1.06 during the year ended december 31 , 2017. liquidity and capital resources general . at december 31 , 2018 , we had cash and cash equivalents of approximately $ 0.2 million and total debt outstanding of $ 26.3 million , when including bank overdrafts and liabilities of operations . we have historically met our cash needs through a combination of cash flows from operating activities , bank borrowings under our revolving credit facilities and distributions between our u.s. and foreign subsidiaries . our cash requirements are generally for operating activities , debt repayment , capital improvements and acquisitions . we believe that working capital , borrowing capacity available under our credit facilities , funds generated from operations and cash available on hand should be sufficient to finance our cash requirements for anticipated operating activities , capital improvements and principal repayments of debt through at least the next twelve months . cash provided by operating activities . cash provided by our operating activities was approximately $ 2.2 million during the year ended december 31 , 2018 , compared to $ 1.7 million during the year ended december 31 , 2017 , primarily due to working capital changes . cash provided by / used in investing activities . cash provided by investing activities during the year ended december 31 , 2018 was approximately $ 0.2 million , as compared to $ 1.4 million cash used in investing activities during the year ended december 31 , 2017. additions to our property , plant and equipment in the ordinary course of business were approximately $ 0.6 million and $ 1.5 million during the years ended december 31 , 2018 and 2017 , respectively . cash used in / provided by financing activities . cash used in our financing activities was $ 3.4 million during the year ended december 31 , 2018 , as compared to $ 0.6 million of cash provided by financing activities during the year ended december 31 , 2017. during 2018 , borrowings under our revolving credit facilities increased by $ 0.1 million . working capital . as of december 31 , 2018 , we had a working capital deficit of $ 5.1 million , including $ 0.2 million of cash and cash equivalents , compared to a working capital deficit of $ 1.7 million , including $ 0.2 million of cash and cash equivalents at december 31 , 2017. at december 31 , 2018 and 2017 , we had $ 0.4 and $ 3.3 million , respectively , of available and unused borrowing capacity from our revolving credit facilities , without taking into account cash and equivalents on hand . however , the availability of this capacity under our revolving credit facilities is subject to restrictions on the use of proceeds and is dependent upon our ability to satisfy certain financial and operating covenants , including financial ratios . management believes that the existing credit facility is available as of the filing date to support operations as needed . as previously noted our total order backlog has increased to $ 47.5 million as of december 31 , 2018 which has required us to increase our inventory levels and related commitments to meet this future demand . we expect that as we work off this backlog our working capital position will improve including a reduction in our overall debt levels . assessment of liquidity . at december 31 , 2018 , we had total debt of $ 26.3 million and $ 0.2 million of cash and cash equivalents on hand . we have historically met our cash needs through a combination of cash flows from operating activities and bank borrowings under our revolving credit facilities . our cash requirements are generally for operating activities , debt repayment , capital improvements and acquisitions . in addition , as further discussed below , our credit facilities maturity dates have been extended until april 1 , 2020 . 29 the financial statements included in this annual report have been prepared assuming that we will continue as a going concern , which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business .
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results of operations overview of 2018 operating results selected financial and operating data for our reportable business segments for the most recent two years is summarized below . this information , as well as the selected financial data provided in note 16 and our consolidated financial statements and related notes included in this annual report on form 10-k , should be referred to when reading our discussion and analysis of results of operations below . our summary of operating results during the years ended 2018 and 2017 are as follows : replace_table_token_3_th backlog . our order backlog at december 31 , 2018 was $ 47.5 million , as compared to $ 35.2 million at december 31 , 2017. our backlog is based on orders expected to be delivered in the future , most of which is expected to occur during 2019. the following table represents the progression of our backlog , by reporting segment , for the periods ended as indicated : replace_table_token_4_th 25 revenue the following table represents our revenues by reporting segment and major product category for the periods indicated ( in thousands , except percentages ) : replace_table_token_5_th for the year ended december 31 , 2018 , our consolidated revenue decreased by $ 8.0 million , or 7.0 % , to $ 106.4 million , down from $ 114.4 million during the year ended december 31 , 2017. t & d solutions . revenue from our transformer product lines decreased by $ 0.1 million , or 0.1 % , driven by customers delaying 2018 deliveries to 2019. revenue from our switchgear product lines decreased by $ 4.3 million , or 32.7 % as result of lower sales of our transfer switches and medium voltage switchgear products . critical power . revenue for our equipment sales decreased by $ 4.3 million , or 73.2 % , driven by our decision to concentrate our efforts on service revenue , which provides higher profit margins .
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in some cases , you can identify forward-looking statements by terms such as โ may , โ โ will , โ โ should , โ โ expect , โ โ plan , โ โ intend , โ โ forecast , โ โ anticipate , โ โ believe , โ โ estimate , โ โ predict , โ โ potential , โ โ continue โ or the negative of these terms or other comparable terminology . the forward-looking statements contained in this form 10-k involve known and unknown risks , uncertainties and situations that may cause our or our industry 's actual results , level of activity , performance or achievements to be materially different from any future results , levels of activity , performance or achievements expressed or implied by these statements . these forward-looking statements are made in reliance upon the safe harbor provision of the private securities litigation reform act of 1995. these factors include those listed in part i , item 1a under the caption entitled โ risk factors โ in this form 10-k and those discussed elsewhere in this form 10-k. unless the context otherwise requires , references in this form 10-k to โ copart , โ the โ company , โ โ we , โ โ us , โ or โ our โ refer to copart , inc. we encourage investors to review these factors carefully together with the other matters referred to herein , as well as in the other documents we file with the securities and exchange commission ( the sec ) . we may from time to time make additional written and oral forward-looking statements , including statements contained in our filings with the sec . we do not undertake to update any forward-looking statement that may be made from time to time by or on behalf of us . all references to numbered notes are to specific notes to our consolidated financial statements included in this annual report on form 10-k and which descriptions are incorporated into the applicable response by reference . capitalized terms used , but not defined , in this management 's discussion and analysis of financial condition and results of operation ( โ md & a โ ) have the same meanings as in such notes . overview we are a leading provider of online auctions and vehicle remarketing services with operations in the united states ( u.s. ) , canada , the united kingdom ( u.k. ) , brazil , the republic of ireland , germany , finland , the united arab emirates ( u.a.e . ) , oman , bahrain , and spain . our goals are to generate sustainable profits for our stockholders , while also providing environmental and social benefits for the world around us . with respect to our environmental stewardship , we believe our business is a critical enabler for the global re-use and recycling of vehicles , parts , and raw materials . many of the cars we process and remarket are subsequently restored to drivable condition , reducing the new vehicle manufacturing burden the world would otherwise face . many of our cars are purchased by dismantlers , who recycle and refurbish parts for vehicle repairs , again reducing new and aftermarket parts manufacturing . and finally , some of our vehicles are returned to their raw material inputs through scrapping , reducing the need for further de novo resource extraction . in each case , our business has reduced the carbon and other environmental footprint of the global transportation industry . beyond our environmental stewardship , we also support the world 's communities in two important ways . first , we believe that we contribute to economic development and well-being by enabling more affordable access to mobility around the world . for example , many of the automobiles sold through our auction platform are purchased for use in developing countries where affordable transportation is a critical enabler of education , health care , and well-being more generally . in addition , because of the special role we play in responding to catastrophic weather events , we believe we contribute to disaster recovery and resilience in the communities we serve . for example , we mobilized our people , entered into emergency leases , and engaged with a multitude of service providers to timely retrieve , store , and remarket tens of thousands of flood-damaged vehicles in the houston , texas metropolitan area in the wake of hurricane harvey in the summer of 2017. we provide vehicle sellers with a full range of services to process and sell vehicles primarily over the internet through our virtual bidding third generation internet auction-style sales technology , which we refer to as vb3 . vehicle sellers consist primarily of insurance companies , but also include banks , finance companies , charities , fleet operators , dealers and vehicles sourced directly from individual owners . we sell the vehicles principally to licensed vehicle dismantlers , rebuilders , repair licensees , used vehicle dealers and exporters and , at certain locations , to the general public . the majority of the vehicles sold on behalf of insurance companies are either damaged vehicles deemed a total loss ; not economically repairable by the insurance companies ; or are recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made . 31 we offer vehicle sellers a full range of services that help expedite each stage of the vehicle sales process , minimize administrative and processing costs , and maximize the ultimate sales price through the online auction process . in the u.s. , canada , brazil , the republic of ireland , finland , the u.a.e. , oman , bahrain , and spain , we sell vehicles primarily as an agent and derive revenue primarily from auction and auction related sales transaction fees charged for vehicle remarketing services as well as fees for services subsequent to the auction , such as delivery and storage . story_separator_special_tag these factors are further discussed in the results of operations and risk factors sections of this annual report on form 10-k. 32 potential internal sources of additional working capital are the sale of assets or the issuance of shares through option exercises and shares issued under our employee stock purchase plan . a potential external source of additional working capital is the issuance of additional debt with new lenders and equity . however , we can not predict if these sources will be available in the future or on commercially acceptable terms . acquisitions and new operations as part of our overall expansion strategy of offering integrated services to vehicle sellers , we anticipate acquiring and developing facilities in new regions , as well as the regions currently served by our facilities . we believe that these acquisitions and openings will strengthen our coverage , as we have facilities located in the u.s. , canada , the u.k. , brazil , the republic of ireland , germany , finland , the u.a.e. , oman , bahrain , and spain with the intention of providing national coverage for our sellers . all of these acquisitions have been accounted for using the purchase method of accounting . the following tables set forth operational facilities that we have opened and began operations from august 1 , 2016 through july 31 , 2019 : replace_table_token_4_th 33 replace_table_token_5_th the following table sets forth operational facilities obtained through business acquisitions from august 1 , 2016 through july 31 , 2019 : locations geographic service area date cycle express , llc ( 1 ) united states june 2017 greenville , kentucky united states march 2019 espoo , finland finland march 2018 pirkkala , finland finland march 2018 oulu , finland finland march 2018 turku , finland finland march 2018 ( 1 ) cycle express , llc conducts business primarily as national powersport auctions ( npa ) , a leading non-salvage auction platform for motorcycles , snowmobiles , watercraft and other powersports vehicles . npa has facilities in san diego , california ; philadelphia , pennsylvania ; dallas , texas ; cincinnati , ohio ; atlanta , georgia ; littleton , colorado ; madison , wisconsin ; portland , oregon ; and sacramento , california . the period-to-period comparability of our consolidated operating results and financial position is affected by business acquisitions , new openings , weather and product introductions during such periods . in addition to growth through business acquisitions , we seek to increase revenues and profitability by , among other things , ( i ) acquiring and developing additional vehicle storage facilities in key markets ; ( ii ) pursuing national and regional vehicle seller agreements ; ( iii ) increasing our service offerings ; and ( iv ) expanding the application of vb3 into new markets . in addition , we implement our pricing structure and auction procedures , and attempt to introduce cost efficiencies at each of our acquired facilities by implementing our operational procedures , integrating our management information systems , and redeploying personnel , when necessary . 34 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > the following table summarizes impairment , total other expenses and income taxes for fiscal 2019 , 2018 and 2017 : replace_table_token_12_th 37 impairment . during fiscal 2018 , we recognized a $ 1.1 million charge primarily related to fully impairing a supply contract in the international segment . during fiscal 2017 , we recognized a $ 19.4 million charge primarily related to fully impairing costs previously capitalized in connection with the development of business operating software . other ( expense ) income . the decrease in total other expense for fiscal 2019 of $ 10.3 million , or 47.2 % as compared to fiscal 2018 was primarily due to gains on the disposal of certain non-operating assets in the current year and an increase in currency gains , primarily due to the change in the british pound to u.s. dollar exchange rate , partially offset by losses on the disposal of certain non-operating assets in the prior year . income taxes . our effective income tax rates were 16.1 % , 25.7 % , and 10.4 % for fiscal 2019 , 2018 , and 2017 , respectively . the current year 's effective tax rate was computed based on the u.s. federal statutory tax rate of 21.0 % for the fiscal year ending july 31 , 2019 and was favorably impacted by $ 10.2 million of discrete tax items related to amending previously filed income tax returns . the prior year 's effective tax rate was computed based on the reduced blended u.s. federal statutory tax rate of 26.9 % for the fiscal year ending july 31 , 2018 and included the effects of the tax cuts and jobs act ( the โ act โ ) . see note 10 โ income taxes for a detailed discussion of the act . the effective tax rates in the current and prior years were also impacted from the result of recognizing excess tax benefits from the exercise of employee stock options of $ 46.1 million , $ 21.3 million , and $ 107.6 million for fiscal years 2019 , 2018 , and 2017 , respectively . discussion of fiscal year ended july 31 , 2018 compared to fiscal year ended july 31 , 2017 for a discussion of fiscal 2018 as compared to fiscal 2017 , please refer to part ii , item 7 , management 's discussion and analysis of financial condition and results of operations in our form 10-k for the fiscal year ended july 31 , 2018 , filed with the securities and exchange commission on october 1 , 2018 .
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results of operations the following table shows certain data from our consolidated statements of income expressed as a percentage of total service revenues and vehicle sales for fiscal 2019 , 2018 and 2017 : replace_table_token_6_th comparison of fiscal years ended july 31 , 2019 and 2018 and 2017 the following table presents a comparison of service revenues for fiscal 2019 , 2018 and 2017 : replace_table_token_7_th service revenues . the increase in service revenues for fiscal 2019 of $ 177.2 million , or 11.2 % as compared to fiscal 2018 came from ( i ) an increase in the u.s. of $ 152.2 million and ( ii ) an increase in international of $ 25.0 million . the increase in the u.s. was driven primarily by ( i ) increased volume and ( ii ) an increase in revenue per car due to higher average auction selling prices , which we believe is due to a change in the mix of vehicles sold , and partially offset by ( iii ) hurricane harvey , as the storm produced an extraordinary volume of flood damaged vehicles in the prior year . the increase in volume in the u.s. was derived from ( i ) growth in the number of units sold from new and expanded contracts with insurance companies and ( ii ) growth from existing suppliers , driven by what we believe was an increase in total loss frequency . excluding the detrimental impact of $ 12.0 million due to changes in foreign currency exchange rates , primarily from the change in the british pound , brazilian real and european union euro to u.s. dollar exchange rates , the increase in international of $ 37.0 million was driven primarily by increased volume and an increase in revenue per car . 35 the following table presents a comparison of vehicle sales for fiscal 2019 , 2018 and 2017 : replace_table_token_8_th vehicle sales .
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prior to the sale of the company 's brazil business unit effective june 30 , 2017 , and its peru business unit effective december 18 , 2017 , brazil and peru were separate reportable segments . the `` all other `` category represents the company 's corporate activities , and the story_separator_special_tag this report , and in particular this management 's discussion and analysis of financial condition and results of operations , contains forward-looking statements within the meaning of section 27a of the securities act and section 21e of the exchange act . please see the cautionary language at the very beginning of this annual report on form 10-k regarding the identification of and risks relating to forward-looking statements , as well as part i , item 1a . โ risk factors โ in this annual report on form 10-k. the following discussion of our financial condition and results of operations should be read in conjunction with the โ financial statements and supplementary data โ as set out in part ii , item 8 of this annual report on form 10-k. overview we are a company focused on oil and gas exploration and production in colombia and ecuador . our colombian properties represented 100 % of our proved reserves nar at december 31 , 2019 . for the year ended december 31 , 2019 , 100 % of our revenue was generated in colombia ( year ended december 31 , 2018 - 100 % ; year ended december 31 , 2017 - 98 % ) . we are headquartered in calgary , alberta , canada . as of december 31 , 2019 , we had estimated proved reserves nar of 67.6 mmboe , of which 54 % were proved developed reserves and 100 % were oil . during 2019 , we replaced 226 % of our proved reserves . as discussed under items 1 and 2 . โ business and properties , โ in 2019 , we completed certain asset acquisitions to further enhance our strategy . financial and operational highlights key highlights story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 30 replace_table_token_11_th replace_table_token_12_th ( 1 ) non-gaap measures operating netback , ebitda , funds flow from operations are non-gaap measures which do not have any standardized meaning prescribed under gaap . management views these measures as financial performance measures . investors are cautioned that these measures should not be construed as alternatives to net income or loss or other measures of financial performance as determined in accordance with gaap . our method of calculating these measures may differ from 31 other companies and , accordingly , may not be comparable to similar measures used by other companies . each non-gaap financial measure is presented along with the corresponding gaap measure so as not to imply that more emphasis should be placed on the non-gaap measure . operating netback , as presented , is defined as oil and natural gas sales less operating , workover and transportation expenses . management believes that operating netback is a useful supplemental measure for management and investors to analyze financial performance and provides an indication of the results generated by our principal business activities prior to the consideration of other income and expenses . a reconciliation from oil and natural gas sales to operating netback is provided in the table above . ebitda , as presented , is defined as net income or loss adjusted for depletion , depreciation and accretion ( `` dd & a '' ) expenses , interest expense and income tax expense . adjusted ebitda , as presented is defined as ebitda adjusted for loss on redemption of convertible notes , investment gains or losses , loss on sale of business units and asset impairment . management uses this supplemental measure to analyze performance and income generated by our principal business activities prior to the consideration of how non-cash items affect that income , and believes that this financial measure is useful supplemental information for investors to analyze our performance and our financial results . a reconciliation from net income to ebitda and adjusted ebitda is as follows : replace_table_token_13_th funds flow from operations , as presented , is defined as net income or loss adjusted for dd & a expenses , asset impairment , deferred tax expense , stock-based compensation expense , amortization of debt issuance costs , non-cash lease expense , lease payments , cash settlement of rsus , unrealized foreign exchange gains or losses , financial instruments gains or losses , cash settlement of financial instruments and loss on redemption of convertible notes . management uses this financial measure to analyze performance and income or loss generated by our principal business activities prior to the consideration of how non-cash items affect that income or loss , and believes that this financial measure is also useful supplemental information for investors to analyze performance and our financial results . a reconciliation from net income or loss to funds flow from operations is as follows : replace_table_token_14_th ( 2 ) includes 2017 average wi production of 679 boepd respectively , relating to the brazil operations , which were sold in june 2017 . ( 3 ) sales volumes represent production nar adjusted for inventory changes . in 2017 , brazil operations contributed 580 boepd . 32 consolidated results of operations replace_table_token_15_th 33 replace_table_token_16_th ( 1 ) operating netback is a non-gaap measure which does not have any standardized meaning prescribed under gaap . refer to `` financial and operating highlights - non-gaap measures '' for a definition and reconciliation of this measure . oil and gas production and sales volumes , boepd replace_table_token_17_th ( 1 ) december 31 , 2017 figures include production nar of 576 boepd and sales volumes of 580 boepd , respectively , related to operations in brazil , which were sold in june 30 , 2017 oil and gas production nar for the year ended december 31 , 2019 of 29,015 boepd was consistent with 2018 oil and gas production of 29,053 boepd . story_separator_special_tag with the gas-to-power facilities fully commissioned in 2019 , we expect workover costs per boe to decrease in 2020 . workover expenses on a per boe basis , increase d by $ 1.03 to $ 3.29 for the year ended december 31 , 2018 compared to 2017 due to replacement of esps during 2018 resulting from unreliable power . 36 dd & a expenses replace_table_token_22_th ( 1 ) for the year-ended 2017 , corporate , brazil and peru contributed $ 1.1 , $ 2.3 and $ 1.5 million , respectively , to dd & a expenses . dd & a expenses for the year ended december 31 , 2019 , increased by 14 % from 2018 ( 12 % on a per boe basis ) , and increased by 51 % ( 40 % on a per boe basis ) in 2018 from 2017 . on a per boe basis , dd & a increase s in 2019 and 2018 compared to prior years were due to higher costs in the depletable base partially offset by increased proved reserves . asset impairment replace_table_token_23_th ( 1 ) for the year-ended 2017 , mexico and peru contributed $ 0.6 and $ 0.9 million , respectively , to impairment losses . we follow the full cost method of accounting for our oil and gas properties . under this method , the net book value of properties on a country-by-country basis , less related deferred income taxes , may not exceed a calculated โ ceiling โ . the ceiling is the estimated after tax future net revenues from proved oil and gas properties , discounted at 10 % per year . in calculating discounted future net revenues , oil and natural gas prices are determined using the average price during the 12-month period prior to the ending date of the period covered by the balance sheet , calculated as an unweighted arithmetic average of the first-day-of-the month price for each month within such period for that oil and natural gas . that average price is then held constant , except for changes which are fixed and determinable by existing contracts . therefore , ceiling test estimates are based on historical prices discounted at 10 % per year and it should not be assumed that estimates of future net revenues represent the fair market value of our reserves . for the years ended december 31 , 2019 , 2018 and 2017 , no ceiling test impairment was recorded in our colombia cost center . in accordance with gaap , we used an average brent price of $ 64.20 per bbl for the purposes of the december 31 , 2019 ceiling test calculation ( december 31 , 2018 - 72.08 ; december 31 , 2017 - 54.19 ) . g & a expenses replace_table_token_24_th g & a expenses , on a per boe basis , after stock-based compensation decreased 13 % to $ 3.26 in 2019 compared to prior year , mainly as a result of decrease in stock-based compensation commensurate with the decrease in stock price during 2019 , partially offset by lower recoveries and a reduction of capitalized g & a during 2019. g & a expenses , on a per boe basis , after stock-based compensation decreased 6 % to $ 3.76 in 2018 compared to prior year , mainly as a result of production nar growth and a decrease in stock-based compensation during the fourth quarter of 2018 . 37 g & a expenses , on a per boe basis , before stock-based compensation increased 5 % in 2019 compared to 2018 and decreased 2 % in 2018 compared to 2017 . severance expenses for the years ended december 31 , 2019 , 2018 and 2017 , severance expenses were $ 1.8 million , $ 2.4 million and $ 1.3 million , respectively , due to headcount optimization . equity tax expense for the years ended december 31 , 2019 , 2018 and 2017 , the equity tax expense was nil , nil , and $ 1.2 million , respectively , and was calculated based on our colombian legal entities ' balance sheet at january 1st of the year . the equity tax expense expired as of january 1 , 2019 , and the modified version re-introduced in the 2018 colombian tax reform is not applicable to our colombian legal entities . foreign exchange gains and losses for the years ended december 31 , 2019 , 2018 and 2017 , we had foreign exchange loss es of $ 0.6 million , $ 10.0 million and $ 2.1 million , respectively . the main sources of the foreign exchange gains and losses are revaluation of taxes receivable and payable , investment in petrotal shares and deferred tax liabilities . under gaap , deferred taxes are considered a monetary liability and require translation from local currency to u.s. dollar functional currency at each balance sheet date . the following table presents the change in the colombian peso against the u.s. dollar for each of the three years ended december 31 , 2019 : replace_table_token_25_th financial instrument gains and losses the following table presents the nature of our financial instruments gains and losses for each of the three years ended december 31 , 2019 : replace_table_token_26_th for the year ended december 31 , 2019 , we had an investment gain of $ 49.9 million ( 2018 - $ 0.8 million ) on our investment in petrotal . other loss other loss for the year ended december 31 , 2019 , was related primarily to the loss on retirement of convertible notes of $ 11.5 million . for the year ended december 31 , 2017 , other loss was related to the loss on sale of our brazil business unit on june 30 , 2017 and our peru business unit on december 18 , 2017 . 38 income tax expense and recovery replace_table_token_27_th current income tax expense decrease d for the year ended december 31 , 2019 , compared with 2018 and 2017 primarily as a result of lower taxable income in colombia .
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operational highlights : increase proved oil and gas reserves by 26 % and achieved a proven reserve replacement ratio of 226 % announced a new country entry into ecuador 's oriente basin by securing 100 % wi in three highly prospective exploration blocks via successful bids in a bidding round , creating a contiguous acreage position extending from our existing assets in the colombian putumayo basin our total 2019 average production nar was 29,015 boepd , comparable with 2018 . production was negatively impacted by downtime from electrical submersible pump ( `` esp '' ) failures in acordionero and the temporary shut-in of several wells in acordionero with high gas oil ratio ( `` gor '' ) . the successful commissioning of water injection facilities in acordionero in july 2019 and associated increase in water injection has significantly reduced gas production in acordionero from a high of 18 mmcf down to the current 8 mmcf per day , all of which is either consumed to generate power or re-injected into the reservoir our total 2019 oil and gas sales volumes nar increased by 1 % to 29,140 boepd compared with 2018 29 financial highlights : net income in 2019 was $ 38.7 million , or $ 0.10 per share basic and diluted compared to net income of $ 102.6 million , or $ 0.26 per share basic and diluted in 2018 net income before taxes in 2019 was $ 96.0 million compared with $ 151.5 million in 2018 ebitda ( 1 ) was $ 364.3 million compared with $ 376.7 million in 2018 adjusted ebitda ( 1 ) was $ 325.9 million compared with $ 375.9 million in 2018 returned $ 37.6 million to shareholders through the repurchase of 20,097,471 common shares oil and gas sales for 2019 decreased 7 % to $ 571.0 million compared with $ 613.4 million in 2018 funds flow from operations ( 1 ) decreased by 11 % to $ 272.4 million ( $
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you can identify these forward-looking statements by the use of words such as โ outlook , โ โ believes , โ โ expects , โ โ potential , โ โ may , โ โ should , โ โ seeks , โ โ predicts , โ โ intends , โ โ plans , โ โ estimates , โ โ anticipates โ or the negative versions of these words or other comparable words . such forward-looking statements are subject to various risks and uncertainties . accordingly , there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these forward-looking statements . we believe that these factors include , but are not limited to , the risks described in item 1a . risk factors of this annual report on form 10-k. these factors are not exhaustive and should be read in conjunction with the other cautionary statements that are included in this annual report on form 10-k. we undertake no obligation to publicly update or review any forward-looking statement , whether as a result of new information , future developments or otherwise . cohen & steers , inc. ( cns ) , a delaware corporation formed in 2004 , and its subsidiaries are collectively referred to as the company , we , us or our . executive overview we are a global investment manager specializing in real assets and alternative income . our specialties include real estate securities , listed infrastructure and natural resource equities , as well as preferred securities and other income solutions . founded in 1986 , we are headquartered in new york city , with offices in london , dublin , hong kong and tokyo . our primary investment strategies include u.s. real estate securities , global/international real estate securities , global listed infrastructure , midstream energy and mlps , real assets multi-strategy , preferred securities , low duration preferred securities and global natural resource equities . our strategies seek to achieve a variety of investment objectives for different risk profiles and are actively managed by specialist teams of investment professionals who employ fundamental-driven research and portfolio management processes . we offer our strategies through a variety of investment vehicles , including u.s. and non-u.s. registered funds and other commingled vehicles , separate accounts , and subadvised portfolios . our distribution network encompasses two major channels in the asset management industry . our wealth channel covers sophisticated financial intermediaries , including national and regional brokerage firms , registered investment advisers , and bank trusts . the u.s. registered open-end funds for which we serve as investment adviser are available for purchase with and without commissions through full service and discount broker-dealers as well as the significant networks serving financial advisers . our institutional channel includes corporate , public defined benefit plans , public defined contribution pension plans and taft-hartley trusts , endowments and foundations , sovereign wealth funds , healthcare , insurance companies as well as other financial institutions that access our investment management services directly , through consultants or through other intermediaries . our revenue is derived from fees received from our clients , including fees for managing or subadvising client accounts as well as investment advisory , administration , distribution and service fees received from company-sponsored open-end and closed-end funds . our fees are based on contractually specified rates applied to the value of the assets we manage and , in certain cases , investment performance . our revenue fluctuates with changes in the total value of our assets under management , which may occur as a result of market appreciation and depreciation , contributions or withdrawals from client accounts , foreign currency fluctuations and distributions . this revenue is recognized over the period that the assets are managed . a majority of our revenue , approximately 92.1 % , 91.8 % and 91.1 % for the years ended december 31 , 2019 , 2018 and 2017 , respectively , was derived from investment advisory and administration fees for providing asset management services to institutional accounts as well as open-end funds and closed-end funds sponsored by the company . 16 assets under management by investment vehicle replace_table_token_2_th _ ( 1 ) amounts have been recast to include model-based portfolios which were previously classified as assets under advisement . 17 assets under management - institutional accounts by account type replace_table_token_3_th _ ( 1 ) amounts have been recast to include model-based portfolios which were previously classified as assets under advisement . 18 assets under management by investment strategy replace_table_token_4_th _ ( 1 ) amounts have been recast to include model-based portfolios which were previously classified as assets under advisement . 19 assets under management by investment strategy - continued replace_table_token_5_th _ ( 1 ) amounts have been recast to include model-based portfolios which were previously classified as assets under advisement . 20 investment performance as of december 31 , 2019 _ ( 1 ) past performance is no guarantee of future results . outperformance is determined by comparing the annualized investment performance of each investment strategy to the performance of specified reference benchmarks . investment performance in excess of the performance of the benchmark is considered outperformance . the investment performance calculation of each investment strategy is based on all active accounts and investment models pursuing similar investment objectives . for accounts , actual investment performance is measured gross of fees and net of withholding taxes . for investment models , for which actual investment performance does not exist , the investment performance of a composite of accounts pursuing comparable investment objectives is used as a proxy for actual investment performance . the performance of the specified reference benchmark for each account and investment model is measured net of withholding taxes , where applicable . this is not investment advice and may not be construed as sales or marketing material for any financial product or service sponsored or provided by cohen & steers . ( 2 ) ยฉ 2020 morningstar , inc. all rights reserved . story_separator_special_tag net outflows included $ 180 million from preferred securities and $ 104 million from global/international real estate , partially offset by net inflows of $ 152 million into u.s. real estate . market appreciation included $ 1.9 billion from u.s. real estate and $ 445 million from global/international real estate . distributions included $ 1.2 billion from u.s. real estate . our organic decay rate for japan subadvisory accounts was 1.4 % for the year ended december 31 , 2019 , compared with 8.7 % for the year ended december 31 , 2018. average assets under management for japan subadvisory accounts for the year ended december 31 , 2019 decreased 6.2 % to $ 10.0 billion from $ 10.6 billion . assets under management in institutional subadvisory accounts excluding japan at december 31 , 2019 , which represented 18.3 % of institutional assets under management , were $ 5.8 billion at both december 31 , 2019 and 2018 as net outflows were offset by by market appreciation . our organic decay rate for institutional subadvisory accounts excluding japan was 23.3 % for the year ended december 31 , 2019 , compared with 11.8 % for the year ended december 31 , 2018. average assets under management for institutional subadvisory accounts excluding japan for the year ended december 31 , 2019 decreased 13.7 % to $ 5.6 billion from $ 6.5 billion for the year ended december 31 , 2018 . open-end funds assets under management in open-end funds at december 31 , 2019 , which represented 42.6 % of total assets under management , increased 37.8 % to $ 30.7 billion from $ 22.3 billion at december 31 , 2018 . the increase was due to net inflows of $ 4.7 billion and market appreciation of $ 5.9 billion , partially offset by distributions of $ 2.2 billion . net inflows included $ 3.0 billion into preferred securities and $ 1.7 billion into u.s. real estate . market appreciation included $ 3.7 billion from u.s. real estate and $ 1.6 billion from preferred securities . distributions included $ 1.5 billion from u.s. real estate and $ 478 22 million from preferred securities . our organic growth rate for open-end funds was 21.3 % for the year ended december 31 , 2019 , compared with organic decay rate of 1.8 % for the year ended december 31 , 2018. average assets under management for open-end funds for the year ended december 31 , 2019 increased 13.7 % to $ 27.6 billion from $ 24.3 billion for the year ended december 31 , 2018 . closed-end funds assets under management in closed-end funds at december 31 , 2019 , which represented 13.4 % of total assets under management , increased 14.7 % to $ 9.6 billion from $ 8.4 billion at december 31 , 2018 . the increase was due to market appreciation of $ 1.8 billion , partially offset by net outflows of $ 75 million related to decreases in certain funds ' outstanding leverage and distributions of $ 514 million . our organic decay rate for closed-end funds was 0.9 % for the year ended december 31 , 2019 , compared with organic growth of 0.1 % for the year ended december 31 , 2018. average assets under management for closed-end funds for the year ended december 31 , 2019 increased 4.1 % to $ 9.4 billion from $ 9.0 billion for the year ended december 31 , 2018 . changes in assets under management - 2018 compared with 2017 assets under management at december 31 , 2018 decreased 11.7 % to $ 57.9 billion from $ 65.5 billion at december 31 , 2017 . the decrease was due to net outflows of $ 1.2 billion , market depreciation of $ 2.9 billion and distributions of $ 3.6 billion . net outflows included $ 670 million from u.s. real estate and $ 607 million from commodities ( which is included in โ other โ in the table on pages 19-20 ) . market depreciation included $ 1.2 billion from u.s. real estate , $ 803 million from preferred securities and $ 419 million from global listed infrastructure . distributions included $ 2.6 billion from u.s. real estate and $ 560 million from preferred securities . our overall organic decay rate was 1.8 % for the year ended december 31 , 2018 , compared with organic growth of 6.4 % for the year ended december 31 , 2017. the organic growth/decay rate represents the ratio of net flows for the year to the beginning assets under management of the respective period . average assets under management for the year ended december 31 , 2018 decreased 1.9 % to $ 62.2 billion from $ 63.4 billion for the year ended december 31 , 2017 . institutional accounts assets under management in institutional accounts at december 31 , 2018 , which represented 46.9 % of total assets under management , decreased 12.1 % to $ 27.1 billion from $ 30.9 billion at december 31 , 2017 . the decrease was due to net outflows of $ 744 million , market depreciation of $ 1.1 billion and distributions of $ 2.0 billion . net outflows included $ 944 million from u.s. real estate and $ 546 million from commodities ( which is included in โ other โ in the table on pages 19-20 ) , partially offset by net inflows of $ 550 million into preferred securities and $ 202 million into global/international real estate . market depreciation included $ 372 million from u.s. real estate , $ 202 million from global listed infrastructure , $ 196 million from preferred securities and $ 171 million from global/international real estate . distributions included $ 1.8 billion from u.s. real estate . our organic decay rate for institutional accounts was 2.4 % for the year ended december 31 , 2018 , compared with organic growth of 2.3 % for the year ended december 31 , 2017. average assets under management for institutional accounts for the year ended december 31 , 2018 decreased 5.8 % to $ 28.9 billion from $ 30.7
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summary of operating information replace_table_token_6_th _ ( 1 ) the presentation for the year ended december 31 , 2017 has been recast to reflect the company 's adoption of the new revenue recognition accounting standard on january 1 , 2018 . ( 2 ) the โ as adjusted โ amounts represent non-gaap financial measures . refer to pages 31-32 for reconciliations to the most directly comparable u.s. gaap financial measures . u.s. gaap 2019 compared with 2018 revenue ( 1 ) replace_table_token_7_th _ ( 1 ) prior period amounts related to model-based portfolios were reclassified from other ( previously reported as portfolio consulting and other ) to investment advisory and administration fees . revenue for the year ended december 31 , 2019 increased 7.8 % primarily attributable to higher average assets under management in all three investment vehicles . for the year ended december 31 , 2019 : total investment advisory revenue compared with average assets under management in institutional accounts implied an annual effective fee rate of 36.4 bps and 36.1 bps for the years ended december 31 , 2019 and 2018 , respectively . total investment advisory and administration revenue compared with average assets under management in open-end funds implied an annual effective fee rate of 68.0 bps and 69.3 bps for the years ended december 31 , 2019 and 2018 , respectively . the decrease in the annual effective fee rate is primarily due to a reduction of the investment advisory fee rate and higher fund reimbursements related to the imposition of a cap effective july 1 , 2019 by cohen & steers realty shares , inc. total investment advisory and administration revenue compared with average assets under management in closed-end funds implied an annual effective fee rate of 85.8 bps and 85.7 bps for the years ended december 31 , 2019 and 2018 , respectively . 25 expenses replace_table_token_8_th employee compensation and benefits for the year ended december 31 , 2019 increased primarily due to higher incentive compensation of $ 4.8
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the decrease in interest expense in 2016 , as compared to 2015 , reflects the decrease in our average outstanding borrowings due to our voluntary election to prepay the outstanding principal balance on our term facility in the fourth quarter of 2015. we capitalized interest of $ 6.5 million in 2016 , $ 4.5 million in 2015 and $ 5.8 million in 2014 . the weighted-average interest rate of our long-term debt outstanding at december 31 , 2016 was 6.6 % as compared to 6.5 % and 6.4 % at december 31 , 2015 and 2014 , respectively . investment income was $ 2.9 million in 2016 as compared story_separator_special_tag company overview american axle & manufacturing holdings , inc. ( holdings ) and its subsidiaries ( collectively , we , our , us or aam ) is a global tier i supplier to the automotive industry . we manufacture , engineer , design and validate driveline and drivetrain systems and related components and chassis modules for light trucks , sport utility vehicles ( suvs ) , crossover vehicles , passenger cars and commercial vehicles . driveline and drivetrain systems include components that transfer power from the transmission and deliver it to the drive wheels . our driveline , drivetrain and related products include axles , chassis modules , driveshafts , power transfer units , transfer cases , chassis and steering components , driveheads , transmission parts , electric drive systems and metal-formed products . in addition to locations in the united states ( u.s. ) ( michigan , ohio and indiana ) , we also have offices or facilities in brazil , china , germany , india , japan , luxembourg , mexico , poland , scotland , south korea , sweden and thailand . we are the principal supplier of driveline components to general motors company ( gm ) for its full-size rear-wheel drive ( rwd ) light trucks and suvs manufactured in north america , supplying substantially all of gm 's rear axle and four-wheel drive and all-wheel drive ( 4wd/awd ) axle requirements for these vehicle platforms . sales to gm were approximately 67 % of our consolidated net sales in 2016 , 66 % in 2015 , and 68 % in 2014 . we are the sole-source supplier to gm for certain axles and other driveline products for the life of each gm vehicle program covered by lifetime program contracts and long term program contracts ( collectively , lpcs ) . substantially all of our sales to gm are made under purchase orders pursuant to the lpcs . the lpcs have terms equal to the lives of the relevant vehicle programs or their respective derivatives , which typically run five to seven years , and require us to remain competitive with respect to technology , design , quality and cost . we also supply driveline system products for fca us llc ( fca ) for heavy-duty ram full-size pickup trucks and its derivatives , the awd jeep cherokee , and a passenger car driveshaft program . sales to fca were approximately 18 % of our consolidated net sales in 2016 , 20 % in 2015 and 18 % in 2014 . in addition to gm and fca , we supply driveline systems and other related components to nissan motor co. , ltd. ( nissan ) , mercedes-benz , volkswagen ag ( volkswagen ) , audi ag ( audi ) , jaguar land rover automotive plc ( jlr ) , honda motor co. , ltd. , ford motor company ( ford ) , paccar inc. , daimler truck , ab volvo ( volvo ) , harley-davidson inc. and other original equipment manufacturers ( oems ) and tier i supplier companies such as jatco ltd. and hino motors ltd. our consolidated net sales to customers other than gm were $ 1,287.8 million in 2016 as compared to $ 1,317.1 million in 2015 and $ 1,199.9 million in 2014 . our pending acquisition of metaldyne performance group inc. ( mpg ) is expected to significantly increase diversification in our product portfolio , as well as accelerate customer diversification initiatives . upon successful consummation of the acquisition , sales to gm and fca as a percentage of consolidated net sales are expected to be reduced . industry trends there are a number of significant trends affecting the highly competitive global automotive industry . intense competition , volatility in fuel , steel , metallic and other commodity prices and significant pricing pressures remain . at the same time , the industry is intently focused on investing in future products that will incorporate the latest technology , meet changing customer demands and comply with more stringent government regulations . the continued advancement of technology and product innovation , as well as the capability to source programs on a global basis , are critical to attracting and retaining business in the global automotive industry . 27 more stringent government regulations for fuel efficiency and emissions reductions with a focus on environmental legislation and regulation , there has been an increased demand for technologies designed to help reduce emissions , increase fuel economy and minimize the environmental impact of vehicles . the u.s. cafe standards for cars and light-duty trucks currently require the equivalent of 54.5 miles per gallon by 2025. as a result , oems and suppliers are competing to develop and market new and alternative technologies , such as electric vehicles , hybrid vehicles , fuel cells , and fuel-efficient diesel engines . at the same time , oems and suppliers are improving driveline systems to increase fuel economy and reduce emissions through lightweighting and efficiency initiatives . we are responding to the increases in cafe standards with ongoing research and development ( r & d ) efforts that focus on fuel economy , emissions reductions and environmental improvements . these efforts have led to new business awards for products that support awd and rwd crossover vehicles and passenger cars and further position us to compete in the marketplace . story_separator_special_tag evolution of the automotive industry as demand for car-sharing , ride-sharing and autonomous vehicles increases oems are increasingly focused on offering their own car-sharing rental businesses and ride-sharing services in addition to selling vehicles . car-sharing typically allows consumers to rent a car for a short period of time , while ride-sharing matches people to available carpools or other services that provide on-demand rides with the use of an online application . with continued urbanization , population growth and increased government regulations to ease congestion , it is expected that the markets for these services will continue to grow . as such , many oems are exploring and expanding their own car-sharing and ride-sharing efforts . another trend developing is the expectation that autonomous , self-driving cars will become more common with continued advancements in technology . autonomous vehicles present many possible benefits , such as a reduction in deadly traffic collisions caused by human error and reduced traffic congestion , but there are also foreseeable challenges such as liability for damage and software reliability . the increased integration of electronics that will likely be required in autonomous vehicle developments will provide an opportunity for suppliers , such as aam , with advanced capabilities in this area to be competitive in this expanding market . 29 story_separator_special_tag 2015 and 7.2 % in 2014 . the changes in operating income and operating margin in 2016 , 2015 and 2014 were due to the factors discussed in net sales , cost of goods sold , gross profit and sg & a . interest expense interest expense was $ 93.4 million in 2016 , $ 99.2 million in 2015 and $ 99.9 million in 2014 . the decrease in interest expense in 2016 , as compared to 2015 , reflects the decrease in our average outstanding borrowings due to our voluntary election to prepay the outstanding principal balance on our term facility in the fourth quarter of 2015. the weighted-average interest rate of our total debt outstanding was 6.6 % in 2016 and 6.3 % in both 2015 and 2014 . investment income investment income was $ 2.9 million in 2016 , $ 2.6 million in 2015 , and $ 2.1 million in 2014 . investment income includes interest earned on cash and cash equivalents during the period . other income ( expense ) following are the components of other income ( expense ) for 2016 , 2015 and 2014 : debt refinancing and redemption costs in 2015 , we expensed $ 0.8 million of unamortized debt issuance costs related to a voluntary election to prepay our outstanding term facility . other , net other , net , which includes the net effect of foreign exchange gains and losses and our proportionate share of earnings from equity in unconsolidated subsidiaries , was income of $ 8.8 million in 2016 , $ 12.0 million in 2015 , and $ 6.9 million in 2014 . income tax expense income tax expense was $ 58.3 million in 2016 , $ 37.1 million in 2015 , and $ 33.7 million in 2014 . our effective income tax rate was 19.5 % in 2016 as compared to 13.6 % in 2015 and 19.1 % in 2014 . 31 our income tax expense and effective tax rate for 2016 , 2015 and 2014 , as compared to the u.s. federal statutory rate of 35 % , primarily reflect favorable foreign tax rates , partially offset by our inability to realize a tax benefit for current foreign losses . our effective tax rate for 2016 is higher than our effective tax rate for 2015 primarily due to the impact of an $ 11.5 million reduction in tax expense related to uncertain tax positions attributable to transfer pricing in the fourth quarter of 2015. in 2014 , we recorded tax expense of $ 23.1 million for changes to prior year uncertain tax positions related to transfer pricing and expense of $ 3.4 million for a change in estimate for u.s. tax on unremitted foreign earnings . we also recorded a net tax benefit of $ 20.1 million in 2014 related to our ability to utilize tax credits in future periods resulting in the recognition of a deferred tax asset . as of december 31 , 2016 and 2015 , we have a valuation allowance of $ 164.8 million and $ 167.3 million , respectively , related to net deferred tax assets in several foreign jurisdictions and u.s. state and local jurisdictions . net income and earnings per share ( eps ) net income was $ 240.7 million in 2016 as compared to $ 235.6 million in 2015 and $ 143.0 million in 2014 . diluted earnings per share was $ 3.06 in 2016 as compared to $ 3.02 per share in 2015 and $ 1.85 per share in 2014 . net income and eps were primarily impacted by the factors discussed in net sales , cost of goods sold , sg & a , restructuring and acquisition-related costs and income tax expense . liquidity and capital resources our primary liquidity needs are to fund capital expenditures , debt service obligations and our working capital requirements , in addition to ongoing strategic initiatives . we believe that operating cash flow , available cash and cash equivalent balances and available committed borrowing capacity under our revolving credit facility will be sufficient to meet these needs . as a result of our pending acquisition of metaldyne performance group inc. ( mpg ) , we expect to incur significant new indebtedness to fund the cash consideration payable in connection with the merger , related fees and expenses , to refinance any indebtedness outstanding under the existing aam senior secured revolving credit facility and certain existing indebtedness of mpg , and for general corporate purposes . operating activities net cash provided by operating activities increased to $ 407.6 million in 2016 as compared to $ 377.6 million in 2015 and $ 318.4 million in 2014 .
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results of operations net sales net sales increased to $ 3,948.0 million in 2016 as compared to $ 3,903.1 million in 2015 and $ 3,696.0 million in 2014 . the increase in sales in 2016 , as compared to 2015 , primarily reflects an increase of approximately 8 % in production volumes for the north american light truck and suv programs we currently support , which was partially offset by a reduction of approximately $ 51.0 million in commercial vehicle sales due to an expired program , and reductions in both metal market pass-throughs to our customers and the impact of foreign exchange related to translation adjustments . the increase in sales in 2015 , as compared to 2014 , primarily reflects an increase of approximately 5 % in production volumes for the north american light truck and suv programs we currently support , which was partially offset by a reduction in metal market pass throughs to our customers and foreign exchange related to translation adjustments . the increase in sales in 2015 also reflects higher sales supporting a global crossover program for gm and a passenger car driveshaft program for fca , both of which launched in the second half of 2014. our content-per-vehicle ( cpv ) ( as measured by the dollar value of our products supporting our customers ' north american light truck and suv programs ) was $ 1,617 in 2016 , as compared to $ 1,645 in 2015 and $ 1,667 in 2014 . the change in cpv in 2016 as compared to 2015 , relates primarily to the reduction in metal market pass-throughs to our customers , as well as the impact of annual productivity price-downs for certain programs . the change in cpv in 2015 as compared to 2014 , relates primarily to the reduction in metal market pass throughs to our customers .
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employees retiring at or after age 58 , along with their spouses and dependents , continue participation in the plan by payment of a premium . plan assets are invested in mutual funds , short-term money market instruments and commercial paper based upon a similar asset mix to the pension plan . retired employees are also provided with a five story_separator_special_tag overview in 2016 and 2015 , net income was $ 48.7 million and $ 45.0 million , respectively . diluted earnings per share increased $ 0.07 to $ 1.01 or 7.5 % from 2015 to 2016. the $ 3.7 million increase in net income was primarily a result of a $ 2.8 million net resolution of several regulatory memorandum and balancing accounts in the cal water 2015 grc settlement agreement , a $ 1.9 million increase from the recovery of prior years ' incremental drought program costs , and a $ 1.7 million increase in estimated unbilled revenue in 2016. these increases were partially offset by increases in other operations expense , which included a grc settlement agreement to write-off $ 3.2 million associated with a cancelled water supply project in bakersfield , increases in depreciation and amortization , maintenance , property tax , employee wage , and net interest expenses . net other income increased $ 1.9 million to $ 3.0 million in 2016 , due primarily to the resolution of $ 1.5 million of litigation proceeds in the grc settlement agreement and unrealized gains on our benefit plan insurance investments . in 2015 and 2014 , net income was $ 45.0 million and $ 56.7 million , respectively . diluted earnings per share decreased $ 0.25 to $ 0.94 or 21.0 % from 2014 to 2015. net income decreased $ 11.7 million mostly due to a decrease in estimated unbilled revenue of $ 4.9 million in 2015 , a $ 4.8 million tax benefit in 2014 that did not recur in 2015 , and increases in drought-related costs in 2015. the decrease to net income was partially offset by decreases in water treatment and uninsured loss expenses . the decrease in the estimated unbilled revenue was driven by a reduction in customer consumption associated with the california drought and water conservation programs . net other income decreased $ 0.7 million to $ 1.1 million in 2015 due primarily to an unrealized loss on our benefit plan insurance investments . we plan to continue to seek rate relief to recover our operating cost increases and receive reasonable returns on invested capital . we expect to fund our long-term capital needs through a combination of debt , common stock offerings , and cash flow from operations . critical accounting policies and estimates we maintain our accounting records in accordance with accounting principles generally accepted in the united states of america and as directed by the commissions to which our operations are subject . the process of preparing financial statements requires the use of estimates on the part of management . the estimates used by management are based on historic experience and an understanding of current facts and circumstances . a summary of our significant accounting policies is listed in note 2 of the notes to consolidated financial statements . the following sections describe those policies where the level of subjectivity , judgment , and variability of estimates could have a material impact on the financial condition , operating performance , and cash flows of the business . revenue recognition revenue generally includes monthly cycle customer billings for regulated water and wastewater services at rates authorized by the commissions ( plus an estimate for water used between the customer 's last meter reading and the end of the accounting period ) and billings to certain non-regulated customers at rates authorized by contract with government agencies . the company 's regulated water and waste water revenue requirements are authorized by the commissions in the states in which we operate . the revenue requirements are intended to provide the company a reasonable opportunity to recover its cost of service and earn a return on investments . for metered customers , cal water recognizes revenue from rates which are designed and authorized by the cpuc . under the wram , cal water records the adopted level of volumetric revenues , which would include recovery of cost of service and a return on investments as established by the cpuc for metered accounts . the adopted volumetric revenue considers the seasonality of consumption of water based upon historical averages . the variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts is recorded as a component of revenue with an offsetting entry to a regulatory asset or liability balancing account ( tracked individually for each cal water district ) subject to certain criteria under the accounting for regulated operations . the variance amount represents amounts that will be billed or refunded to customers in the future . in addition to volumetric revenues , the revenue requirements approved by the cpuc include service charges , flat rate charges , and other items not subject to the wram . cost-recovery rates are designed to permit full recovery of certain costs allowed to be recovered by the commissions . cost-recovery rates such as the mcba provides for recovery of adopted expense levels for purchased water , purchased power and pump taxes , as established by the cpuc . in addition , cost-recovery rates include recovery of cost related to water conservation programs and certain other operating expenses adopted by the cpuc . variances ( which include the effects of changes in both rate and volume for the mcba ) between adopted and actual costs are recorded as a component of revenue , as the amount of such variances will 31 be recovered from or refunded to our customers at a later date . cost-recovery expenses are generally recognized when the expenses are incurred with no markup for return or profit . story_separator_special_tag we anticipate any increases in funding for the pension benefits plans will be recovered in future rate filings , thereby mitigating the financial impact . we believe it is probable that future costs will be recovered in future rates and therefore have recorded a regulatory asset in accordance with generally accepted accounting principles . changes to the pension benefits actuarial assumptions can significantly affect pension costs , regulatory assets , and liabilities . the following table reflects the sensitivity of pension amounts reported for the year ended december 31 , 2016 , to changes in actuarial assumptions : replace_table_token_9_th 33 story_separator_special_tag changes in climate change regulations could increase the cost of purchased power expenses which in turn would result in an increase in the rates our power suppliers charge us . any change in pricing of our purchased power expenses in california would be recovered from our customers by the mcba . any change in power costs in other states would be requested to be recovered by the customers in those states . the impact of such legislation , is dependent upon the enacted date , the factors that impact our suppliers cost structure , and their ability to pass the costs to us in their approved tariffs . these items are not known at this time . administrative and general expenses administrative and general expenses include payroll related to administrative and general functions , all employee benefits charged to expense accounts , insurance expenses , legal fees , expenses associated with being a public company , and general corporate expenses . during 2016 , administrative and general expenses decreased $ 14.6 million or 12.9 % , as compared to 2015. the decrease was mostly due to decreases in employee pension and other postretirement benefit costs of $ 10.2 million , a decrease in california drought program costs of $ 3.0 million , and a decrease in uninsured loss costs of $ 0.9 million . the decreases were partially offset by employee wage increases of $ 1.1 million . wage increases became effective january 1 , 2016. employee pension benefit expenses are fully recovered in rates and are tracked in a balancing account , such that revenues are recovered on a dollar-for-dollar basis up to the amounts authorized in the 2012 grc . employee and retiree medical expenses are recovered in rates up to 85 % of adopted values and are tracked in a balancing account as authorized in the 2012 grc . during 2015 , administrative and general expenses increased $ 15.7 million or 16.2 % , as compared to 2014. the increase was mostly due to increases in employee pension and other postretirement benefit costs of $ 11.9 million , employee wage increases of $ 2.3 million , and drought-related expense increases of $ 3.3 million . these cost increases were partially offset by a $ 2.4 million decrease in employee health care costs , $ 1.6 million decrease in uninsured losses , and $ 1.0 million decrease in outside services . wage increases became effective january 1 , 2015. employee pension benefit expenses are fully recovered in rates and are tracked in a balancing account , such that revenues are recovered on a dollar-for-dollar basis up to the amounts authorized in the 2012 35 grc . employee and retiree medical expenses are recovered in rates up to 85 % of adopted values and are tracked in a balancing account as authorized in the 2012 grc . other operations expenses the components of other operations expenses include payroll , material and supplies , and contract service costs of operating the regulated water systems , including the costs associated with water transmission and distribution , pumping , water quality , meter reading , billing , operations of district offices , and water conservation programs . during 2016 , other operations expenses increased $ 12.8 million , or 19.1 % , compared to 2015. the increase was mostly due to $ 4.4 million of mcba costs associated with the realization of operating revenue that was deferred in prior years , the cal water 2015 settlement agreement included a $ 3.2 million write-off of capital costs , conservation program expense increases of $ 1.8 million , and employee wage increases of $ 0.7 million . the $ 3.2 million write-off of capital costs was for engineering design costs for a canceled cal water and city of bakersfield water treatment plant project , previously recorded as property held for future use . conservation program expenses are fully recovered in rates and are tracked in a balancing account if it is within the authorized amount , such that revenues are recovered on a dollar-for-dollar basis up to the amounts authorized in the 2012 grc . during 2015 , other operations expenses increased $ 1.4 million , or 2.2 % , compared to 2014. the increase was mostly due to conservation program expense increases of $ 3.2 million , employee wage increases of $ 1.4 million , and drought-related expense increases of $ 0.6 million , which was partially offset by water treatment cost decreases of $ 2.1 million . conservation program expenses are fully recovered in rates and are tracked in a balancing account , such that revenues are recovered on a dollar-for-dollar basis up to the amounts authorized in the 2012 grc . maintenance maintenance expenses increased $ 1.5 million , or 7.1 % , in 2016 , compared to 2015 due to increased costs for repairs of transmission and distribution mains , tanks , and services . maintenance expenses increased $ 1.6 million , or 8.1 % , in 2015 , compared to 2014 due to increased costs for repairs of transmission and distribution mains . depreciation and amortization depreciation and amortization increased $ 2.2 million in 2016 , or 3.6 % , mostly due to 2015 capital additions . depreciation and amortization increased $ 0.2 million in 2015 , or 0.3 % , mostly due to 2014 capital additions .
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results of operations operating revenue operating revenue in 2016 was $ 609.4 million , an increase of $ 21.0 million , or 3.6 % , over 2015. operating revenue in 2015 was $ 588.4 million , a decrease of $ 9.1 million , or 1.5 % , over 2014. the sources of changes in operating revenue were : replace_table_token_10_th _ ( 1 ) in 2016 , the operating revenue increase is due to rate increases ( see table in rates and regulation section below ) and an increase of $ 2.6 million in estimated unbilled revenue mostly due more unbilled days at the end of 2016 as compared to 2015. the operating revenue increase in 2015 resulted from rate increases which was partially offset by a $ 7.3 million reduction in estimated unbilled revenue in 2015 mostly due to a decrease in customer consumption and the cal water 2012 grc decision rate design changes in 2014 . ( 2 ) the mcba revenue decrease in 2016 and 2015 resulted from a significant reduction in customer consumption in california caused by drought conditions . as required by the mcba mechanism , the reduction to water production costs in california also reduced operating revenue in the same amount . ( 3 ) the other balancing accounts revenue consists of the pension , conservation and health care balancing account revenues . pension and conservation balancing account revenues are the differences between actual expenses and adopted rate recovery . health care balancing account revenue is 85 % of the difference between actual health care expenses and adopted rate recovery . in 2016 , the decrease in revenue was due to a decrease in pension expense and a decrease in health care expenses . in 2015 , the increase in revenue was due to an increase in pension expense and an increase in conservation spending .
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our actual results in future periods may differ from those referred to herein due to a number of factors , including the risks described in the sections entitled โ risk factors โ and โ forward-looking statements โ elsewhere in this report . overview we are a nevada holding company . through our insurance subsidiaries , we provide workers ' compensation insurance coverage to select , small businesses in low to medium hazard industries . workers ' compensation insurance is provided under a statutory system wherein most employers are required to provide coverage for their employees ' medical , disability , vocational rehabilitation , and or death benefit costs for work-related injuries or illnesses . we provide workers ' compensation insurance in 36 states and the district of columbia , with a concentration in california , where over one-half of our business is generated . our revenues are primarily comprised of net premiums earned , net investment income , and net realized gains on investments . we target small businesses , as we believe that this market is traditionally characterized by fewer competitors , more attractive pricing , and stronger persistency when compared to the u.s. workers ' compensation insurance industry in general . we believe we are able to price our policies at levels that are competitive and profitable over the long-term given our expertise in underwriting this market segment . our underwriting approach is to consistently underwrite small business accounts at appropriate and competitive prices without sacrificing long-term profitability and stability for short-term top-line revenue growth . our underwriting results have improved over the past several years , which reflects the increased pricing flexibility afforded to us through the use of multiple writing companies within a state and territorial pricing in california . in addition , our ongoing underwriting initiatives , which are described below , have allowed us to expand our operations while also focusing on under-performing classes of business , as needed . story_separator_special_tag diversifying our risk exposure across our markets and non-renewing under-performing business , resulted in a decline in premiums in california , while we increased premiums in other states . net premiums written net premiums written were $ 694.6 million , $ 689.3 million , and $ 687.6 million for the years ended december 31 , 2016 , 2015 , and 2014 , respectively , which included $ 6.8 million , $ 8.4 million , and $ 10.1 million of reinsurance premiums ceded , respectively . the decreases in reinsurance premiums ceded from 2014 to 2016 reflect the increases in our retention on a per occurrence basis under our current excess of loss reinsurance program compared to earlier periods . net premiums earned net premiums earned were $ 694.8 million , $ 690.4 million , and $ 684.5 million for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . net premiums earned are primarily a function of the amount and timing of net premiums previously written . the following table shows the percentage change in our in-force premiums , policy count , average policy size , payroll exposure upon which our premiums are based , and net rate as of december 31 , 2016 and 2015 , respectively , overall , for california , where 56 % of our premiums were generated , and for all other states , excluding california : replace_table_token_17_th ( 1 ) net rate , defined as total in-force premiums divided by total insured payroll exposure , is a function of a variety of factors , including rate changes , underwriting risk profiles and pricing , and changes in business mix related to economic and competitive pressures . 30 net investment income and net realized gains ( losses ) on investments we invest in fixed maturity securities , equity securities , short-term investments , and cash equivalents . net investment income includes interest and dividends earned on our invested assets and amortization of premiums and discounts on our fixed maturity securities , less bank service charges and custodial and portfolio management fees . we have established a high quality/short duration bias in our investment portfolio . net investment income was $ 73.2 million , $ 72.2 million , and $ 72.4 million for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . the average pre-tax book yield on our invested assets was 3.1 % , 3.2 % , and 3.2 % at december 31 , 2016 , 2015 , and 2014 , respectively . the average tax-equivalent yield on our invested assets , which adjusts the book yield of our investments in tax-advantaged securities to an equivalent pre-tax book yield , was 3.6 % , 3.8 % , and 3.8 % as of the same dates , respectively . realized gains and losses on our investments are reported separately from our net investment income . realized gains and losses on investments include the gain or loss on a security at the time of sale compared to its original or adjusted cost ( equity securities ) or amortized cost ( fixed maturity securities ) . realized losses are also recognized when securities are written down as a result of an other-than-temporary impairment . net realized gains ( losses ) on investments were $ 11.2 million , $ ( 10.7 ) million , and $ 16.3 million for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . net realized gains on investments in 2016 were primarily the result of the sale of equity securities as part of a re-balancing of our equity investments portfolio to meet cash needs at the holding company , and to provide cash to support the internal restructuring of our insurance subsidiaries . those gains were partially offset by $ 5.8 million in other-than-temporary impairments of certain equity securities due to our intent to sell securities , and the downturn in the energy sector during that year . story_separator_special_tag the favorable prior accident year loss development in 2016 and 2015 was the result of our determination that adjustments were necessary to reflect observed favorable paid loss trends in each of these years . paid loss trends have been impacted by cost savings associated with accelerated claims settlement activity that began in 2014 and continued through 2016. the unfavorable prior accident year loss development in 2014 was primarily related to our assigned risk business . additionally , there were favorable lpt reserve adjustments of $ 3.1 million , $ 6.4 million , and $ 31.1 million that decreased losses and lae by those amounts for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . our current accident year loss estimates were 65.2 % , 66.2 % , and 73.6 % for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . the decreasing trend in our current accident year loss estimates reflects the impact of key business initiatives , including : accelerating the settlement of open claims ; diversifying our risk exposure across geographic markets ; and leveraging data-driven strategies to target , underwrite , and price profitable classes of business across all of our markets . in addition , we have increased rates in the la area in california limiting our growth in that territory , while we continue to grow in other territories within and outside of california . the current accident year loss estimate for the year ended december 31 , 2016 includes the impact of $ 6.5 million in large losses recognized in the second quarter of 2016 , which increased the current accident year loss estimate for the year . excluding the impact from the lpt agreement , losses and lae would have been $ 434.5 million , $ 449.8 million , and $ 508.4 million , or 62.5 % , 65.2 % , and 74.3 % of net premiums earned , for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . the table below reflects losses and lae reserve adjustments and the impact of the lpt on net income before taxes . replace_table_token_19_th 32 underwriting and other operating expenses ratio . underwriting and other operating expenses are those costs that we incur to underwrite and maintain the insurance policies we issue , excluding commission . these expenses include premium taxes and certain other general expenses that vary with , and are primarily related to , producing new or renewal business . other underwriting expenses include policyholder dividends , changes in estimates of future write-offs of premiums receivable , general administrative expenses such as salaries and benefits , rent , office supplies , depreciation , and all other operating expenses not otherwise classified separately . policy acquisition costs are variable based on premiums earned . other operating expenses are more fixed in nature and become a smaller percentage of net premiums earned as premiums increase . our underwriting and other operating expenses ratio was 19.7 % , 19.5 % , and 18.9 % , and our underwriting and other operating expenses were $ 136.1 million , $ 135.2 million , and $ 129.1 million for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . during the year ended december 31 , 2016 , our compensation-related expenses increased $ 2.3 million and premium taxes and assessments increased $ 1.5 million , partially offset by a $ 3.1 million decrease in our bad debt expense , each as compared to 2015. during the year ended december 31 , 2015 , our bad debt expense increased $ 2.8 million , compensation-related expenses increased $ 1.5 million , professional fees increased $ 1.2 million , and it expense increased $ 0.9 million , partially offset by a $ 0.8 million decrease in our premium taxes and assessments , each as compared to 2014. commission expense ratio . commission expenses include direct commissions to our agents and brokers for the premiums that they produce for us , as well as incentive payments , other marketing costs , and fees . some of our agency contracts contain incentive clauses , and the terms of those agency incentives are specific to individual contracts and vary as a result of agency performance . our commission expense ratio was 12.0 % , 12.4 % , and 11.9 % , and our commission expenses were $ 83.5 million , $ 85.4 million , and $ 81.4 million for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . the decrease in our commission expense ratio in 2016 , compared to 2015 , was primarily due to lower agency incentives . the increase in the commission expense ratio in 2015 , compared to 2014 , was primarily due to higher agency incentives . income tax expense on january 1 , 2000 , eicn assumed the assets , liabilities , and operations of the fund pursuant to legislation passed in the 1999 nevada legislature ( the privatization ) . prior to the privatization , the fund was part of the state of nevada and therefore was not subject to federal income tax . accordingly , our pre-privatization loss and lae reserve adjustments , lpt reserve adjustments and deferred gain amortization impact our net income but do not change our taxable income . income tax expense was $ 34.0 million , $ 5.0 million , and $ 5.9 million for the years ended december 31 , 2016 , 2015 , and 2014 , respectively , representing effective tax rates of 24.2 % , 5.0 % , and 5.5 % for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . for 2016 , tax-advantaged investment income , lpt reserve adjustments , deferred gain amortization and certain other adjustments reduced our income tax expense computed at a statutory 35 % rate by $ 15.3 million .
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results of operations a primary measure of our performance is our ability to increase adjusted stockholders ' equity over the long-term . we believe that this measure is important to our investors , analysts , and other interested parties who benefit from having an objective and consistent basis for comparison with other companies within our industry . the following table shows a reconciliation of our stockholders ' equity on a gaap basis to our adjusted stockholders ' equity . replace_table_token_15_th ( 1 ) adjusted stockholders ' equity is a non-gaap measure consisting of total gaap stockholders ' equity plus the deferred gain , less accumulated other comprehensive income , net . our net income was $ 106.7 million , $ 94.4 million , and $ 100.7 million in 2016 , 2015 , and 2014 , respectively , and our underwriting income was $ 57.3 million , $ 40.4 million , and $ 20.6 million for the same periods , respectively . the key factors that affected our financial performance during the previous two years included : losses and lae decreased 3 % in 2016 and 5 % in 2015 , each compared to the previous year ; underwriting and other operating expenses increased 1 % in 2016 and 5 % in 2015 , each compared to the previous year ; net realized gains ( losses ) on investments of $ 11.2 million , $ ( 10.7 ) million , and $ 16.3 million in 2016 , 2015 , and 2014 , respectively ; and income tax expense was $ 34.0 million , $ 5.0 million , and $ 5.9 million in 2016 , 2015 , and 2014 , respectively .
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the interest rate swap and investment agreement businesses are in active runoff , which may result in transaction terminations , settlements , restructurings , assignments and scheduled amortization of contracts . in the process of running off these businesses , we may execute hedging transactions to mitigate risks in the respective books of business to the extent that we are able to do so ; however , the segregated account rehabilitation proceedings ( as hereinafter defined ) and the financial condition of ambac assurance will make execution of any such hedging transactions more difficult . to the extent we are unable to hedge such risks , adverse financial impacts may result . beginning in 2009 , the financial services interest rate derivative portfolio has also been used to hedge exposure to rising interest rates within the financial guarantee segment . as a result , declines in current or projected future interest rates could result in losses to the financial services segment . critical accounting policies and estimates the 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 u.s. generally accepted accounting principles ( ยgaapย ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities , revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements . actual results may differ from these estimates under different assumptions or conditions . 45 critical accounting policies are considered critical because they place significant importance on management to make difficult , complex or subjective estimates regarding matters that are inherently uncertain . financial results could be materially different if alternative methodologies were used or if management modified its assumptions or estimates . management has identified the accounting for loss and loss expenses of non-derivative financial guarantees , the valuation of financial instruments , including the determination of whether an impairment is other-than-temporary and the valuation allowance on deferred tax assets , as critical accounting policies . this discussion should be read in conjunction with the consolidated financial statements and notes thereon included elsewhere in this report . we have discussed with the audit committee management 's assessment of such critical accounting policies , the reasons why they are considered critical , and how current and anticipated future events impact those determinations . the company 's critical accounting policies and estimates are as follows : financial guarantee insurance losses and loss expenses : the loss and loss expense reserves for financial guarantee insurance discussed herein relates only to ambac 's non-derivative insurance business for insurance policies issued to beneficiaries , including vies , for which we do not consolidate the vie . losses and loss expenses are based upon estimates of the ultimate aggregate losses inherent in the non-derivative financial guarantee portfolio as of the reporting date . the evaluation process for determining the level of reserves is subject to certain estimates and judgments . asc topic 944 , financial servicesยinsurance clarifies how existing guidance applies to financial guarantee insurance contracts issued by insurance enterprises , including the recognition and measurement of claim liabilities ( i.e. , loss reserves ) . ambac adopted the loss reserve provisions of asc topic 944 on january 1 , 2009. asc topic 944 is required to be applied to inforce financial guarantee insurance contracts issued upon adoption as well as new financial guarantee contracts issued in the future . under asc topic 944 , a loss reserve is recorded on the balance sheet for the excess of : ( a ) the present value of expected net cash outflows to be paid under an insurance contract , ( i.e. , the expected loss ) , over ( b ) the unearned premium reserve ( ยuprย ) for that contract . to the extent ( a ) is less than ( b ) , no loss reserve is recorded . changes to the loss reserve estimate in subsequent periods are recorded as a loss and loss expense on the income statement . expected losses are based upon estimates of the ultimate aggregate losses inherent in the non-derivative financial guarantee portfolio as of the reporting date . the evaluation process for determining expected losses is subject to certain estimates and judgments based on our assumptions regarding the probability of default and expected severity of performing credits as well as our active surveillance of the insured book of business and observation of deterioration in the obligor 's credit standing . ambac 's loss reserves are based on management 's on-going review of the non-derivative financial guarantee credit portfolio . active surveillance of the insured portfolio enables ambac 's surveillance group to track credit migration of insured obligations from period to period and update internal credit ratings for each transaction . non-adversely classified credits are assigned a class i or survey list ( ยslย ) risk classification , while adversely classified credits are assigned a risk classification of class ia through class v. the criteria for an exposure to be assigned an adversely classified credit includes the deterioration of an issuer 's financial condition , underperformance of the underlying collateral ( for collateral dependent transactions such as mortgage-backed securitizations ) , poor performance by the servicer of the underlying collateral and other adverse economic events or trends . the servicer of the underlying collateral of an insured securitization transaction is a consideration in assessing credit quality because the servicer 's performance can directly impact the performance of the related issue . story_separator_special_tag reinsurance recoveries do not have a significant effect on loss reserve volatility because ambac has little exposure ceded to reinsurers and 47 has received collateral from such reinsurers . the current stressed credit environment has had an adverse impact on the financial strength of the reinsurers used by ambac . please refer to item 7a ยquantitative and qualitative disclosures about market risk ย credit riskย for further information and discussion . ambac has exposure to various bond types issued in the debt capital markets . our experience has shown that , for the majority of bond types , we have not experienced significant claims and , therefore , the estimate of loss severity has remained constant . we have observed that , with respect to three bond types , it is reasonably possible that a material change in actual loss severities and defaults could occur over time . in the future , including as a result of the current credit market crisis , our experience may differ with respect to the types of guaranteed bonds affected or the magnitude of the effect . the three bond types are residential mortgage-backed securities ( ยrmbsย ) , collateralized debt obligations ( ยcdosย ) and student loan securities . these three bond types represent 86 % of our ever-to-date claim payments with rmbs comprising 84 % of our ever-to-date claims payments . the table below indicates the number of credits and gross par outstanding for loss reserves on credits which have defaulted and all other credits for which loss reserves have been established at december 31 , 2010 : replace_table_token_25_th ( 1 ) loss reserves of $ 4,553 are included in the balance sheet in the following line items : loss and loss expense reserveย $ 5,288 ; subrogation recoverableย $ 714 ; and other assetsย $ 21 . ( 2 ) ceded par outstanding and ceded loss reserves are $ 1,880 and $ 129 , respectively . cede loss reserves are included in reinsurance recoverable on paid and unpaid losses . rmbs : ambac insures rmbs transactions that contain first-lien mortgages . ambac classifies its insured first-lien rmbs exposure principally into two broad credit risk classes : alt-a ( including mid-prime , interest only , and negative amortization ) and sub-prime . alt-a loans were typically made to borrowers who had stronger credit profiles , while sub-prime loans were typically made to borrowers with weaker credit profiles . compared with alt-a loans , sub-prime loans typically had higher loan-to-value ratios , reflecting the greater difficulty that sub-prime borrowers have in making down payments and the propensity of these borrowers to extract equity during refinancing . the alt-a category includes loans backed by borrowers who typically did not meet standard agency guidelines for documentation requirement , property type or loan-to-value ratio . these are typically higher-balance loans made to individuals who might have past credit problems that are not severe enough to warrant ยsub-primeย classification , or borrowers who chose not to obtain a prime mortgage due to documentation requirements . ambac has also insured rmbs transactions that contain predominantly second-lien mortgage loans such as closed-end seconds and home equity lines of credit . a second-lien mortgage loan is a type of loan in which the borrower uses the equity in their home as collateral and the second-lien loan is subordinate to the first-lien loan outstanding on the home . the borrower is obligated to make monthly payments on both their first and second-lien loans . if the borrower defaults on the payments due under these loans and the property is subsequently liquidated , the liquidation proceeds are first utilized to pay off the first-lien loan ( as well as costs due the servicer ) and any remaining funds are applied to pay off the second-lien loan . as a result of this subordinate position to the first-lien loan , second-lien loans carry a significantly higher severity in the event of a loss , typically at or above 100 % in the current housing market . 48 rmbs transaction-specific behavior is analyzed on a risk-priority basis . we employ a screening tool to assess the sufficiency of credit enhancement remaining in a transaction , as well as other adverse credit data that may result in deterioration . transactions which are experiencing escalating delinquencies and increasing loss severities and or which are experiencing declining levels of subordination or overcollateralization relative to collateral losses are identified as underperforming . for underperforming transactions , historical collateral performance is examined and future collateral performance and cash flows are projected and evaluated . these underperforming transactions are then included in an adversely classified credit list and assigned a credit classification consistent with the degree of underperformance . the table below distinguishes between credits for which we have not established a subrogation recovery and those for which we have , providing in both cases the number of credits , gross par outstanding , gross loss reserves before subrogation , subrogation , and gross reserves net of subrogation for all rmbs exposures for which ambac established reserves at december 31 , 2010 : replace_table_token_26_th second-lien : in evaluating our portfolio of insured second-lien transactions we use a roll-rate methodology which observes trends in delinquencies , defaults , loss severities and prepayments and extrapolates ultimate performance from this data on an individual transaction basis ( and their component pools where they exist ) . as more information ( performance and other ) accumulates for each underperforming transaction we are able to update assumptions in this model to reflect these changes .
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results of operations on november 8 , 2010 ( the ยpetition dateย ) , ambac ( ยdebtorย ) filed a voluntary petition for relief under chapter 11 ( ยbankruptcy filingย ) of the bankruptcy code in the bankruptcy court . ambac will continue to operate in the ordinary course of business as ยdebtor-in-possessionย under the jurisdiction of the bankruptcy court and in accordance with the applicable provisions of the bankruptcy code and the orders of the bankruptcy court . we follow the accounting prescribed by financial accounting standards board accounting standards codification topic 852 , ยreorganizationsย ( ยasc topic 852ย ) . entities operating in bankruptcy and expecting to reorganize under chapter 11 of the bankruptcy code are subject to the additional accounting and financial reporting guidance in asc topic 852. while asc topic 852 provides specific guidance for certain matters , other portions of us gaap continue to apply so long as the guidance does not conflict with asc topic 852. this accounting literature provides guidance for periods subsequent to a chapter 11 filing , among other things , the presentation of liabilities that are and are not subject to compromise by the bankruptcy court proceedings , as well as the treatment of interest expense and presentation of costs associated with the proceedings . accordingly , the financial results in the prior periods or filed in future filings may not be comparable to 2010. the financial results beginning in 2007 and continuing into 2010 have been impacted directly and indirectly by exposure to residential mortgages and other financial market disruption-related losses . ambac has experienced significant losses within its financial guarantee business ( both insurance policies and credit derivatives transactions ) which , beginning 2008 , led to rating downgrades of ambac assurance by the independent rating agencies . also , as a result of these downgrades , most of ambac 's financial services counterparties exercised their contractual rights to either terminate contracts and or obtain additional collateral from ambac .
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we also operate a real estate investment and development company . our permanent offices are located in alaska , arizona , california , florida , nevada , new york , texas , utah and washington . our construction contracts are obtained through competitive bidding in response to advertisements and other general solicitations by both public agencies and private parties and on a negotiated basis as a result of direct solicitation by private parties . our bidding activity is affected by such factors as the nature and volume of advertising and other solicitations , contract backlog , available personnel , current utilization of equipment and other resources , our ability to obtain necessary surety bonds and competitive considerations . our contract review process includes identifying risks and opportunities during the bidding process and managing these risks through mitigation efforts such as insurance and pricing . contracts fitting certain criteria of size and complexity are reviewed by various levels of management and , in some cases , by the executive committee of our board of directors . bidding activity , contract backlog and revenue resulting from the award of new contracts may vary significantly from period to period . our typical construction project begins with the preparation and submission of a bid to a customer . if selected as the successful bidder , we generally enter into a contract with the customer that provides for payment upon completion of specified work or units of work as identified in the contract . we usually invoice our customers on a monthly basis . our contracts frequently call for retention that is a specified percentage withheld from each payment until the contract is completed and the work accepted by the customer . additionally , we defer recognition of profit on projects until they reach at least 25 % completion ( see โ revenue and earnings recognition for construction contracts โ under โ critical accounting policies and estimates โ ) and our profit recognition is based on estimates that change over time . our revenue , gross margin and cash flows can differ significantly from period to period due to a variety of factors including the projects ' stage of completion , the mix of early and late stage projects , our estimates of contract costs and the payment terms of our contracts . the timing differences between our cash inflows and outflows require us to maintain adequate levels of working capital . the three primary economic drivers of our business are ( 1 ) the overall health of the economy , ( 2 ) federal , state and local public funding levels , and ( 3 ) population growth resulting in public and private development . a stagnant or declining economy will generally result in reduced demand for construction and construction materials in the private sector . this reduced demand increases competition for private sector projects and will ultimately also increase competition in the public sector as companies migrate from bidding on scarce private sector work to projects in the public sector . greater competition can reduce our revenues and or have a downward impact on our gross profit margins . in addition , a stagnant or declining economy tends to produce less tax revenue for public agencies , thereby decreasing a source of funds available for spending on public infrastructure improvements . some funding sources that have been specifically earmarked for infrastructure spending , such as diesel and gasoline taxes , are not as directly affected by a stagnant or declining economy , unless actual consumption is reduced . however , even these can be temporarily at risk as state and local governments struggle to balance their budgets . additionally , high fuel prices can have a dampening effect on consumption , resulting in overall lower tax revenue . conversely , increased levels of public funding as well as an expanding or robust economy will generally increase demand for our services and provide opportunities for revenue growth and margin improvement . replace_table_token_25_th on august 31 , 2009 , we announced changes in our organizational structure designed to improve operating efficiencies and better position the company for long-term growth . in conjunction with these changes , we adjusted our reportable business segments to align with our lines of business rather than geographies , on which our segment reporting was previously based . effective january 1 , 2010 our new reportable segments are : construction , large project construction , construction materials and real estate . additionally , we reclassified certain costs between cost of revenue and selling , general and administrative expenses to better represent our direct cost of revenue . these reclassifications did not have an impact on our previously reported net operating results . in the fourth quarter of 2009 we incurred restructuring charges as part of the above mentioned organizational change . included in the charges were amounts associated with a reduction in force and an impairment charge related to certain plant facilities in the northwest . our market sector information reflects three regions defined as follows : 1 ) california ; 2 ) northwest , which includes our offices in alaska , nevada , utah and washington ; and 3 ) east which includes our offices in arizona , florida , new york and texas . each of these regions includes operations from our construction , large project construction , and construction materials lines of business . in october 2010 , we announced our enterprise improvement plan which includes continued actions to reduce our cost structure , enhance operating efficiencies and strengthen our business to achieve long-term profitable growth . the enterprise improvement plan includes new business plans to orderly divest of our real estate investment business and certain fixed assets consistent with our business strategy to focus on our core business . as a result of the enterprise improvement plan , we incurred additional restructuring charges related to further workforce reductions as well as real estate and fixed asset impairments . the majority of restructuring charges associated with the enterprise improvement plan were recorded in the fourth quarter of 2010. story_separator_special_tag replace_table_token_27_th valuation of real estate held for development and sale the carrying amount of each consolidated real estate development project is reviewed on a quarterly basis in accordance with accounting standards codification ( โ asc โ ) topic 360 , property , plant , and equipment , and each real estate development project accounted for under the equity method of accounting is reviewed in accordance with asc topic 323 , investments - equity method and joint ventures . to determine if impairment charges should be recognized , the review of each consolidated project includes an evaluation to determine if events or changes in circumstances indicate that a consolidated project 's carrying amount may not be recoverable . if events or changes in circumstances indicate that a consolidated project 's carrying amount may not be recoverable , the future undiscounted cash flows are estimated and compared to the project 's carrying amount . in the event that the project 's estimated future undiscounted cash flows or investment 's fair value are not sufficient to recover the carrying amounts , it is written down to its estimated fair value . the projects accounted for under the equity method are evaluated for impairment using the other-than-temporary impairment model , which requires an impairment charge to be recognized if our investment 's carrying amount exceeds its fair value , and the decline in fair value is deemed to be other than temporary . events or changes in circumstances , which would cause us to review for impairment include , but are not limited to : significant decreases in the market price of the asset ; significant adverse changes in legal factors or the business climate ; significant changes to the development or business plans of a project ; accumulation of costs significantly in excess of the amount originally expected for the acquisition , development or construction of the asset ; and current period cash flow or operating losses combined with a history of losses , or a forecast of continuing losses associated with the use of the asset . future undiscounted cash flows and fair value assessments are estimated based on entitlement status , market conditions , cost of construction , debt load , development schedules , status of joint venture partners and other factors applicable to the specific project . fair value is estimated based on the expected future cash flows attributable to the asset or group of assets and on other assumptions that market participants would use in determining fair value , such as market discount rates , transaction prices for other comparable assets , and other market data . our estimates of cash flows may differ from actual cash flows due to , among other things , fluctuations in interest rates , decisions made by jurisdictional agencies , economic conditions , or changes to our business operations . during the year ended december 31 , 2010 , the enterprise improvement plan required changes in the business plans of certain real estate projects to reduce capital expenditures , shorten development timelines , and revise marketing plans for the projects thus reducing their estimated future cash flows . consequently , during the year ended december 31 , 2010 , we recorded impairment charges of $ 86.3 million , of which approximately $ 20.0 million was attributable to noncontrolling interests , on approximately one-third of our real estate investments related to the enterprise improvement plan . see note 11 of โ notes to the consolidated financial statements โ and โ restructuring charges โ below for further information . additionally , an evaluation of entitlement status , market conditions , existing offers to purchase , cost of construction , debt load , development schedule , status of joint venture partners and other factors specific to the remainder of our real estate projects , resulted in no significant impairment charges during the year ended december 31 , 2010 . during the years ended december 31 , 2011 and 2009 , we recorded no significant impairment charges related to our real estate development projects or investments . given the current economic environment surrounding real estate , we regularly evaluate the recoverability of our real estate held for development and sale and have determined that no further impairment charges were required at december 31 , 2011 . a continued decline in the residential and or commercial real estate markets may decrease the expected cash flow for certain development activities to the point we would be required to recognize additional impairments in the future . insurance estimates we carry insurance policies to cover various risks , primarily general liability and workers compensation , under which we are liable to reimburse the insurance company for a portion of each claim paid . payment for general liability and workers compensation claim amounts generally range from the first $ 0.5 million to $ 1.0 million per occurrence . we accrue for the estimated ultimate liability for incurred losses , both reported and unreported , using actuarial methods based on historic trends , modified , if necessary , by recent events . changes in our loss assumptions caused by changes in actual experience would affect our assessment of the ultimate liability and could have an effect on our operating results and financial position up to $ 1.0 million per occurrence . replace_table_token_28_th current economic environment and outlook for 2012 intense competition continues to have a negative impact on construction and large project construction gross margins . funding issues for public sector infrastructure projects coupled with weak demand for commercial and residential development in many of our markets have also had a negative impact on the sale of construction materials . while we continue to have a significant amount of work to bid across the country , funding constraints and competing priorities have impacted the timing and volume of public infrastructure projects . over the past several years , the number of new commercial and residential construction projects continues to be adversely affected by an oversupply of existing inventory , declining property values and subsequent financing restrictions .
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results of operations replace_table_token_29_th replace_table_token_30_th revenue replace_table_token_31_th replace_table_token_32_th construction revenue for the year ended december 31 , 2011 increased by $ 100.4 million , or 10.6 % , compared to the year ended december 31 , 2010 . the increase was primarily due to improved construction activity in our california sector as a result of entering the year with greater contract backlog and improved success rate on bidding activity , as well as more favorable weather conditions late in 2011 when compared to 2010. the increase in california was partially offset by a decrease in the northwest primarily due to an unusually wet spring and runoff from a heavy snowpack during the first half of 2011 . replace_table_token_33_th 1 for the periods presented , all large project construction revenue was earned from the public sector . large project construction revenue for the year ended december 31 , 2011 increased by $ 140.6 million , or 24.1 % , compared to the year ended december 31 , 2010 . the increase was primarily due to increases in revenue of our northwest sector partially offset by decreases in our east sector . revenue in the northwest was significantly higher in 2011 as a result of work completed on two projects that were awarded in 2010 . revenue decreased in the east in 2011 when compared to 2010 primarily due to projects nearing completion . replace_table_token_34_th replace_table_token_35_th construction materials revenue for the year ended december 31 , 2011 was flat when compared to the year ended december 31 , 2010 . the construction materials business continues to be impacted by the weakness in the commercial and residential development markets . real estate revenue real estate revenue for the year ended december 31 , 2011 increased by $ 7.0 million , or 53.1 % compared to the year ended december 31 , 2010 .
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the expected dividend yield is zero as the company has not paid any dividends to date and does not expect to pay dividends in the future . the expected lives are estimated using expected and historical exercise behavior . the expected volatility is estimated using calculated volatility of the company 's common stock over a historical period commensurate with the expected term of the option . the amounts estimated according to the black-scholes option pricing model may not be indicative of the actual values realized upon the exercise of these options by the holders . the company is required to estimate potential forfeiture of stock grants and adjust compensation cost recorded accordingly . the estimate of forfeitures is adjusted over the requisite service period to the extent that actual forfeitures differ , or are expected 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 financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in the section titled ยrisk factorsย included elsewhere in this annual report on form 10-k. throughout this discussion , unless the context specifies or implies otherwise , the terms ยaviย , ยweย , ยusย and ยourย refer to avi biopharma , inc. and its subsidiaries . overview we are a biopharmaceutical company focused on the discovery and development of unique rna-based therapeutics for the treatment of rare and infectious diseases . applying our proprietary , highly-differentiated and innovative platform technologies , we are able to target a broad range of diseases and disorders through distinct rna-based mechanisms of action . we are primarily focused on rapidly advancing the development of our duchenne muscular dystrophy drug candidates , including our lead product candidate , eteplirsen , which is currently in a phase iib trial . we are also focused on developing therapeutics for the treatment of infectious diseases and leveraging our rna-based technology platforms to identify additional product candidates and explore various strategic opportunities . our lead program focuses on the development of disease-modifying therapeutic candidates for duchenne muscular dystrophy , or dmd , a rare genetic muscle-wasting disease caused by the absence of dystrophin , a protein necessary for muscle function . eteplirsen is our lead therapeutic candidate for dmd . if we are successful in our development efforts , eteplirsen will address a severe unmet medical need . data from 17 of the 19 individuals enrolled in our phase ib/iia trial in the united kingdom who were treated systemically with eteplirsen demonstrated some generation of novel dystrophin , and one participant exhibited the first ever reported increase in dystrophin positive muscle fibers to 55 % of normal . restoration of dystrophin expression and dystrophin positive fibers is believed to be critical for successful disease-modifying treatment of individuals with dmd . we initiated a phase iib trial for eteplirsen in august 2011 with an objective of initiating a pivotal trial by the end of 2012. we anticipate releasing results from our current phase iib trial by the end of april 2012. we are also leveraging the capabilities of our rna-based technology platforms to develop therapeutics for the treatment of infectious diseases . the u.s. department of defense , or dod , has provided significant financial support for the development of therapeutics against ebola , marburg , dengue and influenza viruses , as described in greater detail below . the basis for our novel rna-based therapeutics is our phosphorodiamidate-linked morpholino oligomer , or pmo , chemistries . unlike other rna-based therapeutics , which are often used to down-regulate gene expression , our technologies can be used to selectively up-regulate or down-regulate the production of a target protein , or direct the expression of novel proteins involved in human diseases and disorders . we believe that these broad capabilities represent highly competitive rna-based technology platforms and a strong intellectual property position , which we are leveraging to identify additional product candidates and explore various strategic opportunities . as of february 29 , 2012 , we owned or controlled approximately 276 u.s. and corresponding foreign patents and 191 u.s. and corresponding foreign patent applications . since our inception in 1980 , we have incurred losses of approximately $ 310.0 million and substantially all of our revenue has been derived from research and development contracts with the u.s. government . we have not yet generated any material revenue from product sales and we have incurred expenses related to research and development , general and administrative charges and acquired in-process research and development resulting from two acquisitions . we expect to continue to incur losses in the future as we continue our research and development efforts and seek approval from various regulatory agencies for our product candidates , but there can be no assurance that we will obtain approval for our product candidates and achieve revenues from product sales . -45- in march 2008 , we acquired all of the stock of ercole biotechnology , inc. , or ercole , in exchange for 5,811,721 shares of our common stock , which was valued at approximately $ 8.4 million , and the assumption of approximately $ 1.8 million in liabilities of ercole . we also issued warrants to purchase our common stock ( also classified as equity ) , which were valued at $ 437,000 , in exchange for certain outstanding warrants issued by ercole . in december 2011 , we restructured our operations by reducing our workforce by 35 employees , or 28 % . restructuring charges totaling $ 1.1 million were recorded in 2011 and included severance and related costs . the charge included approximately $ 0.5 million to research and development expense and approximately $ 0.6 million to general and administrative expense . story_separator_special_tag in september 2011 , the contract was amended to shift activities originally scheduled to occur during the second segment for each therapeutic candidate to the current funding period , which is scheduled to be completed in the second quarter of 2013. as a result of the amendment , the aggregate available funding for the current segments is approximately $ 126.5 million of which we have recognized $ 52.7 million to date . after completion of the first segment , and each successive segment , dod has the option to proceed to the next segment for either or both avi-6002 and avi-6003 . if dod exercises its options for all four segments for -47- both avi-6002 and avi-6003 , our contract activities would include all clinical and licensure activities necessary to obtain fda regulatory approval for each therapeutic candidate and would provide for a total funding award to us of up to $ 288.0 million over a period of six years , of which $ 161.5 million remains to be funded . in february 2012 , we announced that we received approval from the fda to proceed with a single oligomer from avi-6003 , avi-7288 , as the lead product candidate against marburg virus infection . 2010 qualifying therapeutic discovery project in october 2010 , we were awarded five cash grants for our dmd program and infectious disease programs totaling approximately $ 1.2 million under the u.s. government 's qualifying therapeutic discovery project , or qtdp , and recognized the entire amount as revenue in 2010. we will not receive any further funding under the qtdp grants . key financial metrics revenue government research contract and grant revenue . substantially all of our revenue is generated from u.s. government research contracts and grants . see ยnote 7ยu.s . government contractsย of the financial statements included elsewhere in this annual report on form 10-k. we recognize revenue from u.s. government research contracts and grants during the period in which the related expenses are incurred and present such revenues and related expenses gross in the consolidated financial statements . license arrangements . our license arrangements may consist of non-refundable upfront license fees , data transfer fees , research reimbursement payments , exclusive licensed rights to patented or patent pending compounds , technology access fees , various performance or sales milestones and future product royalty payments . some of these arrangements are multiple element arrangements . we defer recognition of non-refundable upfront fees if we have continuing performance obligations when the technology , right , product or service conveyed in conjunction with the non-refundable fee has no utility to the licensee that is separate and independent of our performance under the other elements of the arrangement . in addition , if we have continuing involvement through research and development services that are required because of our know-how or because the services can only be performed by us , then such up-front fees are deferred and recognized over the period of continuing involvement . as of december 31 , 2011 , we had deferred revenue of $ 3.3 million , which represents up-front fees which we will recognize as revenue as we satisfy the outstanding performance obligations . expenses research and development . research and development expense consists of costs associated with research activities as well as costs associated with our product development efforts , conducting preclinical studies , and clinical trial and manufacturing costs . direct research and development expenses associated with our programs include clinical trial site costs , clinical manufacturing costs , costs incurred for consultants and other outside services , such as data management and statistical analysis support , and materials and supplies used in support of the clinical programs . indirect costs of our clinical program include salaries , stock based compensation , and an allocation of our facility costs . -48- the amount and timing of future research and development expense will depend on our ability to obtain u.s. government awards to fund the advanced development of our antiviral therapeutic candidates . without such funding , we would likely drastically reduce our spending in these areas . future research and development expenses may also increase if our internal projects , such as dmd , enter later stage clinical development . our research and development programs are at an early stage and may not result in any approved products . product candidates that appear promising at early stages of development may not reach the market for a variety of reasons . similarly , any of our product candidates may be found to be ineffective during clinical trials , may take longer to complete clinical trials than we have anticipated , may fail to receive necessary regulatory approvals , or may prove impracticable to manufacture in commercial quantities at reasonable cost and with acceptable quality . as a result of these uncertainties and the other risks inherent in the drug development process , we can not determine the duration and completion costs of current or future clinical stages of any of our product candidates . similarly , we can not determine when , if , or to what extent we may generate revenue from the commercialization and sale of any product candidate . the timeframe for development of any product candidate , associated development costs , and the probability of regulatory and commercial success vary widely . general and administrative . general and administrative expense consists principally of salaries , benefits , stock-based compensation expense , and related costs for personnel in our executive , finance , legal , information technology , business development and human resource functions . other general and administrative expenses include an allocation of our facility costs and professional fees for legal , consulting and accounting services . interest income ( expense ) and other , net . interest income ( expense ) and other , net , consists of interest on our cash and cash equivalents , rental income and other income . our cash equivalents consist of money market investments .
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general and administrative expenses general and administrative expenses for 2011 increased by $ 1.7 million , or 12 % , compared to 2010. this increase was due primarily to an increase of $ 1.4 million in personnel related costs and $ 1.1 million in professional consulting costs . legal fees and employee severance costs decreased by approximately $ 0.5 million each while facility costs also increased by $ 0.2 million . general and administrative expenses for 2010 increased by $ 5.7 million , or 65 % , compared to 2009. this significant increase in 2010 was due to $ 2.6 million in severance costs and stock compensation expense related to the departure in april 2010 of our former chief executive officer and an increase of $ 2.0 million in employee costs due to the july 2010 ebola and marburg contract and the h1n1 contracts . other increases included legal costs of $ 0.9 million , facilities expense of $ 0.4 million for the addition of our new bothell , washington facilities , and a $ 0.4 million loss on the write down of the property held for sale . these increases were partially offset by a $ 0.6 million decrease in professional consulting costs . interest income ( expense ) and other , net the increase in interest income ( expense ) and other , net for 2011 compared to 2010 was primarily due to increased interest income on invested cash . the increase in interest income ( expense ) and other , net for 2010 compared to 2009 was attributable to increased interest income on invested cash of $ 0.1 million and $ 0.1 million from increased rental income from -52- the sublease of excess space in our corvallis , oregon facility .
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we maintain a full valuation allowance for deferred tax assets including net operating loss carryforwards and research and development credits and other tax credits . 67 story_separator_special_tag increases were partially offset by decreases in outbound freight costs of $ 0.1 million as a result of the lower revenue and a decrease in travel and entertainment of $ 0.1 million . general and administrative expense increased as a percentage of total revenue to 35 % for the years ended december 31 , 2020 from 27 % for the year ended december 31 , 2019. total other income ( expenses ) , net . total other income ( expenses ) , net was $ 0.9 million of other income for the year ended december 31 , 2020 compared to other expense of $ 3.3 million for the year ended december 31 , 2019 , a change of $ 4.2 million , or 126 % . the change was primarily due to lower interest expense , net of $ 0.3 million and a $ 3.9 million increase in foreign currency exchange transaction income . income taxes . income tax provision was $ 42,000 for the year ended december 31 , 2020 and $ 45,000 for the year ended december 31 , 2019. we continue to generate losses for u.s. federal and state tax purposes and have net operating loss carryforwards creating a deferred tax asset . we maintain a full valuation allowance for deferred tax assets . liquidity , capital resources and plan of operations 69 sources of liquidity and funding requirements from our inception in june 2004 through the year ended december 31 , 2020 , we have financed our operations primarily through private placements of preferred stock , our initial public offering in 2015 , other equity financings , debt and convertible debt financings , equipment purchase loans , patent licensing , and product revenue beginning in 2007. we have not yet attained profitability and continue to incur operating losses and negative operating cash flows . at december 31 , 2020 , we had an accumulated deficit of $ 528.4 million . in january 2017 , we filed a shelf registration statement on form s-3 , which was declared effective by the sec on may 9 , 2017 , or the 2017 shelf registration statement . the 2017 shelf registration statement allows us to sell from time to time up to $ 200 million of common stock , preferred stock , debt securities , warrants , or units comprised of any combination of these securities , for our own account in one or more offerings . on may 10 , 2017 , we filed with the sec a prospectus supplement , pursuant to which we could issue and sell up to $ 50 million of our common stock and entered into an equity distribution agreement with canaccord genuity llc ( formerly canaccord genuity inc. ) or canaccord , pursuant to which canaccord agreed to sell shares of our common stock from time to time , as our agent in an โ at-the-market โ , or atm , offering as defined in rule 415 promulgated under the u.s. securities act of 1933 , as amended , or the securities act . we are not obligated to sell any number of shares under the distribution agreement . on august 4 , 2020 , we and canaccord mutually agreed to terminate the distribution agreement , and as of that date , we had sold 2,663,000 shares under the distribution agreement resulting in net proceeds of $ 4.4 million . on march 23 , 2020 , we filed a new shelf registration statement on form s-3 or the new shelf registration statement , which was declared effective by the sec on august 5 , 2020. under the new shelf registration statement , we will be permitted to sell from time to time up to $ 200 million of common stock , preferred stock , debt securities , warrants , or units comprised of any combination of these securities , for its own account in one or more offerings . the new shelf registration statement is intended to provide us flexibility to conduct sales of our registered securities , subject to market conditions and our future capital needs . on august 5 , 2020 , we filed with the sec a prospectus supplement , for the sale and issuance of up to $ 25 million of its common stock and entered into an at-the-market issuance sales agreement , or the sales agreement , with cowen and company , llc , or cowen , pursuant to which we may offer and sell shares of the our common stock to or through cowen , acting as agent and or principal , from time to time in an โ at-the-market โ offering as defined in rule 415 promulgated under the securities act of 1933 , as amended , including without limitation sales made by means of ordinary brokers ' transactions on the nasdaq capital market or otherwise at market prices prevailing at the time of sale , in block transactions , or as otherwise directed by us . cowen will use commercially reasonable efforts to sell the common stock from time to time , based upon instructions from us ( including any price , time or size limits or other customary parameters or conditions we may impose ) . we will pay cowen a commission of up to 3.0 % of the gross sales proceeds of any common stock sold through cowen under the sales agreement , and we also provided cowen with customary indemnification rights . the shares of common stock being offered pursuant to the sales agreement will be offered and sold pursuant to the new shelf registration statement . we are not obligated to make any sales of common stock under the sales agreement . the offering of shares of common stock pursuant to the sales agreement will terminate upon the earlier of ( i ) story_separator_special_tag we maintain a full valuation allowance for deferred tax assets including net operating loss carryforwards and research and development credits and other tax credits . 67 story_separator_special_tag increases were partially offset by decreases in outbound freight costs of $ 0.1 million as a result of the lower revenue and a decrease in travel and entertainment of $ 0.1 million . general and administrative expense increased as a percentage of total revenue to 35 % for the years ended december 31 , 2020 from 27 % for the year ended december 31 , 2019. total other income ( expenses ) , net . total other income ( expenses ) , net was $ 0.9 million of other income for the year ended december 31 , 2020 compared to other expense of $ 3.3 million for the year ended december 31 , 2019 , a change of $ 4.2 million , or 126 % . the change was primarily due to lower interest expense , net of $ 0.3 million and a $ 3.9 million increase in foreign currency exchange transaction income . income taxes . income tax provision was $ 42,000 for the year ended december 31 , 2020 and $ 45,000 for the year ended december 31 , 2019. we continue to generate losses for u.s. federal and state tax purposes and have net operating loss carryforwards creating a deferred tax asset . we maintain a full valuation allowance for deferred tax assets . liquidity , capital resources and plan of operations 69 sources of liquidity and funding requirements from our inception in june 2004 through the year ended december 31 , 2020 , we have financed our operations primarily through private placements of preferred stock , our initial public offering in 2015 , other equity financings , debt and convertible debt financings , equipment purchase loans , patent licensing , and product revenue beginning in 2007. we have not yet attained profitability and continue to incur operating losses and negative operating cash flows . at december 31 , 2020 , we had an accumulated deficit of $ 528.4 million . in january 2017 , we filed a shelf registration statement on form s-3 , which was declared effective by the sec on may 9 , 2017 , or the 2017 shelf registration statement . the 2017 shelf registration statement allows us to sell from time to time up to $ 200 million of common stock , preferred stock , debt securities , warrants , or units comprised of any combination of these securities , for our own account in one or more offerings . on may 10 , 2017 , we filed with the sec a prospectus supplement , pursuant to which we could issue and sell up to $ 50 million of our common stock and entered into an equity distribution agreement with canaccord genuity llc ( formerly canaccord genuity inc. ) or canaccord , pursuant to which canaccord agreed to sell shares of our common stock from time to time , as our agent in an โ at-the-market โ , or atm , offering as defined in rule 415 promulgated under the u.s. securities act of 1933 , as amended , or the securities act . we are not obligated to sell any number of shares under the distribution agreement . on august 4 , 2020 , we and canaccord mutually agreed to terminate the distribution agreement , and as of that date , we had sold 2,663,000 shares under the distribution agreement resulting in net proceeds of $ 4.4 million . on march 23 , 2020 , we filed a new shelf registration statement on form s-3 or the new shelf registration statement , which was declared effective by the sec on august 5 , 2020. under the new shelf registration statement , we will be permitted to sell from time to time up to $ 200 million of common stock , preferred stock , debt securities , warrants , or units comprised of any combination of these securities , for its own account in one or more offerings . the new shelf registration statement is intended to provide us flexibility to conduct sales of our registered securities , subject to market conditions and our future capital needs . on august 5 , 2020 , we filed with the sec a prospectus supplement , for the sale and issuance of up to $ 25 million of its common stock and entered into an at-the-market issuance sales agreement , or the sales agreement , with cowen and company , llc , or cowen , pursuant to which we may offer and sell shares of the our common stock to or through cowen , acting as agent and or principal , from time to time in an โ at-the-market โ offering as defined in rule 415 promulgated under the securities act of 1933 , as amended , including without limitation sales made by means of ordinary brokers ' transactions on the nasdaq capital market or otherwise at market prices prevailing at the time of sale , in block transactions , or as otherwise directed by us . cowen will use commercially reasonable efforts to sell the common stock from time to time , based upon instructions from us ( including any price , time or size limits or other customary parameters or conditions we may impose ) . we will pay cowen a commission of up to 3.0 % of the gross sales proceeds of any common stock sold through cowen under the sales agreement , and we also provided cowen with customary indemnification rights . the shares of common stock being offered pursuant to the sales agreement will be offered and sold pursuant to the new shelf registration statement . we are not obligated to make any sales of common stock under the sales agreement . the offering of shares of common stock pursuant to the sales agreement will terminate upon the earlier of ( i )
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consolidated results of operations comparison of the years ended december 31 , 2020 and 2019 the following table sets forth our results of operations expressed as dollar amounts , percentage of total revenue and year-over-year change ( in thousands ) : replace_table_token_1_th product revenue . product revenue was $ 58.5 million for the year ended december 31 , 2020 compared to $ 76.6 million for the year ended december 31 , 2019 , a decrease of $ 18.1 million or 24 % . we believe the decline is primarily due to the postponement of elective surgeries as a result of the covid-19 pandemic . the following table sets forth , for the periods indicated , our product revenue by geography expressed as u.s. dollar amounts , percentage of product revenue and year-over-year change ( in thousands ) : replace_table_token_2_th product revenue in the united states was generated through our direct sales force and independent sales representatives . product revenue outside the united states was generated through our direct sales force and distributors . the percentage of product revenue generated in the united states was 87 % for the year ended december 31 , 2020 compared to 88 % for the year ended december 31 , 2019. united states product revenue decreased $ 16.4 million to $ 50.7 million or 24 % year over year . we believe the decline in revenue inside the united states was primarily due to the postponement of elective surgeries due to the covid-19 pandemic . germany product revenue decreased $ 1.1 million to $ 6.5 million , or 14 % year over year 68 on a reported basis and 16 % on a constant currency basis . rest of world product revenue decreased $ 0.6 million to $ 1.3 million , or 33 % year-over-year on a reported basis and 34 % on a constant currency basis , we believe primarily due to restrictions of elective surgeries in the uk related to the covid-19 pandemic .
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translation gains or losses resulting from translating our subsidiaries ' financial statements from the local functional currency to the reporting currency , net of tax , are included in accumulated other comprehensive loss within stockholders ' equity in the consolidated balance sheets . assets and liabilities are translated at the balance sheet date while revenues and story_separator_special_tag operations the following discussion and analysis of the financial condition and results of operations of nasdaq should be read in conjunction with our consolidated financial statements and related notes included in this form 10-k , as well as the discussion under โ item 1a . risk factors. โ for further discussion of our growth strategy , products and services , and competitive strengths , see โ item 1. business. โ unless stated otherwise , the comparisons presented in this discussion and analysis refer to the year-over-year comparison of changes in our financial condition and results of operations as of and for the fiscal years ended december 31 , 2019 and december 31 , 2018. discussion of fiscal year 2017 items and the year-over-year comparison of changes in our financial condition and results of operations as of and for the fiscal years ended december 31 , 2018 and december 31 , 2017 can be found in part ii , โ item 7. management 's discussion and analysis of financial condition and results of operations โ of our annual report on form 10-k for the fiscal year ended december 31 , 2018 , which was previously filed with the sec on february 22 , 2019. business segments we manage , operate and provide our products and services in four business segments : market services , corporate services , information services and market technology . see note 1 , โ organization and nature of operations , โ and note 20 , โ business segments , โ to the consolidated financial statements for further discussion of our reportable segments and geographic data , as well as how management allocates resources , assesses performance and manages these businesses as four separate segments . sources of revenues and transaction-based expenses see โ revenue recognition and transaction-based expenses , โ of note 2 , โ summary of significant accounting policies , โ to the consolidated financial statements for further discussion of our sources of revenues and transaction-based expenses . 30 nasdaq 's operating results key drivers the following table includes key drivers for our market services , corporate services , information services and market technology segments . in evaluating the performance of our business , our senior management closely evaluates these key drivers . replace_table_token_5_th 31 ( 1 ) includes finnish option contracts traded on eurex . ( 2 ) includes transactions executed on the nasdaq stock market 's , nasdaq bx 's and nasdaq psx 's systems plus trades reported through the finra/nasdaq trade reporting facility . ( 3 ) transactions executed on nasdaq commodities or otc and reported for clearing to nasdaq commodities measured by terawatt hours ( twh ) . ( 4 ) new listings include ipos , including those completed on a best efforts basis , issuers that switched from other listing venues , closed-end funds and separately listed etps . ( 5 ) new listings include ipos and represent companies listed on the nasdaq nordic and nasdaq baltic exchanges and companies on the alternative markets of nasdaq first north . ( 6 ) number of total listings on the nasdaq stock market at period end , including 412 etps as of december 31 , 2019 , 392 as of december 31 , 2018 and 373 as of december 31 , 2017 . ( 7 ) represents companies listed on the nasdaq nordic and nasdaq baltic exchanges and companies on the alternative markets of nasdaq first north . ( 8 ) total contract value of orders signed during the period . ( 9 ) arr is the annualized fourth quarter revenue of market technology support and saas subscription contracts . arr is currently one of our key performance metrics to assess the health and trajectory of our business . arr does not have any standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies . arr should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items . arr is not a forecast and the active contracts during the reporting period used in calculating arr may or may not be extended or renewed by our customers . * * * * * * story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; font-weight : bold ; '' > corporate solutions revenues corporate solutions revenues increased in 2019 compared with 2018 primarily due to an increase in both governance solutions revenues and investor relations intelligence revenues , partially offset by an unfavorable impact from foreign exchange of $ 2 million . 36 information services the following table shows revenues from our information services segment : replace_table_token_10_th market data revenues market data revenues increased in 2019 compared with 2018 primarily due to new proprietary data sales , notably growth in the asia pacific region , and higher u.s. tape revenues from under-reported data usage . the increase was partially offset by an unfavorable impact from foreign exchange of $ 4 million . index revenues index revenues increased in 2019 compared with 2018 primarily due to higher average aum in etps linked to nasdaq indexes and higher licensing revenues from futures trading linked to the nasdaq 100 index . investment data & analytics revenues investment data & analytics revenues increased in 2019 compared with 2018 primarily due to an increase in evestment revenues resulting from a $ 23 million purchase price adjustment on deferred revenue in 2018 , organic growth , and the impact of our acquisition of quandl . story_separator_special_tag net gain on divestiture of businesses the net gain on divestiture of businesses in 2019 primarily relates to o ur divestiture of bwise . see โ 2019 divestitures , โ of note 4 , โ acquisitions and divestitures , โ to the consolidated financial statements for further discussion . the net gain on divestiture of businesses in 2018 relates to our 2018 divestiture . see โ 2018 divestiture , โ of note 4 , โ acquisitions and divestitures , โ to the consolidated financial statements for further discussion . net income from unconsolidated investees net income from unconsolidated investees increased in 2019 compared with 2018 primarily due to income recognized from our equity method investment in occ . see โ equity method investments , โ of note 7 , โ investments , โ to the consolidated financial statements for further discussion . 39 tax matters the following table shows our income tax provision and effective tax rate : replace_table_token_15_th for further discussion of our tax matters , see note 18 , โ income taxes , โ to the consolidated financial statements . * * * * * * non-gaap financial measures in addition to disclosing results determined in accordance with u.s. gaap , we also have provided non-gaap net income attributable to nasdaq and non-gaap diluted earnings per share . management uses this non-gaap information internally , along with u.s. gaap information , in evaluating our performance and in making financial and operational decisions . we believe our presentation of these measures provides investors with greater transparency and supplemental data relating to our financial condition and results of operations . in addition , we believe the presentation of these measures is useful to investors for period-to-period comparisons of our ongoing operating performance . these measures are not in accordance with , or an alternative to , u.s. gaap , and may be different from non-gaap measures used by other companies . in addition , other companies , including companies in our industry , may calculate such measures differently , which reduces their usefulness as comparative measures . investors should not rely on any single financial measure when evaluating our business . this non-gaap information should be considered as supplemental in nature and is not meant as a substitute for our operating results in accordance with u.s. gaap . we recommend investors review the u.s. gaap financial measures included in this annual report on form 10-k , including our consolidated financial statements and the notes thereto . when viewed in conjunction with our u.s. gaap results and the accompanying reconciliation , we believe these non-gaap measures provide greater transparency and a more complete understanding of factors affecting our business than u.s. gaap measures alone . we understand that analysts and investors regularly rely on non-gaap financial measures , such as non-gaap net income attributable to nasdaq and non-gaap diluted earnings per share , to assess operating performance . we use non-gaap net income attributable to nasdaq and non-gaap diluted earnings per share because they highlight trends more clearly in our business that may not otherwise be apparent when relying solely on u.s. gaap financial measures , since these measures eliminate from our results specific financial items that have less bearing on our ongoing operating performance . non-gaap net income attributable to nasdaq for the periods presented below is calculated by adjusting for the following items : amortization expense of acquired intangible assets : we amortize intangible assets acquired in connection with various acquisitions . intangible asset amortization expense can vary from period to period due to episodic acquisitions completed , rather than from our ongoing business operations . as such , if intangible asset amortization is included in performance measures , it is more difficult to assess the day-to-day operating performance of the businesses , the relative operating performance of the businesses between periods , and the earnings power of nasdaq . performance measures excluding intangible asset amortization therefore provide investors with a useful representation of our businesses ' ongoing activity in each period . merger and strategic initiatives expense : we have pursued various strategic initiatives and completed acquisitions and divestitures in recent years that have resulted in expenses which would not have otherwise been incurred . these expenses generally include integration costs , as well as legal , due diligence and other third party transaction costs . the frequency and the amount of such expenses vary significantly based on the size , timing and complexity of the transaction . accordingly , we exclude these costs for purposes of calculating non-gaap measures which provide a more meaningful analysis of nasdaq 's ongoing operating performance or comparisons in nasdaq 's performance between periods . restructuring charges : we initiated the transition of certain technology platforms to advance our strategic opportunities as a technology and analytics provider and continue the re-alignment of certain business areas . see note 21 , โ restructuring charges , โ to the consolidated financial statements for further discussion of our 2019 restructuring plan . charges associated with this plan represent a fundamental shift in our strategy and technology as well as executive re-alignment and will be excluded for purposes of calculating non-gaap measures as they are not reflective of ongoing operating performance or comparisons in nasdaq 's performance between periods . net income from unconsolidated investee : see โ occ capital plan , โ of note 7 , โ investments , โ to the consolidated financial statements for further discussion . our income on our investment in occ may vary significantly compared to prior years due to the disapproval of the occ 's capital plan . accordingly , we will exclude this income from current and prior periods for purposes of calculating non-gaap measures which provide a more meaningful analysis of nasdaq 's ongoing operating performance or comparisons in nasdaq 's performance between periods .
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financial summary the following table summarizes our financial performance for the year ended december 31 , 2019 when compared with the same period in 2018 and for the year ended december 31 , 2018 when compared with the same period in 2017. the comparability of our results of operations between reported periods is impacted by our acquisition of cinnober in january 2019 , the divestiture of the bwise enterprise governance , risk and compliance software platform in march 2019 , the divestiture of the public relations solutions and digital media services businesses in april 2018 , and an increase in net income from unconsolidated investees . see note 4 , โ acquisitions and divestitures , โ and โ equity method investments , โ of note 7 , โ investments , โ to the consolidated financial statements for further discussion of these transactions . for a detailed discussion of our results of operations , see โ segment operating results โ below . replace_table_token_6_th _ n/m not meaningful . in countries with currencies other than the u.s. dollar , revenues and expenses are translated using monthly average exchange rates . impacts on our revenues less transaction-based expenses and operating income associated with fluctuations in foreign currency are discussed in more detail under โ item 7a . quantitative and qualitative disclosures about market risk. โ 32 segment operating results the following table shows our revenues by segment , transaction-based expenses for our market services segment and total revenues less transaction-based expenses : replace_table_token_7_th ( 1 ) includes the revenues from the bwise enterprise governance , risk and compliance software platform which was sold in march 2019 and the public relations solutions and digital media services businesses which were sold in april 2018. prior to the sale dates , these revenues were included in our corporate solutions business within our corporate services segment .
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under the agreement , the maximum principal amount available will be reduced by $ 2.5 million every six months commencing april 1 , 2013. f-20 barrett business services , inc. notes to consolidated financial statements ( continued ) 7. revolving credit facility and long-term debt ( continued ) the agreement , as amended , requires the satisfaction of certain financial covenants as follows : minimum fixed charge coverage ratio of no less than 1.25:1.0 , measured quarterly on a rolling four-quarter basis beginning december 31 , 2012 ; funded debt : ebitda of no more than 2.25:1 through september 30 , 2013 ; 1.75:1 through september 30 , 2014 ; 1.5:1 through september 30 , 2015 ; and 1.25:1 thereafter , measured quarterly on a rolling four-quarter basis beginning december 31 , 2012 ; ratio of restricted and unrestricted cash and marketable securities to workers ' compensation and safety incentive liabilities of at least 1.0:1.0 , measured quarterly ; and prohibition on incurring additional indebtedness without the prior approval of the bank , other than up to $ 200,000 per year in purchase money financing . the agreement also contains story_separator_special_tag overview the company is a leading provider of business management solutions , combining human resource outsourcing and professional management consulting to create an operational platform that differentiates us from our competitors . our integrated platform is grounded in expertise in payroll processing , employee benefits , workers ' compensation coverage , risk management and workplace safety programs , and human resource administration . we provide business management solutions to small and mid-sized businesses . we generate staffing services revenues primarily from short-term staffing , contract staffing , on-site management and direct placement services . our client services fees are generated from contractual agreements with our peo clients ; we enter into a co-employment arrangement in which we become the administrative employer and the client maintains care , custody and control of their operations . we recognize revenues from our staffing services for all amounts invoiced , including direct payroll , employer payroll-related taxes , workers ' compensation coverage and a service fee ( equivalent to a mark-up percentage ) . peo service fee revenues from co-employment agreements are recognized on a net basis in accordance with current accounting guidance for revenue recognition and principal/agent considerations . consequently , our peo service fee revenues represent the gross margin generated from our peo services after deducting the amounts invoiced to co-employed clients for direct payroll expenses such as salaries , wages , health insurance and employee out-of-pocket expenses incurred incidental to employment . these amounts are also excluded from cost of revenues . peo service fees also include amounts invoiced to our clients for employer payroll-related taxes and workers ' compensation coverage . through centralized operations at our headquarters in vancouver , washington , we prepare invoices weekly for our staffing services customers and following the end of each payroll processing cycle for clients under a client services agreement . we invoice our customers and clients as each payroll is processed . payment terms for staffing customers are generally 30 days , while co-employed clients ' invoices are generally due on the invoice date . our business is concentrated in california and oregon and we expect to continue to derive a majority of our revenues from these markets in the future . revenues generated in our california and oregon offices accounted for 79 % of our total net revenues in 2012 , 75 % in 2011 and 69 % in 2010. consequently , any weakness in economic conditions or changes in the regulatory environments in these regions could have a material adverse effect on our financial results . our cost of revenues is comprised of direct payroll costs for staffing services , employer payroll-related taxes and employee benefits and workers ' compensation . direct payroll costs represent the gross payroll earned by staffing services employees based on salary or hourly wages . payroll taxes and employee benefits consist of the employer 's portion of social security and medicare taxes , federal and state unemployment taxes , and staffing services employee reimbursements for materials , supplies and other expenses , which are paid by the customer . workers ' compensation expense consists primarily of the costs associated with our self-insured workers ' compensation program , such as claims reserves , - 27 - claims administration fees , legal fees , state administrative agency fees and excess insurance costs for catastrophic injuries . we also maintain separate workers ' compensation insurance policies for employees working in states where we are not self-insured . the largest portion of workers ' compensation expense is the cost of workplace injury claims . when an injury occurs and is reported to us , our respective independent tpa or our internal claims management personnel analyze the details of the injury and develop a case reserve , which becomes the estimate of the cost of the claim based on similar injuries and their professional judgment . we then record or accrue an expense and a corresponding liability based upon our estimate of the ultimate claim cost . as cash payments are made by our tpa against specific case reserves , the accrued liability is reduced by the corresponding payment amount . the tpa and our in-house claims administrators also review existing injury claims on an on-going basis and adjust the case reserves as new or additional information for each claim becomes available . our reserve includes a provision for both future anticipated increases in costs ( ยadverse loss developmentย ) of the claims reserves for open claims and for claims incurred but not reported related to prior and current periods ( together ibnr ) . this provision of the reserve is based upon an actuarial estimate provided by our independent actuary . we believe our operational policies and internal claims reporting system help to limit the occurrence of unreported incurred claims . selling , general and administrative expenses represent both branch office and corporate-level operating expenses . story_separator_special_tag in the event a loss on our available-for-sale investments is determined to be other-than-temporary , the loss will be recognized in our statement of operations . investments in securities classified as held-to-maturity are reported at amortized cost . income taxes . our income taxes are accounted for using an asset and liability approach . this requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities at the applicable tax rates . the determination of our provision for income taxes requires significant judgment , the use of estimates , and the interpretation and application of complex tax laws . significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions . the impact of uncertain tax positions would be recorded in our financial statements only after determining a more-likely-than-not probability that the uncertain tax positions would withstand challenge , if any , from taxing authorities . at december 31 , 2012 , we had deferred income tax assets of $ 8.1 million we assess the realization of the deferred income tax assets as significant changes in circumstances may require adjustments during future periods . the amount of the deferred income tax assets actually realized could vary , if there are differences in the timing or amount of future reversals of existing deferred income tax assets or changes in the actual amounts of future taxable income as compared to operating forecasts . if our operating forecast is determined to no longer be reliable due to uncertain market conditions , our long-term forecast may require reassessment . as a result , in the future , a valuation allowance may be required to be established for all or a portion of the deferred income tax assets . such a valuation allowance could have a significant effect on our future results of operations and financial position . recent accounting pronouncements for a discussion of recent accounting pronouncements and their potential effect on the company 's results of operations and financial condition , refer to note 1 in the notes to the consolidated financial statements beginning at page f-8 of this annual report on form 10-k. forward-looking information statements in this item or in items 1 and 1a of this report which are not historical in nature , including discussion of economic conditions in the company 's market areas and effect on revenue levels , the potential for and effect of acquisitions , the effect of changes in the company 's mix of services on gross margin , the adequacy of the company 's workers ' compensation reserves and allowance for doubtful accounts , the effect of the company 's formation and operation of two wholly owned fully licensed insurance subsidiaries and becoming self-insured for certain business risks , the effectiveness of the company 's management information systems , payment of future dividends and the availability of financing and working capital to meet the company 's funding requirements , are forward-looking statements within the meaning of the private securities litigation reform act of 1995. such forward-looking statements involve known and unknown risks , uncertainties and other - 30 - factors that may cause the actual results , performance or achievements of the company or industry to be materially different from any future results , performance or achievements expressed or implied by such forward-looking statements . such factors with respect to the company include difficulties associated with integrating acquired businesses and clients into the company 's operations , the company 's ability to retain current customers , economic trends in the company 's service areas , the potential for material deviations from expected future workers ' compensation claims experience , the effect of changes in the workers ' compensation regulatory environment in one or more of the company 's primary markets , collectibility of accounts receivable , the carrying values of deferred income tax assets and goodwill , which may be affected by the company 's future operating results , and the availability of capital or letters of credit necessary to meet state-mandated surety deposit requirements for maintaining the company 's status as a qualified self-insured employer for workers ' compensation coverage , among others . the company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments . results of operations the following table sets forth the percentages of total revenues represented by selected items in the company 's statements of operations for the years ended december 31 , 2012 , 2011 and 2010 , included in item 15 of this report . references to the notes to financial statements appearing below are to the notes to the company 's financial statements included in item 15 of this report . replace_table_token_6_th - 31 - we report peo revenues on a net basis because we are not the primary obligor for the services provided by our co-employed clients to their customers pursuant to our client service agreements . we present for comparison purposes the gross revenues and cost of revenues information for the years ended december 31 , 2012 and 2011 set forth in the table below . although not in accordance with generally accepted accounting principles in the united states ( ยgaapย ) , management believes this information is more informative as to the level of our business activity and more illustrative of how we manage our operations , including the preparation of our internal operating forecasts , because it presents our peo services on a basis comparable to our staffing services . the presentation of revenues on a net basis and the relative contributions of staffing and peo services revenues can create volatility in our gross margin percentage . the general impact of fluctuations in our revenue mix is described below . a relative increase in peo services revenue will result in higher gross margin percentage .
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fluctuations in quarterly operating results we have historically experienced significant fluctuations in our quarterly operating results and expect such fluctuations to continue in the future . our operating results may fluctuate due to a number of factors such as a seasonality , wage limits on statutory payroll taxes , claims experience for workers ' compensation , demand for our services and competition and the effect of acquisitions . payroll taxes , as a component of cost of revenues , generally decline throughout a calendar year as the applicable statutory wage bases for federal and state unemployment taxes and social security taxes are exceeded on a per employee basis . our revenue levels may be higher in the third quarter due to the effect of increased business activity of our customers ' businesses in the agriculture , food processing and forest products-related industries . in addition , revenues in the fourth quarter may be affected by many customers ' practice of operating on holiday-shortened schedules . workers ' compensation expense varies with both the frequency and severity of workplace injury claims reported during a quarter and the estimated future costs of such claims . in addition , adverse loss development of prior period claims during a subsequent quarter may also contribute to the volatility in the company 's estimated worker 's compensation expense .
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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 . โ risk factors โ 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 : โช we report income taxes under the asset and liability method . deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the financial reporting basis and tax basis of assets and liabilities , which are measured using the enacted tax laws and tax rates that will be in effect when the differences are expected to reverse . we assess the likelihood that the deferred tax assets will be realized . a valuation allowance is established against deferred tax assets to the extent the company believes that it is more likely than not that the deferred tax assets will not be realized , taking into consideration the level of historical taxable income and projections for future taxable income over the periods in which the temporary differences are deductible . the calculation of our tax liabilities involves assessing uncertainties with respect to the application of complex tax rules . uncertain tax positions must meet a more likely than not threshold to be recognized in the financial statements and the tax benefits recognized are measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon final settlement . see note 14 โ income taxes of the notes to consolidated financial statements contained in item 8 for additional details . โช 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 . prior to the fourth quarter of fiscal year 2016 , we had a number of arrangements with distributors whereby we deferred revenue at the time of shipment of our products to those distributors . as part of those arrangements , when a distributor resold those products to an end customer , the company would credit the distributor the difference between ( 1 ) the original distributor price and the distributor 's agreed upon margin and ( 2 ) the final sales price to the end 22 customer ( known as the โ ship and debit arrangement โ ) . for those transactions , revenue was deferred until the product was resold by the distributor and we determined that the final sales price to the distributor was fixed or determinable . for certain of our smaller distributors , we did not have similar ship and debit arrangements and the distributors were billed at a fixed upfront price . for those transactions , revenue was recognized upon delivery to the distributor based upon the distributor 's individual shipping terms , less an allowance for estimated returns , as the company determined that the revenue recognition criteria were met . in light of the fact that the distributor program had been declining as a portion of the overall business for several years , in fiscal year 2016 the company performed a review of all distributor arrangements in an effort to streamline our distribution program and reduce overhead costs . based upon this review , the company terminated its ship and debit arrangements with distributors during the fourth quarter of fiscal year 2016. subsequent to the termination of the ship and debit arrangements , the company began recognizing revenue for all distributors upon delivery to the distributor based upon the distributor 's individual shipping terms , less an allowance for estimated returns , as the company 's final sales price to the distributor was fixed and determinable and the company determined that all four criteria for revenue recognition were met . although the company terminated its ship and debit arrangements with all distributors along with certain ancillary agreements related to the ship and debit arrangements , the company continues to grant varying levels of stock rotation and price protection rights based on individual distributor agreements . to the extent these rights are implicated in any transaction with a distributor , we continue to evaluate their effect on when the revenue recognition criteria have been met . โช inventories are recorded at the lower of cost or net realizable value , with cost being determined on a first-in , first-out basis . we write down inventories to net realizable value based on forecasted demand while taking into account product release schedules and product life cycles , which may drive management judgment . we also review and write down inventory , as appropriate , based on the age and condition of the 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 . story_separator_special_tag the company is currently evaluating the impact of this asu with no expected material impact . in october 2016 , the fasb issued asu 2016-16 , income taxes ( topic 740 ) : intra-entity transfers of assets other than inventory . this asu relates to income tax consequences of non-inventory intercompany asset transfers . this asu is effective for annual periods beginning after december 15 , 2017 , and interim periods within those annual periods . early adoption is permitted , as of the beginning of an annual reporting period . the guidance requires companies to apply a modified retrospective approach with a cumulative catch-up adjustment to beginning retained earnings in the period of adoption . the company early adopted this asu in the first quarter of fiscal year 2018 with a $ 0.7 million impact to beginning retained earnings . in january 2017 , the fasb issued asu 2017-01 , business combinations ( topic 805 ) : clarifying the definition of a business . the update states that when substantially all of the fair value of the gross assets acquired ( or disposed of ) is concentrated in a single identifiable asset or a group of similar identifiable assets , the set is not a business , and should be treated as an asset acquisition instead . this asu is effective for annual periods beginning after december 15 , 2017 , and interim periods within those annual periods . early adoption is permitted under specific circumstances , including in an interim period , with prospective application . the company adopted this asu and applied the related guidance to an asset acquisition in the first quarter of fiscal year 2018. in january 2017 , the fasb issued asu 2017-04 , intangibles โ goodwill and other ( topic 350 ) : simplifying the test for goodwill impairment . this asu eliminates step two of the goodwill impairment test . an impairment charge is to be recognized for the amount by which the current value exceeds the fair value . this asu is effective for annual periods beginning after december 15 , 2019 , including interim periods . early adoption is permitted , for interim or annual goodwill impairment tests performed after january 1 , 2017 and should be applied prospectively . an entity is required to disclose the nature of and reason for the change in accounting principle upon transition . that disclosure should be provided in the first annual period and in the interim period within the first annual period when the entity initially adopts the amendments in this update . the company is currently evaluating the impact of this asu with no expected material impact . in may 2017 , the fasb issued asu 2017-09 , compensation - stock compensation ( topic 718 ) : scope of modification accounting . this asu applies to any company that changes the terms or conditions of a share-based award , considered a 24 modification . modification accounting would be applied unless certain conditions were met related to the fair value of the award , the vesting conditions and the classification of the modified award . this asu is effective for annual periods beginning after december 15 , 2017 , with early adoption permitted . the standard should be applied prospectively to an award modified on or after the adoption date . the company is currently evaluating the financial statement impact of this asu with no expected material impact . in february 2018 , the fasb issued asu 2018-02 , income statement - reporting comprehensive income ( topic 220 ) : reclassification of certain tax effects from accumulated other comprehensive income . this asu allows for the classification of stranded tax effects resulting from the tax cuts and jobs act ( the โ tax act โ ) from accumulated other comprehensive income to retained earnings . this asu is effective for annual periods beginning after december 15 , 2018 , with early adoption permitted . the standard should be applied in the period of adoption or retrospectively to each period ( or periods ) in which the effect of the change in tax rate is recognized . the company is currently evaluating the potential financial statement impact of this asu . 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 2018 , the company increased our penetration in flagship and mid-tier smartphones and expanded our presence in the digital headset market . the company also began sampling our first 28-nanometer voice biometrics component and introduced our first 55-nanometer boosted amplifier with integrated dsp targeting the audio and haptic markets . in addition to these technology milestones , the company has been focused on growing our presence in the android market , where interest in providing consumers a differentiated user experience is driving demand for a variety of audio and voice components . fiscal year 2018 fiscal year 2018 net sales of $ 1.53 billion represented a slight decrease over fiscal year 2017 net sales of $ 1.54 billion . portable audio product line sales of $ 1.36 billion in fiscal year 2018 decreased slightly over fiscal year 2017 sales of $ 1.37 billion , attributable primarily to lower asp components at a key android oem and asp reductions on certain other portable audio products , partially offset by increased smartphone sales volumes . non-portable audio and other product line sales of $ 168.3 million represented a 1.9 percent increase from fiscal year 2017 sales of $ 165.1 million . overall , gross margin for fiscal year 2018 was 50 percent . the increase in gross margin for fiscal year 2018 was primarily due to supply chain efficiencies versus the prior year . the company 's number of employees increased to 1,596 as of march 31 , 2018 .
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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 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 2018 decreased slightly by 0.4 % percent , to $ 1.53 billion from $ 1.54 billion in fiscal year 2017 . the decrease in net sales reflects a $ 10.0 million decrease in portable audio product sales and a $ 3.2 million increase in non-portable audio and other product sales . portable audio product line sales experienced a decrease in net sales attributable to lower asp components at a key android oem and asp reductions on certain other portable audio products , partially offset by increased smartphone sales volumes versus fiscal year 2017. non-portable audio and other product line sales of $ 168.3 million represented a 1.9 percent increase from fiscal year 2017 sales of $ 165.1 million , which was primarily attributable to increases in computer-related and power meter sales , partially offset by decreases in surround codecs and software sales for the year . net sales for fiscal year 2017 increased 32 percent , to $ 1.5 billion from $ 1.2 billion in fiscal year 2016. the increase in net sales reflects a $ 384.7 million increase in portable audio product sales and a $ 15.1 million decrease in non-portable audio and other product sales .
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note 4 : inventories the composition of inventories is as follows ( dollar amounts in thousands ) : replace_table_token_35_th note 5 : property , plant and equipment the composition of property , plant and equipment is as follows ( dollar amounts in thousands ) : replace_table_token_36_th depreciation expense was $ 4.4 million , $ 4.3 million , and $ 4.3 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . note 6 : intangible assets at december 31 , 2015 , and 2014 , intangibles for product formulations had a gross carrying amount of $ 1.4 million , story_separator_special_tag the following discussion highlights the principal factors that have affected the company 's financial condition , results of operations , liquidity and capital resources for the periods described . this discussion should be read in conjunction with the company 's consolidated financial statements and the related notes in item 8 of this report . this discussion contains forward-looking statements . please see โ cautionary note regarding forward-looking statements โ for the risks , uncertainties and assumptions associated with these forward-looking statements . overview the company 's business , industry and target market nature 's sunshine products , inc. , together with its subsidiaries ( hereinafter referred to collectively as the โ company โ ) , is a natural health and wellness company primarily engaged in the manufacturing and direct selling of nutritional and personal care products . the company is a utah corporation with its principal place of business in lehi , utah , and sells its products to a sales force of independent managers and distributors who use the products themselves and resell them to other independent 28 distributors or consumers . the formulation , manufacturing , packaging , labeling , advertising , distribution and sale of each of the company 's major product groups are subject to regulation by one or more governmental agencies . the company has four business segments that are divided based on the different characteristics of their distributor bases , selling and distributor compensation plans and product formulations , as well as the internal organization of its officers and their responsibilities and business operations . three business segments operate under the nature 's sunshine products brand ( nsp americas ; nsp russia , central and eastern europe ; and china and new markets ) . the company 's china and new markets segment is deploying a multi-channel go-to-market strategy that offers select nature 's sunshine branded products through a direct selling model across china as well as through e-commerce channels . the time to market will be dependent upon regulatory processes including product registration and permit approvals . due to a change in the chinese regulatory environment , the company has indefinitely deferred its entry into the retail channel in china . the china and new markets segment also includes the company 's wholesale business , in which the company sells its products to various locally managed entities independent of the company that have distribution rights for the relevant market . all of the net sales revenue to date in the china and new markets segment is through the company 's wholesale business to foreign markets outside of china detailed below . the wholesale business was previously part of nsp americas . the fourth business segment operates under the synergyยฎ worldwide brand . the company markets its products in australia , austria , belarus , canada , colombia , costa rica , the czech republic , denmark , the dominican republic , ecuador , el salvador , finland , germany , guatemala , honduras , hong kong , iceland , indonesia , ireland , italy , japan , kazakhstan , latvia , lithuania , malaysia , mexico , moldova , mongolia , the netherlands , new zealand , nicaragua , norway , panama , the philippines , poland , russia , singapore , slovenia , south korea , spain , sweden , taiwan , thailand , ukraine , the united kingdom , and the united states . the company markets its products through a wholesale model to argentina , australia , chile , israel , new zealand , norway , peru and the united kingdom . the company discontinued operations in vietnam during the second quarter of 2015 , which were approximately 0.1 percent and 0.4 percent of consolidated net sales during the twelve month periods ended december 31 , 2015 and 2014 , respectively . in 2015 , the company experienced a decrease in its consolidated net sales of 11.4 percent ( or 6.7 percent in local currencies ) compared to the same period in 2014 . nsp russia , central and eastern europe net sales decreased approximately 45.5 percent compared to the same period in 2014 . synergy worldwide net sales decreased approximately 10.9 percent compared to the same period in 2014 ( or 1.8 percent in local currencies ) . nsp americas net sales decreased approximately 1.8 percent compared to the same period in 2014 ( or increased 1.0 percent in local currencies ) . china and new markets net sales decreased approximately 27.4 percent compared to the same period in 2014 . during 2015 , the synergy worldwide segment experienced net sales growth in local currencies in japan , thailand and indonesia and the nsp americas experienced net sales growth in local currencies in north america . excluding the nsp russia , central and eastern europe segment , net sales decreased by approximately 5.9 percent ( or 0.7 percent in local currencies ) during 2015. the strengthening of the u.s. dollar versus the local currencies of the company 's european , latin american and asian markets resulted in an approximate 5.2 percent or $ 16.7 million reduction of its net sales during 2015. the company expects that sales in nsp russia , central and eastern europe will continue to be affected by political unrest in ukraine and russia , sanctions against russia and the significant impact of currency devaluation . the company does not expect this decline in net sales to reverse in the near term . story_separator_special_tag investments the company 's available-for-sale investment portfolio is recorded at fair value and consists of various securities such as state and municipal obligations , u.s. government security funds , short-term deposits and various equity securities . these investments are valued using ( a ) quoted prices for identical assets in active markets or ( b ) from significant inputs that are observable or can be derived from or corroborated by observable market data for substantially the full term of the asset . the 30 company 's trading portfolio is recorded at fair value and consists of various marketable securities that are valued using quoted prices in active markets . for equity securities , when assessing whether a decline in fair value below the company 's cost basis is other-than-temporary , the company considers the fair market value of the security , the length of time and extent to which market value has been less than cost , the financial condition and near-term prospects of the issuer as well as specific events or circumstances that may influence the operations of the issuer , and the company 's intent and ability to hold the investment for a sufficient time in order to enable recovery of the cost . new information and the passage of time can change these judgments . where the company has determined that it lacks the intent and ability to hold an equity security to its expected recovery , the security 's decline in fair value is deemed to be other-than-temporary and is recorded within earnings as an impairment loss . inventories inventories are stated at the lower-of-cost-or-market , using the first-in , first-out method . the components of inventory cost include raw materials , labor and overhead . to estimate any necessary obsolescence or lower-of-cost-or-market adjustments , various assumptions are made in regard to excess or slow-moving inventories , non-conforming inventories , expiration dates , current and future product demand , production planning and market conditions . self-insurance liabilities similar to other manufacturers and distributors of products that are ingested , the company faces an inherent risk of exposure to product liability claims in the event that , among other things , the use of its products results in injury . the company has a wholly-owned captive insurance company to provide it with product liability insurance coverage . the company has accrued an amount that it believes is sufficient to cover probable and reasonably estimable liabilities related to product liability claims based on the company 's history of such claims . however , there can be no assurance that these estimates will prove to be sufficient , nor can there be any assurance that the ultimate outcome of any litigation for product liability will not have a material negative impact on the company 's business prospects , financial position , results of operations or cash flows . the company self-insures for certain employee medical benefits . the recorded liabilities for self-insured risks are calculated using actuarial methods and are not discounted . the liabilities include amounts for actual claims and claims incurred but not reported . actual experience , including claim frequency and severity as well as health care inflation , could result in actual liabilities being more or less than the amounts currently recorded . impairment of long-lived assets the company reviews its long-lived assets , such as property , plant and equipment and intangible assets for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable . it may use an estimate of future undiscounted net cash flows of the related assets or groups of assets over their remaining lives in measuring whether the assets are recoverable . an impairment loss is calculated by determining the difference between the carrying values and the fair values of these assets . due to the continual currency devaluation of the venezuelan bolivar , as of september 30 , 2014 , the company incurred a $ 2.9 million impairment charge to write down the value of its fixed assets in venezuela to $ 0 , which is included in the results from discontinued operations . during the year ended december 31 , 2015 , the company received $ 1.3 million in net proceeds from the sales of its fixed assets in venezuela , which is included in the results from discontinued operations . incentive trip accrual the company accrues for expenses associated with its direct sales program , which rewards independent managers and distributors with paid attendance for incentive trips , including company conventions and meetings . expenses associated with incentive trips are accrued over qualification periods as they are earned . it specifically analyzes incentive trip accruals based on historical and current sales trends as well as contractual obligations when evaluating the adequacy of the incentive trip accrual . actual results could generate liabilities more or less than the amounts recorded . the company has accrued incentive trip costs of approximately $ 4.8 million and $ 4.2 million at december 31 , 2015 and 2014 , respectively , which are included in accrued liabilities in the consolidated balance sheets . contingencies the company is involved in certain legal proceedings . when a loss is considered probable in connection with litigation or non-income tax contingencies and when such loss can be reasonably estimated with a range , it records its best estimate 31 within the range related to the contingency . if there is no best estimate , its records the minimum of the range . as additional information becomes available , it assesses the potential liability related to the contingency and revise the estimates . revision in estimates of the potential liabilities could materially affect its results of operations in the period of adjustment . the company 's contingencies are discussed in further detail in note 14 , โ commitments and contingencies โ , of the notes to consolidated financial statements , in item 8 , part 2 of this report .
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results of operations the following table summarizes the company 's consolidated net income from continuing operations results as a percentage of net sales revenue for the periods indicated : replace_table_token_14_th net sales revenue the company 's international operations have provided , and are expected to continue to provide , a significant portion of its total net sales . as a result , total net sales will continue to be affected by fluctuations in the u.s. dollar against foreign currencies . in order to provide a framework for assessing how its underlying businesses performed excluding the effect of foreign currency fluctuations , in addition to comparing the percent change in net sales from one period to another in u.s. dollars , it compares the percentage change in net sales from one period to another period by excluding the effects of foreign currency exchange as shown below . net sales excluding the impact of foreign exchange fluctuations is not a u.s. gaap financial measure . net sales in local currency removes from net sales in u.s. dollars the impact of changes in exchange rates between the u.s. dollar and the functional currencies of its foreign subsidiaries , by translating the current period net sales into u.s. dollars using the same foreign currency exchange rates that were used to translate the net sales for the previous comparable period . the company believes presenting the impact of foreign currency fluctuations is useful to investors because it allows a more meaningful comparison of net sales of its foreign operations from period to period . however , net sales 33 excluding the impact of foreign currency fluctuations should not be considered in isolation or as an alternative to net sales in u.s. dollar measures that reflect current period exchange rates , or to other financial measures calculated and presented in accordance with u.s. gaap .
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this information should be read in conjunction with item 1a , โ risk factors โ and our consolidated financial statements and the notes thereto included in item 8 , โ financial statements and supplementary data โ of this annual report on form 10-k. historical results and percentage relationships among any amounts in the consolidated financial statements are not necessarily indicative of trends in operating results for future periods . overview we manufacture , market , and distribute charles & colvard created moissanite ยฎ jewels ( which we refer to as moissanite or moissanite jewels ) , finished jewelry featuring moissanite , and fashion finished jewelry for sale in the worldwide jewelry market . moissanite , also known by its chemical name of silicon carbide , or sic , is a rare mineral first discovered in a meteor crater . because naturally occurring sic crystals are too small for commercial use , larger crystals must be grown in a laboratory . leveraging our advantage of being the original and leading worldwide source of created moissanite jewels , our strategy is to establish charles & colvard with reputable , high-quality , and sophisticated brands and to position moissanite as an affordable , luxurious alternative to other gems , such as diamond . we believe this is possible due to moissanite 's exceptional brilliance , fire , durability , and rarity like no other jewel available on the market . we manage our business primarily by our three distribution channels that we use to sell our product lines , loose jewels and finished jewelry . accordingly , we determined our three operating and reportable segments to be wholesale distribution transacted through our parent entity , direct-to-consumer e-commerce distribution transacted through our wholly owned operating subsidiary , moissanite.com , llc , or moissanite.com , and direct-to-consumer home party distribution transacted through our wholly owned operating subsidiary , charles & colvard direct , llc , or charles & colvard direct . we sell our loose moissanite jewels at wholesale to some of the largest distributors and manufacturers in the world , which mount them into fine jewelry to be sold at retail outlets and via the internet . we also sell loose moissanite jewels and finished jewelry featuring moissanite at wholesale to retailers to be sold to end consumers and , in the third quarter of 2011 , we established a direct-to-consumer e-commerce sales channel through moissanite.com that sells both loose moissanite jewels and finished jewelry featuring moissanite . additionally , in april 2012 we launched a pilot test of a direct-to-consumer home party sales channel through charles & colvard direct that sells fashion and moissanite finished jewelry . we believe the expansion of our sales channels to the jewelry trade and the end consumer with branded finished moissanite jewelry creates a more compelling consumer value proposition to drive increased demand . 20 we are continuing to focus on our core business of manufacturing and distributing the loose moissanite jewel and finished jewelry featuring moissanite through wholesale sales channels , because this is currently the primary way we reach consumers . we believe there is opportunity to grow our wholesale business and to capture a larger share of the jewelry market as we execute our strategy to increase consumer awareness of moissanite . the wholesale finished jewelry business that we launched in 2010 has expanded through select retailers and television shopping networks . we believe there is significant opportunity to further expand our wholesale finished jewelry business through e-commerce , television shopping , and other retailers . we also believe our finished jewelry business , including finished jewelry sold through our direct-to-consumer e-commerce and home party sales channels , allows us to have more control over the end product and enhance our relationships with consumers , as well as provide incremental sales and gross profit dollars due to the higher price points of finished jewelry containing moissanite relative to loose jewels . to that end , we focused on the following critical aspects of our strategic plan during 2014 : ยท developing brand strategies - our goal is to build multiple strong brands around the moissanite jewel and finished jewelry collections in attractive and desirable jewelry designs , especially those featuring larger center stones that leverage moissanite 's point of differentiation and value proposition . we believe branding will allow us to increase consumer awareness , which we expect to help drive sales and develop consumer brand recognition and loyalty . in june 2012 , we launched a moissanite jewel with optical properties that are significantly whiter than our standard vg , or classic moissanite grade jewels . we are marketing these whiter jewels under the forever brilliant ยฎ trademark as a premier brand to differentiate from other grades of our moissanite as well as moissanite sold by potential competitors in the future . in september 2014 , we launched the survivor collection , a unique jewelry line designed to celebrate breast cancer survivors . the line features three-stone rings and pendants , two forever brilliant ยฎ and one pink moissanite gem to symbolize life before , during and after cancer . at the launch , we partnered with the breast cancer research foundation , as well as the women survivors alliance to promote breast cancer awareness , celebrate breast cancer survivors and effectively work to find a cure . the survivor collection has launched in over 150 retail locations in the unites states and canada , and our direct-to-consumer home party business lulu avenue ยฎ . the collection has a website that shares information including โ where to buy โ and a vibrant social presence on facebook , twitter , and pinterest . we expect demand for our forever brilliant ยฎ loose jewel and finished jewelry featuring the forever brilliant ยฎ jewel to grow , both in our wholesale channel and on our moissanite.com e-commerce website , and that forever brilliant ยฎ will become an increasingly important brand for charles & colvard , ltd. as we execute future branding initiatives . story_separator_special_tag of this increase , general and administrative expenses increased $ 1.31 million , or 24 % , to $ 6.79 million primarily as a result of bad debt expenses , as well as personnel and consulting increases . sales and marketing expenses decreased $ 14,000 , or 0 % , to $ 9.85 million , primarily as a result of lower consulting expenses incurred to launch the e-commerce and home party direct sales businesses and cooperative advertising expense , offset in part by increased expenses for personnel additions . as we grow our business , we intend to continue to closely manage our operating expenses by seeking the most cost effective and efficient solutions to our operating requirements . we recorded a net loss of $ 13.10 million , or $ 0.65 per diluted share , for the year ended december 31 , 2014 , primarily due to a lower gross profit margin , higher general and administrative expenses , and a $ 4.05 million tax expense resulting from a valuation allowance on certain deferred tax assets based on our cumulative negative taxable income over the last three years and the uncertainty of sufficient future taxable income to utilize our deferred tax assets . our lower gross profit resulted from a greater sales mix of finished jewelry that typically yields a lower gross margin than loose jewels due to the lower markup on precious metals and labor used in the manufacture of jewelry , and an effort to move existing finished gemstones that will not be a focus of our future initiatives . 22 the execution of our strategy to grow our company , with the ultimate goal of increasing consumer awareness and clearly communicating the value proposition of moissanite , is challenging and not without risk . as such , there can be no assurance that future results for each reporting period will exceed past results in sales , operating cash flow , and or net income due to the challenging business environment in which we operate and our investment in various initiatives to support our growth strategies . however , as we execute our growth strategy and messaging initiatives , we remain committed to our current priorities of generating positive cash flow and strengthening our financial position while both monetizing our existing inventory and manufacturing our forever brilliant ยฎ loose jewel and finished jewelry to meet sales demand . we believe the results of these efforts will propel our revenue growth and profitability and further enhance shareholder value in coming years , but we fully recognize the business and economic challenges that we face . 2014 summary the following is a summary of key financial results and certain non-financial results achieved for the year ended december 31 , 2014 : ยท our total consolidated net sales decreased by $ 2.85 million , or 10 % , to $ 25.64 million in 2014 from $ 28.49 million in 2013. the decrease in 2014 sales was primarily due to lower international sales as a result of difficult economic conditions in some of our international markets and the continuing evaluation of the china market . this decrease in international sales was partially offset by an increase in our domestic sales due primarily to the ongoing execution of our growth strategies including our investments in our forever brilliant ยฎ moissanite jewel , the growth of our wholesale customers ' moissanite finished jewelry lines with styles that include both forever brilliant ยฎ and our other grades of loose jewels , and to a 37 % and 252 % increase in sales through our direct-to-consumer businesses , moissanite.com and lulu avenue ยฎ , respectively , which collectively increased their net sales to $ 4.86 million . ยท operating expenses increased by $ 1.20 million , or 8 % , to $ 16.67 million in 2014 from $ 15.47 million in 2013 primarily as a result of personnel additions , bad debt expense , and advertising , marketing , and branding initiatives incurred to position our company for future growth , especially with respect to the two wholly owned operating subsidiaries formed in 2011 for our e-commerce and home party direct sales businesses . as we grow our business , we intend to continue to closely manage our operating expenses by seeking the most cost effective and efficient solutions to our operating requirements . ยท net loss increased by $ 11.81 million , to a loss of $ 13.10 million in 2014 from a net loss of $ 1.29 million in 2013. net loss per share was $ 0.65 in 2014 compared to a net loss per diluted share of $ 0.06 in 2013. net loss for the year ended december 31 , 2014 included a $ 4.05 million net income tax expense which contributed a loss of $ 0.20 per diluted share , comprised of an increase of a valuation allowance on certain deferred tax assets based on our expectation of their future utilization . as discussed above , domestic sales increases in 2014 were offset by higher operating expenses as we continued the investment in our strategic initiatives . ยท we generated positive cash flows from operations of $ 2.03 million in 2014 compared to negative cash flows of $ 9.31 million in 2013. the primary drivers of positive cash flow were $ 7.60 million of net non-cash charges , a decrease in trade accounts receivable of $ 4.28 million , a decrease in inventory of $ 3.18 million , an increase in other accrued liabilities primarily related to our long-term lease obligations of $ 346,000 , and a decrease in prepaid expenses and other assets of $ 116,000. these factors more than offset a net loss of $ 13.10 million and a decrease in trade accounts payable of $ 384,000 . ยท cash and cash equivalents at december 31 , 2014 were $ 4.01 million compared to $ 2.57 million at december 31 , 2013. the primary reason for this increase is the $ 2.59 million of cash flow provided by operations .
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results of operations the following table sets forth certain consolidated statements of operations data for the years ended december 31 , 2014 and 2013. replace_table_token_3_th consolidated net sales consolidated net sales for the years ended december 31 , 2014 and 2013 comprise the following : replace_table_token_4_th consolidated net sales were $ 25.64 million for the year ended december 31 , 2014 compared to $ 28.49 million for the year ended december 31 , 2013 , a decrease of $ 2.85 million , or 10 % . the decrease in 2014 sales was primarily due to lower international sales as a result of difficult economic conditions in some of our international markets and the continuing evaluation of the china market . this decrease in international sales was partially offset by an increase in our domestic sales due primarily to the ongoing execution of our growth strategies including our investments in our forever brilliant ยฎ moissanite jewel , the growth of our wholesale customers ' moissanite finished jewelry lines with styles that include both forever brilliant ยฎ and our other grades of loose jewels , and to a 37 % and 252 % increase in sales through our direct-to-consumer businesses , moissanite.com and lulu avenue ยฎ , respectively , which collectively increased their net sales to $ 4.86 million . we anticipate orders and related sales of both loose moissanite jewels and finished jewelry in our wholesale distribution segment and our two direct-to-consumer distribution segments will improve as we continue to execute our growth strategies . sales of loose jewels represented 50 % and 65 % of total consolidated net sales for the years ended december 31 , 2014 and 2013 , respectively . for the year ended december 31 , 2014 , loose jewel sales were $ 12.93 million compared to $ 18.48 million for the year ended december 31 , 2013 , a decrease of $ 5.56 million , or 30 % .
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story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0000821127/000082112712000009/ # s52ec6466d223c49bc852d2bc9456a0b3 '' style= '' text-decoration : underline ; color : # 0000ff ; font-size:8pt ; '' > private banking the following table presents a summary of profits/ ( losses ) , revenues and expenses for the private banking segment continuing operations for 2011 , 2010 , and 2009 . replace_table_token_6_th nm - not meaningful ( 1 ) loans presented in this table are loans from the private banking segment and do not include loans of non-banking affiliates or the holding company . ( 2 ) deposits presented in this table do not include intercompany eliminations related to deposits in the bank from non-banking affiliates or the holding company . the company 's private banking segment reported net income of $ 40.1 million in 2011 , compared to a net loss of $ 0.8 million in 2010 and net income of $ 13.9 million in 2009 . the 2011 increase in net income , compared to 2010 , was a result of lower provision for loan losses , partially offset by decreased net interest income and income tax expense related to the pre-tax income in 2011 compared to the pre-tax loss reported in 2010. the decreased provision is related to improving credit quality as seen in lower charge-offs and decreases in criticized loans . during the year , the four affiliate banks that made up the private banking segment merged into one bank . the private banking segment incurred restructuring charges related to the merger of $ 5.5 million . assets under management ( โ aum โ ) at the bank in 2011 remained relatively unchanged as compared to 2010 , with net outflows of $ 0.1 billion offset by market appreciation of $ 0.1 billion . 31 total loans at the bank increased $ 170.3 million , or 4 % , to $ 4.6 billion , or 80 % of total assets at the bank , in 2011 from $ 4.5 billion , or 75 % of total assets at the bank , in 2010 . a discussion of the company 's loan portfolio can be found below in part ii . item 7 . โ management 's discussion and analysis of financial condition and results of operations : loan portfolio and credit quality. โ deposits at the bank remained relatively unchanged at $ 4.6 billion in 2011 and 2010 . a discussion of the company 's deposits can be found below in part ii . item 7 . โ management 's discussion and analysis of financial condition and results of operations : financial condition. โ investment management the following table presents a summary of profits/ ( losses ) , revenues and expenses for the investment management segment continuing operations for 2011 , 2010 , and 2009 . replace_table_token_7_th _ nm - not meaningful the company 's investment management segment reported net income of $ 4.2 million in 2011 compared to net income of $ 3.3 million and $ 1.9 million in 2010 and 2009 , respectively . investment management fee revenue increased 8 % from 2010 , due primarily to positive market conditions at the end of 2010 and the beginning of 2011. investment management and trust fee revenue from the investment management segment is earned based on beginning-of-period aum for the fiscal quarter ; therefore changes in revenue generally lag behind changes in aum . as a result , the market appreciation at the end of 2010 had a greater impact on 2011 revenue than on 2010 revenues . in 2011 , the change in aum was impacted by net outflows of $ 0.6 billion , partially offset by market appreciation . in 2010 , the change in aum was impacted by market appreciation of $ 1.3 billion , partially offset by $ 0.2 billion of net outflows . operating expenses at the investment managers increased in 2011 and 2010 , primarily due to changes in variable compensation related to fee revenue . 32 wealth advisory the following table presents a summary of profits/ ( losses ) , revenues and expenses for the wealth advisory segment continuing operations for 2011 , 2010 , and 2009 . replace_table_token_8_th _ nm - not meaningful the company 's wealth advisory segment reported net income of $ 4.6 million in 2011 , compared to net income of $ 3.8 million and $ 2.8 million in 2010 and 2009 , respectively . wealth advisory fees increased 8 % from 2010 due primarily to increases in fee-based contracts , new clients , and aum . operating expenses increased 5 % from 2010 , due primarily to increased variable compensation as a result of increased fees . aum changes for the wealth advisors in 2011 were primarily the result of net inflows of $ 0.2 billion , partially offset by market depreciation of $ 0.1 billion . aum changes for the wealth advisors in 2010 were primarily the result of market appreciation of $ 0.3 billion and net inflows of $ 0.3 billion . the wealth advisors have had twelve consecutive quarters of net inflows and net inflows in seventeen of the past eighteen quarters . the wealth advisory segment adds fee income to the company 's revenue base that is more resistant to fluctuations in market conditions in comparison to the investment management segment since financial planning fees are typically less correlated to the equity markets . 33 critical accounting policies critical accounting policies are reflective of significant judgments and uncertainties , and could potentially result in materially different results under different assumptions and conditions . the company believes that its most critical accounting policies upon which its financial condition depends , and which involve the most complex or subjective decisions or assessments are as follows : allowance for loan and lease losses the allowance for loan losses ( โ allowance โ ) is an estimate of the inherent risk of loss in the loan portfolio as of the consolidated balance sheet dates . management estimates the level of the allowance based on all relevant information available . story_separator_special_tag there may be instances where the loan is considered impaired although based on the fair value of underlying collateral or the discounted expected future cash flows there is no impairment to be recognized . in addition , all loans which are classified as troubled debt restructurings ( โ tdrs โ ) are considered impaired . in addition to the three primary components of the allowance for loan losses discussed above ( general reserve , allocated reserves on non-impaired special mention and substandard loans , and the allocated reserves on impaired loans ) , generally the bank also maintains an insignificant amount of additional allowance for loan losses ( the unallocated allowance for loan losses ) which primarily relates to a general imprecision assessment of the potential variability of applicable qualitative factors subject to a higher degree of variability . the respective qualitative factors , as discussed above , are considered for each respective portfolio segment . only the assessment of the potential variability of applicable qualitative factors is included in the unallocated allowance for loan losses . the unallocated allowance for loan losses is not considered significant by the company . while this evaluation process utilizes historical and other objective information , the classification of loans and the establishment of the allowance for loan losses rely to a great extent on the judgment and experience of management . while management evaluates currently available information in establishing the allowance for loan losses , future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluations . in addition , various regulatory agencies , as an integral part of their examination process , periodically review a financial institution 's allowance for loan losses as well as loan grades/classifications . such agencies may require the financial institution to recognize additions to the allowance or increases to adversely graded classified loans based on their judgments about information available to them at the time of their examination . 35 valuation of goodwill/intangible assets and analysis for impairment the company allocates the cost of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition . other intangible assets identified in acquisitions generally consist of advisory contracts , core deposit intangibles , and non-compete agreements . the value attributed to advisory contracts is based on the time period over which they are expected to generate economic benefits . the advisory contracts are generally amortized over 8-15 years depending on the contract . core deposit intangibles are valued based on the expected longevity of the core deposit accounts and the expected cost savings associated with the use of the existing core deposit base rather than alternative funding sources . the core deposit intangibles are generally amortized , on an accelerated basis , over a period of 10-12 years . non-compete agreements are valued based on the expected receipt of future economic benefits protected by clauses in the non-compete agreements that restrict competitive behavior . non-compete agreements are amortized over the life of the agreement , generally seven years . other intangible assets with definite lives are tested for impairment at the reporting unit level at least annually in the fourth quarter or more frequently when events or circumstances occur that indicate that it is more likely than not that an impairment has occurred . the company tests other intangible assets with definite lives for impairment by comparing the carrying amount to the sum of the net undiscounted cash flows expected to be generated by the asset whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable . if the carrying amount of the asset exceeds its net undiscounted cash flows , then an impairment loss is recognized for the amount by which the carrying amount exceeds its fair value , determined based upon the discounted value of the expected cash flows generated by the asset . the intangible impairment test is performed at the reporting unit level , and each affiliate is considered a reporting unit for goodwill and intangible impairment testing purposes . intangible assets with an indefinite useful economic life are not amortized , but are subject to impairment testing at the reporting unit on an annual basis , or when events or changes in circumstances indicate that the carrying amounts are impaired . the excess of the purchase price for acquisitions over the fair value of the net assets acquired , including other intangible assets , is recorded as goodwill . goodwill is not amortized but is tested for impairment at the reporting unit level , defined as the affiliate level , at least annually in the fourth quarter or more frequently when events or circumstances occur that indicate that it is more likely than not that an impairment has occurred . goodwill is tested for impairment using a two-step process that begins with an estimation of the fair value of a reporting unit . goodwill impairment exists when a reporting unit 's carrying value of goodwill exceeds its implied fair value . significant judgment is applied when goodwill is assessed for impairment . this judgment includes developing cash flow projections , selecting appropriate discount rates , identifying relevant market comparables , incorporating general economic and market conditions , and selecting an appropriate control premium . the selection and weighting of the various fair value techniques may result in a higher or lower fair value . judgment is applied in determining the weightings that are most representative of fair value . the first step ( โ step 1 โ ) of impairment testing requires a comparison of each reporting unit 's fair value to its carrying value to identify potential impairment . the reporting units fall under one of the three segments : private banking , investment management , and wealth advisory . for the private banking segment , the company utilizes a market approach to determine fair value .
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executive summary the company offers a broad range of wealth management services to high net worth individuals , families , businesses and select institutions through its three reportable segments : private banking , investment management , and wealth advisory . this executive summary provides an overview of the most significant aspects of the operating segments and the company 's operations in 2011 . details of the matters addressed in this summary are provided elsewhere in this document and , in particular , in the sections immediately following . in 2011 , the company recorded net income attributable to the company of $ 39.1 million , compared to a net loss of $ 11.0 million in 2010 . after accounting for non-cash equity adjustments and preferred dividends , the company recognized diluted earnings per share of $ 0.46 in 2011 , compared to a loss per diluted share of $ 0.29 in 2010 . see part ii . item 8 . โ financial statements and supplementary dataโnote 1. basis of presentation and summary of significant accounting policies โ for further details of the company 's earnings per share calculation . the key items that affected the company 's 2011 results include : โช improving asset quality , as seen in the $ 13.2 million provision for loan losses , down 85 % from the 2010 provision of $ 87.2 million , and in the decrease in nonaccrual loans , which are down 35 % from the end of 2010. the 2011 provision for loan losses reflects net new loan growth including the mix of loans , changes in loan grades , valuations of impaired loans , changes in specific reserves and charge-offs . charge-offs for 2011 were $ 27.4 million , offset by recoveries of $ 12.0 million , compared to charge-offs of $ 66.7 million and recoveries of $ 9.5 million in 2010. loan growth during 2011 was 4 % , and the decrease in classified loans during the year was $ 38.2 million , or 19 % .
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overview magnolia oil & gas corporation ( the `` company '' or `` magnolia '' ) is a delaware corporation formed in february 2017 as a special purpose acquisition company under the name tpg pace energy holdings corp. for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or similar business combination with one or more businesses . magnolia 's business model was designed with a primary objective to generate stock market value over the long term . the company 's strategy is to establish a company whose characteristics would demonstrate a certain basic set of criteria that appeal to generalist investors and to generate growing earnings per share over time , high operating and full cycle margins , and maintain a very strong balance sheet with a low amount of leverage . on july 31 , 2018 , the company and magnolia oil & gas parent llc ( โ magnolia llc โ ) , as applicable , consummated the previously announced acquisition of : ( i ) certain right , title , and interest in certain oil and natural gas assets located primarily in the karnes county portion of the eagle ford shale in south texas ( the โ karnes county assets โ ) pursuant to that certain contribution and merger agreement ( as subsequently amended , the โ karnes county contribution agreement โ ) , by and among the company , magnolia llc and certain affiliates ( the โ karnes county contributors โ ) of enervest ; ( ii ) certain right , title , and interest in certain oil and natural gas assets located primarily in the giddings field of the austin chalk ( the โ giddings assets โ ) pursuant to that certain purchase and sale agreement ( the โ giddings purchase agreement โ ) by and among magnolia llc and certain affiliates of enervest ( the โ giddings sellers โ ) ; and ( iii ) a 35 % membership interest in ironwood eagle ford midstream , llc , a texas limited liability company , which owns an eagle ford gathering system , pursuant to that certain membership interest purchase agreement , by and among magnolia llc and certain affiliates of enervest ( the โ ironwood sellers โ ) . in connection with the consummation of the business combination on july 31 , 2018 , the karnes county contributors received 83.9 million shares of class b common stock , 31.8 million shares of class a common stock , and approximately $ 911.5 million in cash . the giddings sellers received approximately $ 282.7 million in cash and the ironwood sellers received $ 25.0 million in cash . in connection with the business combination , the company has been identified as the acquirer for accounting purposes and the karnes county business was deemed to be the accounting โ predecessor. โ the business combination was accounted for using the acquisition method of accounting and the successor financial statements reflect a new basis of accounting based on the fair value of net assets acquired . as a result of the application of the acquisition method of accounting , the company 's consolidated and combined financial statements and certain presentations are separated into two distinct periods to indicate the different ownership and accounting basis between the periods presented , the period before the consummation of the business combination , which includes the period from january 1 , 2018 to july 30 , 2018 ( the โ 2018 predecessor period โ ) ; the year ended december 31 , 2017 ( the โ 2017 predecessor period โ ) ; the year ended december 31 , 2016 ( the โ 2016 predecessor period โ ) ; and , together with the 2018 predecessor period and the 2017 predecessor period , ( the โ predecessor period โ ) ; and the period on and after the consummation of the business combination , which is from the closing date to december 31 , 2018 ( the โ successor period โ ) . the company operates in one reportable segment engaged in the acquisition , development , exploration , and production of oil and natural gas properties located in the united states . the company 's oil and natural gas properties are located primarily in karnes county and the giddings field in south texas , where the company primarily targets the eagle ford shale and the austin chalk formation . as of december 31 , 2018 , magnolia 's assets included 16,841 net acres in karnes county and 439,123 net acres in the giddings field . as of december 31 , 2018 , magnolia had 1,458 gross operated wells ( 1,046 net ) with total production of 61.9 mboe/d in the fourth quarter of 2018. in the fourth quarter ended december 31 , 2018 , magnolia operated three drilling rigs across its acreage , with two rigs in karnes county and one rig in the giddings field , and brought 14 gross operated horizontal wells on production . magnolia reported net income attributable to class a common stock of $ 39.1 million , or $ 0.25 per diluted common share , for the successor period . magnolia reported net income of $ 82.4 million which includes noncontrolling interest of $ 43.4 million related to the class b common stock issued to certain affiliates of enervest in connection with the business combination . as of december 31 , 2018 , the noncontrolling interest ownership was 37.4 % . net income attributable to class a common stock for the successor period includes the one-time transaction costs of $ 24.3 million incurred in connection with the business combination as well as federal income tax expense of $ 10.4 million . 29 story_separator_special_tag style= '' padding-left:0px ; text-indent:0px ; line-height : normal ; padding-top:10px ; '' > replace_table_token_11_th oil revenues were 79 % , 89 % , 87 % , and 88 % of the company 's total revenues for the successor period , the 2018 predecessor period , 2017 predecessor period , and 2016 predecessor period , respectively . story_separator_special_tag cost levels of these expenses can vary based on the volume of oil , natural gas , and natural gas liquids produced as well as the cost of commodity processing . gathering , transportation and processing costs were $ 14.4 million , $ 12.9 million , $ 16.3 million , and $ 5.5 million for the successor period , the 2018 predecessor period , the 2017 predecessor period , and the 2016 predecessor period , respectively . gathering , 33 transportation and processing costs were $ 1.55 per boe , $ 1.59 per boe , $ 1.65 per boe , and $ 1.71 per boe for the successor period , the 2018 predecessor period , the 2017 predecessor period , and the 2016 predecessor period , respectively . the decrease in cost per boe in the combined successor period and 2018 predecessor period compared to the 2017 predecessor period was primarily attributable to the adoption of accounting standards update ( โ asu โ ) no . 2014-09 , revenue from contracts with customers ( โ asc 606 โ ) , which resulted in an equal and offsetting reduction to both revenues and gathering , transportation and processing expenses . the decrease in cost per boe in the 2017 predecessor period compared to the 2016 predecessor period was primarily due to increased production from drilling successful wells in the eagle ford shale . taxes other than income include production , ad valorem taxes , and franchise taxes . these taxes are based on rates established by federal , state , and local taxing authorities . production taxes are based on the market value of production . ad valorem taxes are based on the fair market value of the mineral interests or business assets . taxes other than income were $ 23.2 million , $ 23.8 million , $ 20.2 million , and $ 6.4 million for the successor period , the 2018 predecessor period , the 2017 predecessor period , and the 2016 predecessor period , respectively . the higher taxes other than income incurred during the combined successor period and 2018 predecessor period are primarily due to higher production taxes coupled with higher ad valorem taxes . the higher taxes other than income incurred during the 2017 predecessor period compared to the 2016 predecessor period was primarily attributable to the impact of the initial gulftex , initial blackbrush , and subsequent blackbrush acquisitions during 2016 and early 2017 as well as increased production from drilling successful wells in the eagle ford shale . taxes other than income were $ 2.49 per boe , $ 2.93 per boe , $ 2.05 per boe , and $ 2.02 per boe for the successor period , the 2018 predecessor period , the 2017 predecessor period , and the 2016 predecessor period , respectively . exploration costs are geological and geophysical costs that include seismic surveying costs , costs of unsuccessful exploratory dry holes and lease abandonment , and delay rentals . exploration expenses increased in the combined successor period and 2018 predecessor period from the 2017 predecessor period and 2016 predecessor period . the higher exploration costs during the successor period are primarily due to the company incurring $ 11.0 million in exploration expense in the successor period related to the purchase of seismic license continuation in connection with the business combination . the $ 12.4 million reduction in exploration costs from the 2016 predecessor period to the 2017 predecessor period was primarily due to higher cost in 2016 related to the initial blackbrush acquisition . asset retirement obligation accretion increased during the combined successor period and 2018 predecessor period as compared to the 2017 predecessor period and the 2016 predecessor period . the higher asset retirement obligation accretion incurred during the successor period was driven by the inclusion of the giddings assets in the successor period . this resulted in higher accretion expense of $ 0.18 per boe in the successor period , as compared to $ 0.01 per boe , $ 0.02 per boe , and $ 0.03 per boe for the 2018 predecessor period , the 2017 predecessor period , and the 2016 predecessor period , respectively . depreciation , depletion and amortization ( โ dd & a โ ) was $ 177.9 million , $ 137.9 million , $ 129.7 million , and $ 33.1 million for the successor period , the 2018 predecessor period , the 2017 predecessor period , and 2016 predecessor period , respectively . dd & a was $ 19.15 per boe for the successor period as compared to $ 16.98 per boe , $ 13.14 per boe , and $ 10.35 per boe for the 2018 predecessor period , the 2017 predecessor period , and the 2016 predecessor period , respectively . the higher rate per boe for the successor period is due to magnolia 's higher property , plant , and equipment balances recorded as a result of the new basis of accounting related to the business combination and an increase in production volumes as well as a decrease in proved reserves . the higher rate per boe for the 2017 predecessor period compared to the 2016 predecessor period was primarily due to the impact of the initial gulftex , initial blackbrush , and subsequent blackbrush acquisitions during 2016 and early 2017. the amortization of intangible assets was $ 6.0 million for the successor period . in connection with the close of the business combination , the company recorded an estimated cost of $ 44.4 million for the non-compete agreement ( the โ non-compete โ ) entered into with enervest on the closing date as an intangible asset on the consolidated balance sheet of the successor . this intangible asset has a definite life and is subject to amortization utilizing the straight-line method over its economic life , currently estimated to be two and one half to four years . there was no amortization of intangible assets in any of the predecessor periods .
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results of operations factors affecting the comparability of the historical financial results the successor period financial statements reflect a new basis of accounting for the assets and liabilities acquired by the company in the business combination that is based on the fair value of the assets acquired and liabilities assumed . as a result , the statements of operations subsequent to the business combination includes depreciation and amortization expense on magnolia 's property , plant , and equipment balances made under the new basis of accounting . therefore , the company 's financial information prior to the business combination may not be comparable to its financial information subsequent to the business combination . certain other items of income and expense may not be comparable as a result of the following factors : for the periods prior to july 31 , 2018 , the results of operations reflect the results of solely the predecessor , which , as described above , consists of only the results of the karnes county business , including , as applicable , its ownership of the ironwood interest , when the predecessor was not owned by the company , and do not include the results of the giddings assets ; the results of operations of the predecessor were not previously accounted for as the results of operations of a stand-alone legal entity , and accordingly have been carved out , as appropriate , for the periods presented . the results of operations of the predecessor therefore include a portion of indirect costs for salaries and benefits , depreciation , rent , accounting , legal services , and other expenses . in addition to the allocation of indirect costs , the results of operations reflect certain agreements executed by the karnes county contributors for the benefit of the predecessor , including price risk management instruments .
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common stock all preferences , voting powers , relative , participating , optional , or other specific rights and privileges , limitations , or restrictions of the common stock are expressly subject to those that may be fixed with respect to any shares of preferred stock . common stockholders are entitled to one vote per share , and to receive dividends , when and if declared by the board . at each of december 31 , 2014 and december 31 , 2013 , there were 1,020,088 shares common stock outstanding and at december 31 , 2012 , there were 1,016,467 shares story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our ยselected financial dataย and our financial statements , related notes and other financial information included elsewhere in this . this discussion contains forward-looking statements that involve risks and uncertainties such as our plans , objectives , expectations and intentions . 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 ยrisk factorsย included elsewhere in this prospectus . overview we are a clinical-stage biopharmaceutical company focused on the discovery , development and commercialization of therapies for glaucoma . glaucoma is a disease of the eye that is typically characterized by structural evidence of optic nerve damage , vision loss and consistently elevated intraocular pressure , or iop . our 84 lead product candidate , trabodenoson , is a first-in-class selective adenosine mimetic that we rationally designed to lower iop by restoring the eye 's natural pressure control mechanism . our product pipeline includes trabodenoson monotherapy delivered in an eye drop formulation , as well as a fixed-dose combination , or fdc , of trabodenoson with latanoprost given once-daily , or qd . our completed phase 2 trial of trabodenoson co-administered with latanoprost , a prostaglandin analogue , or pga , demonstrated iop-lowering in patients who have previously had inadequate response to latanoprost . these patients represent pga poor-responders , as evidenced by persistently elevated iop at levels that typically require the addition of a second drug to further lower iop . in february 2015 , we completed our ipo of ( i ) 6,667,000 shares of our common stock at a price of $ 6.00 per share and ( ii ) $ 20.0 million aggregate principal amount of our 2020 notes . in march 2015 the underwriters purchased 299,333 shares of common stock at $ 6.00 per share and $ 1.0 million of the 2020 notes upon exercise of their overallotment options . we received net proceeds of $ 36.6 million , after deducting underwriting discounts and offering-related costs , from its equity issuances and $ 18.9 million in net proceeds , after deducting underwriting discounts and offering-related costs , from our debt issuances . prior to the ipo we funded our operations primarily through the sale of preferred stock and issuance of convertible promissory notes and notes payable . as of december 31 , 2014 , we had an accumulated deficit of $ 128.0 million and $ 3.6 million of cash . subsequent to the ipo , we estimate that we have sufficient funding to sustain operations through the next 18 months . we are planning an end-of-phase 2 meeting with the u.s. food and drug administration , or fda , for trabodenoson in the second quarter of 2015. we expect to initiate a phase 3 program for trabodenoson monotherapy in mid-2015 , which will consist of two phase 3 pivotal trials and a long-term safety study . based on our estimates of the rate of patient enrollment and assuming commencement in mid-2015 , we expect to report top-line data from the first of the two pivotal phase 3 trials by late 2016. since our inception on july 7 , 1999 , we have devoted substantially all of our resources to business planning , raising capital , product research and development , applying for and obtaining government and private grants , recruiting management , research and technical staff and other personnel , acquiring operating assets , and undertaking preclinical studies and clinical trials of our lead product candidates . we have not completed development of any product candidate and we have therefore not generated any revenues from product sales . prior to 2012 , we generated revenues primarily from research grants received from governmental agencies and private companies as well as revenue earned under licensing and research collaboration contracts . all previously recognized revenue was unrelated to our current development efforts focused on our lead product candidate , trabodenoson , for the treatment of glaucoma and other diseases of the eye . although it is difficult to predict our liquidity requirements , based upon our current operating plan , and the net proceeds from our ipo , we believe we will have sufficient cash to meet our projected operating requirements for the next 18 months . see ยliquidity and capital resources.ย factors affecting our results of operations we expect our expenses to increase substantially in connection with our ongoing activities , particularly as we continue to invest in research and development and commence our phase 3 program of trabodenoson in 2015. we also expect our expenses to increase as we complete formulation and manufacturing activities of our fdc product candidate and commence clinical trials in 2016. in addition , if we successfully launch trabodenoson as a monotherapy or any other product candidates , we expect to incur significant commercialization expenses related to sales , marketing , manufacturing and distribution of our products . furthermore , we expect to incur additional costs associated with operating as a public company . we expect operating expenses to increase substantially to support an increased infrastructure and expanded operations . 85 accordingly , we will need to obtain additional funding in connection with our continuing operations . story_separator_special_tag we anticipate that our general and administrative expenses will increase in future periods to support increases in our research and development activities and as a result of increased headcount ( especially in our accounting and finance departments ) , increased stock-based compensation charges , expanded infrastructure , increased costs for insurance , and increased legal , compliance , accounting and investor and public relations expenses associated with being a public company . 87 interest expense interest expense consists primarily of interest on our existing notes payable , interest on convertible promissory notes , amortization of loan discounts as well as interest calculated based on the amortization of the beneficial conversion feature of the convertible promissory notes . in february 2015 , we repaid our borrowings under our existing notes payable agreements with horizon technology finance corporation and fortress credit co. llc with the proceeds from our ipo . other income ( expense ) , net other income ( expense ) , net reflects consists primarily of non-cash expense related to changes in the fair value of our warrant liabilities arising from the warrants to purchase shares of series aa preferred stock ( see note 7 of our consolidated financial statements ) and changes in the fair value of the redemption rights derivative related to our 2014 bridge notes . story_separator_special_tag company . upon the closing of our ipo , the 2014 bridge notes , including accrued interest , automatically converted into 337,932 shares of our common stock . on june 28 , 2013 , we entered into notes payable agreements with two financial entities pursuant to which we issued a $ 3.5 million note to each lender and received net proceeds of $ 6.9 million . the notes bore interest at a rate of 11.0 % per annum and had a maturity date of october 1 , 2016. we made principal payments of $ 1.4 million on these notes payable in 2014. in february 2015 , we paid the lenders with proceeds from our ipo a total of $ 5.7 million , which included $ 5.3 million for the remaining principal , $ 0.4 million for end of term and prepayment amounts and accrued interest . these notes payable agreements were then terminated . the following table summarizes our sources and uses of cash for each of the periods presented : replace_table_token_10_th 90 net cash used in operating activities net cash used in operating activities was $ 9.7 million for the year ended december 31 , 2014 and $ 6.5 million for the year ended december 31 , 2013. net cash used in operating activities for the year ended december 31 , 2014 principally resulted from our net loss of $ 9.5 million and increased prepaid expenses and other assets primarily related to $ 1.8 million in deferred public offering costs . these amounts were partially offset by increases in non-cash expenses related to changes in the fair value of our warrant liabilities of $ 0.8 million , increases in accounts payables and accrued expenses of $ 0.3 million , non-cash interest expenses of $ 0.2 million as well as non-cash stock-based compensation expense of $ 0.2 million . net cash used in operating activities for the year ended december 31 , 2013 principally resulted from our net loss of $ 7.6 million partially offset by increases in accounts payable and accrued expenses of $ 0.8 million and net non-cash stock compensation and interest expenses of $ 0.3 million . net cash used in operating activities was $ 6.5 million for the year ended december 31 , 2013 and $ 6.9 million for the year ended december 31 , 2012. net cash used in operating activities for the year ended december 31 , 2013 principally resulted from our net loss of $ 7.6 million and decreases in accounts payable of $ 0.2 million partially offset by increases in accrued expenses of $ 0.9 million and net non-cash stock compensation and interest expenses of $ 0.3 million . net cash used in operating activities for the year ended december 31 , 2012 principally resulted from our net loss of $ 6.1 million and decreases in accrued expenses of $ 1.8 million partially offset by increases in non-cash stock compensation expenses of $ 0.5 million , non-cash interest expenses of $ 0.2 million and accounts payable of $ 0.2 million . our net losses in all periods were the result of our significant operating expenses for research and development activities and general and administrative expenses . net cash used in investing activities net cash used in investing activities was not significant for any periods presented . net cash provided by financing activities net cash provided by financing activities was $ 0.6 million for the year ended december 31 , 2014 and reflects the net proceeds from issuance of our $ 2.0 million convertible notes partially offset by principal payments on our notes payable of $ 1.4 million . net cash provided by financing activities was $ 17.9 million for the year ended december 31 , 2013 and resulted primarily from $ 10.0 million in net proceeds from the sale of our series aa preferred stock , $ 6.9 million in net proceeds from our notes payable and $ 1.0 million in net proceeds from the sale of our convertible notes , which converted into series aa preferred stock in june 2013. net cash provided by financing activities was $ 17.9 million for the year ended december 31 , 2013 and $ 2.5 million for the year ended december 31 , 2012. net cash provided by financing activities for the year ended december 31 , 2013 resulted primarily from $ 10.0 million in net cash proceeds from the sale of our series aa preferred stock , $ 6.9 million in proceeds from our notes payable and $ 1.0 million in net proceeds from the sale of our convertible notes which converted into series aa preferred stock in june 2013. net cash provided by financing activities for the year ended december 31 , 2012 principally resulted from the receipt of $ 2.5
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results of operations comparison of the years ended december 31 , 2014 and 2013 the following table summarizes the results of our operations for the years ended december 31 , 2014 and 2013 : replace_table_token_8_th research and development expenses research and development expenses increased by $ 0.3 million to $ 5.6 million for the year ended december 31 , 2014 , as compared to $ 5.3 million for the year ended december 31 , 2013. the increase resulted primarily from higher cro and other direct clinical trial expenses related to the phase 2 trial of trabodenoson fdc , for which we received top line results in october 2014. this increase was partially offset by decreases in expenses related to manufacturing and testing of the active pharmaceutical ingredient needed to conduct the phase 2 trial , as well as decreases in expenses related to consultants and stock-based compensation for research development personnel . general and administrative expenses general and administrative expenses increased $ 0.8 million , to $ 2.1 million , for the year ended december 31 , 2014 , as compared to $ 1.3 million for the year ended december 31 , 2013. included in the year ended december 31 , 2013 is approximately $ 0.8 million of executive severance and payroll-related costs that are related to the termination of our former ceo and cfo in may 2013 as well as a reversal of approximately $ 0.3 million of stock based compensation also related to these terminations . this decrease of $ 0.5 million was offset by higher outside consultant expenses of $ 0.5 million related primarily to financial and accounting support , payroll-related expenses of $ 0.4 million related to the hiring of our ceo and vp of finance , higher travel , professional fees and other expenses of $ 0.3 million in support of our initial public offering and stock-based compensation of $ 0.2 million related to the 2014 option grants .
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a reconciliation of the number story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes appearing elsewhere in this annual report on form 10-k. the following discussion contains forward-looking statements that reflect our plans , estimates , and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in ยrisk factors.ย we are a leading global provider of cloud services for video . brightcove video cloud , or video cloud , our flagship product released in 2006 , is the world 's leading online video platform . as of december 31 , 2013 , we had 6,318 customers in over 70 countries , including many of the world 's leading media , retail , technology and financial services companies , as well as governments , educational institutions and non-profit organizations . in 2013 , our customers used video cloud to deliver an average of approximately 963 million video streams per month , which we believe is more video streams per month than any other professional solution . video cloud enables our customers to publish and distribute video to internet-connected devices quickly , easily and in a cost-effective and high-quality manner . our innovative technology and intuitive user interface give customers control over a wide range of features and functionality needed to publish and deliver a compelling user experience , including content management , format conversion , video player styling , distributed caching , advertising insertion , content protection and distribution to diverse device types and 30 multiple websites , including their own websites , partner websites and social media sites . video cloud also includes comprehensive analytics that allow customers to understand and refine their engagement with end users . as of december 31 , 2012 , we had 335 employees and 6,367 customers , of which 4,742 used our volume offerings and 1,625 used our premium offerings . as of december 31 , 2013 , we had 347 employees and 6,318 customers , of which 4,556 used our volume offerings and 1,762 used our premium offerings . we have generated substantially all of our revenue to date by offering our video cloud product to customers on a subscription-based , software-as-a-service , or saas , model . our revenue grew from $ 88.0 million in the year ended december 31 , 2012 to $ 109.9 million in the year ended december 31 , 2013. our consolidated net loss was $ 12.5 million and $ 10.2 million for the years ended december 31 , 2012 and 2013 , respectively . included in consolidated net loss for the year ended december 31 , 2013 was stock-based compensation expense and amortization of acquired intangible assets of $ 6.4 million and $ 1.7 million , respectively . included in consolidated net loss for the year ended december 31 , 2012 was stock-based compensation and amortization of acquired intangible assets of $ 5.8 million and $ 644,000 , respectively . for the years ended december 31 , 2013 and 2012 , our revenue derived from customers located outside north america was 41 % and 37 % , respectively . we expect the percentage of total net revenue derived from outside north america to increase in future periods as we continue to expand our international operations . our philosophy for the next few years will continue to be to invest for long-term growth . we believe these investments will help us address some of the challenges facing our business such as demand for our products by customers and potential customers , rapid technological change in our industry , increased competition and resulting price sensitivity . these investments include support for the expansion of our infrastructure within our hosting facilities , the hiring of additional technical and sales personnel , and the innovation of new features for video cloud , the zencoder media processing service , or the zencoder service , brightcove once , or once , and the development of new products . we believe these investments will help us retain our existing customers and lead to the acquisition of new customers . additionally , we believe customer growth will enable us to achieve economies of scale which will reduce our cost of goods sold , research and development and general and administrative expenses as a percentage of total revenue . acquisitions on august 14 , 2012 , we acquired zencoder , a cloud-based media processing service and html5 video player technology provider , for total consideration of approximately $ 27.4 million . this transaction was accounted for under the purchase method of accounting . accordingly , the results of operations of zencoder have been included in our consolidated financial statements since the date of acquisition . all of the assets acquired and liabilities assumed in the transaction have been recognized at their acquisition date fair values , which were finalized at december 31 , 2012. the acquisition did not result in the addition of any reportable segments . on january 8 , 2013 , we acquired the remaining 37 % interest of our majority-owned subsidiary , brightcove kabushiki kaisha , or brightcove kk , a japanese joint venture which was formed on july 18 , 2008. the purchase price of the remaining equity interest was approximately $ 1.1 million and was funded by cash on hand . given that we now own 100 % of brightcove kk , we will continue to consolidate brightcove kk for financial reporting purposes , however , commencing on january 8 , 2013 , we no longer record a non-controlling interest in the consolidated statements of operations . story_separator_special_tag the service is offered to customers on a subscription basis , with either committed contracts or pay-as-you-go contracts . the pricing is based on usage , which is comprised of minutes of video processed . the committed contracts include a fixed number of minutes of video processed . should a customer 's usage of this service exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements . customers of the zencoder service on annual contracts are considered premium customers . customers on month-to-month contracts , pay-as-you-go contracts , or contracts for a period of less than one year , are considered volume customers . professional services and other revenue ย professional services and other revenue consists of services such as implementation , software customizations and project management for customers who subscribe to our premium editions . these arrangements are priced either on a fixed fee basis with a portion due upon contract signing and the remainder due when the related services have been completed , or on a time and materials basis . our backlog consists of the total future value of our committed customer contracts , whether billed or unbilled . as of december 31 , 2013 , we had backlog of approximately $ 59 million compared to backlog of approximately $ 53 million as of december 31 , 2012. of the approximately $ 59 million in backlog as of december 31 , 2013 , between $ 52 million and $ 54 million is expected to be recognized as revenue during the year ended december 31 , 2014. because revenue for any period is a function of revenue recognized from backlog at the beginning of the period as well as from contract renewals and new customer contracts executed during the period , backlog at the beginning of any period is not necessarily indicative of future performance . our presentation of backlog may differ from that of other companies in our industry . cost of revenue cost of subscription , support and professional services revenue primarily consists of costs related to supporting and hosting our product offerings and delivering our professional services . these costs include salaries , benefits , incentive compensation and stock-based compensation expense related to the management of our data centers , our customer support team and our professional services staff . in addition to these expenses , we incur third-party service provider costs such as data center and content delivery network expenses , 33 allocated overhead , depreciation expense and amortization of capitalized internal-use software development costs and acquired intangible assets . we allocate overhead costs such as rent , utilities and supplies to all departments based on relative headcount . as such , general overhead expenses are reflected in cost of revenue in addition to each operating expense category . the costs associated with providing professional services are significantly higher as a percentage of related revenue than the costs associated with delivering our subscription and support services due to the labor costs of providing professional services . as such , the implementation and professional services costs relating to an arrangement with a new customer are more significant than the costs to renew a customer 's subscription and support arrangement . cost of revenue increased in absolute dollars from 2012 to 2013. in future periods we expect our cost of revenue will increase in absolute dollars as our revenue increases . we also expect that cost of revenue as a percentage of revenue will decrease over time as we are able to achieve economies of scale in our business . however , cost of revenue as a percentage of revenue could fluctuate from period to period depending on the growth of our professional services business and any associated costs relating to the delivery of subscription services and the timing of significant expenditures . to the extent that our customer base grows , we intend to continue to invest additional resources in expanding the delivery capability of our products and other services . the timing of these additional expenses could affect our cost of revenue , both in terms of absolute dollars and as a percentage of revenue , in any particular quarterly or annual period . operating expenses we classify our operating expenses as follows : research and development . research and development expenses consist primarily of personnel and related expenses for our research and development staff , including salaries , benefits , incentive compensation and stock-based compensation , in addition to the costs associated with contractors and allocated overhead . we have focused our research and development efforts on expanding the functionality and scalability of our products and enhancing their ease of use , as well as creating new product offerings . we expect research and development expenses to increase in absolute dollars as we intend to continue to periodically release new features and functionality , expand our product offerings , continue the localization of our products in various languages , upgrade and extend our service offerings , and develop new technologies . over the long term , we believe that research and development expenses as a percentage of revenue will decrease , but will vary depending upon the mix of revenue from new and existing products , features and functionality , as well as changes in the technology that our products must support , such as new operating systems or new internet-connected devices . sales and marketing . sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing staff , including salaries , benefits , incentive compensation , commissions , stock-based compensation and travel costs , amortization of acquired intangible assets , in addition to costs associated with marketing and promotional events , corporate communications , advertising , other brand building and product marketing expenses and allocated overhead . our sales and marketing expenses have increased in absolute dollars in each of the last three years .
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results of operations the following tables set forth our results of operations for the periods presented . the period-to-period comparison of financial results is not necessarily indicative of future results . replace_table_token_7_th overview of results of operations for the years ended december 31 , 2013 and 2012 total revenue increased by 25 % , or $ 21.9 million , in 2013 compared to 2012 due to an increase in subscription and support revenue of 22 % , or $ 18.9 million , respectively , and an increase in professional services and other revenue of 82 % , or $ 3.1 million , respectively . the increase in subscription and support revenue resulted primarily from an increase in the number of our premium customers , which was 1,762 as of december 31 , 2013 an increase of 8 % from 1,625 customers as of december 31 , 2012 , as well as an increase in revenue from existing customers . in addition , our revenue from volume offerings grew by $ 2.3 million , or 28 % , from the prior year . our ability to continue to provide the product functionality and performance that our customers require will be a major factor in our ability to continue to increase revenue . 41 our gross profit increased by $ 12.5 million , or 21 % , in 2013 compared to 2012 , primarily due to an increase in revenue . with the continued growth in our total revenue , our ability to continue to maintain our overall gross profit will depend on our ability to continue controlling our costs of delivery . loss from operations was $ 9.5 million in 2013 compared to $ 15.4 million in 2012. loss from operations in 2013 included stock-based compensation expense , amortization of acquired intangible assets and merger-related expenses of $ 6.4 million , $ 1.7 million and $ 2.1 million , respectively .
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in some cases , you can identify forward-looking statements by terminology such as โ may โ , โ should โ , โ expects โ , โ plans โ , โ anticipates โ , โ believes โ , โ estimates โ , โ predicts โ , โ potential โ or โ continue โ or the negative of these terms or other comparable terminology . these statements are only predictions and involve known and unknown risks , uncertainties and other factors that may cause our or our industry 's actual results , levels of activity , performance or achievements to be materially different from any future results , levels of activity , performance or achievements expressed or implied by these forward-looking statements . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . except as required by applicable law , including the securities laws of the united states , we do not intend to update any of the forward-looking statements to conform these statements to actual results . our unaudited financial statements are stated in united states dollars ( us $ ) and are prepared in accordance with united states generally accepted accounting principles . the following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this annually report . the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed below and elsewhere in this annually report . in this annually report , unless otherwise specified , all dollar amounts are expressed in united states dollars and all references to โ common shares โ refer to the common shares in our capital stock . as used in this annually report and unless otherwise indicated , the terms โ we โ , โ us โ , โ our โ , `` jupw '' and the โ company โ mean jupiter wellness , inc. company overview we were originally incorporated in the state of delaware on october 24 , 2018. our principal business address is 725 n. hwy a1a , suite c-106 , jupiter , fl 33477. jupiter wellness , inc. is a cutting-edge developer of cannabidiol ( cbd ) based medical therapeutics and wellness products . the company 's clinical pipeline of prescription cbd-enhanced skin care therapeutics address indications including eczema , burns , herpes cold sores , and skin cancer . we are in the early stage of manufacturing , distributing , and marketing a diverse line of consumer products infused with cbd . we have a proprietary , line of products : canisun , caniskin and canidermrx . under the canisun brand , we are marketing patent pending cbd-infused sun care lotion formulas containing various sun protection factors , or spfs . in addition , we are exploring the use of cbd with other prescription and or over-the-counter , or otc , consumer products that have potentially therapeutic and medical applications . specifically , we are exploring the use of such topical solutions for the treatment of eczema , dermatitis ( jw-100 ) , and actinic keratosis ( jw-_100 ) , a non-prescription lotion/lip balm ( jw-200 ) for the treatment of symptoms of cold sores , and a prescription product for the treatment of burns ( jw-101 ) . the canidermrx ( jw-100 ) topical solution for the treatment of eczema dermatitis is the lead product candidate and will be further tested in humans as an investigational cosmetic ingredient followed by clinical trials subject to the regulations of the united states food and drug administration ( โ fda โ ) under an investigational new drug , or ind , application . in february 2021 , we announced the results of our novel cannabidiol-aspartame combination treatment jw-100 clinical trial which has shown it significantly reduces isga score in eczema patients . a double blinded placebo controlled interventional study was conducted . subjects were assigned to apply , at home , one of three treatments : jw-100 ( a cbd and aspartame combination topical formulation ) , a cbd only topical formulation , or a placebo topical formulation . after 14 days , the average reduction in the investigators static global assessment ( isga ) score was calculated for each group . additionally , the proportion of subjects achieving ( isga ) score 0 ( clear ) or 1 ( almost clear ) with at least 2 grade improvement from baseline was recorded for each arm of the study . 50 % of subjects in the jw-100 arm achieved isga clear or almost clear ( 1 or 2 ) with at least a 2-grade improvement from baseline after treatment versus 20 % and 15 % in the cbd-only and placebo arms , respectively . the percentage of subjects achieving clear or almost clear with at least a 2-grade improvement from baseline was found to be statistically significant ( p=0.028 ) . jw-100 , a novel topical formulation containing cbd and aspartame , was shown to significantly reduce isga score in atopic dermatitis patients after two weeks of use . the combination of cbd and aspartame was more effective at reducing isga scores than cbd alone . in parallel , we plan to initiate the development of other products . we originally anticipated developmental studies to be completed in 2020 , however , these studies were delayed due to covid-19 . we are also actively seeking to acquire or license products in the otc skin care market that can be infused with cbd and marketed under our caniskin and canidermrx brand names . there can be no assurances that we will acquire or enter into such partnership or licensing agreements . the endocannabinoid system , which is a body system affected by cbd , plays a pivotal role in maintaining a healthy skin through modulating pain sensation , cell proliferation and inflammation . story_separator_special_tag we intend to sell the product , provided it first passes stability testing , on our website for caniskin products . additionally , we are developing innovative dermatological treatments under the canidermrx brand that are specialized to treat atopic dermatitis and other dermatological conditions such as burns , skin cancer and herpes cold sores , respectively . subject to obtaining fda approval , we intend for our experimental-stage product for the treatment of atopic dermatitis to compete with dupixent , an fda-approved leading treatment for atopic dermatitis , and for our experimental-stage product for the treatment of herpes cold sores to compete with silvadene and abreva , fda-approved products for treating herpes cold sores . these products require more extensive testing to show with safety and efficacy . our first clinical indication is atopic dermatitis ( eczema ) . we have completed manufacturing of formulations containing cbd and aspartame in an fda-approved cgmp facility and will be initiating clinical trials of an experimental cosmetic ingredient in this indication to determine efficacy . we expect these studies to be completed in 2021 and cost approximately $ 120,000. we will not make any medicinal or therapeutic claims based on this trial . in parallel , we have initiated development studies to file an investigational new drug ( โ ind โ ) application for fda regulated clinical studies in this indication . we expect the developmental studies to be completed in the first quarter of 2021 and the ind filing to be submitted in the second quarter of 2021. we originally anticipated developmental studies to be completed in the first quarter of 2020 , however , these studies were delayed due to covid-19 . the cost of the developmental studies are estimated to be approximately $ 250,000. critical accounting policies our management 's discussion and analysis of our financial condition and results of operations is based on our unaudited financial statements for the year ended december 31 , 2020 and audited financial statements for the year ended december 31 , 2020 , which have been prepared in accordance with united states generally accepted accounting principles , or u.s. gaap , and the rules and regulations of the securities and exchange commission . 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 . the financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( โ us gaap โ ) and are expressed in united states dollars . significant accounting policies are summarized below : revenue recognition the company generates its revenue from the sale of its products directly to the end user or distributor ( collectively the โ customer โ ) . the company recognizes revenues by applying the following steps in accordance with fasb accounting standards codification 606 โ revenue from contracts with customers โ ( โ asc 606 โ ) . under asc 606 , revenues are recognized when control of the promised goods or services are transferred to a customer , in an amount that reflects the consideration that the company expects to receive in exchange for those goods or services . the company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements : identify the contract with a customer ; identify the performance obligations in the contract ; determine the transaction price ; allocate the transaction price to performance obligations in the contract ; and recognize revenue as the performance obligation is satisfied . the company 's performance obligations are satisfied when goods or products are shipped on an fob shipping point basis as title passes when shipped . our product is generally paid in advance of shipment or standard net 30 days and we offer no specific right of return , refund or warranty related to our products except for cases of defective products of which there have been none to date . 33 inventory inventories are stated at the lower of cost or market . the company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions . write-downs and write-offs are charged to cost of goods sold . inventory is based upon the average cost method of accounting . use of estimates the preparation of financial statements in conformity with us gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period . actual results could differ from those estimates . earnings ( loss ) per share net income ( loss ) per common share is computed pursuant to section 260-10-45 of the fasb accounting standards codification . basic net income ( loss ) per share is computed by dividing net income ( loss ) by the weighted average number of shares of common stock outstanding during the period .
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results of operations for the year ended december 31 , 2020 the following table provides selected financial data about us for the year ended december 31 , 2020 and 2019 , respectively . replace_table_token_2_th revenues we generated $ 1,065,665 in revenues for the year ended december 31 , 2020 compared to $ 6,455 revenues for the year ended december 31 , 2019. the large increase is due to the company having only nominal operations during 2019. in 2019 , the company focused its efforts on formulating , testing and manufacturing its sunscreen and skin care products . in 2020 , the company ( i ) began marketing its skin care and sunscreen products line , ( 2 ) acquired magical beasts , llc , which expanded its product offerings , sales and marketing capabilities ( 3 ) added additional product lines to its skin care product line , ( 4 ) added a line of hand sanitizer , for a combined sales total of $ 834,812 and acquired srm entertainment ltd which contributed sales of $ 230,853. operating expenses we had total operating expenses of $ 6,730,300 for the year ended december 31 , 2020 compared to $ 913,893 for the year ended december 31 , 2019. operating expenses for the year ended december 31 , 2020 were in connection with our daily operations as follows : ( i ) marketing expenses of $ 82,367 ; ( ii ) research and development of $ 308,367 ; ( iii ) legal and professional expenses of $ 837,698 , consisting of corporate advisory services , registration statement preparation fees , general corporate governance fees ; ( iv ) rent of $ 61,797 ; ( v ) depreciation and amortization of $ 103,392 ; ( vi ) general and administrative expenses of $ 1,784,456 , consisting of payroll and related taxes , travel , meals and entertainment , office supplies and expense and other normal office and administration expenses ; ( vii ) stock based compensation of $ 2,398,140 ; ( viii ) an impairment to goodwill of $ 308,690 ; ( ix ) an impairment to intangible assets of
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such investments primarily include ( i ) a mezzanine fund , which invests in mezzanine debt of a diversified selection of small- to mid-cap european companies , ( ii ) corporate partners ii limited ( ยcp iiย ) , a fund targeting significant noncontrolling-stake investments in established private companies , ( iii ) edgewater growth capital partners iii , l.p. ( ยegcp iiiย ) , a fund primarily making equity and buyout investments in middle market companies and ( iv ) lazard australia corporate opportunities fund ( ยcof2ย ) , a lazard-managed australian story_separator_special_tag the following discussion should be read in conjunction with lazard ltd 's consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k ( this ยform 10-kย ) . this discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties . actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors , including those set forth in the sections entitled ยrisk factorsย and ยspecial note regarding forward-looking statementsย and elsewhere in this form 10-k. business summary lazard is one of the world 's preeminent financial advisory and asset management firms . we have long specialized in crafting solutions to the complex financial and strategic challenges of a diverse set of clients around the world , including corporations , governments , institutions , partnerships and individuals . founded in 1848 in new orleans , we currently operate from 43 cities in key business and financial centers across 27 countries throughout north america , europe , asia , australia , the middle east , and central and south america . our primary business purpose is to serve our clients . our deep roots in business centers around the world form a global network of relationships with key decision-makers in corporations , governments and investing institutions . this network is both a competitive strength and a powerful resource for lazard and our clients . as a firm that competes on the quality of our advice , we have two fundamental assets : our people and our reputation . we operate in cyclical businesses across multiple geographies , industries and asset classes . in recent years , we have expanded our geographic reach , bolstered our industry expertise and continued to build in growth areas . companies , government bodies and investors seek independent advice with a geographic perspective , deep understanding of capital structure , informed research and knowledge of global economic conditions . we believe that our business model as an independent advisor will continue to create opportunities for us to attract new clients and key personnel . our principal sources of revenue are derived from activities in the following business segments : financial advisory , which offers corporate , partnership , institutional , government , sovereign and individual clients across the globe a wide array of financial advisory services regarding mergers and acquisitions ( ยm & aย ) and other strategic matters , restructurings , capital structure , capital raising and various other financial matters , and asset management , which offers a broad range of global investment solutions and investment management services in equity and fixed income strategies , alternative investments and private equity funds to corporations , public funds , sovereign entities , endowments and foundations , labor funds , financial intermediaries and private clients . in addition , we record selected other activities in our corporate segment , including management of cash , investments and outstanding indebtedness , as well as certain commercial banking activities of lazard group 's paris-based subsidiary , lazard frรจres banque sa ( ยlfbย ) . lfb is a registered bank regulated by the autoritรฉ de contrรดle prudentiel et de rรฉsolution ( ยacprย ) . it is engaged primarily in commercial and private banking services for clients and funds managed by lazard frรจres gestion sas ( ยlfgย ) and for other clients , investment banking activities , including participation in underwritten offerings of securities in france , and asset-liability management . 38 our consolidated net revenue was derived from the following segments : replace_table_token_5_th we also invest our own capital from time to time , generally alongside capital of qualified institutional and individual investors in alternative investments or private equity investments , and , since 2005 , we have engaged in a number of alternative investments and private equity activities , including investments through ( i ) the edgewater funds ( ยedgewaterย ) , our chicago-based private equity firm ( see note 12 of notes to consolidated financial statements ) , ( ii ) lazard australia corporate opportunities fund 2 ( ยcof2ย ) , a lazard-managed australian fund targeting australasian mid-market investments , ( iii ) a mezzanine fund , which invests in mezzanine debt of a diversified selection of small-to mid-cap european companies and ( iv ) a fund targeting significant noncontrolling-stake investments in established private companies . we also make investments to seed our asset management strategies . we may explore and discuss opportunities to expand the scope of our alternative investment and private equity activities in europe , the u.s. and elsewhere . these opportunities could include internal growth of new funds and direct investments by us , partnerships or strategic relationships , investments with third parties or acquisitions of existing funds or management companies . in the third quarter of 2014 , we entered into arrangements with lfcm holdings llc , which is now known as lmdc holdings llc ( ยlmdc holdingsย ) and continues to be owned in large part by former and current managing directors of lazard ( including our executive officers ) , and certain of its subsidiaries . story_separator_special_tag new risks and uncertainties emerge continuously , and it is not possible for our management to predict all risks and uncertainties , nor can we assess the impact of all potentially applicable factors on our business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . see item 1a , ยrisk factorsย in this form 10-k. furthermore , net income and revenue in any period may not be indicative of full-year results or the results of any other period and may vary significantly from year to year and quarter to quarter . overall , we continue to focus on the development of our business , including the generation of stable revenue growth , earnings growth and shareholder returns , the prudent management of our costs and expenses , the efficient use of our assets and the return of capital to our shareholders . 40 certain data with respect to our financial advisory and asset management businesses is included below . financial advisory as reflected in the following table , which sets forth global m & a industry statistics , the value and number of all completed transactions , including completed transactions with values greater than $ 500 million , increased in 2014 as compared to the 2013 period . with respect to announced m & a transactions , the value and number of all transactions , including announced transactions with values greater than $ 500 million , increased in 2014 as compared to the 2013 period . replace_table_token_6_th source : dealogic as of january 13 , 2015. global restructuring activity during 2014 , as measured by the number of corporate defaults , decreased as compared to 2013 , and the aggregate value of debt defaults remained low , consistent with the last several years . the number of defaulting issuers decreased slightly to 54 in 2014 , according to moody 's investors service , inc. , as compared to 62 in 2013. in the u.s. , the number of corporate defaults decreased 3 % in 2014 as compared to 2013 , while the value of such defaults increased substantially due to one large default in the 2014 period . asset management the percentage change in major equity market indices at december 31 , 2014 , as compared to such indices at december 31 , 2013 , and at december 31 , 2013 , as compared to such indices at december 31 , 2012 , is shown in the table below . replace_table_token_7_th the fees that we receive for providing investment management and advisory services are primarily driven by the level of aum and the nature of the aum product mix . accordingly , market movements , foreign currency volatility and changes in our aum product mix will impact the level of revenues we receive from our asset 41 management business when comparing periodic results . a substantial portion of our aum is invested in equities . movements in aum during the period generally reflect the changes in equity market indices . our aum at december 31 , 2014 increased 5 % versus aum at december 31 , 2013 , primarily due to market appreciation and net inflows , partially offset by adverse foreign exchange movements . average aum for 2014 increased 13 % as compared to average aum in 2013. cost saving initiatives in october 2012 , we announced certain cost saving initiatives in order to reduce our compensation and non-compensation cost base . expenses associated with implementation of the cost saving initiatives were completed in the second quarter of 2013 and were reflected in our financial results . these implementation expenses were approximately $ 64 million in 2013 and $ 103 million in 2012. the cost saving initiatives were intended to improve our profitability with minimal impact on revenue growth , while allowing us to continue to invest in our business . the initiatives included : streamlining our corporate structure and consolidating support functions ; realigning our investments into areas with potential for the greatest long-term return ; the settlement of certain contractual obligations ; reducing occupancy costs ; and creating greater flexibility to retain and attract the best people and invest in new growth areas . the full impact of the savings resulting from the cost saving initiatives was reflected in our 2014 results . see note 16 of notes to consolidated financial statements . financial statement overview net revenue the majority of lazard 's financial advisory net revenue historically has been earned from the successful completion of m & a transactions , strategic advisory matters , restructuring and capital structure advisory services , capital raising and similar transactions . the main drivers of financial advisory net revenue are overall m & a activity , the level of corporate debt defaults and the environment for capital raising activities , particularly in the industries and geographic markets in which lazard focuses . in some client engagements , often those involving financially distressed companies , revenue is earned in the form of retainers and similar fees that are contractually agreed upon with each client for each assignment and are not necessarily linked to the completion of a transaction . in addition , lazard also earns fees from providing strategic advice to clients , with such fees not being dependent on a specific transaction , and may also earn fees in connection with public and private securities offerings . significant fluctuations in financial advisory net revenue can occur over the course of any given year , because a significant portion of such net revenue is earned upon the successful completion of a transaction , restructuring or capital raising activity , the timing of which is uncertain and is not subject to lazard 's control . lazard 's asset management segment principally includes lazard asset management llc ( together with its subsidiaries , ยlamย ) , lfg and edgewater . asset management net revenue is derived from fees for investment management and advisory services provided to clients .
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operating results year ended december 31 , 2014 versus december 31 , 2013 the company reported net income attributable to lazard ltd of $ 427 million , as compared to net income of $ 160 million in 2013. the changes in the company 's operating results during these years are described below . net revenue increased $ 315 million , or 16 % , with operating revenue increasing $ 306 million , or 15 % , as compared to 2013. fee revenue from investment banking and other advisory activities increased $ 229 million , or 24 % , primarily due to increases in m & a and other advisory fees . the increase in m & a and other advisory fee revenue was primarily due to an increase in the number of , and average transaction fee with respect to , completed transactions involving fees greater than $ 1 million as compared to 2013. asset management fees , including incentive fees , increased $ 86 million , or 9 % , principally reflecting a $ 22 billion , or 13 % , increase in average aum as compared to 2013. in the aggregate , interest income , other revenue and interest expense was substantially flat as compared to 2013. compensation and benefits expense increased $ 35 million , or 3 % , as compared to 2013 ( which included a $ 51 million charge related to the cost saving initiatives and a $ 12 million charge related to private equity incentive compensation ) , primarily driven by an increase in discretionary compensation associated with higher operating revenue . adjusted compensation and benefits expense ( which excludes certain items and which we believe allows for improved comparability between years , as described above ) was $ 1.302 billion , an increase of $ 105 million , or 9 % , as compared to $ 1.197 billion in 2013 , primarily driven by an increase in discretionary compensation associated with higher operating revenue .
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for example , our largest competitor 's design requires one motor for each row of solar panels . as a result , we believe our products have greater reliability , lower installation costs , reduced maintenance requirements and competitive manufacturing costs . our core u.s. patent on a linked-row , rotating gear drive system does not expire until february 5 , 2030. we sell our products to engineering , procurement and construction firms ( โ epcs โ ) that build solar energy projects and to large solar developers , independent power producers and utilities , often under master supply agreements or multi-year procurement contracts . in 2020 , we derived 92 % and 8 % of our revenues from customers in the u.s. and rest of the world , respectively . we are a u.s. company and our headquarters and principal manufacturing facility are in albuquerque , new mexico . as of december 31 , 2020 , we had 389 full-time employees . impact of covid-19 in december 2019 , a novel strain of coronavirus , sars-cov-2 , which causes coronavirus disease 2019 , or covid-19 , surfaced in wuhan , china . since then , covid-19 has spread to multiple countries , including the united states . on march 11 , 2020 , the world health organization declared covid-19 a pandemic . to date , we have maintained uninterrupted business operations with normal turnaround times for the delivery of solar tracking systems . we have implemented adjustments to our operations designed to keep employees safe and comply with federal , state and local guidelines , including those regarding social distancing . the extent to which covid19 may further impact the company 's business , results of operations , financial condition and cash flows will depend on future developments , which are highly uncertain and can not be predicted with confidence . in response to covid-19 , the united states government has passed legislation and taken other actions to provide financial relief to companies and other organizations affected by the pandemic . 40 performance measures in managing our business and assessing financial performance , we supplement the information provided by the financial statements with other operating metrics . these operating metrics are utilized by our management to evaluate our business , measure our performance , identify trends affecting our business and formulate projections . the primary operating metric we use to evaluate our sales performance and to track market acceptance of our products from year to year is megawatts ( โ mws โ ) shipped generally and the change in mw shipped from period to period specifically . mws is measured for each individual project and is calculated based on the expected output of that project once installed and fully operational . we also utilize metrics related to price and cost of goods sold per mw , including average selling price ( โ asp โ ) and cost per watt ( โ cpw โ ) . asp is calculated by dividing total applicable revenues by total applicable mws , whereas cpw is calculated by dividing total applicable costs of goods sold by total applicable mws . these metrics enable us to evaluate trends in pricing , manufacturing cost and customer profitability . key components of our results of operations the following discussion describes certain line items in our consolidated statements of operations . revenues we generate revenue from the sale of solar tracking systems and parts . our customers include epcs , utilities , solar developers and independent power producers . for each individual solar project , we enter into a contract with our customers covering the price , specifications , delivery dates and warranty for the products being purchased , among other things . our contractual delivery period for the tracker system and parts can vary from days to several months . contracts can range in value from hundreds of thousands to tens of millions of dollars . our revenue is affected by changes in the volume and asps of solar tracking systems purchased by our customers . the quarterly volume and asp of our systems is driven by the supply of , and demand for , our products , changes in product mix between module type and wattage , geographic mix of our customers , strength of competitors ' product offerings , and availability of government incentives to the end-users of our products . our revenue growth is dependent on continued growth in the amount of solar energy projects installed each year as well as our ability to increase our share of demand in each of the geographies where we compete , expand our global footprint to new evolving markets , grow our production capabilities to meet demand and to continue to develop and introduce new and innovative products that address the changing technology and performance requirements of our customers . cost of revenues and gross profit cost of revenues consists primarily of product costs , including purchased components , as well as costs related to shipping , tariffs , customer support , product warranty , personnel and depreciation of test and manufacturing equipment . personnel costs in cost of revenues includes both direct labor costs as well as costs attributable to any individuals whose activities relate to the transformation of raw materials or component parts into finished goods or the transportation of materials to the customer . our product costs are affected by the underlying cost of raw materials , including steel and aluminum ; component costs , including electric motors and gearboxes ; technological innovation ; economies of scale resulting in lower component costs , and improvements in production processes and automation . we do not currently hedge against changes in the price of raw materials . some of these costs , primarily personnel and depreciation of test and manufacturing equipment , are not directly affected by sales volume . 41 gross profit may vary from quarter to quarter and is primarily affected by our asps , product costs , product mix , customer mix , geographical mix , shipping method , warranty costs and seasonality . story_separator_special_tag the settlement with the irs also resulted in payments related to the tra being non-deductible for tax purposes , resulting in the write-off of the deferred tax asset related to the tra totaling $ 4.7 million . the effective tax rate for the year ended december 31 , 2020 benefited from a $ 6.6 million income tax benefit received from the nol carryback provision provided by the cares act . the benefit from the cares act was offset by a significant amount of permanent differences . 45 net income as a result of the factors discussed above , our net income increased by $ 19.3 million , or 49 % , in 2020 as compared to 2019. comparison of the years ended december 31 , 2019 and 2018 a discussion and analysis covering the comparison of the year ended december 31 , 2019 to the year ended december 31 , 2018 is included in our prospectus filed pursuant to rule 424 ( b ) with the securities and exchange commission on december 4 , 2020. non-gaap financial measures this management 's discussion and analysis of financial condition and results of operations contains the presentation of adjusted ebitda and adjusted net income , which are not presented in accordance with gaap . adjusted ebitda and adjusted net income are being presented because they provide the company and readers of this form 10-k with additional insight into our operational performance relative to earlier periods and relative to our competitors . we do not intend adjusted ebitda and adjusted net income to be substitutes for any gaap financial information . readers of this form 10-k should use adjusted ebitda and adjusted net income only in conjunction with net income , the most comparable gaap financial measure . reconciliations of adjusted ebitda and adjusted net income to net income , the most comparable gaap measure to each , are provided in โ โnon-gaap financial measure. โ adjusted ebitda and adjusted net income ( non-gaap ) we present adjusted ebitda and adjusted net income as supplemental measures of our performance . we define adjusted ebitda as net income ( loss ) plus ( i ) interest expense , ( ii ) other ( income ) expense , ( iii ) income tax expense ( benefit ) , ( iv ) depreciation expense , ( v ) amortization of intangibles , ( vi ) equity based compensation , ( vii ) remeasurement of the fair value of contingent consideration , ( viii ) erp implementation costs , ( ix ) certain legal expense , and ( x ) other costs . we define adjusted net income as net income ( loss ) plus ( i ) amortization of intangibles , ( ii ) amortization of debt discount and issuance costs , ( iii ) equity based compensation , ( iv ) remeasurement of the fair value of contingent consideration , ( v ) erp implementation costs , ( vi ) certain legal expense , ( vii ) other costs , and ( viii ) income tax ( expense ) benefit of adjustments . adjusted ebitda and adjusted net income are intended as supplemental measures of performance that are neither required by , nor presented in accordance with , gaap . we present adjusted ebitda and adjusted net income because we believe they assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance . in addition , we use adjusted ebitda and adjusted net income : ( i ) as factors in evaluating management 's performance when determining incentive compensation ; ( ii ) to evaluate the effectiveness of our business strategies ; and ( iii ) because our credit agreement uses measures similar to adjusted ebitda and adjusted net income to measure our compliance with certain covenants . among other limitations , adjusted ebitda and adjusted net income do not reflect our cash expenditures , or future requirements , for capital expenditures or contractual commitments ; do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations ; do not reflect income tax expense or benefit ; and other companies in our industry may calculate adjusted ebitda and adjusted net income differently than we do , which limits their usefulness as comparative measures . because of these limitations , adjusted ebitda and adjusted net income should not be considered in isolation or as substitutes for performance measures calculated in accordance with gaap . we compensate for these limitations by relying primarily on our gaap results and using adjusted ebitda and adjusted net income on a 46 supplemental basis . you should review the reconciliation of net income ( loss ) to adjusted ebitda and adjusted net income below and not rely on any single financial measure to evaluate our business . the following table reconciles net income ( loss ) to adjusted ebitda ( in thousands ) : replace_table_token_4_th ( a ) represents consulting costs associated with our enterprise resource planning system implementation . ( b ) represents certain legal fees and other related costs associated with ( i ) a patent infringement action against a competitor for which a judgement has been entered in our favor and successful defense of a related matter and ( ii ) a pending action against a competitor in connection with violation of a non-competition agreement and misappropriation of trade secrets . we consider these costs not representative of legal costs that we will incur from time to time in the ordinary course of our business . ( c ) for the year ended december 31 , 2020 , other costs represent ( i ) certain costs associated with our ipo and follow-on offering of $ 3.5 million and , ( ii ) costs associated with our initial board of directors search for $ 0.1 million .
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results of operations the following tables set forth our consolidated statement of operations ( in thousands ) : replace_table_token_3_th comparison of the years ended december 31 , 2020 and 2019 revenues revenues increased by $ 224.8 million , or 35 % , for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. total mw delivered increased by approximately 32 % for the year ended december 31 , 2020 driven by a higher number of projects delivered in 2020 compared to 2019. asps were up 2 % year over year reflecting a change in the mix of our projects . cost of revenues and gross profit cost of revenues increased by $ 172.7 million , or 35 % , for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 primarily due to the increase in the number of mw delivered . gross profit as a percentage of revenue remained relatively flat at 23.2 % for the year ended december 31 , 2020 compared to 23.3 % for the year ended december 31 , 2019. cost per watt was up 2 % year over year reflecting a change in the mix of our projects .
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through these efforts , the company continues to transform its franchise into a relationship-focused business bank within its footprint . โ financial highlights bar harbor bankshares recorded 2020 net income of $ 33 million , or $ 2.18 per diluted share , compared to $ 23 million , or $ 1.45 per diluted share , in 2019. adjusted income ( non-gaap measure ) in 2020 was $ 35 million , or $ 2.26 per diluted share , and $ 30 million , or $ 1.91 per diluted share , for the same period of 2019. non-recurring expenses in 2020 included swap termination costs and profitability initiative costs while 2019 included acquisition , conversion and balance sheet optimization costs . โ non-interest income reached record levels in 2020 driven by mortgage banking income , gains on sold securities and other fee income . the company sold fixed rate residential mortgage production in the secondary market in lieu of taking interest rate and credit risk on the balance sheet , producing $ 7 million in fee revenue . the company also took advantage of unrealized gains in the securities portfolio by selling certain investments for a net gain of $ 5 million . customer service fees increased 12 % on an expanded customer base from the prior year acquisition and a significant number of organic accounts opened throughout 2020. additionally , the company 's continued focus on commercial customers generated higher derivative and treasury income in 2020 , and produced cross-sell opportunities within the retail and wealth management lines . โ wealth management remains a significant contributor to fee income in 2020 ; increasing 11 % and serving as a foundation for deepening customer relationships with $ 2.3 billion in assets under management . during the year the company consolidated leadership and combined operations onto a common platform in its wealth management business . this consolidation allowed for unified policies under one environment driven by best practices . โ in 2020 , the company maintained its earning assets through commercial loan growth of $ 212 million or 17 % through its strategy to grow variable rate loans . non-maturity deposits grew $ 445 million or 25 % through new accounts and the impacts of government stimulus . excess liquidity generated from deposits was used to further delever the company 's balance sheet by reducing wholesale funding $ 520 million or 49 % . the reduction in wholesale funding consisted of repayments of $ 195 million in senior borrowings and maturities of $ 325 million in brokered deposits . these collective actions reduced the company 's overall loan to deposit ratio to 88 % at year-end 2020 compared to 98 % in the prior year . โ โ โ โ โ 37 the company maintains a strong capital position ; building tangible equity excluding security adjustments ( non-gaap measure ) in 2020 to a higher level than before the branch acquisition in the fourth quarter of 2019. the company furthered its return on capital programs in 2020 in the form of stock purchases and dividend payments . stock repurchases during the year totaled 720 thousand shares at a cost of $ 13.9 million . an additional 61 thousand shares remain available to be repurchased before the plan expires in 2021. the company distributed regular cash dividends on its common stock in the aggregate amount of $ 13 million representing a payout ratio of 40 % . โ return on assets in 2020 was 0.88 % compared to 0.62 % in 2019 , while adjusted return on assets ( non-gaap measure ) was 0.92 % in 2020 compared to 0.82 % in 2019. in a similar trend , return on equity was 8.17 % in 2020 from 5.82 % in 2019 and adjusted return on equity ( non-gaap measure ) was 8.48 % in 2020 from 7.65 % in 2019 . โ covid-19 pandemic on march 13 , 2020 , a national emergency was announced related to the covid-19 pandemic , which has since been extended . the covid-19 pandemic has resulted in significant economic uncertainties that have had , and could continue to have , an adverse impact on the company 's operating income , financial condition and cash flows . the extent to which the covid-19 pandemic will impact the company 's operations and financial results during 2021 can not be reasonably or reliably estimated at this time . the company has taken careful measures in an effort to ensure the safety of its employees and customers . that includes restricting nonessential employee travel , expanding remote access availability , distancing work stations , professional cleaning of its facilities , and signs and distancing reminders for customers in the banking centers . further , the company remains committed to providing uninterrupted and reliable banking service and has business continuity plans and protocols in place to ensure critical operations are able to continue without disruption . see further discussion in item 1a โ risk factors of this form 10-k. โ credit quality the company has experienced continuous positive trends in credit quality in 2020. disciplined risk management has guided the company through volatility created by the pandemic while also allowing the company to focus on long-term goals . the company had low levels of non-performing assets at 0.33 % and past dues at 0.58 % by year end 2020 including a 34 % decrease in commercial loan delinquencies . โ starting in the second quarter 2020 , the company began stress testing the loan portfolio in addition to normal migration analysis . the stress testing of commercial loans included the most affected industries by covid-19 within the company 's footprint , specifically hospitality . however , the company 's customers in the hospitality industry benefited from a better than expected summer tourism season for northern new england . testing results throughout the year affirm the company 's risk-based credit philosophy with no significant risk-rating downgrades or changes to reserves . story_separator_special_tag โ total cash and cash equivalents at december 31 , 2020 were $ 226 million , compared to $ 57 million at december 31 , 2019. the increase in cash and cash equivalent balances of $ 169 million between periods was driven by unanticipated extensive growth in non-maturity deposits from new accounts and government stimulus outpacing the growth in other earning assets . the biggest portion of the growth is in federal reserve balances reflected in interest bearing deposits with other banks that grew by $ 168 million . the average earning yield on interest bearing deposits in 2020 is 0.15 % compared to 0.96 % in 2021 , which reduces net interest margin 16 basis points and one basis point , respectively from excess liquidity . 39 โ securities the company maintains a relatively high quality and liquid securities portfolio primarily consisting of us government-sponsored enterprises and us government agency mortgage-backed securities , obligations of states and political subdivisions , corporate bonds , and to a much lesser extent other asset backed securities and non-agency mortgage securities . the securities portfolio is managed in accordance with achieving the company 's asset-liability objectives which includes managing liquidity , funding , capital , and structural interest rate risks . investments are evaluated within this framework and policy guidelines which have been established by the company 's board of directors . the company continuously evaluates and monitors the securities portfolio tied to credit , liquidity , duration , suitability and other metrics . included in the company 's total securities is fhlb stock which is a non-marketable equity security and , therefore , is reported at cost . securities in 2020 decreased $ 85 million as the company focused on meeting overall asset-liability objectives when interest rates increase from their current low levels . securities activity during the year included purchases of $ 216 million offset by maturities , calls and pay downs of $ 152 million and sales of $ 153 million . the proceeds from sales and amortizing securities supported asset-liability objectives to increase liquidity , reduce prepayment and reinvestment risk , and improve risk adjusted returns . the company monitors our securities portfolio to ensure adequate credit support . as of december 31 , 2020 , the company has identified no credit impairment . there is no current intent to sell securities with a fair value below amortized cost at december 31 , 2020 , and it is more likely than not that the company will not be required to sell such securities prior to the recovery of their amortized cost basis . we consider the lowest credit rating and industrial analysis for identification of potential credit impairment . in 2020 , the company sold securities of $ 153 million with a net gain of $ 5 million . the sales strategy took advantage of favorable market conditions with attractive prices allowing the company to sell securities projected to have sub-optimal returns and lower liquidity profiles at sizable gains . the company was then able to repurchase more liquid securities with reduced prepayment risk and improved risk adjusted returns . the execution of the fourth quarter trades led to slight increase in profitability metrics and availability to pledge additional securities with the fhlb . although the sales generating realized gains the company still improved december 31 , 2020 unrealized gains , net of tax to $ 10 million compared to $ 6 million at december 31 , 2019. the weighted average yield on the company 's securities portfolio was 2.96 % in 2020 compared to 3.42 % in the prior year . the weighted average life of the securities portfolio at december 31 , 2020 was estimated to be 4.8 years , with a duration of approximately 4.3 years . these metrics compare with an estimated weighted average life of 5.0 years , with a duration of approximately 3.6 years for the portfolio at december 31 , 2019. loans held for sale held for sale loans increased by $ 18 million to $ 24 million at december 31 , 2020 from $ 6 million at december 31 , 2019 as a result of strong mortgage refinancing demand in response to the low interest rate environment . this asset category is subject to a high degree of variability depending on , among other things , recent mortgage loan rates and the timing of loan sales into the secondary market . in 2020 , the company 's strategy was to sell most of its residential mortgage originations on the secondary market . proceeds from sales totaled $ 223 million in 2020 , $ 63 million in 2019 and $ 58 million in 2018 . โ loans the company 's loan portfolio is comprised of the following segments : commercial real estate , commercial and industrial , residential real estate , and consumer loans . commercial real estate loans include multi-family , commercial construction and land development , and other commercial real estate classes . commercial and industrial loans include loans to commercial businesses and tax exempt entities including ppp loans to small businesses . residential real estate loans consist of mortgages for 1-4 family housing . consumer loans include home equity loans , lines of credit and auto and other installment lending . during 2020 total loans decreased $ 72 million to $ 2.6 billion . given the current economic environment , the company selectively grew total commercial loans to $ 1.5 billion or at a pace of 17 % . commercial and industrial loans grew 18 % 40 during the year , and 2 % excluding ppp loans as the company closely monitored risk associated with growth prospects in the portfolio . commercial loan growth was offset by a decline in residential loan balances of $ 221 million or 20 % as the company strategically moved a majority of production to the secondary market platform to generate fee income .
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summary of significant accounting policies of the consolidated financial statements . the year-end 2020 allowance for loan losses increased to $ 19 million from $ 15 million in 2019 largely due to commercial loan growth and increased qualitative economic factors associated with the pandemic . the allowance for loan losses to total loans ratio expanded at year-end 2020 to 0.74 % from 0.58 % at year-end 2019. as noted above the company has adopted cecl as of january 1 , 2021 which will result in a higher allowance coverage ratio . non-accruing loans in 2020 decreased primarily due to $ 2 million in commercial and residential payoffs during the fourth quarter . due to the impacts of the pandemic the company began and expanded quarterly stress testing of its commercial loan portfolio throughout 2020. fourth quarter testing covered 54 % of the portfolio including the top 50 relationships , all criticized loans greater than $ 1.0 million , hospitality loans greater than $ 250 thousand , all loans over $ 150 thousand with a pandemic modification and any seasonal payment , restaurant , or 2021 maturing term loans greater than $ 500 thousand . results of the stress testing led to no significant downgrades or changes to reserves . other assets the company identifies on its balance sheet premises and equipment , other real estate owned , goodwill , other intangible assets , bank-owned life insurance , net deferred tax assets and other assets consisting of derivative fair values , right of use asset , community investments , and receivables . these collective assets totaled $ 333 million at the end of 2020 compared to $ 303 million as of december 31 , 2019. the increase is primarily from the $ 26 million gross up of the fair value in customer loan derivatives and $ 3 million in community limited partnership investments made during 2020 reflected in the cash flow from investing activities .
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these forward-looking statements involve risks , uncertainties and assumptions . the actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including but not limited to those discussed in part i , item 1a - โ risk factors โ in this annual report on form 10-k. readers are cautioned not to place undue reliance on these forward-looking statements , which reflect management 's opinions only as of the date hereof . we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements , except as required by law . readers should carefully review the risk factors and the risk factors set forth in other documents we file from time to time with the sec . overview j2 global , inc. , together with its subsidiaries ( โ j2 global โ , `` the company '' , โ our โ , โ us โ or โ we โ ) , is a leading provider of internet services . through our business cloud services division , we provide cloud services to businesses of all sizes , from individuals to enterprises , and license our intellectual property ( `` ip '' ) to third parties . in addition , the business cloud services division includes our j2 cloud connect business which primarily focused on our voice and fax products . our digital media division specializes in the technology and gaming markets , reaching in-market buyers and influencers in both the consumer and business-to-business space . our business cloud services division generates revenues primarily from customer subscription and usage fees and from ip licensing fees . our digital media division generates revenues primarily from advertising , performance marketing and licensing fees . in addition to growing our business organically , on a regular basis , we acquire businesses to grow our customer bases , expand and diversify our service offerings , enhance our technology and acquire skilled personnel . our consolidated revenues are currently generated from three basic business models , each with different financial profiles and variability . our business cloud services division is driven primarily by subscription revenues that are relatively higher margin and stable and predictable from quarter-to-quarter with some seasonal weakness in the fourth quarter . the business cloud services division also includes the results of our ip licensing business , which can vary dramatically in both revenues and profitability from period-to-period . our digital media division is driven primarily by advertising revenues , has relatively higher sales and marketing expense and has seasonal strength in the fourth quarter . we continue to pursue additional acquisitions , which may include companies operating under business models that differ from those we operate under today . such acquisitions could impact our consolidated profit margins and the variability of our revenues . j2 global was incorporated in 2014 as a delaware corporation through the creation of a new holding company structure , and our business cloud services segment , operated by our wholly-owned subsidiary , j2 cloud services , inc , and its subsidiaries , was founded in 1995. we manage our operations through two business segments : business cloud services and digital media . information regarding revenue and operating income attributable to each of our reportable segments is included within note 16 - segment information of the notes to consolidated financial statements included elsewhere in this annual report on form 10-k , which is incorporated herein by reference . - 34 - business cloud services segment performance metrics the following table sets forth certain key operating metrics for our business cloud services segment as of or for the years ended december 31 , 2015 , 2014 and 2013 ( in thousands , except for percentages ) : replace_table_token_7_th ( 1 ) quarterly arpu is calculated using our standard convention of applying the average of the quarter 's beginning and ending base to the total revenue for the quarter . we believe arpu provides investors an understanding of the average monthly revenues we recognize associated with each cloud business customer . as arpu varies based on fixed subscription fee and variable usage components , we believe it can serve as a measure by which investors can evaluate trends in the types of services , levels of services and the usage levels of those services across our cloud business customer base . ( 2 ) cloud business customers is defined as paying direct inward dialing numbers for fax and voice services , and direct and resellers ' accounts for other services . ( 3 ) cancel rate is defined as cancels of small and medium business and individual cloud business customers with greater than four months of continuous service ( continuous service includes cloud business customers administratively canceled and reactivated within the same calendar month ) , and enterprise cloud business customers beginning with their first day of service . calculated monthly and expressed as an average over the three months of the quarter . digital media segment performance metrics the following table sets forth certain key operating metrics for our digital media segment for the years ended december 31 , 2015 , 2014 and 2013 ( in millions ) : replace_table_token_8_th sources : google analytics and partner platforms critical accounting policies and estimates we prepare our consolidated financial statements and related disclosures in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) and our discussion and analysis of our financial condition and operating results require us to make judgments , assumptions and estimates that affect the amounts reported in our consolidated financial statements and - 35 - accompanying notes . see note 2 , `` basis of presentation and summary of significant accounting policies '' of the notes to consolidated financial statements in part ii , item 8 of this form 10-k which describes the significant accounting policies and methods used in the preparation of our consolidated financial statements . story_separator_special_tag the company records revenue on a gross basis with respect to revenue generated ( i ) by the company serving online display and video advertising across its owned-and-operated web properties , on third party sites or on unaffiliated advertising networks , ( ii ) through the company 's lead-generation business and ( iii ) through the company 's digital media licensing program . the company records revenue on a net basis with respect to revenue paid to the company by certain third-party advertising networks who serve online display and video advertising across the company 's owned-and-operated web properties and certain third party sites . valuation and impairment of marketable securities we account for our investments in debt and equity securities in accordance with financial accounting standards board ( `` fasb '' ) asc topic no . 320 , investments - debt and equity securities ( โ asc 320 โ ) . asc 320 requires that certain debt and equity securities be classified into one of three categories : trading , available-for-sale or held-to-maturity securities . our investments are comprised primarily of readily marketable corporate and governmental debt securities , money-market accounts and time deposits . we determine the appropriate classification of our investments at the time of acquisition and reevaluate such determination at each balance sheet date . held-to-maturity securities are those investments that we have the ability and intent to hold until maturity . held-to-maturity securities are recorded at amortized cost . available-for-sale securities are recorded at fair value , with unrealized gains or losses recorded as a separate component of accumulated other comprehensive income ( loss ) in stockholders ' equity until realized . trading securities are carried at fair value , with unrealized gains and losses included in interest and other income on our consolidated statement of income . all securities are accounted for on a specific identification basis . we assess whether an other-than-temporary impairment loss on an investment has occurred due to declines in fair value or other market conditions ( see note 4 of the notes to consolidated financial statements included elsewhere in this annual report on form 10-k ) . share-based compensation expense we comply with the provisions of fasb asc topic no . 718 , compensation - stock compensation ( โ asc 718 โ ) . accordingly , we measure share-based compensation expense at the grant date , based on the fair value of the award , and recognize the expense over the employee 's requisite service period using the straight-line method . the measurement of share-based compensation expense is based on several criteria including , but not limited to , the valuation model used and associated input factors , such as expected term of the award , stock price volatility , risk free interest rate , dividend rate and award cancellation rate . these inputs are subjective and are determined using management 's judgment . if differences arise between the assumptions used in determining share-based compensation expense and the actual factors , which become known over time , we may change the input factors used in determining future share-based compensation expense . any such changes could materially impact our results of operations in the period in which the changes are made and in periods thereafter . we elected to adopt the alternative transition method for calculating the tax effects of share-based compensation . long-lived and intangible assets we account for long-lived assets in accordance with the provisions of fasb asc topic no . 360 , property , plant , and equipment ( โ asc 360 โ ) , which addresses financial accounting and reporting for the impairment or disposal of long-lived assets . we assess the impairment of identifiable definite-lived intangibles and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important which could individually or in combination 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 ; - 37 - . significant negative industry or economic trends ; . significant decline in our stock price for a sustained period ; and . our market capitalization relative to net book value . if we determined that the carrying value of definite-lived intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment , we would record an impairment equal to the excess of the carrying amount of the asset over its estimated fair value . we have assessed whether events or changes in circumstances have occurred that potentially indicate the carrying value of definite-lived intangibles and long-lived assets may not be recoverable and noted no indicators of potential impairment for the years ended december 31 , 2015 , 2014 and 2013. goodwill and purchased intangible assets we evaluate our goodwill and indefinite-lived intangible assets for impairment pursuant to fasb asc topic no . 350 , intangibles - goodwill and other ( โ asc 350 โ ) , which provides that goodwill and other intangible assets with indefinite lives are not amortized but tested for impairment annually or more frequently if circumstances indicate potential impairment . in connection with the annual impairment test for goodwill , we have the option to perform a qualitative assessment in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if we determine that it was more likely than not that the fair value of the reporting unit is less than its carrying amount , then we perform the impairment test upon goodwill .
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segment results our business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance . our reportable business segments are : ( i ) business cloud services ; and ( ii ) digital media . we evaluate the performance of our operating segments based on segment revenues , including both external and intersegment net sales , and segment operating income . we account for intersegment sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments . identifiable assets by segment are those assets used in the respective reportable segment 's operations . corporate assets consist of cash and cash equivalents , deferred income taxes and certain other assets . all significant intersegment amounts are eliminated to arrive at our consolidated financial results . - 45 - revenues the following table presents our revenues by source as a percentage of total revenues for fiscal years 2015 , 2014 and 2013 : replace_table_token_17_th business cloud services the following segment results are presented for fiscal year 2015 , 2014 and 2013 ( in thousands ) : replace_table_token_18_th segment net sales of $ 504.6 million in 2015 increased $ 73.2 million , or 17.0 % , from the prior comparable period primarily due to business acquisitions . segment net sales of $ 431.5 million in 2014 increased $ 41.4 million , or 10.6 % , from the prior comparable period primarily due to business acquisitions , partially offset by a decrease in patent and technology related licensing revenues associated with a $ 27 million license agreement of which $ 12.6 million from past damages was recognized in 2013. segment gross profit of $ 403.4 million in 2015 increased $ 58.9 million from 2014 and segment gross profit of $ 344.5 million in 2014 increased $ 24.3 million from 2013 primarily due to an increase in net sales between the periods .
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the following discussion contains ยforward-looking statementsย that reflect our future plans , estimates , beliefs and expected performance . we caution that assumptions , expectations , projections , intentions or beliefs about future events may , and often do , vary from actual results and the differences can be material . some of the key factors which could cause actual results to vary from our expectations include changes in oil or natural gas prices , the timing of planned capital expenditures , availability of acquisitions , uncertainties in estimating proved reserves and forecasting production results , operational factors affecting the commencement or maintenance of producing wells , the condition of the capital markets generally , as well as our ability to access them , the proximity to and capacity of transportation facilities , uncertainties regarding environmental regulations or litigation and other legal or regulatory developments affecting our business , as well as those factors discussed below and elsewhere in this report , all of which are difficult to predict . in light of these risks , uncertainties and assumptions , the forward-looking events discussed may not occur . see ยcautionary note regarding forward-looking statements.ย overview we are an independent energy company engaged in the exploration , development , production and acquisition of oil and natural gas resources in the united states , with a particular emphasis on oil and natural gas shale plays and other unconventional resource plays . our current operations are located primarily in the eagle ford shale play in south texas and the haynesville shale play in northwest louisiana and east texas . we expect the majority of our near-term capital expenditures will focus primarily on increasing our production and reserves from the eagle ford shale play . we believe our interests in the eagle ford shale play will enable us to create a more balanced commodity portfolio through the drilling of locations that are prospective for oil and liquids . in addition to these primary operating areas , we have acreage positions in southeast new mexico and west texas and in southwest wyoming and adjacent areas in utah and idaho where we continue to identify new oil and natural gas prospects . we were founded in july 2003 by mr. joseph wm . foran and mr. scott e. king , and we drilled our first well in 2004. since that time , we have drilled or participated in drilling 236 wells through december 31 , 2011 , including 106 haynesville and nine eagle ford wells . at december 31 , 2011 , based on the reserves audit by our independent reservoir engineers , we had 193.2 bcfe of estimated proved reserves with a pv-10 of $ 248.7 million and a standardized measure of $ 215.5 million . at december 31 , 2011 , 34 % of our estimated proved reserves were proved developed reserves , 12 % of our estimated proved reserves were oil and 88 % of our estimated proved reserves were natural gas . our average daily production for the year ended december 31 , 2011 was 42.3 mmcfe per day , including 39.8 mmcf of natural gas per day and 422 bbl of oil per day , as compared to an average daily production of 23.6 mmcfe per day , including 23.0 mmcf of natural gas per day and 91 bbl of oil per day for the year ended december 31 , 2010. we have achieved this growth while lowering operating costs ( consisting of lease operating expenses and production taxes and marketing expenses ) from $ 1.16 per mcfe for the year ended december 31 , 2009 to $ 0.88 per mcfe for the year ended december 31 , 2011 , or a decrease of approximately 24 % . our business success and financial results are dependent on many factors beyond our control , such as economic , political and regulatory developments , as well as competition from other sources of energy . commodity price volatility , in particular , is a significant risk factor for us . commodity prices are affected by changes in market supply and demand , which is impacted by overall economic activity , weather , pipeline capacity constraints , inventory storage levels , natural gas price differentials and other factors . prices for oil 64 and natural gas will affect the cash flows available to us for capital expenditures and our ability to borrow and raise additional capital . declines in oil or natural gas prices would not only reduce our revenues , but could also reduce the amount of oil and or natural gas that we can produce economically , and as a result , could have an adverse effect on our financial condition , results of operations , cash flows and reserves . in response to the recent commodity price environment , and in particular , the general decline in natural gas prices since july 2008 in contrast with the rebound in oil prices since february 2009 , we have sought to balance our exploration and development plans by targeting more oil prone reservoirs , such as the eagle ford shale . while most of our historical and current production is natural gas , we believe that our future production profile will reflect a more balanced oil and natural gas commodity mix as a result of our strategic shift to target more oil development than we have historically . in recent months , natural gas prices have declined to their lowest levels in many years , and at march 30 , 2012 , the nymex henry hub natural gas futures contract for the earliest delivery date closed at $ 2.13 per mmbtu . we would not expect to drill any operated natural gas wells , except for natural gas wells in specific exploratory prospects like the meade peak shale , until natural gas prices improved substantially from these levels or unless the costs to drill and complete these wells were also to decline substantially from their recent levels . story_separator_special_tag our oil and natural gas revenues increased by $ 33.0 million to $ 67.0 million , or an increase of about 97 % , for the year ended december 31 , 2011 as compared to the year ended december 31 , 2010. this increase in oil and natural gas revenues corresponds with an increase of about 79 % in our oil and natural gas production to 15.4 bcfe for the year ended december 31 , 2011 from 8.6 bcfe for the year ended december 31 , 2010. this increased production was almost entirely due to drilling operations in the eagle ford and haynesville shales . a portion of the increase in oil and natural gas revenues reflects the approximate five-fold increase in our oil production for the year ended december 31 , 2011 as compared to the year ended december 31 , 2010 , as well as a higher average oil price of $ 93.80 per bbl realized during 2011 as compared to an average oil price of $ 76.39 per bbl realized during 2010. realized gain ( loss ) on derivatives . our realized gain on derivatives increased by approximately $ 1.8 million to $ 7.1 million for the year ended december 31 , 2011 from $ 5.3 million for the year ended december 31 , 2010. the realized gain from our open natural gas costless collar contracts increased primarily as a result of the decline in natural gas prices during the comparable periods . we realized approximately $ 1.03 per mmbtu hedged on all of our open natural gas costless collar contracts during the year ended december 31 , 2011 as compared to $ 0.89 per mmbtu hedged on all of our open natural gas costless collar contracts during the year ended december 31 , 2010. our total natural gas volumes hedged for the year ended december 31 , 2011 were also approximately 16 % higher than the total natural gas volumes hedged for 2010. unrealized gain ( loss ) on derivatives . our unrealized gain on derivatives was approximately $ 5.14 million for the year ended december 31 , 2011 as compared to an unrealized gain of $ 3.14 million for the year ended december 31 , 2010. during the period from december 31 , 2010 to december 31 , 2011 , the net fair value of our open natural gas costless collar contracts increased from approximately $ 4.14 million to approximately $ 9.28 million , resulting in an unrealized gain on derivatives of approximately $ 5.14 million for the year ended december 31 , 2011. this increase in the net fair value of our open natural gas costless collar contracts was due primarily to a decrease in natural gas prices during 2011 as compared to 2010 , as well as an increase in the total number of our open contracts at december 31 , 2011 as compared to december 31 , 2010 . 67 year ended december 31 , 2010 as compared to year ended december 31 , 2009 oil and natural gas revenues . our oil and natural gas revenues increased by $ 15.0 million to $ 34.0 million , or an increase of about 79 % , for the year ended december 31 , 2010 as compared to the year ended december 31 , 2009. approximately $ 13.7 million of the increase was primarily due to a 72 % increase in our production to 8.6 bcfe during the year ended december 31 , 2010 from 5.0 bcfe during the year ended december 31 , 2009 , and approximately $ 1.3 million of the increase was due to increases in the average prices we received for both oil and natural gas over these respective periods . for the year ended december 31 , 2010 , we received an average natural gas price of $ 3.75 per mcf and an average oil price of $ 76.39 per bbl as compared to an average natural gas price of $ 3.59 per mcf and an average oil price of $ 57.72 per bbl for the year ended december 31 , 2009. our increased production during this period was primarily due to drilling operations in the haynesville shale . realized gain ( loss ) on derivatives . our realized gain on derivatives decreased by approximately $ 2.3 million to $ 5.3 million for the year ended december 31 , 2010 from $ 7.6 million for the year ended december 31 , 2009. this decrease was due primarily to a decrease of about $ 1.50 per mmbtu in the average price floor of our open natural gas costless collar contracts in 2010 as compared with 2009 and despite the fact that we had almost twice the natural gas volumes hedged in 2010 as compared to 2009. unrealized gain ( loss ) on derivatives . our unrealized gain on derivatives was $ 3.14 million for the year ended december 31 , 2010 , compared to an unrealized loss of $ 2.38 million for the year ended december 31 , 2009. during the period from december 31 , 2009 to december 31 , 2010 , the net fair value of our open natural gas costless collar contracts increased from $ 1.00 million to $ 4.14 million , resulting in an unrealized gain on derivatives of $ 3.14 million for the year ended december 31 , 2010. this increase in the net fair value of our open natural gas costless collar contracts was due primarily to lower natural gas prices at december 31 , 2010 as compared to december 31 , 2009. expenses production taxes and marketing . production taxes are paid on produced oil and natural gas based on a percentage of revenues from products sold at market prices ( not hedged prices ) or at fixed rates established by federal , state or local taxing authorities . we attempt to take advantage of all credits and exemptions in our various taxing jurisdictions . in general , the production taxes we pay tend to correlate to the changes in our oil and natural gas revenues .
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general and administrative . our general and administrative expenses increased by $ 3.7 million to $ 13.4 million , or an increase of about 38 % , for the year ended december 31 , 2011 as compared to the year ended december 31 , 2010. the increase in our general and administrative expenses was due primarily to increased cash and non-cash compensation expenses and increased accounting expenses for the year ended december 31 , 2011 as compared to the year ended december 31 , 2010. we recorded approximately $ 2.4 million in non-cash compensation expense for the year ended december 31 , 2011 as compared to approximately $ 0.9 million recorded for the year ended december 31 , 2010. this increase was primarily 71 due to a change in accounting method for valuing our outstanding stock options . we awarded no new stock options during 2011. as a result of our increased oil and natural gas production , however , our general and administrative expenses decreased by 27 % on a unit-of-production basis to $ 0.87 per mcfe for the year ended december 31 , 2011 as compared to $ 1.13 per mcfe for the year ended december 31 , 2010. net gain ( loss ) on asset sales and inventory impairment . we incurred a loss on asset sales and inventory impairment of approximately $ 154,000 for the year ended december 31 , 2011 , as compared to a loss of approximately $ 224,000 for the year ended december 31 , 2010. during the year ended december 31 , 2011 , this loss was primarily related to the sale of pipe and other equipment and the impairment of certain equipment held in inventory , consisting primarily of drilling rig parts .
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readers should 12 also review and consider our disclosures under the heading `` special note regarding forward-looking statements '' describing various factors that could affect our business and the disclosures under the heading `` risk factors '' in this report . note that all dollar amounts in this item 7 are in thousands of u.s. dollars , except share and per share data . company overview founded in 1985 and publicly traded on the nasdaq stock market since 2007 under the symbol `` sumr , '' we are a global designer , marketer , and distributor of branded juvenile health , safety and wellness products ( for ages 0-3 years ) that are sold principally to large north american and european retailers . we currently market our products in the monitoring , health and safety , nursery , baby gear , feeding , and furniture product categories . most of our products are sold under our core brand names of summerยฎ and born freeยฎ . we also market certain products under license agreements . our products are sold globally primarily to large , national retailers as well as independent retailers . in north america , our customers include babies r us , wal-mart , target , amazon.com , buy buy baby , burlington coat factory , kmart , home depot , and lowe 's . our largest european-based customers are mothercare , toys r us , argos and tesco . we also sell through several international representatives to select international retail customers in geographic locations where we do not have a direct sales presence . the juvenile products industry is estimated to be $ 18 billion worldwide and consumer focus is on quality , safety , innovation , and style . due to the halo effect of baby products in retail stores , there also is a strong retailer commitment to the juvenile category . strategy historically , we have focused on growing sales through a combination of increased product penetration and store penetration , offering new products , adding new mass merchant retail customers and distribution channels , international expansion , and acquisitions . at the end of 2012 , we began reviewing our business strategy and the profitability of our product lines . while the refinement of our business strategy is ongoing , we have identified below four key areas of our strategy going forward : superior innovationยwe continue to leverage our in-depth knowledge of our retail customers and end-user consumers to deliver high quality , innovative products to the marketplace . we also continue to focus on a `` good , better , best '' approach to price points to create products that appeal to different categories of end consumers and classes of trade . to the extent it is consistent with our strategy , we may acquire new products or expand existing product categories . for example , in 2013 , we launched our new , 3d liteย stroller , acquired the little loosterย potty training step stool , and launched our new baby linkย wifi series of video monitors . we believe our product development expertise differentiates us from other companies in this market . cultivating relationships and diversificationยwe believe we have long-standing relationships and strong partnerships with our retail customers . we also have developed strong relationships with a group of suppliers that provide us with the flexibility needed to engineer our products in a cost-efficient manner and to respond quickly to customer demands . we will continue to focus on building on these existing relationships to increase our presence both in stores and online via an increased focus on e-commerce and to expand with our customers as they enter new geographic locations . we will also continue to work with a growing number of specialty retail 13 operators that allow us to continue our pursuit of a `` good , better , best '' approach and with customers seeking differentiated products and support . we will also continue to expand our business internationally . building brandsยhistorically , we have marketed products under our own brands , under license agreements for other brands , and under private label agreements . going forward , our focus will be on building our core brands of summerยฎ , swaddlemeยฎ , and born freeยฎ , particularly among first-time prenatal moms , through improved marketing , including through social media . executing operational excellenceยour entire organization is focused on delivering operational efficiency and excellence , such as through sku rationalization and utilization of a direct import program . by improving our analytic and forecasting capabilities , product development process , and management of working capital and costs , we expect continued improvement to internal processes that should , in turn , benefit our customers . by renewing our focus on these core strengths , as well as a focus on gross margins and a return on capital , we expect to drive future growth , improve profitability and to further develop and strengthen our relationships with our suppliers , retail customers and end-users of our products . we believe that , based on our core strengths and strategic priorities , we are well-positioned to capitalize on positive market trends including that u.s. birth rates are predicted to increase over the next several years after several years of low birth rates . 2013 activities cost reduction initiatives the company implemented several cost reduction initiatives in the third quarter of 2012 designed to lower promotional costs and advertising expenses , reduce operating costs , and improve margins . these initiatives have resulted in tighter controls of retailer program costs , a reduction in worldwide headcount , a reduction in executive salaries , voluntary reduction in board of director compensation , cuts in overhead spending relating to discontinuing various outside services , and negotiated lower professional service fees . story_separator_special_tag 15 outlook our business , financial condition and results of operations have and may continue to be affected by various economic factors . although other factors will likely impact us , including some we do not foresee and those disclosed in item 1a . risk factors in this annual report on form 10-k for the year ended december 31 , 2013 , we believe our performance in 2014 will continue to be affected by the following : economic climate . periods of global economic uncertainty , such as the recession experienced in 2008 and much of 2009 , as well as recent market disruptions , can lead to reduced consumer and business spending . the current economic climate continues to affect our business in direct and indirect ways , including consumer demand for our products , tighter inventory management by retailers , reduced profit margins due to pricing pressures from mass merchant retailers and a sales mix favoring lower margin products . in addition , reduced access to credit has and may continue to adversely affect consumers who desire to purchase our products from retailers and the ability of our own customers to pay us . retail market conditions . our industry is very competitive , with increasing pressure from mass merchant retailers on pricing in reaction to perceived lack of consumer confidence . these customers continue to seek favorable pricing and increased promotional activity from us and we expect this trend will continue into 2014. we continue to seek to reduce pressure on gross margins through a variety of methods , including reducing manufacturing costs and locating lower-cost sources of supply . however , we may not be able to increase prices or decline requests for mark-downs and or other allowances from some of our larger , retail customers due to market and competitive factors . summary of critical accounting policies and estimates this summary of our critical accounting policies is presented to assist in understanding our consolidated financial statements . the consolidated financial statements and notes are representations of our management , which is responsible for their integrity and objectivity . these accounting policies conform to accounting principles generally accepted in the united states of america and have been consistently applied in the preparation of the consolidated financial statements . we make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses . the accounting policies described below are those we consider critical in preparing our financial statements . some of these policies include significant estimates made by management using information available at the time the estimates were made . however , these estimates could change materially if different information or assumptions were used . revenue recognition we record revenue when all of the following occur : persuasive evidence of an arrangement exists , product delivery has occurred , the sales price to the customer is fixed or determinable and collectability is reasonably assured . sales are recorded net of provisions for returns and allowances , cash discounts and markdowns . we base our estimates for discounts , returns and allowances on negotiated customer terms , and historical experience . these estimates are subject to variability , as actual deductions taken by customers may be different from the estimates recorded . customers do not have the right to return products unless the products are defective . we record a reduction of sales for estimated future defective product deductions based on historical experience . sales incentives or other consideration given by us to customers that are considered adjustments of the selling price of its products , such as markdowns , are reflected as reductions of revenue . sales 16 incentives and other consideration that represent costs incurred by us for assets or services received , such as the appearance of our products in a customer 's national circular ad ( co-op advertising ) , are reflected as selling and marketing expenses in the accompanying statements of income . trade receivables trade receivables are reported at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts . on a periodic basis , we estimate doubtful accounts based on historical bad debt , factors related to specific customers ' ability to pay and current economic trends . we write off accounts receivable against the allowance when a balance is determined to be uncollectible . we do not accrue interest on trade receivables . a receivable is considered past due if payments have not been received within the credit terms on the account , typically 30-60 days for most customers . we will turn an account over for collection around 120 days past due . accounts are considered uncollectible if no payments are received 60 to 90 days after they have been turned over for collection . allowance for doubtful accounts the allowance for doubtful accounts represents adjustments to customer trade accounts receivable for amounts deemed uncollectible . the allowance for doubtful accounts reduces gross trade receivables to their estimated net realizable value . the allowance is based on our assessment of the business environment , customers ' financial condition , historical trends , customer payment practices , receivable aging and customer disputes . we will continue to proactively review our credit risks and adjust customer terms to reflect the current environment . inventory valuation inventory is comprised of finished goods and is stated at the lower of cost , inclusive of freight and duty , or market ( net realizable value ) using the first-in , first-out ( fifo ) method . our warehousing costs are charged to expense as incurred . we regularly review slow-moving and excess inventory , and write-down inventories as appropriate . management uses estimates to record write-downs based on its review of inventory by product category , including length of time on hand and estimates of future orders for each product . changes in consumer preferences , as well as demand for products , customer buying patterns and inventory management could impact the inventory valuation .
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results of operations the following table presents selected condensed consolidated financial information for summer infant , inc. and its subsidiaries for the years ended december 31 , 2013 and 2012. replace_table_token_2_th 18 year ended december 31 , 2013 compared with year ended december 31 , 2012 net sales decreased 15.8 % from $ 247,227 in the year ended december 31 , 2012 to $ 208,173 for the year ended december 31 , 2013. the decline was primarily attributable to exiting our licensing arrangements with cartersยฎ and disneyยฎ to focus on building our own summerยฎ and born freeยฎ branded products , a decline in monitor sales as a result of increased competition , and lower sales with a major retail customer . as a result , sales in most product categories were flat or declined with the exception of our safety category which increased in 2013. these declines were partially offset by growth in other customer accounts and growth in our core branded product offerings . cost of goods sold includes the cost of the finished product from suppliers , duties on certain imported items , freight-in from suppliers , and miscellaneous charges . gross profit decreased 18.5 % from $ 79,772 for the year ended december 31 , 2012 to $ 65,007 for the year ended december 31 , 2013. gross margin decreased from 32.3 % for the year ended december 31 , 2012 to 31.2 % for the year ended december 31 , 2013. the decline in gross profit dollars and gross margin percent is attributable to the decline in sales and the mix of products sold , as we had a higher amount of close-out and promotional sales in the 2013 period as a result of our product sku rationalization and activities relating to the discontinuation of certain licensing agreements .
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we market our services through a direct sales and marketing network focused on selling our portfolio of services to large customers in specific industry sectors , through a contract network of agents who solicit freight business directly from shippers , and through company-managed facilities and full-service freight forwarding and customs house brokerage offices . our network of agents and owner-operators is located throughout the united states and in the canadian provinces of ontario and quebec , and we operate , manage or provide services at 94 logistics locations in the united states , mexico , canada and colombia . eighteen of our value-added service operations are located inside customer plants or distribution operations ; the other facilities are generally located close to our customers ' plants to optimize the efficiency of their component supply chains and production processes . our facilities and services are often directly integrated into the production processes of our customers and represent a critical piece of their supply chains . to support our asset-light business model , we generally try to coordinate the length of real estate leases associated with our value-added services with the end date of the related customer contract associated with such facility , or use month-to-month leases , in order to mitigate exposure to unrecovered lease costs . we offer our customers a wide range of transportation services by utilizing a diverse fleet of tractors and trailing equipment provided by us , our owner-operators and third-party transportation companies . our owner-operators provided us with approximately 2,900 tractors and 1,685 trailers . we own approximately 900 tractors , 4,200 trailers , 1,100 chassis and 800 containers . our agents and owner-operators are independent contractors who earn a fixed commission calculated as a percentage of the revenue or gross profit they generate for us and who bring an entrepreneurial spirit to our business . our transportation services are provided through a network of both union and non-union employee drivers , owner-operators , contract drivers , and third-party transportation companies . as of december 31 , 2016 , we employed 6,275 people in the united states , mexico , canada , and colombia , including 3,110 employees subject to collective bargaining agreements . we also engaged contract staffing vendors to supply an average of 2,172 additional personnel on a full-time-equivalent basis . our use of agents , owner-operators , third-party providers and contract staffing vendors allows us to maintain both a highly flexible cost structure and a scalable business operation , while reducing investment requirements . these benefits are passed on to our customers in the form of cost savings and increased operating efficiency , while enhancing our cash generation and the returns on our invested capital and assets . we believe that our flexible business model also offers us substantial opportunities to grow through a mixture of organic growth and acquisitions . we intend to continue our organic growth by recruiting new agents and owner-operators , expanding into new industry verticals and targeting further penetration of our key customers . we believe our integrated suite of transportation and logistics services , our network of facilities in the united states , mexico , canada , and colombia , our long-term customer relationships and our reputation for operational excellence will allow us to capitalize on these growth opportunities . we also expect to continue to make strategic acquisitions of companies that complement our asset light business model , as well as companies that derive a portion of their revenues from asset based operations . factors affecting our revenues operating revenues . we generate substantially all of our revenues through fees charged to customers for the transportation of freight and for the customized logistics services we provide . we also derive revenue from fuel surcharges , where separately identifiable , loading and unloading activities , equipment detention , container management and storage and other related services . operations aggregated in our transportation segment are associated with individual freight shipments coordinated by our agents , company-managed terminals and specialized services operations . in contrast , operations aggregated in our logistics segment deliver value-added services and transportation services to specific customers on a dedicated basis , generally pursuant to contract terms of one year or longer . our segments are distinguished by the amount of forward visibility we have in regards to pricing and volumes , and also by the extent to which we dedicate resources and company-owned equipment . fees charged to customers by our full service international freight forwarding and customs house brokerage are based on the specific means of forwarding or delivering freight on a shipment-by-shipment basis . our transportation revenues are primarily influenced by fluctuations in freight volumes and shipping rates . the main factors that affect these are competition , available truck capacity , and economic market conditions . our value-added contract business is substantially driven by the level of demand for outsourced logistics services . major factors that affect our revenues include changes in 21 manufacturing supply chain requirements , production levels in specific industries , pricing trends due to levels of competition and resource costs in logistics and transportation , and economic market conditions . we recognize revenue on a gross basis at the time that persuasive evidence of an arrangement with our customer exists , sales price is fixed and determinable , and collectability is reasonably assured . our revenue is recognized at the time of delivery to the receiver 's location , or for service arrangements , after the related services have been rendered . factors affecting our expenses purchased transportation and equipment rent . purchased transportation and equipment rent represents the amounts we pay to our owner-operators or other third party equipment providers to haul freight and , to the extent required to deliver certain logistics services , the cost of equipment leased under short-term contracts from third parties . the amount of the purchased transportation we pay to our owner-operators is primarily based on a contractually agreed-upon percentage of our revenue for each load hauled , net of any rental income we receive by leasing our trailers to owner-operators . story_separator_special_tag our insurance expense varies pr imarily based upon the frequency and severity of our accident experience , insurance rates , our coverage limits and our self-insured retention amounts . depreciation and amortization . depreciation and amortization expense relates primarily to the depreciation of owned tractors , trailers , computer and operating equipment , and buildings as well as the amortization of the intangible assets recorded for our acquired customer contracts and customer and agent relationships . we estimate the salvage value and useful lives of depreciable assets based on current market conditions and experience with past dispositions . operating revenues we broadly group our services into the following categories : transportation services , value-added services and intermodal services . our intermodal services and transportation services associated with individual freight shipments coordinated by our agents and company-managed terminals are aggregated into our reportable transportation segment , while our value-added services and transportation services to specific customers on a dedicated basis make up our logistics segment . the following table sets forth operating revenues resulting from each of these service categories for the years ended december 31 , 2016 , 2015 and 2014 , presented as a percentage of total operating revenues : replace_table_token_7_th story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; text-transform : none ; font-variant : normal ; '' > operating expenses . operating expenses decreased $ 11.9 million , or 11.0 % , to $ 96.6 million for 2016 , compared to $ 108.5 million for 2015. as a percentage of operating revenues , oper ating expenses decreased to 9.0 % for 2016 from 9.6 % for 2015. these expenses include items such as fuel , maintenance , cost of materials , insurance , communications , utilities and other general expenses , and generally relate to fluctuations in customer deman d. the decrease in operating expenses was primarily due to decreases in fuel expense on company-owned equipment of $ 4.8 million , repair and maintenance costs of $ 4.3 million , other operating expenses of $ 1.9 million , and highway use and fuel taxes of $ 1.0 million . occupancy expenses . occupancy expenses for 2016 increased by $ 4.9 million , or 18.1 % , to $ 31.9 million from $ 27.0 million for 2015. as a percentage of operating revenues , occupancy expense increased to 3.0 % for 2016 compared to 2.4 % for 2015. at december 31 , 2016 , we leased 29 value-added service locations compared to 32 at december 31 , 2015. while the number of leased facilities declined , the absolute increase in occupancy expense is due to the increased scale of several operations in order to support the expanded scope of customer programs . selling , general and administrative . selling , general and administrative expense for 2016 increased by $ 0.9 million , or 2.4 % , to $ 38.4 million from $ 37.5 million for 2015. as a percentage of operating revenues , selling , general and administrative expense increased to 3.6 % for 2016 compared to 3.3 % for 2015. the absolute increase was primarily due to an increase in salaries , wage and benefits costs of $ 0.7 million , which is the largest component of selling , general and administrative expense and a $ 1.1 million increase in other selling , general and administrative costs . these increases were partially offset by a decrease in professional services of $ 0.6 million and gains on equipment sales of $ 0.1 million in 2016. this compares to $ 0.2 million of losses during the same period last year . minor fluctuations in other expense categories reflect our efforts to maintain stable overhead expenditures while expanding the business . insurance and claims . insurance and claims expense for 2016 decreased by $ 3.7 million , or 17.3 % , to $ 17.7 million from $ 21.4 million for 2015. as a percentage of operating revenues , insurance and claims decreased to 1.7 % for 2016 compared to 1.9 % for 2015. the absolute decrease was primarily the result of decreases in our auto liability insurance premiums and claims expense of $ 2.9 million and in our cargo and service claims expense of $ 0.8 million . depreciation and amortization . depreciation and amortization expense for 2016 increased by $ 1.8 million , or 5.2 % , to $ 36.7 million from $ 34.9 million for 2015. the absolute increase is primarily the result of increases in capital investments throughout 2016 compared to historic trends . these increases were partially offset by decreases in certain other intangible assets becoming fully amortized during the year . interest expense , net . net interest expense was $ 8.1 million for 2016 compared to $ 9.2 million for 2015. included in the prior year were $ 1.3 million of capitalized finance costs that were written-off resulting from our december 2015 debt refinancing . at december 31 , 2016 , we had outstanding borrowings totaling $ 262.8 million compared to $ 234.9 million outstanding at december 31 , 2015. other non-operating income . other non-operating income was $ 0.9 million for 2016 compared to $ 0.8 million for 2015. included in other non-operating income were $ 0.4 million of gains on the sale of marketable securities for 2016 compared to $ 0.3 million for 2015. provision for income taxes . provision for income taxes for 2016 was $ 15.2 million compared to $ 25.0 million for 2015 , based on an effective tax rate of 38.5 % in each of the periods . 2015 compared to 2014 operating revenues . operating revenues for 2015 decreased by $ 62.7 million , or 5.3 % , to $ 1.129 billion from $ 1.192 billion for 2014. included in operating revenues are fuel surcharges , where separately identifiable , of $ 75.7 million for 2015 , which compares to $ 119.7 million for 2014. revenues from our transportation segment decreased $ 57.2 million , or 7.3 % , while income from operations decreased $ 6.2 million , or 17.9 % compared to the same period last year .
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results of operations the following table sets forth items derived from our consolidated statements of income for the years ended december 31 , 2016 , 2015 and 2014 , presented as a percentage of operating revenues : replace_table_token_8_th 23 2016 compared to 2015 operating revenues . operating revenues for 2016 decreased by $ 56.0 million , or 5.0 % , to $ 1.073 billion from $ 1.129 billion for 2015. included in operating revenues are fuel surcharges , where separately identifiable , of $ 50.9 million for 2016 , which compares to $ 75.7 million for 2015. revenues from our transportation segment decreased $ 64.9 million , or 9.0 % , and income from operations decreased $ 6.3 million , or 21.9 % , compared to 2015. the transportation segment experienced a decrease primarily due to decreases in fuel surcharges and weakness in our energy and domestic steel markets , both of which adversely impacted our flatbed operations . revenues from our logistics segment increased $ 8.1 million , or 2.0 % , over 2015 , while income from operations decreased $ 16.2 million , or 36.9 % , to $ 27.7 million . this decrease was largely attributable to a $ 13.8 million year-over-year decline in operating income attributable to value-added operations supporting the heavy-truck market . the decrease in consolidated operating revenues is primarily the result of a decrease in our transportation services of $ 66.9 million and intermodal services of $ 6.0 million . these decreases were partially offset by an increase in our value-added services of $ 17.0 million . included in transportation service revenues during the full year ended december 31 , 2016 , were $ 37.0 million in separately identifiable fuel surcharges compared to $ 54.9 million for the prior year .
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md & a is provided as a supplement to โ and should be read in conjunction with โ 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 โ 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 โ a discussion of accounting policies that require critical judgments and estimates . operations review โ 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 โ 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 . 28 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 , which we group into the following category clusters : sparkling soft drinks ; water , enhanced water and sports drinks ; juice , dairy and plant-based beverages ; tea and coffee ; and energy drinks . we own and market four of the world 's top five nonalcoholic sparkling soft drink 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 โ 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 60 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 beverage choices to meet their desires , needs and lifestyle choices . our success further depends on the ability of our people to execute effectively , every day . our objective is to use our company 's assets โ our brands , financial strength , unrivaled distribution system , global reach , and the talent and strong commitment of our management and associates โ to become more competitive and to accelerate growth in a manner that creates value for our shareowners . our company markets , manufactures and sells : beverage concentrates , sometimes referred to as `` beverage bases , '' and syrups , including fountain syrups ( we refer to this part of our business as our `` concentrate business '' or `` concentrate operations '' ) ; and finished sparkling soft drinks and other nonalcoholic beverages ( we refer to this part of our business as our `` finished product business '' or `` finished product operations '' ) . generally , finished product operations generate higher net operating revenues but lower gross profit margins than concentrate operations . in our concentrate operations , we typically generate net operating revenues by selling concentrates and syrups to authorized bottling operations ( to which we typically refer as our `` bottlers '' or our `` bottling partners '' ) . our bottling partners either combine the concentrates with sweeteners ( depending on the product ) , still water and or sparkling water , or combine the syrups with sparkling water to produce finished beverages . the finished beverages are packaged in authorized containers โ such as cans and refillable and nonrefillable glass and plastic bottles โ bearing our trademarks or trademarks licensed to us and are then sold to retailers directly or , in some cases , through wholesalers or other bottlers . outside the united states , we also sell concentrates for fountain beverages to our bottling partners who are typically authorized to manufacture fountain syrups , which they sell to fountain retailers such as restaurants and convenience stores which use the fountain syrups to produce beverages for immediate consumption , or to authorized fountain wholesalers who in turn sell and distribute the fountain syrups to fountain retailers . our finished product operations consist primarily of company-owned or -controlled bottling , sales and distribution operations , including ccr 's bottling and associated supply chain operations in the united states and canada , and are included in our bottling investments operating segment . our finished product operations generate net operating revenues by selling sparkling soft drinks and a variety of other nonalcoholic beverages , such as water and sports drinks ; juice , dairy and plantโbased beverages ; tea and coffee ; and energy drinks , to retailers or to distributors , wholesalers and bottling partners who distribute them to retailers . in addition , in the united states , we manufacture fountain syrups and sell them to fountain retailers such as restaurants and convenience stores who use the fountain syrups to produce beverages for immediate consumption or to authorized fountain wholesalers or bottling partners who resell the fountain syrups to fountain retailers . these fountain syrup sales are included in our north america operating segment . we authorize these wholesalers to resell our fountain syrups through nonexclusive appointments that neither restrict us in setting the prices at which we sell fountain syrups to the wholesalers nor restrict the territories in which the wholesalers may resell in the united states . story_separator_special_tag we work with our bottling partners to identify processes that enable us to quickly achieve scale and efficiencies , and we share best practices throughout the bottling system . with our bottling partners , we work to produce differentiated beverages and packages that are appropriate for the right channels and consumers . we also design business models in specific markets to ensure that we appropriately share the value created by our beverages with our bottling partners . we must also continue to build a supply chain network that leverages the size and scale of the coca-cola system to gain a competitive advantage . challenges and risks being global provides unique opportunities for our company . challenges and risks accompany those opportunities . our management has identified certain challenges and risks that demand the attention of the nonalcoholic beverage segment of the commercial beverage industry and our company . of these , six key challenges and risks are discussed below . obesity the rates of obesity affecting communities , cultures and countries worldwide continue to be too high . there is growing concern among consumers , public health professionals and government agencies about the health problems associated with obesity . this concern represents a significant challenge to our industry . we understand and recognize that obesity is a complex public health challenge and are committed to being a part of the solution . we recognize the uniqueness of consumers ' lifestyles and dietary choices . commercially , we continue to : offer reduced- , low- or no-calorie beverage options ; provide transparent nutrition information , featuring calories on the front of most of our packages ; provide our beverages in a range of packaging sizes ; and market responsibly , including no advertising targeted to children under 12. the heritage of our company is to lead , and innovation is critical for leadership . as such , we are resolute in continuing to innovate and are committed to partnering to find winning solutions in the area of noncaloric sweeteners . this includes working to reduce sugar and calories in many of our beverages . we want to be a more helpful and credible partner in the fight against obesity . across the coca-cola system , we are mobilizing our assets in marketing and in community outreach to increase awareness and spur action . 31 water quality and quantity water quality and quantity is an issue that requires our company 's sustained attention and collaboration with other companies , suppliers , governments , nongovernmental organizations and communities where we operate . water is a main ingredient in substantially all of our products , is vital to the production of the agricultural ingredients on which our business relies and is needed in our manufacturing process . it also is critical to the prosperity of the communities we serve . water is a limited natural resource facing unprecedented challenges from overexploitation , increased food demand , increasing pollution , poor management and the effects of climate change . our company regularly assesses the specific water-related risks that we and many of our bottling partners face and has implemented a formal water risk management program . mitigation of water risk forms the basis of our water stewardship strategic framework . this strategy is executed at the local level where we operate and includes the following elements : water use efficiency and wastewater treatment in manufacturing operations ; shared watershed protection efforts ; engaging local communities ; and addressing water resource management in our agricultural ingredient supply chain . such efforts are conducted in collaboration and partnership with others and are intended to help address local needs . many of these efforts help us in achieving our goal of replenishing the water that we and our bottling partners source and use in our finished products . we are also 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 . through these integrated programs , we believe that our company can leverage the water-related knowledge we have developed in the communities we serve โ 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 continued action on our part to help with the successful long-term stewardship of this critical natural resource , both for our business and the communities we serve . 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 4,100 beverage products , including nearly 1,300 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 . increased competition and capabilities in the marketplace our company is facing strong competition from some well-established global companies and numerous regional and local companies . we must continuously strengthen our capabilities in marketing and innovation in order to maintain our brand loyalty and market share while we selectively 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 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 . the coca-cola system works every day to share safe and refreshing beverages with the world .
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operations review our organizational structure as of december 31 , 2017 consisted of the following operating segments : europe , middle east and africa ; latin america ; north america ; asia pacific ; bottling investments ; and corporate . for further information regarding our operating segments , refer to note 19 of notes to consolidated financial statements . structural changes , acquired brands and newly licensed brands in order to continually improve upon the company 's operating performance , from time to time , we engage in buying and selling ownership interests in bottling partners and other manufacturing operations . in addition , we also acquire brands or enter into license agreements for certain brands to supplement our beverage offerings . these items impact our operating results and certain key metrics used by management in assessing the company 's performance . unit case volume growth is a metric used by management to evaluate the company 's performance because it measures demand for our products at the consumer level . the company 's unit case volume represents the number of unit cases ( or unit case equivalents ) of company beverage products directly or indirectly sold by the company and its bottling partners to customers and , therefore , reflects unit case volume for both consolidated and unconsolidated bottlers . refer to the heading `` beverage volume '' below . concentrate sales volume represents the amount of concentrates , syrups , beverage bases , source waters , and powders/minerals ( in all instances expressed in equivalent unit cases ) sold by , or used in finished products sold by , the company to its bottling partners or other customers . refer to the heading `` beverage volume '' below .
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prior to january 1 , 2020 , the omnibus agreement called for holdings to provide certain general and administrative services , including executive management services and expenses associated with our being a publicly-traded entity ( such as audit , tax , and transfer agent fees , among others ) in return for a fixed annual fee . in an effort to simplify this arrangement so it would be easier for investors to understand , in november 2019 , with the approval of the conflicts committee of the board of directors , we and holdings agreed to terminate the management fee provisions of the omnibus agreement effective december 31 , 2019. beginning january 1 , 2020 , the executive management services and other general and administrative expenses that holdings previously incurred and charged to us via the annual administrative fee are charged directly to us as they are incurred and are now paid directly by the partnership . under our current cost structure , these direct expenses have been lower than the annual administrative fee that we previously paid , although we experience more variability in our quarterly general and administrative expense now that we are incurring the expenses directly than when we paid a consistent administrative fee each quarter . 54 consolidated results of operations the following table compares the operating results of cypress environmental partners , l.p. for the years ended december 31 : replace_table_token_6_th see the detailed discussion of elements of operating income ( loss ) by reportable segment below . see also note 14 to our consolidated financial statements included in โ item 8 . โ financial statement and supplementary data. โ the following is a discussion of significant changes in the non-segment related corporate other income and expenses for the years ended december 31 , 2020 and 2019. interest expense . interest expense primarily consists of interest on borrowings under our credit agreement , amortization of debt issuance costs , and unused commitment fees . changes in interest expense resulted primarily from changes in the balance of outstanding debt and changes in interest rates . the interest rate on our credit agreement floats based on libor , and changes in the libor rate were the primary driver of changes in the interest rate during 2019 and 2020. in march and april 2020 , in an abundance of caution , we borrowed a combined $ 39.1 million on the credit agreement to provide substantial liquidity to manage our business in light of the covid-19 pandemic and the significant decline in the price of crude oil . in january , may , june , and september 2020 , we repaid a combined $ 52.0 million on the credit agreement . the average debt balance outstanding and average interest rates are summarized in the table below : replace_table_token_7_th 55 foreign currency gains ( losses ) . our canadian subsidiary has certain intercompany payables to our u.s.-based subsidiaries . such intercompany payables and receivables among our consolidated subsidiaries are eliminated in our consolidated balance sheets . we report currency translation adjustments on these intercompany payables and receivables within foreign currency gains ( losses ) in our consolidated statements of operations . the net foreign currency gains during 2020 and 2019 resulted from the appreciation of the canadian dollar relative to the u.s. dollar . other , net . other income in 2019 includes a gain of $ 1.3 million of the settlement of litigation with a former subcontractor . other expense in 2019 includes a loss of $ 0.5 million on the sale of pre-petition accounts receivable from pacific gas and electric company , which is a customer that filed for bankruptcy protection in 2019. other income in 2020 and 2019 also includes royalty income , interest income , and income associated with our 25 % interest in a water treatment facility that we account for under the equity method . income tax expense . we qualify as a partnership for income tax purposes , and therefore we generally do not pay income tax ; instead , each owner reports his or her share of our income or loss on his or her individual tax return . our income tax provision relates primarily to ( 1 ) our u.s. corporate subsidiaries that provide services to public utility customers , which do not appear to fit within the definition of qualified income as it is defined in the internal revenue code , regulations , and other guidance , which subjects this income to u.s. federal and state income taxes , ( 2 ) our canadian subsidiary , which is subject to canadian federal and provincial income taxes , and ( 3 ) certain other state income taxes , including the texas franchise tax . income tax expenses decreased from $ 2.3 million in 2019 to $ 0.5 million in 2020 , primarily due a decrease in income of our u.s. corporate subsidiary that provides services to public utility customers and a decrease in revenue that is subject to the texas franchise tax in our inspection services and pipeline and process services segments . as a publicly-traded partnership , we are subject to a statutory requirement that 90 % of our total gross income represent โ qualifying income โ ( as defined by the internal revenue code , related treasury regulations , and internal revenue service pronouncements ) , determined on a calendar-year basis . income generated by taxable corporate subsidiaries is excluded from this calculation . in 2020 , substantially all our gross income , which consisted of $ 139.0 million of revenue ( exclusive of the income generated by our taxable corporate subsidiaries ) , represented โ qualifying income โ . certain inspection services are not qualifying income and we therefore have separate taxable entities that pay state and federal income tax on these earnings . net income ( loss ) attributable to noncontrolling interests . we own a 51 % interest in cbi and a 49 % interest in cf inspection . the accounts of these subsidiaries are included within our consolidated financial statements . story_separator_special_tag general and administrative expenses include general overhead expenses such as employee compensation costs , insurance , property taxes , royalty expenses , and other miscellaneous expenses . these expenses decreased through a combination of salary reductions , reductions in workforce , furloughs , hiring freezes , reductions in incentive compensation expense , and other cost-cutting measures . expenses we incurred for costs that were previously incurred by holdings pursuant to the omnibus agreement were lower during 2020 than the administrative fee charged by holdings during 2019. in addition , the decrease in general and administrative expenses was partially due to a reassessment of the allocation of shared expenses to the various segments , which resulted in less expense being charged to the environmental services segment and more expense being charged to the inspection services segment in 2020 than in 2019. d epreciation , amortization , and accretion . depreciation , amortization , and accretion expenses include depreciation of property and equipment and amortization of intangible assets associated with customer relationships , trade names , and noncompete agreements . depreciation , amortization , and accretion expense in 2020 was similar to depreciation , amortization , and accretion expense in 2019. operating income . operating income decreased by $ 2.4 million in 2020 compared to 2019. this decrease was due in part to a decrease in gross margin of $ 3.5 million partially offset by a decrease of $ 1.2 million in general and administrative expense . 59 liquidity and capital resources the working capital needs of the inspection services segment are substantial , driven by payroll costs and reimbursable expenses paid to our inspectors on a weekly basis . please read โ risk factors โ risks related to our business โ the working capital needs of the inspection services segment are substantial โ , which could require us to seek additional financing that we may not be able to obtain on satisfactory terms , or at all . consequently , our ability to develop and maintain sources of funds to meet our capital requirements is critical to our ability to meet our growth objectives . we expect that our future capital needs will be funded by future borrowings and the issuance of debt and equity securities . however , we may not be able to raise additional funds on desired or favorable terms or at all . at december 31 , 2020 , our sources of liquidity included : โ $ 17.9 million of cash on our consolidated balance sheet at december 31 , 2020 ( $ 5.8 million of which was held by cbi ) ; โ available borrowings under our credit agreement ; and โ issuance of equity securities through our at-the-market equity program . we had outstanding borrowings of $ 62.6 million at december 31 , 2020 ( inclusive of finance lease obligations ) . at each quarter end , our borrowing capacity is limited by a leverage ratio in the credit agreement . the leverage ratio is calculated as the debt outstanding ( inclusive of finance leases ) divided by trailing-twelve-month ebitda ( as defined in the credit agreement ) . the maximum leverage ratio is 6.0 at december 31 , 2020 and march 31 , 2021 , 5.3 at june 30 , 2021 , 4.5 at september 30 , 2021 , and 4.0 at december 31 , 2021. at december 31 , 2020 , our leverage ratio was 5.8. as amended in march 2021 , the credit agreement has a maximum borrowing capacity of $ 75.0 million . in 2020 , in light of the current market conditions , we made the difficult decision to temporarily suspend payment of common unit distributions . this has enabled us to retain more cash to manage our financing needs during these challenging market conditions . as amended in march 2021 , the credit agreement contains significant limitations on our ability to pay cash distributions . we may only pay the following cash distributions : โ distributions to common and preferred unitholders , to the extent of income taxes estimated to be payable by these unitholders resulting from allocations of our earnings ; โ distributions to the preferred unitholder up to $ 1.1 million per year , if our leverage ratio is 4.0 or lower ; and โ distributions to the noncontrolling interest owners of cbi and cf inspection . the credit agreement matures on may 31 , 2022. see further discussion below in the โ our credit agreement โ section . at-the-market equity program in april 2019 , we established an at-the-market equity program ( โ atm program โ ) , which will allow us to offer and sell common units from time to time , to or through the sales agent under the atm program . the maximum amount we may sell varies based on changes in the market value of the units . currently , the maximum amount we may sell is $ 10 million . we are under no obligation to sell any common units under this program . as of the date of this filing , we have not sold any common units under the atm program and , as such , have not received any net proceeds or paid any compensation to the sales agent under the atm program . employee unit purchase plan in november 2020 , we established an employee unit purchase plan ( โ eupp โ ) , which will allow us to offer and sell up to 500,000 common units . employees can elect to have up to 10 percent of their annual base pay withheld to purchase common units , subject to terms and limitations of the eupp . the purchase price of the common units is 95 % of the volume weighted average of the closing sales prices of our common units on the ten immediately preceding trading days at the end of each offering period . there have been no common unit issuances under the eupp .
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segment operating results inspection services the following table summarizes the operating results of our inspection services segment for the years ended december 31 , 2020 and 2019. replace_table_token_8_th revenue . revenue decreased $ 190.5 million in 2020 compared to 2019 , due to a decrease in the average number of inspectors engaged ( a decrease of 755 inspectors accounting for $ 187.8 million of the revenue decrease ) and a decrease in the average revenue billed per inspector ( accounting for $ 2.7 million of the revenue decrease ) . revenues during 2019 benefited from the largest contract in the 18-year history of tir , which was a single-source inspection services project in texas . this project began in the fourth quarter of 2018 , peaked in the second quarter of 2019 , and continued with declining headcounts into 2020. we generated $ 8.0 million and $ 62.9 million of revenue from this project in 2020 and 2019 , respectively . our revenues during 2020 did not significantly benefit from any other large new projects . during 2020 , the covid-19 pandemic , combined with a significant decrease in crude oil prices resulting from reduced demand and an anticipated increase in supply from saudi arabia and russia , led many of our customers to change their budgets and plans . revenues of our subsidiary that serves public utility companies decreased by $ 19.1 million in 2020 compared to 2019 , due in part to lower activity as a result of the covid-19 pandemic . revenues of our nondestructive examination service line decreased by $ 7.2 million in 2020 compared to 2019 , due in part to lower activity as a result of the covid-19 pandemic . the decrease in average revenue per inspector is due to changes in customer mix .
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the 2017 tax act included a number of changes to existing u.s. tax laws that impact us , most notably a reduction of the u.s. corporate income tax rate from 35 % to 21 % for tax years beginning after december 31 , 2017. the 2017 tax act also provided for a oneโtime transition tax on certain foreign earnings , the acceleration of depreciation for certain assets placed into service after september 27 , 2017 , and prospective changes beginning in 2018 , including story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this report . the following discussion contains forward-looking statements based upon our current plans , expectations and beliefs that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this report , particularly in โ risk factors โ . overview we are a leader in the design , engineering , and manufacturing of critical fluid delivery subsystems and components for semiconductor capital equipment . our product offerings include gas and chemical delivery systems and subsystems , collectively known as fluid delivery systems and subsystems , which are key elements of the process tools used in the manufacturing of semiconductor devices . our gas delivery subsystems deliver , monitor , and control precise quantities of the specialized gases used in semiconductor manufacturing processes such as etch and deposition . our chemical delivery systems and subsystems precisely blend and dispense the reactive liquid chemistries used in semiconductor manufacturing processes such as chemical-mechanical planarization , electroplating , and cleaning . we also manufacture precision machined components , weldments , and proprietary products for use in fluid delivery systems for direct sales to our customers . this vertically integrated portion of our business is primarily focused on metal and plastic parts that are used in gas and chemical systems , respectively . fluid delivery subsystems ensure accurate measurement and uniform delivery of specialty gases and chemicals at critical steps in the semiconductor manufacturing processes . any malfunction or material degradation in fluid delivery reduces yields and increases the likelihood of manufacturing defects in these processes . most oems outsource all or a portion of the design , engineering , and manufacturing of their gas delivery subsystems to a few specialized suppliers , including us . additionally , many oems are also increasingly outsourcing the design , engineering , and manufacturing of their chemical delivery subsystems due to the increased fluid expertise required to manufacture these subsystems . outsourcing these subsystems has allowed oems to leverage the suppliers ' highly specialized engineering , design , and production skills while focusing their internal resources on their own value-added processes . we believe that this outsourcing trend has enabled oems to reduce their costs and development time , as well as provide growth opportunities for specialized subsystems suppliers like us . we have a global footprint with production facilities in malaysia , singapore , korea , california , florida , minnesota , oregon , and texas . in 2019 , 2018 , and 2017 , our two largest customers by revenue were lam research and applied materials . key factors affecting our business investment in semiconductor manufacturing equipment the design and manufacturing of semiconductor devices is constantly evolving and becoming more complex in order to achieve greater performance and efficiency . to keep pace with these changes , oems need to refine their existing products and invest in developing new products . in addition , semiconductor device manufacturers will continue to invest in new wafer fabrication equipment to expand their production capacity and to support new manufacturing processes . 30 outsourcing of subsystems by semiconductor oems faced with increasing manufacturing complexities , more complex subsystems , shorter product lead times , shorter industry spend cycles , and significant capital requirements , outsourcing of subsystems and components by oems has continued to grow . in the past two decades , oems have outsourced most of their gas delivery systems to suppliers such as us . oems have also started to outsource their chemical delivery systems in recent years . our results will be affected by the degree to which outsourcing of these fluid delivery systems by oems continues to grow . cyclicality of semiconductor device industry our business is indirectly subject to the cyclicality of the semiconductor device industry . in 2019 , we derived approximately 85 % of our sales from the semiconductor device industry . demand for semiconductor devices can fluctuate significantly based on changes in general economic conditions , including consumer spending , demand for the products that include these devices , and other factors . in the past , these fluctuations have resulted in significant variations in our results of operations . the cyclicality of the semiconductor device industries will continue to impact our results of operations in the future . customer concentration the number of capital equipment manufacturers for the semiconductor device industry is significantly consolidated , resulting in a small number of large manufacturers . our customers are a significant component of this consolidation , resulting in our sales being concentrated in a few customers . in 2019 , our top two customers were lam research and applied material , with lam research and applied materials accounting for approximately 51 % and 33 % of sales , respectively . the sales we generated from these customers in 2019 were spread across 35 different product lines utilized in 13 unique manufacturing process steps . we believe the diversity of products that we provide to these customers , combined with the fact that our customers use our products on numerous types of process equipment , lessens the impact of the inherent concentration in the industry . story_separator_special_tag transactions denominated in currencies other than the functional currency generate foreign exchange gains and losses that are included in other expense ( income ) , net on the accompanying consolidated statements of operations . substantially all of our sales and agreements with third party suppliers provide for pricing and payments in u.s. dollars and , therefore , are not subject to material exchange rate fluctuations . 32 income tax benefit during 2019 , income tax benefit consists primarily of taxable loss incurred in the united states , the benefit from our tax holiday in singapore , as well as the impacts of withholding taxes , stock option exercises , credit generation , and the release of tax reserves established in purchase accounting . during 2018 , income tax benefit consists primarily of the impact of u.s. operations , offset by discrete tax benefits , including the release of a valuation allowance against our foreign tax credit carryforwards we now expect to realize as a result of additional analysis of the tax cuts and jobs act and stock option exercises . during 2017 , income tax benefit from continuing operations consisted primarily of the impact of foreign operations , including withholding taxes , offset by a $ 7.6 million tax benefit as a result of our acquisitions ( see note 2 โ acquisitions of our consolidated financial statements included elsewhere in this report ) , a $ 5.9 million tax benefit from revaluing our deferred taxes from 35 % to 21 % due to the tax cuts and jobs act , and a $ 1.6 million benefit from re-characterizing intercompany debt to equity between our u.s. and singapore entities related to the reversal of previously accrued withholding taxes . results of operations the following table sets forth our results of operations for the periods presented . the period-to-period comparison of results is not necessarily indicative of results for future periods . replace_table_token_7_th 33 the following table sets forth our results of operations as a percentage of our total sales for the periods presented . replace_table_token_8_th comparison of fiscal years 2019 and 2018 sales year ended change december 27 , 2019 december 28 , 2018 amount % ( dollars in thousands ) net sales $ 620,837 $ 823,611 $ ( 202,774 ) -24.6 % the decrease in net sales from 2018 to 2019 was primarily related to the reduced demand for semiconductor capital equipment during much of 2019 , partially offset by market share gains . we refer to the volume of purchases from us by a customer of ours relative to its other suppliers as our market share of that customer . on a geographic basis , sales in the u.s. decreased by $ 173.7 million to $ 329.0 million , and foreign sales decreased by $ 29.1 million to $ 291.8 million . cost of sales and gross margin replace_table_token_9_th the decrease in cost of sales and gross profit from 2018 to 2019 was primarily due to decreased sales volume . the 260 basis point decrease in our gross margin was primarily due to lower factory utilization , resulting from reduced demand for semiconductor capital equipment during much of 2019 , and product mix . 34 research and development year ended change december 27 , 2019 december 28 , 2018 amount % ( dollars in thousands ) research and development $ 11,102 $ 9,355 $ 1,747 18.7 % the increase in research and development expenses from 2018 to 2019 was primarily due to incremental expenses from our ip purchase of developed flow controller technology assets in may 2019 , in which we assumed an engineering team . selling , general , and administrative year ended change december 27 , 2019 december 28 , 2018 amount % ( dollars in thousands ) selling , general , and administrative $ 47,270 $ 47,448 $ ( 178 ) -0.4 % the decrease in selling , general , and administrative expense from 2018 to 2019 was primarily due a $ 1.0 million reduction in employee-related expenses as a result of leadership and management restructuring that was completed in 2019 and a combined $ 0.9 million reduction in professional , consulting , and other corporate overhead expenses as a result of successful cost-management policies enacted during 2019 , partially offset by a $ 1.1 million separation benefit charge in january 2018 that did not repeat in 2019 and increased share-based compensation expense of $ 0.6 million . amortization of intangible assets year ended change december 27 , 2019 december 28 , 2018 amount % ( dollars in thousands ) amortization of intangibles assets $ 13,015 $ 15,369 $ ( 2,354 ) -15.3 % the decrease in amortization expense from 2018 to 2019 was due certain intangible assets being fully amortized as of the end of the fourth quarter of 2018. interest expense year ended change december 27 , 2019 december 28 , 2018 amount % ( dollars in thousands ) interest expense $ 10,647 $ 9,987 $ 660 6.6 % the increase in interest expense from 2018 to 2019 was primarily due to an increase in our weighted average interest rate , from 4.36 % to 4.78 % , partially offset by a $ 2.7 million reduction in the average amount borrowed during the year as a result of quarterly term loan payments which were partially offset by a net draw on our revolving facility . 35 other expense ( income ) , net year ended change december 27 , 2019 december 28 , 2018 amount % ( dollars in thousands ) other expense ( income ) , net $ 55 $ ( 241 ) $ 296 n/m the change in other income , net for 2019 was primarily due to exchange rate fluctuations on transactions denominated in the local currencies of our foreign operations , principally the singapore dollar , malaysian ringgit , and british pound .
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unaudited quarterly financial results the following table set forth statement of operations data for the periods indicated . the information for each of these periods is unaudited and has been prepared on the same basis as our audited consolidated financial statements included herein and includes all adjustments , consisting only of normal recurring adjustments that we consider necessary for a fair presentation of our unaudited operations data for the periods presented . historical results are not necessarily indicative of the results to be expected in the future . replace_table_token_12_th 40 the following table sets forth our unaudited quarterly consolidated statement of operations data as a percentage of sales for the periods indicated . replace_table_token_13_th seasonality we have not historically experienced meaningful seasonality with respect to our business or results of operations . liquidity and capital resources we had cash of $ 60.6 million as of december 27 , 2019 , compared to $ 43.8 million as of december 28 , 2018. our principal uses of liquidity are to fund our working capital needs , purchase new capital equipment , acquisitions , and our share repurchase program . the increase was primarily due to operating cash flows of $ 57.2 million and net proceeds from the issuance of ordinary shares under our share-based compensation plans of $ 5.5 million , partially offset by net payments on long-term debt of $ 23.8 million , capital expenditures of $ 12.3 million , cash paid for intangible assets of $ 8.1 million . we believe that our cash , the amounts available under our revolving credit facility , and our cash flows from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months .
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1 or no . 2 position in the product categories in which we compete . we distribute our products through a wide variety of retail and commercial channels to ensure that our products are readily and conveniently available for purchase by consumers and other end-users , wherever they prefer to shop . these channels include mass retailers , e-tailers , discount , drug/grocery and variety chains ; warehouse clubs ; hardware and specialty stores ; independent office product dealers ; office superstores ; wholesalers ; and contract stationers . our products are sold primarily in the u.s. , europe , brazil , australia , canada , and mexico . for the year ended december 31 , 2019 , approximately 43 percent of our net sales were in the u.s. our leading product category positions provide the scale to invest in marketing and product innovation to drive profitable growth . over the long term , we expect to derive much of our growth from emerging markets such as latin america and parts of asia , the middle east , and eastern europe . these areas exhibit sales growth for our product categories . in all of our markets , we see opportunities for sales growth through share gains , channel expansion , and product enhancements . our strategy is to grow our global portfolio of consumer brands , offer more innovative products , increase our presence in faster growing geographies and channels , and diversify our customer base . we plan to supplement organic growth with strategic acquisitions in both existing and adjacent product categories . we generate strong operating cash flow , and will continue to leverage our cost structure through synergies and productivity savings to drive long-term profit improvement . in support of these strategic imperatives , w e have been transforming our business by acquiring companies with consumer and other end-user demanded brands , diversifying our distribution channels , and increasing our global presence . these acquisitions have meaningfully expanded our portfolio of well-known brands , enhanced our competitive position from both a product and channel perspective , and added scale to our operations . today acco brands is a global enterprise focused on developing innovative branded consumer products for use in businesses , schools , and homes . acquisitions indรบstria grรกfica foroni ltda . acquisition effective august 1 , 2019 , we completed the acquisition ( the `` foroni acquisition '' ) of indรบstria grรกfica foroni ltda . ( `` foroni '' ) , a leading provider of foroni ยฎ branded notebooks and paper-based school and office products in brazil . the preliminary purchase price was $ 42.1 million , and is subject to working capital and other adjustments . we also assumed $ 7.6 million of debt . the foroni acquisition advances our strategy to expand in faster growing geographies and product categories , add consumer-centric brands and diversify our customer base . the results of foroni are included in the acco brands international segment effective august 1 , 2019. goba internacional , s.a. de c.v. acquisition on july 2 , 2018 , we completed the acquisition ( the `` goba acquisition '' ) of goba internacional , s.a. de c.v. ( `` goba '' ) for a purchase price of $ 37.2 million , net of cash acquired and working capital adjustments . goba is a leading provider of barrilito ยฎ branded school and craft products in mexico . the acquisition increased the breadth and depth of our distribution throughout 25 mexico , especially with wholesalers and retailers and added a strong offering of school and craft products to our product portfolio in mexico . the results of goba are included in the acco brands international segment as of july 2 , 2018. esselte group holdings ab acquisition on january 31 , 2017 , we completed the acquisition ( the `` esselte acquisition '' ) of esselte . the acquisition of esselte made acco brands a leading european manufacturer and marketer of branded consumer and office products , and improved acco brands ' scale . esselte products are primarily marketed under the leitz ยฎ , rapid ยฎ and esselte ยฎ brands in the storage and organization , stapling , punching , binding and laminating equipment and do-it-yourself tools product categories . the results of esselte are included in all three of the company 's segments , but primarily in the acco brands emea segment as of february 1 , 2017. for further information on the acquisitions , see `` note 3. acquisitions `` to the consolidated financial statements contained in item 8. of this report . operating segments the company has three operating business segments , each of which is comprised of different geographic regions . the company 's three operating segments are as follows : operating segment geography primary brands primary products acco brands north america united states and canada five star ยฎ , quartet ยฎ , at-a-glance ยฎ , gbc ยฎ , swingline ยฎ , kensington ยฎ , mead ยฎ , and hilroy ยฎ school notebooks , planners , dry erase boards , storage and organization products ( 3-ring binders ) , stapling , punching , laminating , binding products , and computer accessories acco brands emea europe , middle east and africa leitz ยฎ , rapid ยฎ , esselte ยฎ , kensington ยฎ , rexel ยฎ gbc ยฎ , nobo ยฎ , and derwent ยฎ storage and organization products ( lever-arch binders , sheet protectors , indexes ) , stapling , punching , laminating , shredding , do-it-yourself tools , dry erase boards , writing instruments and computer accessories acco brands international australia/n.z. , latin america and asia-pacific tilibra ยฎ , gbc ยฎ , barrilito ยฎ , foroni ยฎ , marbig ยฎ , kensington ยฎ , artline ยฎ * , wilson jones ยฎ , quartet ยฎ , spirax ยฎ , and rexel ยฎ * australia/n.z . story_separator_special_tag net income/diluted income per share net income was $ 106.8 million , up $ 0.1 million , or 0.1 percent , from $ 106.7 million in 2018. foreign exchange reduced net income $ 3.3 million , or 3.1 percent . diluted income per share was $ 1.06 , compared with $ 1.00 last year . excluding goba , foroni , restructuring charges , transaction and integration costs , and foreign exchange , net income decreased primarily due to higher income taxes , partially offset by higher operating income . diluted income per share benefited from fewer outstanding shares . 29 segment net sales and operating income for the years ended december 31 , 2019 and 2018 replace_table_token_9_th ( 1 ) segment operating income excludes corporate costs . see `` note 18. information on business segments `` to the condensed consolidated financial statements contained in part ii , item 8. of this report for a reconciliation of total `` segment operating income `` to `` income before income tax . '' acco brands north america net sales were $ 966.8 million , up $ 26.1 million , or 2.8 percent , from $ 940.7 million in 2018. unfavorable foreign exchange reduced net sales $ 2.5 million , or 0.3 percent . comparable net sales increased 3.1 percent , driven by higher pricing that offset the impact of inflation and tariffs , as well as strong back-to-school sales , partially offset by volume declines , including lost placements in office and calendar products . operating income was $ 131.0 million , up $ 14.4 million , or 12.3 percent , from $ 116.6 million in 2018. operating income margin increased to 13.5 percent from 12.4 percent . operating income and margin increased because of higher net sales and cost savings , partially offset by higher incentive accruals . acco brands emea net sales were $ 569.3 million , down $ 35.9 million , or 5.9 percent , from $ 605.2 million in 2018. unfavorable foreign exchange reduced net sales $ 34.1 million , or 5.6 percent . comparable net sales decreased 0.3 percent . results in 2018 benefited from strong demand for shredders generated by europe 's new privacy law , making the 2019 sales comparison difficult . after a strong first quarter , demand softened during the second and third quarters , returning to almost flat in the fourth quarter . operating income was $ 58.6 million , down $ 0.8 million , or 1.3 percent , from $ 59.4 million in 2018. foreign exchange reduced operating income $ 3.7 million , or 6.2 percent . operating margin increased to 10.3 percent from 9.8 percent . excluding foreign exchange , operating income increased primarily due to $ 5.7 million of lower restructuring charges and integration costs and savings from prior-year restructuring , partially offset by foreign-exchange-related cost of products inflation and lower net sales . acco brands international net sales were $ 419.6 million , up $ 24.3 million , or 6.1 percent , from $ 395.3 million in 2018. the goba and foroni acquisitions contributed net sales of $ 23.7 million and $ 30.5 million , respectively , for a total of 13.7 percent . unfavorable foreign exchange reduced net sales $ 18.9 million , or 4.8 percent . comparable net sales decreased 2.8 percent due to lost placements in australia and the exit of low-margin product lines in asia , which were partially offset by strong back-to-school sales in brazil . 30 operating income was $ 48.5 million , down $ 0.7 million , or 1.4 percent , from $ 49.2 million in 2018. goba and foroni added $ 9.6 million , or 19.5 percent . foreign exchange reduced operating income $ 2.4 million , or 4.9 percent . operating income margin decreased to 11.6 percent from 12.4 percent . excluding the acquisitions and foreign exchange , operating income decreased primarily from lower comparable net sales and lower gross profit . in addition , the segment results were negatively impacted by $ 2.8 million in higher restructuring charges , as well as expenses associated with our exit of low-margin product lines in asia . liquidity and capital resources our primary liquidity needs are to service indebtedness , fund capital expenditures , fund our acquisition strategy and support working capital requirements . our principal sources of liquidity are cash flow from operating activities , cash and cash equivalents held and seasonal borrowings under our $ 600 million multi-currency revolving facility ( as defined in `` debt amendment '' below ) . as of december 31 , 2019 , there was $ 22.2 million in borrowings outstanding under the revolving facility ( $ 8.2 million reported in `` current portion of long-term debt `` and $ 14.0 million reported in `` long-term debt , net `` ) and the amount available for borrowings was $ 566.6 million ( allowing for $ 11.2 million of letters of credit outstanding on that date ) . we maintain adequate financing arrangements at market rates . the $ 437.2 million of debt currently outstanding under our senior secured credit facilities has a weighted average interest rate of 2.09 percent as of december 31 , 2019 , and $ 375.0 million outstanding principal amount of our senior unsecured notes ( the `` senior unsecured notes '' ) has a fixed interest rate of 5.25 percent . because of the seasonality of our business , we typically generate much of our cash flow from operating activities in the third and fourth quarters , as accounts receivable are collected , and we typically use cash in the second quarter to fund working capital in order to support the north america back-to-school season . we had a different cash flow pattern in 2019 , with a large operating cash outflow in the first quarter and a smaller outflow in the second quarter , which resulted from our decision to purchase raw materials and finished goods inventory for the 2019 year in late 2018 to secure supply and partially mitigate the effect of anticipated inflation and tariffs .
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overview of 2019 performance for the year ended december 31 , 2019 , net sales increased 0.7 percent . the goba and foroni acquisitions contributed $ 54.2 million in net sales , which offset negative foreign exchange of $ 55.5 million . the comparable net sales increase of 0.8 percent was due to north america . operating income increased 4.9 percent , primarily due to higher sales and cost savings , which were partially offset by adverse foreign exchange that reduced operating income $ 6.4 million , or 3.4 percent . inflation , including u.s. tariffs , and the need to offset these with increases in our sales prices , was a challenge during the year , as was adverse foreign exchange . the strength of the u.s. dollar not only reduced the translated value of all of our foreign operations ' financial results , but also created inflationary pressures as these operations sell many products in their local currencies that are sourced in u.s. dollars ( mainly from china ) . operating cash flow for the year ended december 31 , 2019 , was $ 203.9 million , which was higher than last year 's operating cash flow of $ 194.8 million . operating cash flow in 2019 , together with reduced cash on hand , was used to fund : ( in millions ) use of cash debt repayments $ 70.6 share repurchases 65.0 acquisitions 41.3 dividends 24.4 capital expenditures 32.8 other assets acquired 6.0 27 consolidated results of operations for the years ended december 31 , 2019 and 2018 replace_table_token_8_th ( 1 ) the company acquired foroni effective august 1 , 2019 ; the results of foroni are included as of that date . ( 2 ) the company acquired goba on july 2 , 2018 ; the results of goba are included as of that date .
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in january 2017 , amendments to existing guidance were issued to further clarify the definition of a business in determining whether or not a company has acquired or sold a business . the amendments provide a screen to determine when an integrated set of assets and activities ( collectively referred to as a โ set โ ) is not a business . the screen requires that when substantially all of the fair value of the gross assets acquired ( or disposed of ) is concentrated in a single 54 ball corporation notes to the consolidated financial statements identifiable asset or a group of similar identifiable assets , the set is not a business . if the screen is not met , the amendments in this update ( 1 ) require that to be considered a business , a set must include , at a minimum , an input and a substantive process that together significantly contribute to the ability to create output and ( 2 ) remove the evaluation of whether story_separator_special_tag management 's discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes included in item 8 of this annual report on form 10-k , which include additional information about our accounting policies , practices and the transactions underlying our financial results . the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the united states of america ( u.s. gaap ) requires us to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and the accompanying notes including various claims and contingencies related to lawsuits , taxes , environmental and other matters arising during the normal course of business . we apply our best judgment , our knowledge of existing facts and circumstances and actions that we may undertake in the future in determining the estimates that affect our consolidated financial statements . we evaluate our estimates on an ongoing basis using our historical experience , as well as other factors we believe appropriate under the circumstances , such as current economic conditions , and adjust or revise our estimates as circumstances change . as future events and their effects can not be determined with precision , actual results may differ from these estimates . ball corporation and its subsidiaries are referred to collectively as โ ball corporation , โ โ ball , โ โ the company , โ โ we โ or โ our โ in the following discussion and analysis . overview business overview and industry trends ball corporation is one of the world 's leading suppliers of metal packaging to the beverage , food , personal care and household products industries . our packaging products are produced for a variety of end uses , are manufactured in facilities around the world and are competitive with other substrates , such as plastics and glass . in the rigid packaging industry , sales and earnings can be increased by reducing costs , increasing prices , developing new products , expanding volumes and making strategic acquisitions . we also provide aerospace and other technologies and services to governmental and commercial customers . we sell our packaging products mainly to large , multinational beverage , food , personal care and household products companies with which we have developed long-term relationships . this is evidenced by our high customer retention and our large number of long-term supply contracts . while we have a diversified customer base , we sell a majority of our packaging products to relatively few major companies in north , central and south america , europe , asia , the middle east and africa , as do our equity joint ventures in guatemala , panama , south korea , the u.s. and vietnam . the overall metal container industry is growing globally and is expected to continue to grow in the medium to long term despite the north american industry seeing a continued decline in standard-sized aluminum beverage packaging for the carbonated soft drink market . the primary customers for the products and services provided by our aerospace segment are u.s. government agencies or their prime contractors . we purchase our raw materials from relatively few suppliers . we also have exposure to inflation , in particular the rising costs of raw materials , as well as other direct cost inputs . we mitigate our exposure to the changes in the costs of metal through the inclusion of provisions in contracts covering the majority of our volumes to pass through metal price changes , as well as through the use of derivative instruments . the pass-through provisions generally result in proportional increases or decreases in sales and costs with a greatly reduced impact , if any , on net earnings . because of our customer and supplier concentration , our business , financial condition and results of operations could be adversely affected by the loss , insolvency or bankruptcy of a major customer or supplier or a change in a supply agreement with a major customer or supplier , although our contract provisions generally mitigate the risk of customer loss , and our long-term relationships represent a known , stable customer base . we recognize sales under long-term contracts in the aerospace segment using percentage-of-completion under the cost-to-cost method of accounting . throughout the period of contract performance , we regularly reevaluate and , if necessary , revise our estimates of aerospace total contract revenue , total contract cost and progress toward completion . because of contract payment schedules , limitations on funding and other contract terms , our sales and accounts receivable for this segment include amounts that have been earned but not yet billed . 23 corporate strategy our drive for 10 vision encompasses five strategic levers that are key to growing our business and achieving long-term success . story_separator_special_tag the increased business consolidation and other activities in 2015 compared to 2014 included collar and option contract losses , cross-currency swap fair value changes , net currency exchange losses on the restricted cash and debt associated with the rexam acquisition , and transaction costs related to the acquisition of rexam . the collar and option contracts , as well as the cross-currency swap , are not accounted for as hedges . see notes 5 and 20 located in item 8 of this annual report for additional information on financial instruments . the increased debt refinancing and other costs in 2015 compared to 2014 included mark-to-market losses on derivative financial instruments designed to mitigate exposure to interest rates changes for debt issuances related to the rexam acquisition , the write-off of unamortized deferred financing charges for the partial extinguishment of the committed bridge loan agreement and the revolving credit facility , interest expense on 3.5 percent and 4.375 percent senior notes issued to fund a portion of the purchase price of the rexam acquisition , amortization of deferred financing costs for the committed bridge loan agreement and the redemption of the 6.75 percent and 5.75 percent senior notes . see notes 14 and 20 located in item 8 of this annual report for additional information on financial instruments . cost of sales ( excluding depreciation and amortization ) cost of sales , excluding depreciation and amortization , was $ 7,296 million in 2016 compared to $ 6,460 million in 2015 and $ 6,903 million in 2014. these amounts represented 81 percent of consolidated net sales for each of these years . cost of sales in 2016 included expense of $ 84 million for the step-up of inventory related to the acquired rexam business . depreciation and amortization depreciation and amortization expense was $ 453 million in 2016 compared to $ 286 million in 2015 and $ 281 million in 2014. these amounts represented 5 percent , 4 percent and 3 percent of consolidated net sales for those three years , respectively . depreciation expense was higher in 2016 than in 2015 primarily due to the acquired rexam fixed assets . amortization in 2016 included $ 65 million for the amortization of acquired rexam intangibles . 25 selling , general and administrative selling , general and administrative ( sg & a ) expenses were $ 512 million in 2016 compared to $ 450 million in 2015 and $ 466 million in 2014. these amounts represented 6 percent , 6 percent and 5 percent of consolidated net sales for those three years , respectively . the increase in sg & a expenses in 2016 compared to 2015 was primarily due to additional sg & a from the acquired rexam business , which will be reduced in 2017 through cost-out initiatives , and foreign exchange losses of $ 27 million for the devaluation of the egyptian pound in the fourth quarter of 2016. the decrease in sg & a expenses in 2015 compared to 2014 was primarily due to lower incentive compensation and net favorable foreign currency effects in sg & a , partially offset by deferred compensation expense related to director retirements in 2015. business consolidation costs and other activities business consolidation and other activities were $ 337 million in 2016 compared to $ 195 million in 2015 and $ 81million in 2014. these amounts represented 4 percent , 2 percent and 1 percent of consolidated net sales for the three years , respectively . the year-over-year increase in business consolidation and other activities in 2016 compared to 2015 was primarily due to an increase of $ 202 million for transaction related costs , foreign currency exchange losses of $ 159 million on foreign currency-denominated restricted cash and debt and $ 108 million in expense for compensation arrangements , all associated with the rexam acquisition and the sale of the divestment business . the increase was partially offset by a gain of $ 344 million in connection with the sale of the divestment business . the year-over-year increase in business consolidation and other activities for 2015 compared to 2014 was primarily due to an increase of $ 98 million for transaction related costs , $ 41 million of losses associated with the change in fair value of the collar and option contracts entered into to reduce the exposure to currency exchange rate changes in connection with the british pound denominated cash portion of the rexam acquisition , net foreign currency gains and losses of $ 14 million from the revaluation of foreign currency denominated restricted cash and losses of $ 7 million for cross-currency swaps in connection with the december 2015 issuance of the $ 1 billion senior notes due 2020. in 2014 , the company recorded a non-cash charge of $ 45 million for the settlement of its pension benefit obligations , and recorded a provision against the balance of a long-term receivable of $ 17 million as a result of the financial difficulties of a food and aerosol packaging segment customer . the valuations of currency exchange and interest rates were a primary driver for the amounts recorded in business consolidation and other activities in 2016 , and we expect these impacts to be greatly diminished in the future . see notes 4 , 5 and 20 located in item 8 of this annual report for additional information on financial instruments . interest expense total interest expense was $ 338 million in 2016 compared to $ 260 million in 2015 and $ 193 million in 2014. excluding debt refinancing and other costs , interest expense in 2016 was higher compared to 2015 as the company incurred additional debt to pay a portion of the cash consideration due to rexam 's shareholders for the rexam acquisition . excluding debt refinancing and other costs , interest expense in 2015 was lower compared to 2014 due to lower interest rates on newly issued long-term debt and the retirement of higher interest rate long-term debt .
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results of business segments acquisition of rexam on june 30 , 2016 , ball acquired 100 percent of the outstanding shares of rexam , a united kingdom based beverage container manufacturer , for the purchase price of ยฃ2.9 billion ( $ 3.8 billion ) in cash , and 32.25 million treasury shares of ball corporation common stock ( valued at $ 71.39 per share for a total share consideration of $ 2.3 billion ) . the common shares were valued using the price on the date of acquisition and were presented as a reduction of treasury stock . the cash portion of the acquisition price was paid in july 2016 using proceeds from restricted cash held in escrow and borrowings under the $ 1.4 billion and 1.1 billion term a loan facilities obtained in march 2016. the consummation of the acquisition was subject to , among other things , approval from ball 's shareholders , approval from rexam 's shareholders , certain regulatory approvals and other customary closing conditions , all of which were satisfied prior to closing . in order to satisfy certain regulatory requirements , the company was required to sell some of its existing beverage packaging businesses and select beverage can assets of rexam ( the divestment business ) . segment results during the third quarter of 2016 , ball made certain segment realignments as a result of the rexam acquisition and sale of the divestment business to align with how ball now manages its businesses . ball has retrospectively adjusted prior period amounts to conform to the current segment presentation . ball 's operations are organized and reviewed by management along its product lines and geographical areas and presented in the five reportable segments discussed below . 27 beverage packaging , north and central america replace_table_token_9_th ( a ) further details of these items are included in note 5 to the consolidated financial statements within item 8 of this annual report .
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in august 2014 , the fasb issued asu-2014-15 - presentation of financial statements - going concern on determining when and how to disclose going-concern uncertainties in the financial statements . the new standard requires management to perform interim and annual assessments of an entity 's ability to continue as a going concern within a year of the date the financial statements are issued . the standard applies to all entities and is effective for annual and interim periods beginning after december 15 , 2016 with early adoption permitted . we are evaluating the effect this standard will have on our financial statements and related disclosures . in february 2015 , the fasb issued asu 2015-02 - consolidation , which amends the guidance story_separator_special_tag overview we are one of the largest helicopter operators in the world and the longest serving helicopter transport operator in the u.s. , which is our primary area of operations . our helicopters are primarily used to transport personnel to , from and between offshore oil and gas production platforms , drilling rigs and other installations . in the years ended december 31 , 2015 , 2014 and 2013 , approximately 66 % , 67 % and 60 % , respectively , of our total operating revenues were earned in the u.s. gulf of mexico , and during the same periods , approximately 10 % , 15 % and 18 % , respectively , of our operating revenues were earned in alaska . we also provide helicopters and related services to foreign third-party helicopter operators . in the year ended december 31 , 2015 , approximately 21 % of total operating revenues were earned in international locations . we currently have customers in brazil , colombia , dominican republic , india , norway , spain and the united kingdom . the primary users of our helicopter services are international , major integrated and independent oil and gas exploration , development and production companies and bsee . in the years ended december 31 , 2015 , 2014 and 2013 , approximately 78 % , 76 % and 75 % , respectively , of our operating revenues were derived from helicopter services , including emergency search and rescue services , provided to customers primarily engaged in offshore oil and gas exploration , development and production activities . as such , our results are tied to the level of uncertainty in the offshore oil and gas exploration , development and production activities . in addition to serving the oil and gas industry , we provide air medical services , utility services and alaska flightseeing tours , among other activities . as of december 31 , 2015 , we owned or operated a total of 146 helicopters , consisting of 13 heavy helicopters , 55 medium helicopters , 35 light twin engine helicopters and 43 light single engine helicopters . as of december 31 , 2015 , we had commitments to purchase an additional 14 new helicopters consisting of nine heavy helicopters scheduled to be delivered beginning 2016 through 2018 and five light twin helicopters , the delivery dates for which have not been determined . in addition , we had outstanding options to purchase up to an additional 12 heavy helicopters . if these options were exercised , the helicopters would be scheduled for delivery in 2017 through 2018 . we believe our cash flows from operating activities , revolving credit facility ( to the extent of our borrowing capacity thereunder ) and our strong relationships with oems will help position us to add new helicopters to our fleet and upgrade existing helicopters , thereby maintaining an asset base suitable for use within our own operations and for dry-leasing to other operators . we also leverage our strong relationships with oems to support growth in other services , such as selling specialty equipment and accessories for helicopters , and training . lines of service offshore oil and gas exploration , development and production support . the offshore oil and gas market is highly cyclical with demand linked to the price of oil and gas , which tends to fluctuate depending on many factors , including global economic activity , levels of inventory and overall demand . in addition to the price of oil and gas , the availability of acreage and local tax incentives or disincentives and requirements for maintaining interests in leases affect activity levels in the oil and gas industry . price levels for oil and gas by themselves can cause additional fluctuations by inducing changes in consumer behavior . for the last nine years , we have provided transportation services to government inspectors of offshore installations , drilling rigs and platforms . this contract was renewed in 2011 and is expected to run through september 2016. it is put out for bid every five years , and we intend to submit a bid to continue providing these services beyond the current expiration date . as of december 31 , 2015 , 25 of our helicopters were operating under this contract with customer options to increase the number to up to 29 helicopters . brazil is among the most important markets for offshore oil and gas exploration and production activity world-wide . the u.s. energy information administration has stated that recent discoveries of large offshore , pre-salt oil deposits could transform brazil into one of the larger oil producers in the world . we participate in this market through our consolidated joint venture , aerรณleo . as of december 31 , 2015 , we had 16 helicopters in brazil dedicated to serving that market . we also provide search and rescue services in the u.s. gulf of mexico on a subscription basis . we currently have three aw139 helicopters configured for this service and several subscribers . dry-leasing . we enter into dry-lease arrangements for our helicopters to operators primarily located in international markets such as the north sea , spain and india . story_separator_special_tag our liquidity levels provide a stable foundation in the current market environment and will permit us to , together with operational efficiency improvements benefitting us and our customers , maintain and improve our customer relationships and competitive position . recent developments 34 the current excess capacity of our medium and heavy helicopters is higher than in recent years . our fleet 's excess helicopters include those that are not otherwise under customer contracts , undergoing maintenance or dedicated for charter activity . although we take actions to minimize excess capacity , we expect a certain level of excess capacity at any given time in an aviation logistics business as a result of the evolving nature of customers ' needs . our operating revenues were negatively impacted as a result of the higher excess capacity which began during the middle of the fourth quarter of 2014 and increased during 2015. through fleet management initiatives , participation in competitive bids and pursuit of additional opportunities in the u.s. gulf of mexico and abroad , we are focused on maximizing the utilization of our fleet and mitigating the excess capacity in our medium and heavy helicopters . if we are not successful in securing sufficient new projects , we may experience a decline in the near-term utilization of our medium and heavy helicopters that may impact our financial results in 2016 and beyond . on october 1 , 2015 , our partner in aerรณleo completed the transfer of its economic and voting interest to a third party . in connection with the transfer , we entered into a shareholders agreement with the new partner that requires supermajority shareholder and or board approval with respect to specified , significant actions , and a put/call option arrangement that gives us the right to purchase at any time , and the new partner the right to put to us after two years , the new partner 's interest in aerรณleo . as a result of these partnership provisions , we are the primary beneficiary of aerรณleo , and aerรณleo 's financial position and results of operations have been consolidated in our financial statements beginning in the fourth quarter of 2015. as a part of the same transaction , we obtained the remaining 50 % ownership interest in era do brazil llc ( โ era do brazil โ ) , a single purpose entity which owns one aw139 medium helicopter leased to aerรณleo , resulting in 100 % ownership . prior to the transaction , era do brazil was a variable interest entity , and as the primary beneficiary , we have been consolidating it in our financial statements since september 2012. fleet developments and capital commitments in recent years , we have continued to focus on the modernization of our fleet and the standardization of equipment . oil and gas companies typically require modern helicopters that offer enhanced safety features and greater performance . in response to this demand , we have transformed our fleet significantly . since the beginning of 2005 , we have added 137 helicopters , disposed of 116 helicopters and reduced the average age of our owned fleet from 17 years to 12 years . as of december 31 , 2015 , 25 % of our fleet was five years old or less . we spent $ 60.1 million , $ 106.7 million and $ 110.1 million to acquire helicopters and other equipment in the years ended december 31 , 2015 , 2014 and 2013 , respectively , primarily for heavy and medium helicopters . as of december 31 , 2015 , we had unfunded commitments of $ 150.3 million , primarily pursuant to agreements to purchase helicopters , consisting of seven aw189 heavy helicopters , two s92 heavy helicopters and five aw169 light twin helicopters . the aw189 helicopters and s92 helicopters are scheduled to be delivered beginning in 2016 through 2018 . delivery dates for the aw169 helicopters have not been determined . approximately $ 123.6 million of these commitments ( inclusive of deposits paid on options not yet exercised ) may be terminated without further liability other than aggregate liquidated damages of $ 3.2 million . in addition , we had outstanding options to purchase up to an additional ten aw189 helicopters and two s92 helicopters . if these options were exercised , the helicopters would be delivered beginning in 2017 through 2018 . components of revenues and expenses we derive our revenues primarily from operating and dry-leasing our equipment , and our profits depend on our cost of capital , the acquisition costs of assets , our operating costs and our reputation . operating revenues recorded under u.s. gulf of mexico , alaska and international are primarily generated from offshore oil and gas exploration and production activities and , in alaska , include revenues from utility services . these revenues are typically earned through a combination of fixed monthly fees plus an incremental charge based on flight hours flown . charter revenues are typically earned through either a combination of a daily fixed fee plus a charge based on hours flown or an hourly rate with a minimum number of hours to be charged daily . operating revenues recorded under dry-leasing are generated from dry-leases to third-party operators where we are not responsible for the operation of the helicopters . for certain of these dry-leases , we also provide crew training , management expertise , and logistical and maintenance support . dry-leases typically call for a fixed monthly fee only , but may also include an additional charge based on flight hours flown . the majority of our dry-leasing revenues have been generated by helicopters deployed internationally . operating revenues for search and rescue services are earned through a fixed monthly fee plus an incremental charge for flight hours flown , and charter revenues are typically earned through either a combination of a daily fixed fee plus a charge based on hours flown or an hourly rate with a minimum number of hours to be charged daily .
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results of operations replace_table_token_6_th 37 operating revenues by service line . the following table sets forth our operating revenues by service line for the years ended december 31 , 2015 , 2014 and 2013 . replace_table_token_7_th _ ( 1 ) primarily oil and gas exploration and production activities , but also includes revenues from utility services including support of firefighting , mining , power line and pipeline survey activities . ( 2 ) we sold our fbo on may 1 , 2015. year ended december 31 , 2015 compared with year ended december 31 , 2014 operating revenues . operating revenues were $ 49.4 million lower for the year ended december 31 , 2015 ( the โ current year โ ) compared with the year ended december 31 , 2014 ( the โ prior year โ ) . operating revenues from oil and gas operations in the u.s. gulf of mexico were $ 33.3 million lower in the current year due to an overall decline in the demand for helicopter services . operating revenues from medium helicopters were $ 26.5 million lower primarily due to lower utilization and lower average rates . operating revenues from heavy helicopters were $ 3.7 million lower primarily due to lower utilization . operating revenues from single engine helicopters and light twin engine helicopters were $ 2.0 million and $ 1.4 million lower , respectively , primarily due to reduced fleet count . operating revenues from oil and gas operations in alaska were $ 11.4 million lower in the current year . operating revenues from medium and single engine helicopters were $ 9.5 million and $ 0.2 million lower , respectively , primarily due to lower utilization and lower average rates . operating revenues from light twin helicopters were $ 1.4 million lower primarily due to lower utilization . miscellaneous revenues were $ 0.4 million lower primarily due to reduced rebillable expenses .
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these forward-looking statements involve risks and uncertainties which may cause our actual results to differ materially from the expectations expressed or implied in the forward-looking statements . a description of some of the risks and uncertainties can be found further below in this item 7 and in part i , item 1a , โ risk factors. โ discussions of year-over-year comparisons between 2019 and 2018 are not included in this form 10-k and can be found in part ii , item 7 , โ management 's discussion and analysis of financial condition and results of operations โ of the company 's form 10-k for the fiscal year ended december 31 , 2019. executive overview general unitedhealth group is a diversified health care company with a mission to help people live healthier lives and help make the health system work better for everyone . our two complementary businesses โ optum and unitedhealthcare โ are driven by this unified mission and vision to improve health care access , affordability , experiences and outcomes for the individuals and organizations we are privileged to serve . we have four reportable segments across our two business platforms , optum and unitedhealthcare : optumhealth ; optuminsight ; optumrx ; and unitedhealthcare , which includes unitedhealthcare employer & individual , unitedhealthcare medicare & retirement , unitedhealthcare community & state and unitedhealthcare global . further information on our business and reportable segments is presented in part i , item 1 , โ business โ and in note 14 of the notes to the consolidated financial statements included in part ii , item 8 , โ financial statements. โ covid-19 trends and uncertainties the covid-19 pandemic continues to evolve and the ultimate impact on our business , results of operations , financial condition and cash flows remains uncertain . during the second quarter , the global health system experienced unprecedented levels of care deferral , which impacted all of our businesses . as the pandemic advanced , access to and demand for care was most constrained from mid-march through april , began to recover in may and june and restored to near normal seasonal levels in the third quarter . care patterns continued to normalize in the fourth quarter , returning to , and even exceeding , seasonal baselines , including covid-19 treatment and testing costs , towards the end of the quarter . the temporary deferral of care experienced in 2020 may cause care patterns to moderately exceed normal baselines in future periods as utilization of health system capacity continues to increase . from time to time , health system capacity may be subject to possible increased volatility due to the pandemic . specific trends and uncertainties related to our two business platforms are as follows : optum . the temporary deferral of care impacted the optum businesses for the year ended december 31 , 2020. for example , our fee-for-service care delivery business , such as traditional procedure work at our ambulatory surgery centers , was negatively impacted , while our risk-based care delivery business performance reflected lower demand for care . our optuminsight and optumrx volume-based businesses were negatively impacted by the lower level of care encounters which took place , as well as by broader economic factors , contributing to lower managed services and prescription volume . as the health system returned to normal seasonally adjusted levels of care , we have seen business activity approach normal levels . covid-19 will also continue to influence customer and consumer behavior , both during and after the pandemic , which could impact how care is delivered and the manner in which consumers wish to receive their prescription drugs or infusion services . the impact of covid-19 on our care provider and payer clients could impact the volume and types of services optum provides , as well as the pacing of potential new business opportunities . as a result of the dynamic situation and broad-reaching impact to the health system , the ultimate impact of covid-19 on our optum businesses is uncertain . 25 unitedhealthcare . during 2020 , we expanded benefit coverage in areas such as covid-19 care and testing , telemedicine , and pharmacy benefits ; provided customers assistance in the form of co-pay waivers and premium forgiveness ; offered additional enrollment opportunities to those who previously declined employer-sponsored offerings ; extended certain premium payment terms for customers experiencing financial hardship ; simplified administrative practices ; and accelerated payments to care providers , all with the aim of assisting our customers , care providers , members and communities in addressing the covid-19 crisis . temporary care deferrals significantly impacted unitedhealthcare 's results of operations for the year ended december 31 , 2020. the impact of temporary care deferrals was offset by covid-19 related care and testing , the significant financial assistance we provided our customers , rebate requirements and broader economic impacts . enrollment in our commercial products declined primarily due to employer actions in response to the pandemic . increased consumer demand for care , potentially even higher acuity care , along with continued covid-19 care and testing costs are expected to result in increased future medical costs . disrupted care patterns , as a result of the pandemic , may temporarily affect the ability to obtain complete member health status information , impacting future revenue in businesses utilizing risk adjustment methodologies . the ultimate overall impact is uncertain and dependent on the future pacing and intensity of the pandemic , the duration of policies and initiatives to address covid-19 , and general economic uncertainty . business trends our businesses participate in the united states , south america and certain other international health markets . in the united states , health care spending has grown consistently for many years and comprises 18 % of gross domestic product ( gdp ) . we expect overall spending on health care to continue to grow in the future , due to inflation , medical technology and pharmaceutical advancement , regulatory requirements , demographic trends in the population and national interest in health and well-being . story_separator_special_tag the health insurance industry tax was permanently repealed by congress , effective january 1 , 2021. selected operating performance items the following represents a summary of select 2020 year-over-year operating comparisons to 2019. consolidated revenues increased by 6 % , unitedhealthcare revenues increased 4 % and optum revenues grew 21 % . unitedhealthcare served 420,000 fewer people domestically primarily due to increased unemployment and attrition in commercial group benefits , partially offset by growth in government programs . earnings from operations increased by 14 % , including increases of 20 % at unitedhealthcare and 7 % at optum . diluted earnings per common share increased 12 % to $ 16.03. cash flows from operations were $ 22.2 billion , an increase of 20 % . return on equity was 24.9 % . 27 story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % ; text-decoration : underline '' > the notes to the consolidated financial statements included in part ii , item 8 , โ financial statements โ for further detail concerning our regulated subsidiary dividends . our nonregulated businesses also generate significant cash flows from operations available for general corporate use . cash flows generated by these entities , combined with dividends from our regulated entities and financing through the issuance of long-term debt as well as issuance of commercial paper or the ability to draw under our committed credit facilities , further strengthen our operating and financial flexibility . we use these cash flows to expand our businesses through acquisitions , reinvest in our businesses through capital expenditures , repay debt and return capital to our shareholders through dividends and repurchases of our common stock . summary of our major sources and uses of cash and cash equivalents replace_table_token_5_th 2020 cash flows compared to 2019 cash flows increased cash flows provided by operating activities were primarily driven by higher net earnings as well as changes in working capital accounts . other significant changes in sources or uses of cash year-over-year included an increase in customer funds administered and net purchases of investments , and decreases in net issuances of long-term debt and short-term borrowings , cash paid for acquisitions and share repurchases . 31 financial condition as of december 31 , 2020 , our cash , cash equivalent , available-for-sale debt securities and equity securities balances of $ 59.0 billion included $ 16.9 billion of cash and cash equivalents ( of which $ 1.3 billion was available for general corporate use ) , $ 39.8 billion of debt securities and $ 2.3 billion of equity securities . given the significant portion of our portfolio held in cash equivalents , we do not anticipate fluctuations in the aggregate fair value of our financial assets to have a material impact on our liquidity or capital position . other sources of liquidity , primarily from operating cash flows and our commercial paper program , which is fully supported by our bank credit facilities , reduce the need to sell investments during adverse market conditions . see note 4 of the notes to the consolidated financial statements included in part ii , item 8 , โ financial statements โ for further detail concerning our fair value measurements . our available-for-sale debt portfolio had a weighted-average duration of 3.7 years and a weighted-average credit rating of โ double a โ as of december 31 , 2020. when multiple credit ratings are available for an individual security , the average of the available ratings is used to determine the weighted-average credit rating . capital resources and uses of liquidity cash requirements . the company 's cash requirements within the next twelve months include medical costs payable , accounts payable and accrued liabilities , commercial paper and current maturities of long-term debt , other current liabilities , and purchase commitments and other obligations . we expect the cash required to meet these obligations to be primarily generated through cash flows from current operations ; cash available for general corporate use ; and the realization of current assets , such as accounts receivable . our long-term cash requirements under our various contractual obligations and commitments include : debt obligations . see note 8 of the notes to the consolidated financial statements included in part ii , i tem 8 , โ financial statements โ for further detail of our commercial paper and long-term debt and the timing of expected future payments . interest coupon payments are typically paid semi-annually . operating leases . see note 12 of the notes to the consolidated financial statements included in part ii , item 8 , โ financial statements โ for further detail of our obligations and the timing of expected future payments . purchase and other obligations . these include $ 5.3 billion , $ 2.0 billion of which is expected to be paid within the next twelve months , of fixed or minimum commitments under existing purchase obligations for goods and services , including agreements cancelable with the payment of an early termination penalty , and remaining capital commitments for venture capital funds and other funding commitments . these amounts exclude agreements cancelable without penalty and liabilities to the extent recorded in our consolidated balance sheets as of december 31 , 2020. other liabilities . these include other long-term liabilities reflected in our consolidated balance sheets as of december 31 , 2020 , including obligations associated with certain employee benefit programs , unrecognized tax benefits and various long-term liabilities , which have some inherent uncertainty in the timing of these payments . redeemable noncontrolling interests . see note 2 of the notes to the consolidated financial statements included in part ii , item 8 , โ financial statements โ for further detail . we do not have any material required redemptions in the next twelve months . we expect the cash required to meet our long-term obligations to be primarily generated through future cash flows from operations .
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results summary the following table summarizes our consolidated results of operations and other financial information : replace_table_token_1_th ( a ) medical care ratio is calculated as medical costs divided by premium revenue . ( b ) net earnings margin attributable to unitedhealth group shareholders . ( c ) return on equity is calculated as net earnings attributable to unitedhealth group common shareholders divided by average shareholders ' equity . average shareholders ' equity is calculated using the shareholders ' equity balance at the end of the preceding year and the shareholders ' equity balances at the end of each of the four quarters of the year presented . 2020 results of operations compared to 2019 results consolidated financial results revenue the increases in revenue were primarily driven by the increase in the number of individuals served through medicare advantage and medicaid ; pricing trends ; and organic and acquisition growth across the optum business , primarily due to expansion in pharmacy care services and care delivery . the increases were partially offset by decreased individuals served through our commercial and global benefits businesses , certain voluntary customer assistance programs and rebate requirements . revenues were also negatively impacted by decreases in our fee-for-service care delivery and other volume-based businesses , primarily as a result of the care deferral and economic impacts of covid-19 . medical costs and mcr medical costs increased as a result of growth in people served through medicare advantage and medicaid , medical cost trends and covid-19 care and testing costs , partially offset by decreased people served in commercial and global , modestly lower care patterns and increased prior year favorable development . the mcr decreased primarily due to the temporary deferral of care and the revenue effects of the return of the health insurance industry tax , partially offset by covid-19 care and testing costs , rebate requirements and voluntary customer assistance measures .
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investment decision regarding our common stock . 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 industrial , communications , consumer and computing 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 sec has defined the most critical accounting policies as the ones that are most important to the portrayal 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 impact the recording of revenues ; valuation of inventories , which impacts costs of goods sold and gross margins ; the assessment of recoverability of long-lived assets , which impacts write-offs of fixed assets ; assessment of recoverability of intangible assets and goodwill , which impacts write-offs of goodwill and intangible assets ; accounting for stock-based compensation , which impacts cost of goods sold , gross margins and operating expenses ; 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 the company recognizes revenue for sales to direct customers and sales to certain 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 . the company estimates returns for sales to direct customers and certain distributors based on historical returns rates applied against current period gross revenues . specific customer returns and allowances are considered within this estimate . sales to certain distributors are made pursuant to agreements allowing for the possibility of certain sales price rebates and for non-warranty product return privileges . the non-warranty product return privileges include allowing certain distributors to return a small portion of our products in their inventory based on their previous purchases . given the uncertainties associated with the levels of non-warranty product returns and sales price rebates that could be issued to certain distributors , the company defers recognition of such revenue and related cost of goods sold until receipt of notification from these distributors that product has been sold to their end-customers . 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 the company has 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 the company has a legally enforceable right to collection under the terms of our agreement with the related customers . the company estimates 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 22 material . at june 30 , 2012 and june 25 , 2011 , the company had $ 11.4 million and $ 16.0 million accrued for returns and allowances against accounts receivable , respectively . during fiscal years 2012 and 2011 , the company recorded $ 61.0 million and $ 74.5 million for estimated returns and allowances against revenues , respectively . these amounts were offset by $ 65.6 million and $ 73.5 million for actual returns and allowances given during fiscal years 2012 and 2011 , respectively . inventories inventories are stated at the lower of ( i ) standard cost , which approximates actual cost on a first-in-first-out basis , or ( ii ) market value . our standard cost revision policy is to continuously monitor manufacturing variances and quarterly revise standard costs . because of the cyclical nature of the market , inventory levels , obsolescence of technology , and product life cycles , we generally write-down inventories to net realizable value based on 12 months forecasted product demand . actual demand and market conditions may be lower than those projected by us . this difference could have a material adverse effect on our gross margin should inventory write-downs beyond those initially recorded become necessary . story_separator_special_tag if any of the assumptions used in the black-scholes model changes significantly , stock-based compensation for future awards may differ materially compared to the awards granted previously . accounting for income taxes we must make certain estimates and judgments in the calculation of income tax expense , determination of uncertain tax positions , and in the determination of whether deferred tax assets are more likely than not to be realized . the calculation of our income tax expense and income tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations . asc 740-10 , income taxes ( `` asc 740-10 '' ) , prescribes a recognition threshold and measurement framework for financial statement reporting and disclosure of tax positions taken or expected to be taken on a tax return . 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 the company 's 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 to the consolidated financial statements accompanying 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 , or additional paid in capital , as appropriate , 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 u.s. taxable income . 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 , accounting for 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 , 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 . 24 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 . pursuant to the company 's charter documents and separate written indemnification agreements , we have certain indemnification obligations to our current officers and directors , as well as certain former officers and directors . pursuant to such obligations , we have incurred substantial expenses related to legal fees for certain former officers of the company subject to civil charges by the sec and other governmental agencies in connection with maxim 's historical stock option granting practices . during fiscal year 2010 , the company recorded a $ 173.0 million charge in connection with an agreement to settle the class action complaint regarding its historical stock option granting practices and on july 23 , 2010 , the company paid such amount into an escrow fund in accordance with the terms of the settlement . please refer to note 13 , `` commitments and contingencies '' in the notes to consolidated financial statements included elsewhere in this annual report for more information on the litigation and associated settlement .
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results of operations 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 $ 2,403.5 million , $ 2,472.3 million and $ 1,997.6 million in fiscal years 2012 , 2011 and 2010 , respectively . our net revenues in fiscal year 2012 decreased by 3 % compared to our net revenues in fiscal year 2011 . this decrease occurred primarily due to decreased demand for our products in three of our end markets . revenue from communications products , computing products and industrial products were down 21 % , 19 % and 10 % , respectively . these decreases were offset by increases in consumer products revenues of 21 % , primarily from cell phones and smart phones . 25 our net revenues in fiscal year 2011 increased by 24 % compared to our net revenues in fiscal year 2010 . this increase occurred in three of our end markets due to increased demand for our products , resulting in increased units shipped and increased average selling prices . revenue from industrial products were up 35 % , consumer products were up 28 % and communications products were up 26 % . computing products were flat year over year mainly due to exiting certain notebook products with low gross margin and focusing on a better mix , which resulted in a 16 % decrease in notebook revenue that offset the growth in other market segments .
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as of december 31 , 2012 and 2011 , we had recognized a full valuation story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements , which present our results of operations for the years ended december 31 , 2012 and 2011 as well as our financial positions at december 31 , 2011 and 2010 , contained 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 related financing , includes forward-looking statements that involve risks and uncertainties . you should review the โ special note regarding forward looking statements โ and โ risk factors โ sections of 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 . overview we are a biodefense company engaged in the development and commercialization of next generation medical countermeasures against biological and chemical threats . our current biodefense portfolio includes the following product candidates : sparvax ยฎ , a next generation recombinant protective antigen ( โ rpa โ ) anthrax vaccine , rbche ( recombinant butyrylcholinesterase ) bioscavanger , a medical countermeasure for nerve agent poisoning by organophosphorous compounds , including nerve gases and pesticides , and valortim ยฎ , a fully human monoclonal antibody for the prevention and treatment of anthrax infection . in addition , we were awarded by the delaware court of chancery in september 2011 the right to receive 50 % of all net profits ( as defined in the court 's final judgment ) related to the sale of siga technologies , inc. 's ( โ siga โ ) arestvyr and related products for 10 years following initial commercial sale of the drug once siga earns $ 40 million in net profits from sales of arestvyr and related products . in may 2012 , the court issued its final judgment . siga has appealed aspects of the decision to the delaware supreme court . in response , we have cross-appealed other aspects of the decision . in january 2013 , the delaware supreme court heard oral argument in the case . we can provide no assurances that siga will not prevail on its appeal , that we will be successful in our appeal , or that the delaware supreme court will not overturn the trial court 's decision . if the delaware supreme court rules in favor of siga , our award can be modified , reduced or reversed completely . as a result , we may lose all of our rights , we may incur additional expense or our ability to recover any amounts could be delayed further . critical accounting policies a summary of our critical accounting policies , including those that require the use of significant estimates and judgment , follows . a more comprehensive description of all of our significant accounting policies is contained in note 2 to our consolidated financial statements . revenue recognition we generate our revenue from different types of contractual arrangements : cost-plus-fee contracts , cost reimbursable grants and fixed price contracts . 40 revenues on cost-plus-fee contracts are recognized in an amount equal to the costs incurred during the period plus an estimate of the applicable fee earned . the estimate of the applicable fee earned is determined by reference to the contract : if the contract defines the fee in terms of risk-based milestones and specifies the fees to be earned upon the completion of each milestone , then the fee is recognized when the related milestones are earned , as further described below ; otherwise , we estimate the fee earned in a given period by using a proportional performance method based on costs incurred during the period as compared to total estimated project costs and application of the resulting fraction to the total project fee specified in the contract . when we use the milestone method of revenue recognition , milestone payments ( including milestone payments for fees ) contained in research and development arrangements are recognized as revenue when : ( i ) the milestones are achieved ; ( ii ) no further performance obligations with respect to the milestone exist ; ( iii ) collection is reasonably assured ; and ( iv ) substantive effort was necessary to achieve the milestone . milestones are considered substantive if all of the following conditions are met : ยท it is commensurate with either our performance to meet the milestone or the enhancement of the value of the delivered item or items as a result of a specific outcome resulting from our performance to achieve the milestone , ยท it relates solely to past performance , ยท the value of the milestone is reasonable relative to all the deliverables and payment terms ( including other potential milestone consideration ) within the arrangement . if a milestone is deemed not to be substantive , the company recognizes the portion of the milestone payment as revenue that correlates to work already performed ; the remaining portion of the milestone payment is deferred and recognized as revenue as the company completes its performance obligations . revenue on fixed price contracts ( without substantive milestones as described above ) is recognized on the percentage-of-completion method . the percentage-of-completion method recognizes income as the contract progresses ( generally related to the costs incurred in providing the services required under the contract ) . the use of the percentage-of-completion method depends on the ability to make reasonable dependable estimates and the fact that circumstances may necessitate frequent revision of estimates does not indicate that the estimates are unreliable for the purpose for which they are used . as a result of our revenue recognition policies and the billing provisions contained in our contracts , the timing of customer billings may differ from the timing of recognizing revenue . story_separator_special_tag replace_table_token_7_th 44 our revenue for the year ended december 31 , 2011 changed from 2010 primarily due to the following : under our contract for the development of sparvax ยฎ , we recognized approximately $ 19.3 million in 2011 , an increase of 65.0 % from 2010 levels . the increase in revenue for the sparvax ยฎ program during 2011 is attributable to additional work in preparation and execution of the scale up campaign at our u.s.-based sparvax ยฎ bulk drug substance manufacturer as well as an increase in our billing rate under the contract . additional activities related to the establishment of analytical and stability-indicating assays for characterization of the product . of the revenue amounts set forth above , $ 3.5 million in 2011 and $ 1.8 million in 2010 represent substantive milestone payments that were tied to our successful achievement of certain technical activities . under the september 2007 contract for the advanced development of valortim ยฎ , we recognized approximately $ 3.7 million in 2011 a 23.3 % increase from 2011 levels . revenue in 2011 reflects both clinical and non clinical work following the release of the fda partial clinical hold in december 2010. final patient dosing in clinical trial was completed in april 2011 and the in-life portion of the trial ended in the third quarter 2011. revenue in 2010 was largely attributable to reimbursement of costs related to clinical and non-clinical studies , including work in connection with the investigation related to the partial clinical hold and certain manufacturing-related activities . under the september 2006 contract for the advanced development of protexia ยฎ , we recognized approximately $ 5.8 million in the year ended december 31 , 2010 , of which $ 0.7 million in 2010 represent substantive milestone payments that were tied to our successful achievement of certain technical activities . the decline in revenue is attributed to completion of major development activities for this program in past years . in 2011 , we generated additional revenue of $ 0.7 million under the fixed price contract with the dod for the development of the aes for rbche , our nerve agent medical countermeasure , which was awarded in august 2011. research and development expenses our research and development expenses were approximately $ 21.2 million and $ 20.9 million for the years ended december 31 , 2011 and 2010 , respectively . research and development expenses for the years ended december 31 , 2011 and 2010 were attributable to research programs as follows : replace_table_token_8_th for the year ended december 31 , 2011 , research and development expenses increased $ 0.3 million from the prior year . this change was primarily due to the increased technical activity and the achievement of key technical milestones on our sparvaxยฎ program and the completion of the phase i valortim ยฎ dose escalation clinical trial partially offset by a decrease in development expenses related to the clinical nerve agent protectants program as a result of the december 31 , 2010 shut down of the protexia ยฎ program . research and development expenses for the years ended december 31 , 2011 and 2010 were net of cost reimbursements under certain of our government grants of $ 0.7 million and $ 2.9 million , respectively . included in the 2010 grants were $ 0.9 million in therapeutic discovery tax grants . general and administrative expenses general and administrative expenses were approximately $ 14.3 million and $ 18.0 million for the years ended december 31 , 2011 and 2010 , respectively . the decrease in 2011 primarily resulted from a $ 3.0 million reduction in bad debt expense and a property loss insurance recovery of $ 1.4 million in 2011 , partially offset by an increase in non-cash stock compensation expenses as well as taxes and other expenses . the bad debt expenses in 2010 consisted primarily of provisions associated with an invoice to our u.s. government customer for the work at avecia as well as the wind down of the third generation anthrax vaccine program . 45 depreciation and intangible amortization ( including impairment charges ) depreciation and amortization expenses were approximately $ 0.5 million and $ 5.7 million for the years ended december 31 , 2011 and 2010 , respectively . the decrease in 2011 is primarily a result of the impairment charge taken in december 2010 of approximately $ 4.6 million with the closing of our canadian operations . other income ( expense ) other income ( expense ) in 2011 was a net income of $ 7.9 million , compared to a net expense of $ 11.3 million in 2010. most of the change was due to ( i ) a significant reduction in interest expense of $ 5.9 million resulting from the conversion of our convertible notes in the fourth quarter of 2010 , ( ii ) a significant change in the fair value of our derivatives instruments ( a $ 5.5 million loss in 2010 compared to a $ 7.1 million gain in 2011 ) primarily as a result of the change in our stock price , and ( iii ) a $ 0.8 million gain on the sale of canadian assets held for sale in 2011. liquidity and capital resources overview our primary use of cash during 2012 was to fund our operations ( including our research and development programs ) and support our general and administrative activities . our future capital requirements will depend on many factors , including , the progress of our research and development programs ; the progress of pre-clinical and clinical testing ; the time and cost involved in obtaining regulatory approval ; the cost of filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights ; changes in our existing research relationships ; competing technological and marketing developments ; our ability to establish collaborative arrangements and to enter into licensing agreements and contractual arrangements with others ; and any future change in our business strategy .
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results of operations year ended december 31 , 2012 compared to december 31 , 2011 revenue we recognized revenue of $ 25.2 million and $ 24.3 million during the years ended december 31 , 2012 and 2011 , respectively . our revenue in 2012 was derived from contracts with the u.s. government for the development of our product candidates . replace_table_token_5_th our revenue changed in 2012 from 2011 primarily due to the following : under our contract for the development of sparvax ยฎ , we recognized approximately $ 22.9 million of revenue in 2012 , an increase of $ 3.6 million ( or 18.7 % ) from 2011. during 2012 , revenue for the company 's sparvax ยฎ program was primarily attributable to completion of final drug product ( fdp ) manufacture , the initiation of bulk drug substance ( bds ) process characterization , progression in the development of bioanalytical and analytical assays , the execution of non-clinical activities and the achievement of several contract milestones . during 2011 , revenue was primarily attributable to activities related to the manufacturing platform for sparvax ยฎ and additional work performed to develop and qualify analytical and stability-indicating assays for characterization of the product . milestone revenue for the achievement of key technical milestones was approximately $ 2.2 million and $ 3.5 million for the years ended december 31 , 2012 and 2011 , respectively . 42 in august 2012 , we received notification from the fda that our sparvax ยฎ rpa anthrax vaccine program was placed on clinical hold . the fda has requested additional stability data and information related to the stability indicating assays . we have provided some supporting data and information to the fda and have commenced discussions with that agency as well as our customer , barda , regarding the clinical hold .
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naic rbc requirements are used by regulators to determine appropriate regulatory actions relating to insurers who show signs of weak or deteriorating condition . as of december 31 , 2014 , based on calculations using the appropriate naic rbc formula , upcic 's and appcic 's reported total adjusted capital was in excess of the requirements . the insurance entities are required by various state laws and regulations to maintain certain assets in depository accounts . the following table represents assets held by insurance regulators as of the dates presented ( in thousands ) : as of december 31 , 2014 2013 restricted cash and cash equivalents $ 2,635 $ 2,600 investments $ 3,609 $ 3,707 in november 2012 , the florida insurance guaranty association ( โ figa โ ) board of directors determined the need for an emergency assessment upon its member companies . the assessment was 0.9 % of each respective member story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( โ md & a โ ) is intended to help the reader understand the results of operations and financial condition of uih . md & a is provided as a supplement to , and should be read in conjunction with , our financial statements and accompanying notes in part ii , item 8 below . overview uih , with its wholly-owned subsidiaries , is a vertically integrated insurance holding company performing all aspects of insurance underwriting , distribution and claims . through our wholly-owned subsidiaries , including upcic and appcic , collectively referred to as the โ insurance entities โ , we are principally engaged in the property and casualty insurance business offered primarily through a network of independent agents . our primary product is homeowners insurance , which we currently offer in ten states . we generate revenues primarily from the collection of premiums . other significant sources of revenue include commissions collected from reinsurers through our wholly-owned reinsurance intermediary subsidiary , policy fees collected from policyholders through our wholly-owned managing general agency subsidiary and financing fees charged to policy holders who defer premium payments . we also generate income by investing funds that are in excess of those retained for claims-paying obligations and insurance operations . the nature of our business tends to be seasonal reflecting consumer behaviors in connection with the residential real estate market and the hurricane season which occurs during the period from june 1 through november 30 each year . the amount of written premium tends to increase just prior to the second quarter of our fiscal year and to decrease approaching the fourth quarter . throughout 2014 , we continued to execute our goals of growing our business , investing in ourselves , increasing profitability and returning value to shareholders . we have done this by expanding into different states , lowering our quota share cession rate , strategically managing rates , not renewing certain policies and replacing them with policies that we believe provide more adequate premium , working with our investment advisors to maximize total rate of return while maintaining liquidity and minimizing risk , continuing to purchase shares of our own stock and paying higher quarterly dividends . these actions , coupled with operational improvements made to streamline claims and underwriting have resulted in an increase in earnings , earnings per share and an improvement in our overall financial condition . see โ results of operations โ below for a discussion of our results for 2014 compared to 2013. while policy count is one measure of the overall growth of our business , we believe that our strategy of balancing competitive pricing with disciplined underwriting standards , streamlining claims management and expanding the size of our business through superior products and services , will maximize our long term growth . our focus on long term capital strength and growth leads us to be selective in the risks we are willing to accept , which may limit the number of policies written . in contrast , from time to time , some of our competitors lower their premiums to a level that is below what we believe to be adequate in order to generate and maintain capital and surplus for the protection of our insurance entities and our policyholders . our overall growth strategy includes taking prudent measures to increase our policy count and improve the quality of our business . these initiatives include reducing rates and expanding into selected markets while maintaining rate adequacy . for example , we reduced overall rates for homeowners ' insurance in florida by 2.4 % effective in january 2014 for new business and march 2014 for renewals . as a result of our growth strategy and initiatives , we have seen increases in policy count and insured value in florida and other states since december 31 , 2013. our expansion in states outside of florida is yielding growth in policy count of 37.2 % since december 31 , 2013. the following table provides policy count and total insured value for florida and other states as of december 31 , 2014 and 2013 ( dollars in thousands ) : replace_table_token_7_th our efforts to ensure rate adequacy has helped to improve underwriting results , leading to our decision to retain a greater share of our profitable business by reducing our quota share cession rate . 24 2014 highlights ยท we reduced our quota share cession rate from 45 % to 30 % in june ยท net earned premiums grew by $ 59.2 million or 22.1 % ยท total revenues increased by $ 68.1 million or 22.6 % ยท net income and diluted earnings per common share grew by $ 14.0 million and $ 0.52 , respectively compared to 2013 ยท we repurchased a total of 1,166,208 shares of our common stock in the open market under a share repurchase program ยท we paid dividends per common share of $ 0.55 including a $ 0.15 special dividend in december ยท in april , the insurance commissioner of delaware issued a certificate of authority to upcic , thereby story_separator_special_tag the estimated total cost of appcic 's catastrophe , fhcf and per risk related coverage , including reinstatement premium protection is $ 5.0 million . the largest private participants in appcic 's reinsurance program include ace tempest re , hiscox , odyssey re , hannover ruck , and lloyd 's of london syndicates . uih program separately from the insurance entities ' reinsurance programs , uih protects its own assets against diminution in value due to catastrophe events by purchasing coverage that would provide $ 80 million in the form of insurance proceeds plus an amount equal to the forgiveness of related debt through a catastrophe risk-linked transaction contract , effective june 1 , 2013 through may 31 , 2016. this contract provides for recovery by uih in the event of exhaustion of upcic 's catastrophe coverage . the total cost to uih of this risk-linked transaction contract is $ 9.0 million per year for each of the three years . wind mitigation discounts the insurance premiums charged by the insurance entities are subject to various statutory and regulatory requirements . among these , the insurance entities must offer wind mitigation discounts in accordance with a program mandated by the florida legislature and implemented by the oir . the current levels of wind mitigation discounts mandated by the florida legislature have had a significant negative effect on the insurance entities ' premium . the percentage reduction of in-force premium from wind mitigation credits in florida for upcic policies as of december 31 , 2014 was 36.7 % compared to 33.8 % as of december 31 , 2013. the percentage reduction of in-force premium from wind mitigation credits in florida for appcic policies as of december 31 , 2014 was 63.7 % compared to 63.3 % as of december 31 , 2013. critical accounting policies and estimates use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . our primary areas of estimate are described below . 26 recognition of premium revenues property and liability premiums are recognized as revenue on a pro rata basis over the policy term . the portion of premiums that will be earned in the future are deferred and reported as unearned premiums . management believes that its revenue recognition policies conform to generally accepted accounting principles in the united states of america . liability for unpaid losses and lae a liability is established to provide for the estimated costs of paying losses and lae under insurance policies the insurance entities have issued . underwriting results are significantly influenced by an estimate of a liability for unpaid losses and lae . the liability is an estimate of amounts necessary to settle all outstanding claims , including claims that have been incurred , but not yet reported as of the financial statement date . characteristics of reserves reserves are established based on estimates of the ultimate cost to settle claims , less losses that have been paid . claims are typically reported promptly with relatively little reporting lag between the date of occurrence and the date the loss is reported . upcic 's claim settlement data suggests that homeowners ' property losses have an average settlement time of less than one year , while homeowners ' liability losses generally take longer . reserves are the difference between the estimated ultimate cost of losses and lae incurred and the amount of paid losses as of the reporting date . reserves are estimated for both reported and unreported claims , and include estimates of all expenses associated with processing and settling all incurred claims . we update reserve estimates periodically as new information becomes available or as events emerge that may affect the resolution of unsettled claims . changes in prior year reserve estimates ( reserve re-estimates ) , which may be material , are determined by comparing updated estimates of ultimate losses to prior estimates , and the differences are recorded as losses and lae in the consolidated statements of income in the period such changes are determined . estimating the ultimate cost of losses and lae is an inherently uncertain and complex process involving a high degree of judgment and is subject to the evaluation of numerous variables . the actuarial methods used to develop reserve estimates reserves for losses and lae are determined in four primary segments . these segments are the estimation of reserves for florida non-catastrophe losses , hurricane losses , sinkhole losses , and non-florida non-catastrophe losses . evaluations are performed for loss and lae separately , and on a net and direct basis for each segment . the analyses for non-catastrophe losses are further separated into data groupings of like exposure . these groups are property damage on homeowner policy forms ho-3 and ho-8 combined , property damage on homeowner policy forms ho-4 and ho-6 combined , property damage on dwelling fire policies , and all liability exposures combined . reserve estimates for both losses and lae are derived using several different actuarial estimation methods that are variations on one primary actuarial technique . that actuarial technique is known as a โ chain ladder โ estimation process in which historical payment and reserving patterns are applied to actual paid and reported amounts ( paid losses or lae plus individual case reserves established by claim adjusters ) for an accident period to create an estimate of how losses are likely to develop over time . an accident period refers to classifying claims based on the date in which the claims occurred , regardless of the date it was reported to the insurance entities . this analysis is used to prepare estimates of required reserves for payments to be made in the future . transactions are organized into half-year accident periods for purposes of the reserve estimates .
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results of operations year ended december 31 , 2014 compared to year ended december 31 , 2013 net income increased by $ 14.0 million , or 23.8 % , to $ 73.0 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. diluted earnings per common share increased by $ 0.52 , or 33.3 % , to $ 2.08 for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 , as a result of an increase in net income and cumulative share repurchases since december 31 , 2013. the increase in net income of $ 14.0 million , or 23.8 % , for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 reflects an increase in net earned premiums , the absence of trading losses generated in the first quarter of 2013 , and an increase in realized gains from investments sold from our portfolio of investments available-for-sale . these were partially offset by a decrease in commissions and an increase in operating expenses . the reduction in the cession rate of our quota share reinsurance contracts is a significant factor behind our results . a more detailed discussion of these factors follows the table below . the following table summarizes changes in each component of our consolidated statements of income and comprehensive income for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 ( in thousands ) : replace_table_token_8_th nm โ not meaningful .
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the company 's growing product and services portfolio features many strong industrial brands , such as timkenยฎ , fafnirยฎ , philadelphia gearยฎ , carlisleยฎ , drivesยฎ , lovejoyยฎ and interlube tm . timken applies its deep knowledge of metallurgy , friction management and mechanical power transmission across the broad spectrum of bearings and related systems to improve the reliability and efficiency of machinery and equipment all around the world . known for its quality products and collaborative technical sales model , timken focuses on providing value to diverse markets worldwide through both oem and aftermarket channels . with more than 14,000 people operating in 28 countries , timken makes the world more productive and keeps industry in motion . the company operates under two reportable segments : ( 1 ) mobile industries and ( 2 ) process industries . the following further describes these business segments : mobile industries serves oem customers that manufacture off-highway equipment for the agricultural , mining and construction markets ; on-highway vehicles including passenger cars , light trucks , and medium- and heavy-duty trucks ; rail cars and locomotives ; outdoor power equipment ; and rotorcraft and fixed-wing aircraft . beyond service parts sold to oems , aftermarket sales to individual end users , equipment owners , operators and maintenance shops are handled through the company 's extensive network of authorized automotive and heavy-truck distributors . process industries serves oem and end-user customers in industries that place heavy demands on the fixed operating equipment they make or use in heavy and other general industrial sectors . this includes metals , cement and aggregate production ; coal and wind power generation ; oil and gas extraction and refining ; pulp and paper and food processing ; and health and critical motion control equipment . other applications include marine equipment , gear drives , cranes , hoists and conveyors . this segment also supports aftermarket sales and service needs through its global network of authorized industrial distributors . timken creates value by understanding customer needs and applying its know-how in attractive market sectors . the company 's business strengths include its channel mix and end-market diversity , serving a broad range of customers and industries across the globe . timken collaborates with oems to improve equipment efficiency with its engineered products and captures subsequent equipment replacement cycles by selling through independent channels in the aftermarket . timken focuses its international efforts and footprint in regions of the world where strong macroeconomic factors such as urbanization , infrastructure development and sustainability create demand for its products and services . 18 the timken business model is the specific framework for how the company evaluates opportunities and differentiates itself in the market . the company 's strategy is to apply the timken business model and leverage the company 's competitive differentiators and strengths to create customer value and drive increased growth and profitability by : capturing opportunities and expanding reach . the company intends to expand into new and existing markets by leveraging its collective knowledge of metallurgy , friction management and mechanical power transmission to create value for timken customers . using a highly collaborative technical selling approach , the company places particular emphasis on creating unique solutions for challenging and or demanding applications . the company intends to grow in attractive market sectors around the world , emphasizing those spaces that are highly fragmented , demand high service and value the reliability and efficiency offered by timken products . the company also targets those applications that offer significant aftermarket demand , thereby providing product and services revenue throughout the equipment 's lifetime . performing with excellence . timken operates with a relentless drive for exceptional results and a passion for superior execution . the company embraces a continuous improvement culture that is charged with increasing efficiency , lowering costs , eliminating waste , encouraging organizational agility and building greater brand equity to fuel future growth . this requires the company 's ongoing commitment to attract , retain and develop the best talent across the world . driving effective capital deployment . the company is intently focused on providing the highest returns for shareholders through its capital allocation framework , which includes ( 1 ) investing in the core business through capital expenditures , research and development and organic growth initiatives like deltax ; ( 2 ) pursuing strategic acquisitions to broaden our portfolio and capabilities , with a focus on bearings , adjacent power transmission products and related services ; and ( 3 ) returning capital to shareholders through share repurchases and dividends . as part of this framework , the company may also restructure , reposition or divest underperforming product lines or assets . 19 the following items highlight certain of the company ' s more significant strategic accomplishments in 2016 : business highlights the company continued to advance its manufacturing footprint initiatives with : โฆ the announced closures of its bearing plants in pulaski , tennessee ( `` pulaski '' ) and altavista , virginia ( `` altavista '' ) and its manufacturing facility in benoni , south africa ( `` benoni '' ) , which are expected to be completed in 2017. production from altavista will be transferring to the company 's bearing plant near lincolnton , north carolina ; and โฆ the closure of its bearing facility in the united kingdom ( `` u.k. '' ) . received a multi-year contract from the u.s. department of defense ( `` dod '' ) to provide engineering and supply philadelphia gear main reduction gears for the navy 's next generation of arleigh burke ddg 51 class ships . the fixed price contract includes options that , if exercised , could bring the cumulative value of the contract to more than $ 1 billion over its estimated 10-year life ; and completed the installation of aerospace transmission overhaul and repair equipment at its plant in manchester , connecticut . story_separator_special_tag 22 pension settlement charges : replace_table_token_12_th pension settlement charges in 2016 were primarily related to $ 19 million of lumpโsum distributions to new retirees and deferred vested participants that triggered remeasurements , as well as $ 7 million related to the purchase of a group annuity contract from the canada life assurance company ( `` canada life '' ) for one of the company 's canadian defined benefit pension plans , which was executed in september 2016 . these actions resulted in a decrease in the company 's pension obligations of approximately $ 70 million . pension settlement charges in 2015 were primarily due to the purchase of group annuity contracts from prudential insurance company of america ( `` prudential '' ) by two of the company 's u.s. defined benefit pension plans . the two group annuity contracts require prudential to pay and administer future pension benefits for approximately 8,400 u.s. timken retirees in the aggregate . the company transferred a total of approximately $ 1.1 billion of its pension obligations and a total of approximately $ 1.2 billion of pension assets to prudential in these transactions . in addition to the purchase of the group annuity contracts , the company made lump-sum distributions of $ 37.2 million to new retirees . the company also incurred pension settlement and curtailment charges related to one of its canadian defined benefit pension plans . as a result of the group annuity contracts , lump-sum distributions as well as pension settlement and curtailment charges related to the canadian pension plan , the company incurred total pension settlement and curtailment charges of $ 465.0 million , including professional fees of $ 2.6 million , in 2015 . gain on divestiture : replace_table_token_13_th gain on divestiture in 2015 was primarily related to the gain on the sale of alcor of $ 29.0 million in the fourth quarter of 2015. interest income ( expense ) : replace_table_token_14_th other ( expense ) income : replace_table_token_15_th cdsoa income , net in 2016 represents income recorded in connection with funds awarded to the company from monies collected by u.s. customs and border protection ( `` u.s. customs '' ) from antidumping cases , net of related professional fees . refer to note 21 - continued dumping and subsidy offset act for further discussion . during the fourth quarter of 2015 , the company wrote-off $ 9.7 million that remained in construction in process ( `` cip '' ) after the related assets were placed into service . the majority of these assets were placed into service between 2008 and 2012. this item was identified during an examination of aged balances in the cip account . management of the company concluded that the correction of this error in the fourth quarter of 2015 and the presence of this error in prior periods was immaterial to all periods presented . 23 income tax expense : replace_table_token_16_th the effective tax rate for 2016 was favorable relative to the u.s. federal statutory rate primarily due to u.s. foreign tax credits , earnings in certain foreign jurisdictions where the effective tax rate is less than 35 % , the u.s. manufacturing deduction , and certain discrete tax benefits ( net ) . these favorable impacts were partially offset by u.s. taxation of foreign income and losses at certain foreign subsidiaries where no tax benefit could be recorded . the effective tax rate for 2015 was 64.1 % , which reflects a tax benefit on pretax loss . the tax benefit rate of 64.1 % was greater than the u.s. statutory rate of 35 % primarily due to the tax benefits of reversals of certain valuation allowances in foreign jurisdictions , u.s. foreign tax credits , earnings in certain foreign jurisdictions where the effective tax rate was less than 35 % , reversals of reserves for uncertain tax positions , state and local taxes , the u.s. manufacturing deduction , the u.s. research tax credit and other u.s. tax benefits . these factors were offset by u.s. taxation of foreign earnings , recording of deferred tax liabilities related to foreign branch operations , and losses at certain foreign subsidiaries where no tax benefit could be recorded . the change in the effective tax rate for 2016 compared with 2015 was primarily due to reduced valuation allowance releases in 2016 , partially offset by increased us foreign tax credits , the us manufacturing deduction , and discrete tax items occurring in 2016 . refer to the table below for additional detail of the impact of each item on income tax expense . replace_table_token_17_th ( 1 ) u.s. taxation includes the impact of foreign tax credits , u.s. manufacturing deductions , u.s. research and experimentation credit , u.s. state and local taxation , u.s. taxation of foreign earnings and other u.s. items . refer to note 17 - income taxes for more information on the computation of the income tax expense in interim periods . 24 business segments the company ' s reportable segments are business units that serve different industry sectors . while the segments often operate using shared infrastructure , each reportable segment is managed to address specific customer needs in these diverse market sectors . the primary measurement used by management to measure the financial performance of each segment is ebit . refer to note 16 - segment information in the notes to the consolidated financial statements for the reconciliation of ebit by segment to consolidated income before income taxes . the presentation of segment results below includes a reconciliation of the changes in net sales for each segment reported in accordance with u.s. gaap to net sales adjusted to remove the effects of acquisitions and divestitures completed in 2016 and 2015 and foreign currency exchange rate changes . the effects of acquisitions , divestitures and foreign currency exchange rate changes on net sales are removed to allow investors and the company to meaningfully evaluate the percentage change in net sales on a comparable basis from period to period .
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results of operations : 2015 vs. 2014 overview : replace_table_token_21_th the decrease in net sales was primarily due to the impact of foreign currency exchange rate changes and lower end market demand , partially offset by the benefit of acquisitions . the company 's net income from continuing operations in 2015 was lower compared to 2014 due to non-cash pension settlement charges of $ 465.0 million recorded in 2015 , the impact of lower volume across most end market sectors , unfavorable price/mix and foreign currency exchange rate changes . these factors were partially offset by lower sg & a expenses , lower material and manufacturing costs and a lower provision for income taxes . the decrease in income from discontinued operations in 2015 compared with 2014 was due to the spinoff that was completed on june 30 , 2014. the statements of income sales : replace_table_token_22_th net sales decreased in 2015 compared with 2014 , primarily due to the impact of foreign currency exchange rate changes of $ 152 million and lower organic sales of $ 90 million , partially offset by the benefit of acquisitions of $ 39 million . the decrease in organic sales was driven by lower demand across most of the company 's end market sectors , partially offset by growth in the wind , military marine , rail and automotive sectors . gross profit : replace_table_token_23_th gross profit decreased in 2015 compared with 2014 , primarily due to the impact of lower volume of $ 40 million , unfavorable price/mix of $ 37 million and the impact of foreign currency exchange rate changes of $ 63 million . these factors were partially offset by the impact of inventory valuation adjustments that occurred during 2014 of $ 20 million , lower raw material and operating costs net of manufacturing underutilization and the impact of acquisitions .
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as of december 31 , 2018 , we owned and or managed a total portfolio consisting of 21 resorts ( 7,908 rooms ) located in mexico , jamaica and the dominican republic . playa 's strategy is to leverage its globally recognized brand partnerships in order to capitalize on the gap between the 14 % u.s. brand affiliated room supply in the regions in which we operate and the nearly 45 % of visitors that come from the u.s. this strategy should drive outsized returns for our shareholders and enhance the lives of our associates and the communities in which we operate . 45 our portfolio of resorts the following table presents an overview of our resorts as of december 31 , 2018 . none of the resorts we own individually contributed more than 12.8 % of our total net revenue or 19.7 % of our consolidated adjusted ebitda for the year ended december 31 , 2018 . the table below is organized by our four geographic business segments : the yucatรกn peninsula , the pacific coast , the dominican republic and jamaica . name of resort location brand and type operator year built ; significant renovations rooms owned resorts yucatรกn peninsula hyatt ziva cancรบn cancรบn , mexico hyatt ziva ( all ages ) playa 1975 ; 1980 ; 1986 ; 2002 ; 2015 547 hyatt zilara cancรบn cancรบn , mexico hyatt zilara ( adults-only ) playa 2006 ; 2009 ; 2013 ; 2017 307 panama jack resorts cancรบn cancรบn , mexico panama jack ( all ages ) ( 1 ) playa 2002 ; 2009 ; 2017 458 hilton playa del carmen all-inclusive resort ( 2 ) playa del carmen , mexico hilton ( adults-only ) playa 1985 ; 2009 513 panama jack resorts playa del carmen playa del carmen , mexico panama jack ( all ages ) ( 1 ) playa 1996 ; 2006 ; 2012 ; 2017 287 secrets capri riviera maya , mexico secrets ( adults-only ) amresorts 2003 291 dreams puerto aventuras riviera maya , mexico dreams ( all ages ) amresorts 1991 ; 2009 305 pacific coast hyatt ziva los cabos cabo san lucas , mexico hyatt ziva ( all ages ) playa 2007 ; 2009 ; 2015 591 hyatt ziva puerto vallarta puerto vallarta , mexico hyatt ziva ( all ages ) playa 1969 ; 1990 ; 2002 ; 2009 ; 2014 ; 2017 335 dominican republic hilton la romana all-inclusive resort ( 2 ) la romana , dominican republic hilton ( adults-only ) playa ( 3 ) 1997 ; 2008 344 hilton la romana all-inclusive resort ( 2 ) la romana , dominican republic hilton ( all ages ) playa ( 3 ) 1997 ; 2008 412 dreams palm beach punta cana , dominican republic dreams ( all ages ) amresorts 1994 ; 2008 500 dreams punta cana punta cana , dominican republic dreams ( all ages ) amresorts 2004 620 jamaica hyatt ziva rose hall montego bay , jamaica hyatt ziva ( all ages ) playa 2000 ; 2014 ; 2017 276 hyatt zilara rose hall montego bay , jamaica hyatt zilara ( adults-only ) playa 2000 ; 2014 ; 2017 344 hilton rose hall resort & spa montego bay , jamaica hilton ( all ages ) playa 1974 ; 2008 495 jewel runaway bay beach & golf resort runaway bay , jamaica jewel ( all ages ) playa 1960 ; 1961 ; 1965 ; 2007 ; 2012 268 jewel dunn 's river beach resort & spa ocho rios , jamaica curio by hilton ( adults only ) playa 1957 ; 1970 ; 1980 ; 2010 250 jewel paradise cove beach resort & spa runaway bay , jamaica curio by hilton ( adults only ) playa 2013 225 jewel grande montego bay resort & spa ( 5 ) montego bay , jamaica jewel ( all ages ) playa 2016 ; 2017 88 total rooms owned 7,456 managed resorts sanctuary cap cana ( 4 ) punta cana , dominican republic sanctuary ( adults-only ) playa 2008 ; 2015 ; 2018 323 jewel grande montego bay resort & spa ( 5 ) montego bay , jamaica sagicor ( condo-hotel ) playa 2016 ; 2017 129 total rooms operated 452 total rooms owned and operated 7,908 ( 1 ) pursuant to an agreement with panama jack , we rebranded these resorts as panama jack resorts in 2017 . ( 2 ) pursuant to an agreement with hilton , we rebranded these resorts as hilton all-inclusive resorts in november 2018. the resorts are still owned and operated by playa . ( 3 ) effective november 20 , 2018 , this resort was rebranded into two resorts under the brand . we have planned renovations for 2019 . ( 4 ) owned by a third party . ( 5 ) we acquired an 88-unit tower and spa as part of our acquisition of the sagicor assets . additionally , we manage the majority of the units within the remaining two condo-hotel towers owned by sagicor that comprise the jewel grande montego bay resort & spa . 46 results of operations years ended december 31 , 2018 and 2017 the following table summarizes our results of operations on a consolidated basis for the years ended december 31 , 2018 and 2017 ( $ in thousands ) : replace_table_token_4_th the tables below set forth information with respect to our occupancy , net package adr , net package revpar , net package revenue , net non-package revenue , management fee revenue , total net revenue , adjusted ebitda and adjusted ebitda margin . for a description of these operating metrics and non-u.s. gaap measures , see โ key indicators of financial and operating performance , โ below . for discussions of adjusted ebitda and reconciliation to the most comparable u.s. gaap financial measures , see โ key indicators of financial and operating performance โ and โ non-u.s. gaap financial measures , โ below . story_separator_special_tag the increase was partially offset by an increase of capitalized interest of $ 3.6 million and a decrease in interest expense of $ 3.5 million due to the net impact of paying down the 8 % senior unsecured notes issued by our predecessor ( the โ senior notes due 2020 โ ) and the additions to our term loan in 2017 , which bore a lower interest rate than the senior notes due 2020. cash interest paid , excluding the effect of capitalized interest , decreased $ 4.0 million for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 . our cash interest paid decreased $ 8.6 million due to lower interest rates paid on our term loan as compared to the senior notes due 2020 outstanding in 2017 , which was partially offset by additional interest paid of $ 4.6 million related to our interest rate swaps . income tax provision the income tax provision for the year ended december 31 , 2018 was $ 12.2 million , an increase of $ 3.1 million compared to the year ended december 31 , 2017 , during which period we reported income tax provision of $ 9.1 million . the increased income tax provision in the year ended december 31 , 2018 was driven primarily by a $ 9.1 million increase in tax expense related to our dominican republic tax paying entities , a $ 5.6 million increase in tax expense due to increased book income , a $ 11.1 million increase in tax expense on measurement of the deferred tax assets and liabilities pursuant to the tax rate change , and a $ 1.5 million increased tax expense associated with other book tax differences . the tax expense increase was partially offset by a tax benefit of $ 5.4 million from the rate-favorable jurisdictions , and a $ 19.7 million decrease on valuation allowance . 51 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; background-color : # ffffff ; '' > . income tax provision the income tax provision for the year ended december 31 , 2017 was $ 9.1 million , an increase of $ 4.8 million compared to the year ended december 31 , 2016 , during which we reported an income tax provision of $ 4.2 million . the increased income tax provision was driven primarily by $ 10.4 million increased tax expense associated with foreign exchange rate fluctuations , a $ 9.0 million increase on the valuation allowance and a $ 2.6 million increased tax expense on the measurement of the u.s. deferred tax assets pursuant to the u.s. tax rate change for tax years beginning after december 31 , 2017 . the tax expense increase was partially offset by a $ 4.0 million decrease of tax expense on decreased pre-tax book income , a $ 1.4 million decreased tax expense associated with other book tax differences and a tax benefit of $ 4.6 million from the rate-favorable jurisdictions . the tax expense was further offset by a $ 7.8 million tax benefit on the reversal of the 2016 tax expense for one of our dominican republic entities pursuant to the advanced pricing agreement signed with dominican republic tax authorities in december 2017 . this agreement is retroactive to 2016 . key indicators of financial and operating performance we use a variety of financial and other information to monitor the financial and operating performance of our business . some of this is financial information prepared in accordance with u.s. gaap , while other information , though financial in nature , is not prepared in accordance with u.s. gaap . for reconciliations of non-u.s. gaap financial measures to the most comparable u.s. gaap financial measure , see โ non-u.s. gaap financial measures . โ our management also uses other information that is not financial in nature , including statistical information and comparative data that are commonly used within the lodging industry to evaluate the financial and operating performance of our portfolio . our management uses this information to measure the performance of our segments and consolidated portfolio . we use this information for planning and monitoring our business , as well as in determining management and employee compensation . these key indicators include : net package revenue net non-package revenue owned net revenue management fee revenue total net revenue occupancy net package adr net package revpar adjusted ebitda adjusted ebitda margin owned resort ebitda owned resort ebitda margin comparable non-u.s. gaap measures 55 net package revenue , net non-package revenue , owned net revenue , management fee revenue , cost reimbursements and total net revenue โ net package revenue โ is derived from the sale of all-inclusive packages , which include room accommodations , food and beverage services , kids club and entertainment activities , net of compulsory tips paid to employees in mexico and jamaica . government mandated compulsory tips in the dominican republic are not included in this adjustment , as they are already excluded from revenue . revenue is recognized , net of discounts and rebates , when the rooms are occupied and or the relevant services have been rendered . advance deposits received from guests are deferred and included in trade and other payables until the rooms are occupied and or the relevant services have been rendered , at which point the revenue is recognized . โ net non-package revenue โ represents all other revenues earned from the operations of our resorts , other than net package revenue , net of compulsory tips paid to employees in mexico and jamaica . government mandated compulsory tips in the dominican republic are not included in this adjustment , as they are already excluded from revenue . net non-package revenue includes revenue associated with guests ' purchases of upgrades , premium services and amenities , such as premium rooms , dining experiences , wines and spirits and spa packages , which are not included in the all-inclusive package . revenue not included in a guest 's all-inclusive package is recognized when the goods are consumed .
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results of operations years ended december 31 , 2017 and 2016 the following table summarizes our results of operations on a consolidated basis for the years ended december 31 , 2017 and 2016 ( $ in thousands ) : replace_table_token_11_th the tables below set forth information with respect to our occupancy , net package adr , net package revpar , net package revenue , net non-package revenue , management fee revenue , total net revenue , adjusted ebitda and adjusted ebitda margin . for a description of these operating metrics and non-u.s. gaap measures , see โ key indicators of financial and operating performance , โ below . for discussions of adjusted ebitda and reconciliation to the most comparable u.s. gaap financial measures , see โ key indicators of financial and operating performance โ and โ non-u.s. gaap financial measures , โ below . total portfolio replace_table_token_12_th 52 total revenue and total net revenue our total revenue for the year ended december 31 , 2017 increased $ 38.1 million , or 7.3 % , compared to the year ended december 31 , 2016 . our total net revenue for the year ended december 31 , 2017 increased $ 37.2 million , or 7.3 % , compared to the year ended december 31 , 2016 . this increase was driven primarily by an increase in net package revenue of $ 29.4 million , or 6.7 % , and an increase in net non-package revenue of $ 7.6 million , or 10.9 % . the increase in net package revenue was the result of an increase in net package adr of $ 16.40 , or 6.8 % , and an increase in average occupancy from 81.2 % to 81.4 % , the equivalent of an increase of $ 13.96 , or 7.1 % , in net package revpar .
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we primarily process basic raw materials such as nickel , cobalt , titanium , manganese , chromium , molybdenum , iron scrap and other metal alloying elements through various melting , hot forming and cold working facilities to produce finished products in the form of billet , bar , rod , wire and narrow strip in many sizes and finishes . we also produce certain metal powders . our sales are distributed directly from our production plants and distribution network as well as through independent distributors . unlike many other specialty steel producers , we operate our own worldwide network of service/distribution centers . these service centers , located in the united states , canada , mexico , europe and asia allow us to work more closely with customers and to offer various just-in-time stocking programs . we also manufacture and rent down hole drilling tools and components used in the oil and gas industry . on february 29 , 2012 , following approval by the u.s. federal trade commission ( ยftcย ) , we completed the acquisition of latrobe specialty metals , inc. ( ยlatrobeย ) through the merger of a wholly-owned subsidiary of the company with and into latrobe ( the ยlatrobe acquisitionย ) . in connection with the latrobe acquisition , former owners of latrobe received 8.1 million shares of carpenter stock . in addition , pursuant to the terms of the related merger agreement , carpenter paid $ 11.5 million in cash at closing , net of $ 2.5 million of cash acquired , in addition to a payment of approximately $ 154 million in order to pay off latrobe debt . a key benefit of the latrobe acquisition is a substantial increase in production which has increased carpenter 's capacity to meet customer demand for premium products . as a condition of the ftc approval , carpenter entered into a consent decree ( the ยconsent decreeย ) to transfer certain assets and technical knowledge to eramet s.a and its subsidiaries , aubert & duval and brown europe ( collectively , the ยtransfereesย ) , which will allow the transferees , as a group , to become a second manufacturer of two specific alloys in order to provide customers with a supply alternative in the marketplace . the alloys have minimal sales impact and will cause no material change to the economics of the latrobe acquisition . as part of the consent decrees , we agreed to transfer certain assets as well as fund the cost of acquiring assets in an amount up to approximately $ 5.0 million ; we recorded a charge for this liability in the quarter ended march 31 , 2012. we are constructing a new 400,000 square foot state-of-the-art manufacturing facility in response to customer demand for premium products primarily in the fast-growing aerospace and defense and energy industries . we expect that the new facility will ultimately be capable of producing approximately 27,000 tons per year of additional premium product and be operational by april 2014. the facility is being built on a 230 acre greenfield site located in athens , alabama at a total cost of approximately $ 500 million . the site selection process included analyzing state , county and local incentives , utility costs , and labor resources . the state of alabama and local government entities put together a compelling package , including various tax initiatives , infrastructure grants , and training programs . the new facility will include forge , remelting and associated finishing and testing capabilities and will play a key role in further developing our capabilities in the production of our premium products . as part of our overall business strategy , we have sought out and considered opportunities related to strategic acquisitions and joint collaborations as well possible business unit dispositions aimed at broadening our offering to the marketplace . we have participated with other companies to explore potential terms and structure of such opportunities and we expect that we will continue to evaluate these opportunities . 20 business trends selected financial results for the past three fiscal years are summarized below : replace_table_token_6_th ( 1 ) see the section ยnon-gaap financial measuresย below for further discussion of these financial measures . ( 2 ) includes specialty and titanium alloys , stainless steel and powder materials our sales are across a diversified list of end-use markets . during fiscal year 2013 , we changed the manner in which sales are classified by end-use market so that we could better evaluate our sales results from period to period . in order to make the discussion of sales by end-use market more meaningful , we have reclassified the fiscal years 2012 and 2011 sales by end-use market to the fiscal year 2013 presentation . the table below summarizes our estimated sales by market over the past three fiscal years . replace_table_token_7_th 21 the table below shows our net sales by major product class for the past three fiscal years : replace_table_token_8_th impact of raw material prices and product mix we value most of our inventory utilizing the last-in , first-out ( ยlifoย ) inventory costing methodology . under the lifo inventory costing method , changes in the cost of raw materials and production activities are recognized in cost of sales in the current period even though these materials may have been acquired at potentially significantly different values due to the length of time from the acquisition of the raw materials to the sale of the processed finished goods to the customers . in a period of rising raw material costs , the lifo inventory valuation normally results in higher costs of sales . conversely , in a period of decreasing raw material costs , the lifo inventory valuation normally results in lower costs of sales . the volatility of the costs of raw materials has impacted our operations over the past several years . story_separator_special_tag we have made progress during fiscal year 2013 in the following important areas : ยท we improved operational execution including integrating latrobe , which resulted in above deal economics , reducing cost per ton at our specialty alloys operations for the fourth consecutive year , signing several strategic contracts with key customers , while the athens facility continues to be on time and under budget . ยท we enhanced liquidity by expanding the revolving credit facility from $ 350 million to $ 500 million . ยท in the pep segment we made long-term growth investments that increased titanium wire capacity and expanded oil and gas footprint in the amega west business . results of operations ย fiscal year 2013 compared to fiscal year 2012 for fiscal year 2013 , we reported net income of $ 146.1 million , or $ 2.73 per diluted share , compared with income of $ 121.2 million , or $ 2.53 per diluted share , a year earlier . our fiscal year 2013 results reflect a trend of improving revenue during the second half of the fiscal year as well as the full year inclusion of the latrobe business . net sales net sales for fiscal year 2013 were $ 2,271.7 million , which was a 12 percent increase from fiscal year 2012. excluding surcharge revenues , sales were 17 percent higher than fiscal year 2012 on 16 percent higher volume . the full year inclusion of the latrobe business in fiscal year 2013 contributed $ 266.1 million of the year over year increase in net sales . 24 geographically , sales outside the united states increased 5 percent from fiscal year 2012 to $ 696.4 million . international sales as a percentage of our total net sales represented 31 percent and 33 percent for fiscal year 2013 and fiscal year 2012 , respectively . sales by end-use markets we sell to customers across diversified end-use markets . the following table includes comparative information for our net sales , which includes surcharge revenues , by principal end-use markets which we believe is helpful supplemental information in analyzing the performance of the business from period to period : replace_table_token_11_th the following table includes comparative information for our estimated net sales by the same principal end-use markets , but excluding surcharge revenues : replace_table_token_12_th sales to the aerospace and defense market increased 18 percent from fiscal year 2012 to $ 1,067.0 million . excluding surcharge revenue , sales increased 24 percent on 47 percent higher shipment volume . the aerospace and defense results reflect strength in commercial aerospace as build rates remain high as well as demand growth for proprietary materials for structural application . the addition of the latrobe aerospace products contributed $ 135.6 million to the year-over-year growth in net sales . industrial and consumer market sales decreased 1 percent from fiscal year 2012 to $ 474.3 million . excluding surcharge revenue , sales increased approximately 6 percent on 2 percent higher shipment . the market is sensitive to economic conditions which were challenging particularly in the second half of our fiscal year 2013. our strategy has been to focus on specialized , high value niche applications with strategically important customers . the addition of the latrobe industrial and consumer net sales contributed $ 27.4 million to the year-over-year growth in net sales . 25 sales to the energy market of $ 337.3 million reflected an 18 percent increase from fiscal year 2012. excluding surcharge revenue , sales increased 18 percent on 10 percent higher shipment volume . the sales results reflect the market penetration in certain segments of the oil and gas markets as well as our international expansion in addition to the inclusion of the specialty steel supply business acquired in connection with the latrobe acquisition . the full year inclusion of the latrobe business contributed $ 37.6 million to the year over year growth in net sales . this growth was partially offset by a decline in drilling alloys , which was impacted by destocking and low growth in north american rig count . sales to the medical market decreased 20 percent to $ 113.2 million from fiscal year 2012. adjusted for surcharge revenue , sales decreased 18 percent due on 15 percent lower shipment volume . as largely seen in the pep segment results , continued inventory destocking within the titanium distribution supply chain was influenced by falling titanium prices . we expect modest resumption of demand as oem supply chain inventories reach low levels . transportation market sales decreased 2 percent from the fiscal year 2012 to $ 138.8 million . excluding surcharge revenue , sales increased 2 percent on flat shipment volume . the results reflect north american fuel efficiency standards requiring automobiles to become lighter and engines to operate at higher temperatures offset by continued weakness in europe and softer demand for materials used in valves , exhaust and other automotive components . sales to the distribution market increased 78 percent to $ 141.1 million from fiscal year 2012. the increase is primarily attributable to the addition of latrobe distribution business which globally sources and distributes corrosion resistant steels , tool steels and powder metals for a wide range of industries . the full year inclusion of the latrobe distribution business contributed $ 63.3 million to the year over year growth in net sales . sales by product class the following table includes comparative information for our net sales by major product class : replace_table_token_13_th the following table includes comparative information for our net sales by the same major product class , but excluding surcharge revenues : replace_table_token_14_th 26 sales of special alloys products increased 6 percent in fiscal year 2013 as compared with a year ago to $ 989.9 million . excluding surcharge revenue , sales increased 13 percent on a 9 percent increase in shipment volume . the sales results principally reflect the increased demand in our higher value alloys used in the aerospace and energy markets .
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business segment results summary information about our operating results on a segment basis is set forth below . for more detailed segment information , see note 18 to the consolidated financial statements included in item 8 . - ยfinancial statements and supplementary dataย . the following tables include selected information by business segment : replace_table_token_17_th 29 replace_table_token_18_th replace_table_token_19_th specialty alloys operations segment net sales in fiscal year 2013 for the specialty alloys operations ( ยsaoย ) segment were $ 1,547.4 million , as compared with $ 1,566.6 million in fiscal year 2012. excluding surcharge revenues , sales increased 4 percent from a year ago . the fiscal year 2013 net sales reflected 1 percent lower shipment volume as compared to fiscal year 2012. the results reflect growth attributable to our premium and ultra-premium products offset by the impact of lower order intake activity . operating income for the sao segment in fiscal year 2013 was $ 218.9 million , or 14.1 percent of net sales ( 18.7 percent of net sales excluding surcharge revenues ) , compared to $ 229.4 million , or 14.6 percent of net sales ( 20.4 percent of net sales excluding surcharge revenues ) , for fiscal year 2012. the decrease in operating income reflects the negative impacts of an unfavorable shift in product mix as well as increased manufacturing costs related to lower production levels . latrobe segment the latrobe segment includes the operations of the manufacturing and distribution operations of the business beginning upon closing of the latrobe acquisition in february 2012. prior to the latrobe acquisition , the latrobe segment included the result of our distribution business in mexico . net sales for fiscal year 2013 for the latrobe segment increased 145 percent to $ 491.2 million as compared with $ 200.8 million for fiscal year 2012. excluding surcharge revenues , net sales increased 147 percent .
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pursuant to the terms of the august 2014 collaboration and license agreement , we received an upfront payment of $ 2.0 million . we determined that the elements within the august 2014 collaboration and license agreement were to be treated as a single unit of accounting because the delivered element , the story_separator_special_tag you should read the following discussion and analysis together with โ item 6. selected financial data โ and our financial statements and related notes included elsewhere in this annual report . the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors , including those set forth under the caption โ item 1a . risk factors. โ overview we are a biopharmaceutical company focused on discovering and developing first-in-class drugs that target micro rnas to treat a broad range of diseases . we were formed in 2007 when alnylam pharmaceuticals , inc. and ionis pharmaceuticals , inc. ( formerly isis pharmaceuticals , inc. ) contributed significant intellectual property , know-how and financial and human capital to pursue the development of drugs targeting micro rnas pursuant to a license and collaboration agreement . we have established strategic alliances with astrazeneca ab and sanofi to discover , develop and commercialize micro rna therapeutics . under these strategic alliances , we are eligible to receive approximately $ 900.0 million in aggregate milestone payments upon successful commercialization of micro rna therapeutics and royalties on net sales for the programs contemplated by our agreements . these payments include up to $ 107.8 million upon achievement of preclinical and investigational new drug , or ind , milestones , up to $ 128.0 million upon achievement of clinical development milestones , up to $ 180.0 million upon achievement of regulatory milestones and up to $ 490.0 million upon achievement of commercialization milestones . 48 micro rnas are naturally occurring ribonucleic acid , or rna , molecules that play a critical role in regulating key biological pathways . scientific research has shown that the improper balance , or dysregulation , of micro rnas is directly linked to many diseases . to date , approximately 500 micro rnas have been identified in humans , each of which is believed to interact with a specific set of genes that control key aspects of cell biology . since most diseases are multi-factorial and involve multiple targets in a pathway , the ability to modulate gene networks by targeting a single micro rna provides a new therapeutic approach for treating complex diseases . rna plays an essential role in the process used by cells to encode and translate genetic information from dna to proteins . rna is comprised of subunits called nucleotides and is synthesized from a dna template by a process known as transcription . transcription generates different types of rna , including messenger rnas that carry the information for proteins in the sequence of their nucleotides . in contrast , micro rnas are rnas that do not code for proteins but rather are responsible for regulating gene expression by affecting the translation of target messenger rnas . by interacting with many messenger rnas , a single micro rna can regulate several genes that are instrumental for the normal function of a biological pathway . we believe that micro rna therapeutics have the potential to become a new and major class of drugs with broad therapeutic application for the following reasons : micro rnas , until recently , have not been a focus of pharmaceutical research ; micro rnas play a critical role in regulating biological pathways by controlling the translation of many target genes ; micro rna therapeutics target entire disease pathways which may result in more effective treatment of complex multi-factorial diseases ; and micro rna therapeutics may be synergistic with other therapies because of their different mechanism of action . we believe we have assembled the leading position in the micro rna field , including expertise in micro rna biology and oligonucleotide chemistry , a broad intellectual property estate , relationships with key opinion leaders and a disciplined drug discovery and development process . we refer to these assets as our micro rna product platform . we are using our micro rna product platform to develop chemically modified , single-stranded oligonucleotides that we call anti-mirs to modulate micro rnas and return diseased cells to their healthy state . we believe micro rnas may be transformative in the field of drug discovery and that anti-mirs may become a new and major class of drugs with broad therapeutic application , much like small molecules , biologics and monoclonal antibodies . in addition to our micro rna product platform , we have established regulus micro markers sm , a division focused on identifying micro rnas as biomarkers of human disease to support our therapeutic pipeline , collaborators and strategic partners . regulus micro markers sm utilizes a clinically-validated , highly reproducible technology platform to identify micro rnas as potential biomarkers for disease and we control key intellectual property and know-how related to the division . we believe that micro rna biomarkers may be used to select optimal patient segments in clinical trials and to monitor disease progression or relapse . we believe these micro rna biomarkers can be applied toward drugs that we develop and drugs developed by other companies with which we partner or collaborate . we have completed a research collaboration with biogen focused on the discovery of micro rnas as biomarkers for multiple sclerosis and have also completed research for another leading , commercial-stage pharmaceutical company to explore micro rnas as biomarkers for specific patient populations . we also maintain several academic research collaborations focused on the identification of micro rnas as biomarkers in multiple disease areas . โ clinical map initiative ' goals to advance our micro rna therapeutics pipeline and biomarkers platform over the next several years , we have outlined specific goals under our โ clinical map initiative ' strategy . story_separator_special_tag our research and development expenses include : employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; external research and development expenses incurred under arrangements with third parties , such as contract research organizations , or cros , contract manufacturing organizations , or cmos , other clinical trial related vendors , consultants and our scientific advisors ; license fees ; and facilities , depreciation and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation of leasehold improvements and equipment , and laboratory and other supplies . 50 we expense research and development costs as incurred . we account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received . to date , we have conducted research on many different micro rnas with the goal of understanding how they function and identifying those that might be targets for therapeutic modulation . at any given time we are working on multiple targets , primarily within our therapeutic areas of focus . our organization is structured to allow the rapid deployment and shifting of resources to focus on the best known targets based on our ongoing research . as a result , in the early phase of our development programs , our research and development costs are not tied to any specific target . however , we are currently spending the majority of our research and development resources on our clinical development programs . since our conversion to a corporation in january 2009 , we have grown from 15 research and development personnel to 71 and have spent a total of approximately $ 194.2 million in research and development expenses through december 31 , 2015 . we expect our research and development expenses to increase for the foreseeable future as we continue to conduct our ongoing clinical studies , initiate additional clinical studies and advance our pre-clinical research programs toward the clinic , including other ind-enabling activities . the process of conducting clinical trials and pre-clinical studies necessary to obtain regulatory approval is costly and time consuming . we , or our strategic alliance partners , may never succeed in achieving marketing approval for any of our product candidates . the probability of success for each product candidate may be affected by numerous factors , including clinical data , pre-clinical data , competition , manufacturing capability and commercial viability . under our strategic alliance with sanofi , we are responsible for the development of product candidates through proof-of-concept , after which time sanofi would be responsible for the costs of clinical development and commercialization and all related costs , in the event it exercises its option to such program . under our strategic alliance agreement with astrazeneca , we are responsible for certain research and development activities with respect to each alliance target under a mutually agreed upon research and development plan , until the earlier to occur of acceptance of an ind application ( or its foreign equivalent ) in a major market or the end of the research term under the agreement . we also have several independent programs for which we are responsible for all of the research and development costs , unless and until we partner any of these programs in the future . successful development of future product candidates is highly uncertain and may not result in approved products . completion dates and completion costs can vary significantly for each future product candidate and are difficult to predict . we anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to our ability to maintain or enter into new strategic alliances with respect to each program or potential product candidate , the scientific and clinical success of each future product candidate , as well as ongoing assessments as to each future product candidate 's commercial potential . we will need to raise additional capital and may seek additional strategic alliances in the future in order to advance our various programs . general and administrative expenses general and administrative expenses consist primarily of salaries and related benefits , including stock-based compensation , related to our executive , finance , legal , business development and support functions . other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses and professional fees for auditing , tax and legal services . we expect that general and administrative expenses will increase in the future as we expand our operating activities and incur additional costs associated with being a publicly-traded company . these increases will likely include legal fees , sarbanes-oxley compliance and other accounting fees and directors ' and officers ' liability insurance premiums . other income ( expense ) , net other income ( expense ) consists primarily of interest income and expense , and various income or expense items of a non-recurring nature . we earn interest income from interest-bearing accounts and money market funds for cash and cash equivalents and marketable securities , such as interest-bearing bonds , for our short-term investments . interest expense has historically represented interest payable under the convertible note payable and equipment and tenant improvement financing arrangements . we recorded periodic gains and losses from changes in value of a convertible note payable until its conversion into common stock in january 2015. critical accounting policies and estimates the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities , and the revenues and expenses incurred during the reported periods . we base our estimates on historical experience and on various other factors that we believe are reasonable 51 under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources .
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results of operations comparison of the years ended december 31 , 2015 and 2014 the following table summarizes our results of operations for the years ended december 31 , 2015 and 2014 ( in thousands ) : replace_table_token_3_th revenue under strategic alliances and collaborations our revenues are generated from ongoing strategic alliance and collaborations , and generally consist of upfront payments for licenses or options to obtain licenses in the future , milestone payments and payments for other research services . the following table summarizes our total revenues for the periods indicated ( in thousands ) : 53 replace_table_token_4_th revenue under strategic alliances and collaborations was $ 20.8 million for the year ended december 31 , 2015 compared to $ 7.7 million for the year ended december 31 , 2014 . revenue under the astrazeneca collaboration and license agreement increased to $ 18.9 million for the year ended december 31 , 2015 compared to $ 1.9 million for the year ended december 31 , 2014 . in january 2015 , we and astrazeneca entered into a letter agreement pursuant to which we agreed to perform additional research and development activities and to provide manufacturing support for rg-125 . revenue of $ 4.5 million was recognized under the letter agreement for the year ended december 31 , 2015 . in march 2015 , we earned a $ 2.5 million preclinical milestone payment for the clinical candidate selection of rg-125 , a galnac-conjugated anti-mir targeting micro rna-103/107 for the treatment of nash in patients with type 2 diabetes/pre-diabetes . in december 2015 , we earned a $ 10.0 million clinical milestone payment upon astrazeneca 's first patient dosing in a first-in-human phase i clinical study of rg-125 . astrazeneca is responsible for all future development of rg-125 .
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overview startek is a business process outsourcing services company with employees we call brand warriors who , for over 28 years have been committed to making a positive impact on our clients ' business results . our mission is to enable and empower our brand warriors to promote our clients ' brands every day and bring value to our stakeholders . we accomplish this by aligning with our clients ' business objectives . startek has proven results for the multiple services we provide , including sales , order management and provisioning , customer care , technical support , receivables management , and retention programs . we manage programs using a variety of multi-channel customer interactions , including voice , chat , email , social media and back-office support . startek has facilities in canada , honduras , jamaica , united states , and the philippines . we operate our business within three reportable segments , based on the geographic regions in which our services are rendered : domestic , nearshore and offshore . for the year-ended december 31 , 2016 , our domestic segment included the operations of thirteen facilities in the u.s. and one facility in canada . our nearshore segment included the operations of two facilities in honduras and one facility in jamaica . our offshore segment included the operations of four facilities in the philippines . we primarily evaluate segment operating performance in each reporting segment based on revenue and gross profit . certain operating expenses are not allocated to each reporting segment ; therefore , we do not present income statement information by reporting segment below the gross profit level . significant developments 2016 performance we had a greatly improved year in 2016 , with revenue increasing $ 25 million , or 9 % , as compared to 2015. gross margin as a percent of revenue increased $ 12.0 million and 3 % . we also produced operating cash flow of $ 10.9 million for the year . these strong results were driven by a more diversified and balanced business model , a healthy , global footprint for growth , robust pipeline conversion , entry into services areas such as receivables , back office , and healthcare , and customer engagement solutions . new facilities we commenced operations in hamilton , ohio in july 2015 and entered into a 5-year lease and a $ 2.6 million note payable for the construction of the leasehold improvements . site closures in december 2015 , we ceased operations in kansas city , missouri . accordingly , we recorded a restructuring reserve of $ 0.2 million for employee related and facility related costs . the restructuring plan was completed in 2016. in september 2015 , and as part of the integration activities related to accent , we closed the former accent headquarters office location in jeffersonville , indiana and shifted the activities performed there into our greenwood village , colorado headquarters office or our shared services office in the philippines . accordingly , we recorded a restructuring reserve of $ 0.2 million for employee related and facility related costs . the restructuring plan was completed in 2016. in may 2015 , we closed the enid , oklahoma facility again , and listed it for sale . as of december 31 , 2016 , the asset remains in property , plant and equipment due to its nominal book value . we have assessed the property 's fair value and believe no impairment exists at december 31 , 2016. we ceased operations in costa rica in august 2014. we recorded a restructuring reserve of $ 1.3 million for employee related costs and facility related costs . the restructuring plan was completed in 2015 . 18 other recent events it platform initiative during the second quarter of 2014 , we began the last phase of our it transformation project by outsourcing our data centers . we recognized $ 1.7 million in restructuring charges during 2014. we completed our it transformation project during the third quarter of 2015. we recognized an additional $ 1.5 million in restructuring charges in 2015 , bringing the total cost of the initiative to $ 3.2 million . accent acquisition on june 1 , 2015 , we acquired 100 % of the membership interests of accent marketing services , l.l.c . ( `` accent '' ) from mdc corporate ( us ) inc. and mdc acquisition inc. for $ 17,492. during the first quarter of 2016 , we finalized the valuation of the identifiable assets acquired and liabilities assumed as of the acquisition date resulting in an immaterial adjustment to accounts payable and goodwill . 19 results of operations โ years ended december 31 , 2016 and 2015 the following table summarizes our revenues and gross profit for the periods indicated , by reporting segment : replace_table_token_5_th revenue revenue increased by $ 25.1 million , or 8.9 % , from $ 282.1 million in 2015 to $ 307.2 million in 2016. this includes accent revenue of $ 28.0 million and $ 20.8 million of new business and growth from existing clients , partially offset by $ 23.7 million of lost programs . the domestic segment increase of $ 16.1 million was due to $ 24.5 million from the acquisition of accent and $ 11.0 million of new business and growth from existing clients , partially offset by $ 19.4 million of lost programs . offshore revenues increased by $ 4.0 million due to $ 6.2 million of growth from existing and new clients , partially offset by $ 2.2 of lost programs . the increase in the nearshore segment of $ 5.0 million was due to $ 3.5 million from the acquisition of accent and $ 4.3 million of growth from existing and new clients , partially offset by $ 2.8 million of lost revenue . cost of services and gross profit gross profit as a percentage of revenue increased 3.3 % , primarily due to the benefit of ongoing contract optimization efforts and increased capacity utilization . story_separator_special_tag net loss as a result of the factors described above , net loss was $ 15.6 million for the year ended december 31 , 2015 , compared to $ 5.5 million for the year ended december 31 , 2014. liquidity and capital resources our primary sources of liquidity are cash flows generated by operating activities and from available borrowings under our secured revolving credit facility . we have historically utilized these resources to finance our operations and make capital expenditures associated with capacity expansion , upgrades of information technologies and service offerings , and business acquisitions . due to the timing of our collections of receivables due from our major customers , we have historically needed to draw on the line of credit for ongoing working capital needs . we believe our cash and cash equivalents , cash from operations and available credit will be sufficient to operate our business for the next 12 months . as of december 31 , 2016 , working capital totaled $ 10.7 million and our current ratio was 1.20 :1 , compared to working capital of $ 1.6 million and a current ratio of 1.03 :1 at december 31 , 2015 . the increase in working capital in 2016 was primarily driven by an increase in net cash provided by operations . we operate our treasury department from our headquarters office in greenwood village , colorado . our policy is to centralize and protect our global cash balances by holding balances in the us and primarily in u.s. dollar ( `` usd '' ) . we fund our operating subsidiaries as payments are due and attempt to minimize subsidiary cash balances to the extent possible . we are exposed to foreign currency exchange fluctuations in the foreign countries in which we operate . we enter into foreign currency exchange contracts to mitigate these risks where possible . please refer to item 7a . `` quantitative and qualitative disclosures about market risk , '' for more information . the following discussion highlights our cash flow activities during the years ended december 31 , 2016 , 2015 and 2014 . cash and cash equivalents 23 cash and cash equivalents held by the company 's foreign subsidiaries was $ 1.0 million and $ 2.3 million at december 31 , 2016 and 2015 , respectively . under current tax laws and regulations , if cash and cash equivalents held outside the united states are distributed to the united states in the form of dividends or otherwise , we may be subject to additional u.s. income taxes and foreign withholding taxes . cash and cash equivalents was $ 1.0 million at december 31 , 2016 , compared to a balance of $ 2.6 million at december 31 , 2015 . cash flows from operating activities for the years 2016 , 2015 and 2014 we reported net cash flows from operating activities of $ 10.9 million , $ ( 4.6 ) million and $ 4.4 million , respectively . the increase from 2015 to 2016 was driven primarily by the $ 12.1 million increase in gross profit and a decrease of $ 4.8 million in sales , general and administrative expenses , and impairment losses and restructuring charges . cash flows from operating activities can vary significantly from year to year depending upon the timing of operating cash receipts and payments , especially accounts receivable and accounts payable . cash flows used in investing activities for the years 2016 , 2015 and 2014 we reported net cash outflows from investing activities of $ ( 4.6 ) million , $ ( 25.0 ) million and $ ( 13.3 ) million , respectively . in 2016 , we paid $ 0.8 million for acquisitions and $ 3.8 million for capital expenditures . in 2015 , we paid $ 18.3 million for acquisitions and $ 7.7 million for capital expenditures and we sold assets for proceeds of $ 1.0 million . net cash used in investing activities of $ ( 13.3 ) million in 2014 primarily consisted of $ 11.7 million of capital expenditures and cash paid for acquisitions of $ 3.4 million , partially offset by the proceeds from the sale of assets of $ 1.1 million and $ 0.6 million collected on a note receivable . cash flows from financing activities for the years 2016 , 2015 and 2014 we reported net cash flows from financing activities of $ ( 8.8 ) million , $ 26.5 million and $ 3.4 million respectively . in 2016 , we paid down $ 6.2 million on our line of credit and $ 3.1 million in principal on other financing arrangements , in addition to collecting $ 0.4 million related to purchases of stock . in 2015 , we borrowed an additional $ 27.6 million on our line of credit primarily to fund the acquisition and integration of accent , paid down $ 2.0 in principal on other financing arrangements and collected $ 0.9 million related to purchases of stock . in 2014 , we borrowed an additional $ 3.6 million on our line of credit and paid down $ 0.4 million in principal on other financing arrangements . other factors impacting liquidity our business currently has a high concentration in a few principal clients . the loss of a principal client and or changes in timing or termination of a principal client 's product launches or service offerings could have a material adverse effect on our business , liquidity , operating results , or financial condition . these client relationships are further discussed in item 1a , `` risk factors '' and in note 6 . `` principal clients , '' to our consolidated financial statements , which are included at item 8 . `` financial statements and supplementary financial data , '' of this form 10-k. to limit our credit risk , management from time to time will perform credit evaluations of our clients . although we are directly impacted by the economic conditions in which our clients operate , management does not believe substantial credit risk existed as of december 31 , 2016 .
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variability of operating results we have experienced and expect to continue to experience some quarterly variations in revenue and operating results due to a variety of factors , many of which are outside our control , including : ( i ) timing and amount of costs incurred to expand capacity in order to provide for volume growth from existing and future clients ; ( ii ) changes in the volume of services provided to principal clients ; ( iii ) expiration or termination of client projects or contracts ; ( iv ) timing of existing and future client product launches or service offerings ; ( v ) seasonal nature of certain clients ' businesses ; and ( vi ) variability in demand for our services by our clients depending on demand for their products or services and or depending on our performance . critical accounting policies and estimates the preparation of consolidated financial statements requires us to make estimates and assumptions . these estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . we base our accounting estimates on historical experience and other factors that we believe to be reasonable under the circumstances . actual results could differ from those estimates . we have discussed the development and selection of critical accounting policies and estimates with our audit committee . we believe that the following critical accounting policies involve our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we invoice our business process outsourcing services clients monthly in arrears and recognize revenue for such services when completed .
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management concluded that no circumstances indicating an impairment of these assets existed as of story_separator_special_tag the following discussion and analysis provides information about the major components of the results of operations and financial condition , liquidity , and capital resources of the company and its subsidiaries . this discussion and analysis should be read in conjunction with the โ consolidated financial statements โ and the โ notes to the consolidated financial statements โ presented in item 8 โ financial statements and supplementary data โ contained in this form 10-k. critical accounting policies general the accounting and reporting policies of the company and its subsidiaries are in accordance with gaap and conform to general practices within the banking industry . the company 's financial position and results of operations are affected by management 's application of accounting policies , including estimates , assumptions , and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues , expenses , and related disclosures . different assumptions in the application of these policies could result in material changes in the company 's consolidated financial position and or results of operations . the more critical accounting and reporting policies include the company 's accounting for the all , acquired loans , and goodwill and intangible assets . the company 's accounting policies are fundamental to understanding the company 's consolidated financial position and consolidated results of operations . accordingly , the company 's significant accounting policies are discussed in detail in note 1 โ summary of significant accounting policies โ in the โ notes to the consolidated financial statements โ contained in item 8 of this form 10-k. the following is a summary of the company 's critical accounting policies that are highly dependent on estimates , assumptions , and judgments . allowance for loan losses - the provision for loan losses charged to operations is an amount sufficient to bring the all to an estimated balance that management considers adequate to absorb probable losses inherent in the portfolio . loans are charged against the all when management believes the collectability of the principal is unlikely , while recoveries of amounts previously charged-off are credited to the all . management 's determination of the adequacy of the all is based on an evaluation of the composition of the loan portfolio , the value and adequacy of collateral , current economic conditions , historical loan loss experience , and other risk factors . while management uses available information to recognize losses on loans , future additions to the allowance may be necessary based on changes in economic conditions , particularly those affecting real estate values . management believes that the all is adequate . the company performs regular credit reviews of the loan portfolio to review the credit quality and adherence to its underwriting standards . the credit reviews consist of reviews by its loan review group . upon origination , each commercial loan is assigned a risk rating ranging from one to nine , with loans closer to one having less risk . this risk rating scale is the company 's primary credit quality indicator . consumer loans are generally not risk rated ; the primary credit quality indicator for this loan segment is delinquency status . the company has various committees that review and ensure that the all methodology is in accordance with gaap and loss factors used appropriately reflect the risk characteristics of the loan portfolio . the company 's all consists of specific , general , and qualitative components . specific reserve component the specific reserve component relates to impaired loans . a loan is considered impaired when , based on current information and events , it is probable that the company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . upon being identified as impaired , for loans not considered to be collateral dependent , an all is then established when the discounted cash flows of the impaired loan are lower than the carrying value of that loan . the impairment of collateral dependent loans is measured based on the fair value of the underlying collateral , less selling costs , compared to the carrying value of the loan . if the company determines that the value of an impaired collateral dependent loan is less than the recorded investment in the loan , it either recognizes an impairment reserve as a specific component to be provided for in the all or charges off the deficiency if it is determined that such amount represents a confirmed loss . typically , a loss is confirmed when the company is moving towards foreclosure ( or final disposition ) of the underlying collateral , the collateral deficiency has not improved for two consecutive quarters , or when there is a payment default of 180 days , whichever occurs first . 29 the company obtains independent appraisals from a pre-approved list of independent , third party appraisal firms located in the market in which the collateral is located . the company 's approved appraiser list is continuously maintained to ensure the list only includes such appraisers that have the experience , reputation , character , and knowledge of the respective real estate market . at a minimum , it is ascertained that the appraiser is currently licensed in the state in which the property is located , experienced in the appraisal of properties similar to the property being appraised , has knowledge of current real estate market conditions and financing trends , and is reputable . the company 's internal real estate valuation group , which reports to the risk and compliance group , performs either a technical or administrative review of all appraisals obtained . a technical review will ensure the overall quality of the appraisal , while an administrative review ensures that all of the required components of an appraisal are present . generally , independent appraisals are updated every 12 to 24 months , or as necessary . story_separator_special_tag goodwill resulting from business combinations after january 1 , 2009 , is generally determined as the excess of the fair value of the consideration transferred , plus the fair value of any noncontrolling interests in the acquiree , over the fair value of the net assets acquired and liabilities assumed as of the acquisition date . goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized , but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed . the company has selected april 30th as the date to perform the annual impairment test . intangible assets with definite useful lives are amortized over their estimated useful lives , which range from 4 to 14 years , to their estimated residual values . goodwill is the only intangible asset with an indefinite life on the company 's consolidated balance sheets . long-lived assets , including purchased intangible assets subject to amortization , such as the core deposit intangible asset , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future 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 in the amount by which the carrying amount of the asset exceeds the fair value of the asset . assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell , and are no longer depreciated . management concluded that no circumstances indicating an impairment of these assets existed as of the balance sheet date . the company performed its annual impairment testing as of april 30 , 2016 and determined that there was no impairment to its goodwill or intangible assets . the company also performed a qualitative analysis to determine if any factors necessitated additional testing and no indicators of impairment were noted as of year-end . story_separator_special_tag by lower loan yields , as new and renewed loans were originated and re-priced at lower rates , as well as lower levels of fees on loans . 33 replace_table_token_8_th ( 1 ) refer to item 7 . - `` management 's discussion and analysis of financial condition and results of operations '' section `` non-gaap measures '' of this form 10-k. ( 2 ) core net interest margin excludes the impact of acquisition accounting accretion and amortization adjustments in net interest income . for the year ended december 31 , 2015 , tax-equivalent net interest income was $ 260.9 million , a decrease of $ 2.2 million from 2014 , primarily driven by the impact of declines in net interest margin and lower net accretion related to acquisition accounting . excluding the impacts of acquisition accounting , interest expense declined as growth in low cost deposits outpaced the net run-off in higher cost certificates of deposit . net accretion related to acquisition accounting decreased $ 3.4 million from $ 10.0 million in 2014 to $ 6.6 million in 2015. the tax-equivalent net interest margin decreased by 20 basis points to 3.89 % from 4.09 % in 2014. core tax-equivalent net interest margin ( which excludes the 10 basis point and 16 basis point impact of acquisition accounting accretion in 2015 and 2014 , respectively ) decreased by 14 basis points . the decline in the core net interest margin was principally due to the 20 basis point decrease in interest-earning asset yields outpacing the 6 basis point decline in cost of funds . the decline in interest-earning asset yields was primarily driven by lower loan yields , as new and renewed loans were originated and re-priced at lower rates . 34 the following table shows interest income on interest-earning assets and related average yields as well as interest expense on interest-bearing liabilities and related average rates paid for the years indicated ( dollars in thousands ) : average balances , income and expenses , yields and rates ( taxable equivalent basis ) replace_table_token_9_th ( 1 ) income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 35 % . ( 2 ) rates and yields are annualized and calculated from actual , not rounded amounts in thousands , which appear above . ( 3 ) nonaccrual loans are included in average loans outstanding . ( 4 ) interest income on loans includes $ 5.2 million , $ 4.4 million , and $ 586,000 for the years ended december 31 , 2016 , 2015 , and 2014 , respectively , in accretion of the fair market value adjustments related to acquisitions . ( 5 ) interest expense on certificates of deposits includes $ 0 , $ 1.8 million , and $ 8.9 million for the years ended december 31 , 2016 , 2015 , and 2014 , respectively , in accretion of the fair market value adjustments related to acquisitions . ( 6 ) interest expense on borrowings includes $ 458,000 , $ 424,000 , and $ 550,000 for the years ended december 31 , 2016 , 2015 , and 2014 in accretion of the fair market value adjustments related to acquisitions . ( 7 ) core net interest margin excludes purchase accounting adjustments and was 3.72 % , 3.79 % , and 3.93 % for the years ended december 31 , 2016 , 2015 , and 2014 , respectively .
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results of operations executive overview the company reported net income of $ 77.5 million and earnings per share of $ 1.77 for the year ended december 31 , 2016 . these results represent an increase of $ 10.4 million , or 15.5 % , from $ 67.1 million and $ 0.28 , or 18.8 % , from earnings per share of $ 1.49 for the year ended december 31 , 2015 . the company 's community banking segment reported net income of $ 75.7 million for the year ended december 31 , 2016 , an increase of $ 8.4 million from the prior year , and earnings per share of $ 1.73 , an increase of $ 0.24 per share from the prior year . the company 's mortgage segment reported net income of $ 1.8 million , or $ 0.04 per share , an improvement of $ 2.0 million , from a net loss of $ 202,000 in the prior year . the company experienced continued improvement in asset quality . nonaccrual loans , past due loans , and oreo balances declined from december 31 , 2015. loans held for investment , net of deferred fees and costs , were $ 6.3 billion at december 31 , 2016 , an increase of $ 635.6 million , or 11.2 % , from december 31 , 2015 . the increase was primarily driven by a combined growth of $ 535.5 million in commercial real estate , commercial and industrial , and consumer loans . year-to-date average loan balances increased $ 468.8 million , or 8.5 % , from the prior year . 31 total deposits at december 31 , 2016 were $ 6.4 billion , an increase of $ 415.6 million , or 7.0 % , when compared to $ 6.0 billion at december 31 , 2015 .
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throughout this discussion , unless the context specifies or implies otherwise , the terms โ nanostring โ , โ we โ , โ us โ and โ our โ refer to nanostring technologies , inc. and its subsidiaries . overview we develop , manufacture and sell products that unlock scientifically valuable and clinically actionable information from minute amounts of biological material . our core technology is a unique , proprietary optical barcoding chemistry that enables the labeling and counting of single molecules . this proprietary chemistry may reduce the number of steps required to conduct certain types of scientific experiments and allow for multiple experiments to be conducted at once . as a result , we are able to develop tools that are easier for researchers to use and that may generate faster and more consistent scientific results . we use our technology to develop tools for scientific research , primarily in the fields of genomics and proteomics , and also to develop clinical diagnostic tests . we currently have one commercially available product platform , our ncounter analysis system instruments and related consumables . we market and sell our instruments and related consumables to researchers in academic , government , and biopharmaceutical laboratories for research use and to clinical laboratories and medical centers for diagnostic use , both through our direct sales force and through selected distributors in certain international markets . as of december 31 , 2018 , we had an installed base of approximately 730 ncounter systems , which our customers have used to publish more than 2,300 peer-reviewed papers . we derive a substantial majority of our revenue from the sale of our products , which consist of our ncounter instruments and related proprietary consumables . our instruments are designed to work only with our consumable products . accordingly , as the installed base of our instruments grows , we expect recurring revenue from consumable sales to become an increasingly important driver of our operating results . we also derive revenue from processing fees related to proof-of-principle studies we conduct for potential customers and extended service contracts for our ncounter analysis systems . additionally , we generate revenue through product development collaborations . we use third-party contract manufacturers to produce the instruments comprising our ncounter analysis system . we manufacture consumables at our seattle , washington facility . this operating model is designed to be capital efficient and to scale efficiently as our product volumes grow . we focus a substantial portion of our resources on developing new technologies , products and solutions . we invested $ 61.6 million , $ 46.9 million and $ 34.7 million in 2018 , 2017 , and 2016 , respectively , in research and development and intend to continue to make significant investments in research and development . we have discovered other novel applications that utilize our proprietary barcoding chemistry , and we have two new product platforms under development . following completion of product development , each of these new systems is expected to be commercialized as a new instrument along with associated consumables . the first new platform , our geomx digital spatial profiling , or geomx dsp system , is designed to enable the field of spatial genomics . while ncounter and other existing technologies analyze gene activity as a whole throughout the totality of a biological sample , geomx dsp is used to analyze specifically selected regions of a biological sample in order to see how gene activity or protein levels might vary across those regions or in certain cell types . in advance of the launch of the commercial version of geomx dsp , we have provided early access to the system 's capabilities by offering selected customers the opportunity to send biological samples to our seattle facility to be tested by us on prototype instruments . to date , we have conducted over 70 projects for approximately 50 customers pursuant to this technology access program , or tap . in addition , in the third quarter of 2018 we announced the geomx priority site , or gps , program . the gps program is designed to provide customers the opportunity to be among the first to receive a geomx dsp instrument following its commercial launch , as well as advanced service and support . inclusion in the gps program has also provided researchers the opportunity to begin generating data on samples through our tap service . as of december 31 , 2018 , we have received over 30 orders for geomx dsp pursuant to our gps program . the full commercial launch of geomx dsp instruments and consumables is expected to commence during the first half of 2019 , with installations of commercial instruments expected to commence in the second half of 2019. the second new platform , our hyb & seq molecular profiling system , is designed to use a modified version of our proprietary chemistry to determine and analyze gene sequences within a biological sample , or to potentially profile the activity of an even greater number of genes as compared to our ncounter analysis system . hyb & seq is designed to determine gene sequences using a work flow with fewer steps as compared to currently available gene sequencing technologies . hyb & seq is expected to become commercially available during 2021 . - 49 - in august 2017 , we entered into a collaboration agreement with lam research corporation , or lam , to support the development of our hyb & seq product candidate and related assays . for additional information regarding this development collaboration agreement , see the section of this report captioned โ businessโcollaborationsโlam research corporation โ . in march 2014 , we entered into a collaboration agreement with celgene corporation , or celgene , to develop , seek regulatory approval for , and commercialize a companion diagnostic assay for use in screening patients with diffuse large b-cell lymphoma . for additional information regarding the collaboration agreement , see the section of this report captioned โ businessโcollaborationsโcelgene corporation โ . story_separator_special_tag although the price of prosigna and our additional future diagnostic products will depend on many factors , including whether and how much third-party payors will reimburse laboratories for conducting such tests , we expect that the gross margin for our diagnostic kits may be higher than for our research consumables . we sell prosigna kits to our lab customers , who will be responsible for providing the testing service and contracting and billing payors . prosigna kits are sold to clinical laboratories on a fixed dollars-per-kit basis , which does not expose us to direct third-party payor reimbursement risk . however , we provide customary volume discounts , and in some cases , introductory pricing during the period in which third-party payor reimbursement is being established . as a result , the average selling price per prosigna test is lower than list price . service revenue service revenue consists of fees associated with service contracts and conducting proof-of-principle studies . we include a one-year warranty with the sale of our instruments and offer service contracts , which are purchased by a majority of our customers . we selectively provide proof-of-principle studies to prospective customers in order to help them better understand the benefits of the ncounter analysis system , and in some cases allow customers early access to technologies under development , such as our geomx dsp system , for which we generate data and perform analysis services on their behalf . collaboration revenue collaboration revenue has been derived primarily from our collaborations with lam , celgene and merck and historically , our terminated collaboration with medivation and astellas . as of december 31 , 2018 , we have received a total of $ 106.8 million from these collaboration agreements , of which $ 22.8 million , $ 42.3 million , and $ 16.7 million has been recorded as collaboration revenue in 2018 , 2017 , and 2016 , respectively , with the remainder recorded as deferred revenue and customer deposits , which will be recognized as collaboration revenue over our remaining development performance period for each of the agreements . collaboration revenue also includes revenue recognized under several smaller collaborations . revenue by geography we sell our products through our own sales forces in the united states , canada , singapore , israel and certain european countries . we sell through distributors in other parts of the world . as we have expanded our european direct sales force and entered into agreements with distributors of our products in europe , the middle east , asia pacific and south america , the amount of revenue generated outside of north america has generally increased , although there have been significant quarter-to-quarter fluctuations . in the future , we intend to continue to expand our sales force and establish additional distributor relationships outside the united states to better access international markets . the following table reflects total revenue by geography based on the geographic location of our customers , distributors and collaborators . for sales to distributors , their geographic location may be different from the geographic locations of the ultimate end customer . americas consists of the united states , canada , mexico and south america ; and asia pacific includes japan , china , south korea , singapore , malaysia , india and australia . replace_table_token_2_th - 51 - most of our revenue is denominated in u.s. dollars . our expenses are generally denominated in the currencies in which our operations are located , which is primarily in the united states . changes in foreign currency exchange rates have not materially affected us to date ; however , they may become material to us in the future as our operations outside of the united states expand . cost of product and service revenue cost of product and service revenue consists primarily of costs incurred in the production process , including costs of purchasing instruments from third-party contract manufacturers , consumable component materials and assembly labor and overhead , installation , warranty , service and packaging and delivery costs . in addition , cost of product and service revenue includes royalty costs for licensed technologies included in our products , provisions for slow-moving and obsolete inventory and stock-based compensation expense . we provide a one-year warranty on each ncounter analysis system sold and establish a reserve for warranty repairs based on historical warranty repair costs incurred . the average unit cost of our instruments has declined in the current year as compared to prior years primarily as a result of increased placements of our lower-cost ncounter sprint profiler . we expect the average unit costs of our ncounter instruments to continue to decline as we expand our market opportunity among smaller research laboratories and sell a higher proportion of sprint systems . we expect the unit costs of consumable products to decline as a result of our ongoing efforts to improve our manufacturing processes and expected increases in production volume and yields . although the unit costs of our custom codesets vary , they are generally higher as a percentage of the related revenue than our standard panel products and in vitro prosigna diagnostic kits . operating expenses research and development research and development expenses consist primarily of salaries and benefits , occupancy costs , laboratory supplies , engineering services , consulting fees , costs associated with licensing molecular diagnostics rights and clinical study expenses to support the regulatory approval or clearance of diagnostic products . we have made substantial investments in research and development since our inception . our research and development efforts have focused primarily on the tasks required to enhance our technologies and to support development and commercialization of new and existing products and applications . we believe that our continued investment in research and development is essential to our long-term competitive position and expect to continue to make investments in research and development activities at levels consistent with our current levels .
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results of operations comparison of years ended december 31 , 2018 and 2017 revenue replace_table_token_5_th instrument revenue for the year ended december 31 , 2018 increased as compared to the prior year , due primarily to an increase in the number of instruments sold . the magnitude of the instrument revenue increase was partially offset by a shift in sales mix towards our sprint instruments , which generally have lower average selling prices than our max and flex instruments . consumables revenue increased for the year ended december 31 , 2018 , primarily as a result of our growing installed base of ncounter analysis systems , as well as growth in sales of our standardized panel consumable products . in vitro diagnostic kit revenue represents sales of prosigna assays , which increased for the year ended december 31 , 2018 as more testing providers commenced providing services and testing volumes increased , most significantly in territories outside of the united states . the increase in service revenue was primarily related to an increase in the number of installed instruments covered by service contracts , and also increases in revenue generated from technology access fees , particularly fees related to services offered pursuant to our geomx dsp technology access program . our product and service revenue may continue to increase in future periods as a result of our increased investments in sales and marketing activities , the growth in sales of our ncounter consumable products as driven by our increasing installed base of ncounter instruments , the introduction of new ncounter consumable products , the continued sale of additional ncounter instruments and the potential commercial launch of new product platforms such as our geomx dsp and hyb & seq product candidates .
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we inspected minutes of the board of directors and regulatory orders and other filings with the commissions to identify any evidence that may contradict management 's assertion regarding probability of a disallowance of long-lived assets . we evaluated regulatory filings for any evidence that intervenors are challenging full recovery of the cost of any capital projects and inquired of management to assess whether capitalized costs are probable of disallowance . we obtained an story_separator_special_tag no registrant makes any representations as to the information related solely to centerpoint energy or the subsidiaries of centerpoint energy other than itself . the following combined discussion and analysis should be read in combination with the consolidated financial statements included in item 8 herein . when discussing centerpoint energy 's consolidated financial information , it includes the results of houston electric and cerc , which , along with centerpoint energy , are collectively referred to as the registrants . where appropriate , information relating to a specific registrant has been segregated and labeled as such . unless the context indicates otherwise , specific references to houston electric and cerc also pertain to centerpoint energy . in this combined form 10-k , the terms โ our , โ โ we โ and โ us โ are used as abbreviated references to centerpoint energy , inc. together with its consolidated subsidiaries . overview background centerpoint energy , inc. is a public utility holding company and owns interests in enable . centerpoint energy 's operating subsidiaries own and operate electric transmission , distribution and generation and natural gas distribution facilities , and provide energy performance contracting and sustainable infrastructure services . for a detailed description of centerpoint energy 's operating subsidiaries and discontinued operations , please read note 1 to the consolidated financial statements . houston electric is an indirect , wholly-owned subsidiary of centerpoint energy that provides electric transmission service to transmission service customers in the ercot region and distribution service to reps serving the texas gulf coast area that includes the city of houston . cerc corp. is an indirect , wholly-owned subsidiary of centerpoint energy that owns and operates natural gas distribution facilities in six states , with operating subsidiaries that own and operate permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies , and provide temporary delivery of lng and cng throughout the contiguous 48 states . reportable segments in this management 's discussion and analysis , we discuss our results from continuing operations on a consolidated basis and individually for each of our reportable segments , which are listed below . we also discuss our liquidity , capital resources and critical accounting policies . we are first and foremost an energy delivery company and it is our intention to remain focused on these segments of the energy business . the results of our business operations are significantly impacted by weather , customer growth , economic conditions , cost management , competition , rate proceedings before regulatory agencies and other actions of the various regulatory agencies to whose jurisdiction we are subject , among other factors . during the fourth quarter of 2020 , centerpoint energy 's codm requested that the financial information for the electric businesses be presented on an aggregated basis for review , resulting in one electric reportable segment , comprised of houston electric and indiana electric . also , the natural gas distribution reportable segment was renamed natural gas . additionally , during the fourth quarter of 2020 , centerpoint energy 's codm requested that the cerc corporate functions be included within the financial results of centerpoint energy 's natural gas reportable segment for review purposes . during the fourth quarter of 2020 , cerc 's codm requested that the cerc corporate functions be included within the financial results of cerc 's natural gas reportable segment for review purposes . as a result of this change , and following the divestiture of the energy services disposal group , cerc now consists of a single reportable segment . houston electric also consists of a single reportable segment . as of december 31 , 2020 , centerpoint energy 's reportable segments were electric , natural gas and midstream investments . the electric reportable segment includes electric transmission and distribution services in houston electric 's transmission and distribution service territory that are subject to rate regulation and impacts of generation-related stranded costs and other true-up balances recoverable by the regulated electric utility and energy delivery services to electric customers and electric generation assets to serve its electric customers and optimize those assets in the 44 wholesale power market in indiana electric 's transmission and distribution service territory . for further information about the electric reportable segment , see โ business โ our business โ electric โ in item 1 of part i of this report . the natural gas reportable segment includes natural gas distribution services that are subject to rate regulation in centerpoint energy 's and cerc 's service territories , as well as home appliance maintenance and repair services to customers in minnesota and home repair protection plans to natural gas customers in texas and louisiana through a third party . for further information about the natural gas reportable segment , see โ business โ our business โ natural gas โ in item 1 of part i of this report . the midstream investments reportable segment includes centerpoint energy 's equity investment in enable and is dependent upon the results of enable , which are driven primarily by the volume of natural gas , ngls and crude oil that enable gathers , processes and transports across its systems and other factors as discussed below under โ โ factors influencing midstream investments. โ on february 16 , 2021 , enable entered into the enable merger agreement . story_separator_special_tag our largest customers reflect the diversity in industries in the states across our footprint . for example , houston electric is largely concentrated in houston , texas , a diverse economy where a higher percentage of employment is tied to the energy sector relative to other regions of the country . although the houston area represents a large part of our customer base , we have a diverse customer base throughout the eight states our utility businesses serve . in minnesota , for instance , education and health services are the state 's largest sectors , whereas arkansas has a large food manufacturing industry . indiana and ohio are impacted by changes in the midwest economy in general and changes in particular industries concentrated in the midwest such as automotive , feed and grain processing . some industries are driven by population growth like education and health care , while others may be influenced by strength in the national or international economy . also , adverse economic conditions , coupled with concerns for protecting the environment and increased availability of alternate energy sources , may cause consumers to use less energy or avoid expansions of their facilities , including natural gas facilities , resulting in less demand for our services . long-term national trends indicate customers have reduced their energy consumption , which could adversely affect our results . however , due to more affordable energy prices and continued economic improvement in the areas we serve , the trend toward lower usage has slowed . to the extent population growth is affected by lower energy prices and there is financial pressure on some of our customers who operate within the energy industry , there may be an impact on the growth rate of our customer base and overall demand . despite the overall economic impact of the recession , housing growth has continued and accelerated in 2020. lower interest rates have helped single family housing starts in the houston and minneapolis to exceed growth in previous years . multifamily residential customer growth is affected by the cyclical nature of apartment construction . beginning in 2019 and continuing through 2020 , a new construction cycle in houston helped overall residential customer growth to surpass the long-term trend of 2 % . management expects residential meter growth for houston electric to remain in line with long term trends at approximately 2 % . typical customer growth in the jurisdictions served by the natural gas reportable segment is approximately 1 % . cerc 's natural gas customer growth was 1.7 % for 2020 , which is slightly higher than in previous years . management expects residential meter growth for cerc to remain in line with long term trends at approximately 1 % . performance of the electric reportable segment and the natural gas reportable segment is significantly influenced by energy usage per customer , which is significantly impacted by weather conditions . for houston electric , revenues are generally higher during the warmer months when more electricity is used for cooling purposes . for indiana electric , a significant portion of its sales are for space heating and cooling . consequently , as in certain past years , indiana electric 's results of operations may be adversely affected by warmer-than-normal heating season weather or colder-than-normal cooling season weather . for cerc 's natural gas , demand for natural gas for heating purposes is generally higher in the colder months . therefore , we compare our results on a weather-adjusted basis . in 2020 , the houston area experienced weather that was warmer than normal compared to 2019. although the summer months were somewhat hotter than normal , the warmer than normal temperatures started early in the year with a mild winter . our natural gas service territories experienced warmer weather in 2020 than it has since 2017. historically , both centerpoint energy 's tdu and cerc 's natural gas have utilized weather hedges to help reduce the impact of mild weather on their financial results . centerpoint energy 's tdu and cerc 's natural gas entered into a weather hedge for the 2019โ2020 winter heating season in texas where no weather normalization mechanisms exist . in cerc 's non-texas jurisdictions , weather 46 normalization mechanisms or decoupling in the minnesota division help to mitigate the impact of abnormal weather on our financial results . in our natural gas indiana and ohio service territories , normal temperature adjustment and decoupling mechanisms largely mitigate the effect that would otherwise be caused by variations in volumes sold to these customers due to weather and changing consumption patterns . our natural gas operations in ohio has a straight fixed variable rate design for its residential customers . this rate design mitigates approximately 90 % of the ohio service territory 's weather risk and risk of decreasing consumption specific to its small customer classes . while indiana electric has neither a normal temperature adjustment mechanism nor a decoupling mechanism , rate designs provide for a lost margin recovery mechanism that operates in tandem with conservation initiatives . sales of natural gas to residential and commercial customers by indiana gas , sigeco and vedo are largely seasonal and are impacted by weather . trends in the average consumption among natural gas residential and commercial customers have tended to decline as more efficient appliances and furnaces are installed , and as these utilities have implemented conservation programs . for cerc 's natural gas in minnesota and arkansas , rate adjustment mechanisms counter the impact of changes in customer usage . in addition , in many of our service areas , particularly in the houston area and minnesota , as applicable to each registrant , we have benefited from growth in the number of customers . we anticipate that this trend will continue as the regions ' economies continue to grow . the profitability of our businesses is influenced significantly by the regulatory treatment we receive from the various state and local regulators who set our electric and natural gas distribution rates .
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cerc consolidated results of operations as of january 1 , 2020 , cerc 's codm viewed net income as the measure of profit or loss for the reportable segments rather than the previous measure of operating income . during the fourth quarter of 2020 , cerc 's codm requested that the cerc corporate functions be included within the financial results of cerc 's natural gas reportable segment for review purposes . as a result of this change and following the divestiture of the energy services disposal group , cerc now consists of a single reportable segment , natural gas , formerly named natural gas distribution . certain prior year amounts have been reclassified to conform to the current year presentation . cerc 's results of operations are affected by seasonal fluctuations in the demand for natural gas . cerc 's results of operations are also affected by , among other things , the actions of various federal , state and local governmental authorities having jurisdiction over rates cerc charges , debt service costs and income tax expense , cerc 's ability to collect receivables from customers and cerc 's ability to recover its regulatory assets . for information regarding factors that may affect the future results of cerc 's consolidated operations , please read โ risk factors โ in item 1a of part i of this report . replace_table_token_16_th ( 1 ) includes utility natural gas and non-utility cost of revenues , including natural gas . discontinued operations . on february 24 , 2020 , centerpoint energy , through its subsidiary cerc corp. , entered into the equity purchase agreement to sell the energy services disposal group . accordingly , the previously reported energy services reportable segment has been eliminated . the transaction closed on june 1 , 2020. for further information , see note 4 to the consolidated financial statements . 62 the following table provides variance explanations by major income statement caption for cerc 's natural gas reportable segment : replace_table_token_17_th income tax expense .
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the company provides one of the broadest product offerings in the electronic components and enterprise computing solutions distribution industries and a wide range of value-added services to help customers introduce innovative products , reduce their time to market , and enhance their overall competitiveness . the company has two business segments , the global components business segment and the global ecs business segment . the company distributes electronic components to oems and cms through its global components business segment and provides enterprise computing solutions to vars through its global ecs business segment . for 2015 , approximately 62 % of the company 's sales were from the global components business segment and approximately 38 % of the company 's sales were from the global ecs business segment . the company 's financial objectives are to grow sales faster than the market , increase the markets served , grow profits faster than sales , and increase return on invested capital . to achieve its objectives , the company seeks to capture significant opportunities to grow across products , markets , and geographies . to supplement its organic growth strategy , the company continually evaluates strategic acquisitions to broaden its product and value-added service offerings , increase its market penetration , and or expand its geographic reach . story_separator_special_tag 2015 increased 0.6 % , compared with the year-earlier period primarily driven by increased demand in the emea regions and the impact of recently acquired businesses , offset in part , by the impact of changes in foreign currencies . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's global components business segment sales increased by 1.3 % in 2015 , compared with the year-earlier period . in the global ecs business segment , sales for 2015 increased 5.0 % primarily driven by increased demand in the emea regions and the impact of recently acquired businesses , offset in part , by the impact of changes in foreign currencies . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's global ecs business segment sales increased by 5.6 % in 2015 , compared with the year-earlier period . 22 following is an analysis of net sales by business segment for the years ended december 31 ( in millions ) : replace_table_token_6_th consolidated sales for 2014 increased by $ 1.41 billion , or 6.6 % , compared with the year-earlier period . the increase in 2014 was driven by an increase in global components business segment sales of $ 817.3 million , or 6.1 % , and an increase in global ecs business segment sales of $ 594.1 million , or 7.6 % , compared with the year-earlier period . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's consolidated sales increased by 2.5 % in 2014 , compared with the year-earlier period . in the global components business segment , sales for 2014 increased 6.1 % compared with the year-earlier period primarily due to an increase in demand for products worldwide and the impact of recently acquired businesses . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's global components business segment sales increased by 4.2 % in 2014 , compared with the year-earlier period . in the global ecs business segment , sales for 2014 increased 7.6 % primarily driven by growth in software , services , storage and industry standard servers , offset , in part , by a decrease in demand for proprietary servers in the north america and emea regions . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's global ecs business segment sales were flat in 2014 , compared with the year-earlier period . gross profit following is an analysis of gross profit for the years ended december 31 ( in millions ) : replace_table_token_7_th the company recorded gross profit of $ 3.04 billion and $ 3.00 billion for 2015 and 2014 , respectively . the increase in gross profit was primarily due to the aforementioned 2.3 % increase in sales during 2015 . gross profit margins for 2015 decreased by approximately 20 basis points , compared with the year-earlier period primarily due to competitive pricing pressure in the ecs 23 business . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's consolidated gross profit margin decreased approximately 10 basis points in 2015 , compared with the year-earlier period . following is an analysis of gross profit for the years ended december 31 ( in millions ) : replace_table_token_8_th the company recorded gross profit of $ 3.00 billion and $ 2.79 billion for 2014 and 2013 , respectively . gross profit margins for 2014 increased by approximately 10 basis points , compared with the year-earlier period primarily due to a more favorable product mix in the global ecs business segment as compared with the year-earlier period , offset , in part , by competitive pricing pressure . adjusted for the impact of changes in foreign currencies and acquisitions , the company 's consolidated gross profit margin decreased approximately 10 basis points in 2014 , compared with the year-earlier period . selling , general , and administrative expenses and depreciation and amortization following is an analysis of operating expenses for the years ended december 31 ( in millions ) : replace_table_token_9_th * the sum of the components for operating expenses , as adjusted may not agree to totals , as presented , due to rounding . selling , general , and administrative expenses increased by $ 26.5 million , or 1.4 % , in 2015 , on a sales increase of 2.3 % , compared with the year-earlier period . selling , general , and administrative expenses , as a percentage of sales , was 8.5 % and 8.6 % for 2015 and 2014 , respectively . story_separator_special_tag during the fourth quarter of 2014 , in connection with the company 's global re-branding initiative to brand certain of its businesses under the arrow name , the company made the decision to discontinue the use of a trade name of one of its businesses within the global ecs business segment . as no future cash flows will be attributed to the impacted trade name , the entire book value was written-off , resulting in a non-cash impairment charge of $ 78.0 million ( $ 47.9 million net of related taxes or $ .49 and $ .48 per share on a basic and diluted basis , respectively ) as of december 31 , 2014 in the company 's consolidated statements of operations . fair value was determined using unobservable ( level 3 ) inputs . the impairment charge did not impact the company 's consolidated cash flows , liquidity , capital resources , and covenants under its existing revolving credit facility , asset securitization program , and other outstanding borrowings . no impairment existed as of december 31 , 2014 with respect to the company 's other identifiable intangible assets . operating income following is an analysis of operating income for the years ended december 31 ( in millions ) : replace_table_token_11_th * the sum of the components for consolidated operating income , as adjusted may not agree to totals , as presented , due to rounding . the company recorded operating income of $ 824.5 million , or 3.5 % of sales , in 2015 compared with operating income of $ 762.3 million , or 3.3 % of sales , in 2014 . included in operating income for 2015 and 2014 were the previously discussed identifiable intangible asset amortization of $ 51.0 million and $ 44.1 million , respectively , restructuring , integration , and other charges of $ 68.8 million and $ 39.8 million , respectively , and impairment charge of $ 78.0 million in 2014. excluding these items operating income , as adjusted was $ 944.3 million , or 4.1 % of sales , in 2015 compared with operating income , as adjusted of $ 924.2 million , or 4.1 % of sales , in 2014 . 26 following is an analysis of operating income for the years ended december 31 ( in millions ) : replace_table_token_12_th * the sum of the components for consolidated operating income , as adjusted may not agree to totals , as presented , due to rounding . the company recorded operating income of $ 762.3 million , or 3.3 % of sales , in 2014 compared with operating income of $ 693.5 million , or 3.2 % of sales , in 2013 . included in operating income for 2014 and 2013 were the previously discussed identifiable intangible asset amortization of $ 44.1 million and $ 36.8 million , respectively , and restructuring , integration , and other charges of $ 39.8 million and $ 92.7 million , respectively , and impairment charge of $ 78.0 million . excluding these items operating income , as adjusted was $ 924.2 million , or 4.1 % of sales , in 2014 compared with operating income , as adjusted of $ 822.9 million , or 3.9 % of sales , in 2013 . gain on sale of investment during 2015 , the company recorded a gain on sale of investment of $ 2.0 million ( $ 1.7 million net of related taxes or $ .02 per share on both a basic and diluted basis ) . during 2014 , the company sold its 1.9 % equity ownership interest in wpg holdings co. , ltd. for proceeds of $ 40.5 million and accordingly recorded a gain on sale of investment of $ 29.7 million ( $ 18.3 million net of related taxes or $ .19 and $ .18 per share on a basic and diluted basis ) . loss on prepayment of debt during 2015 , the company recorded a loss on prepayment of debt of $ 2.9 million ( $ 1.8 million net of related taxes or $ .02 per share on both a basic and diluted basis ) , related to the redemption of $ 250.0 million principal amount of its 3.375 % notes due november 2015. during 2013 , the company recorded a loss on prepayment of debt of $ 4.3 million ( $ 2.6 million net of related taxes or $ .03 per share on both a basic and diluted basis ) , related to the redemption of $ 332.1 million principal amount of its 6.875 % senior notes due july 2013. interest and other financing expense , net net interest and other financing expense increased by 16.7 % in 2015 to $ 135.4 million , compared with $ 116.0 million in 2014 , primarily due to higher average debt outstanding that was used to refinance the company 's 3.375 % notes due november 1 , 2015 before maturity and for general corporate purposes . net interest and other financing expense increased by 1.4 % in 2014 to $ 116.0 million , relatively consistent compared with $ 114.4 million in 2013 . income taxes the company recorded a provision for income taxes of $ 191.7 million ( an effective tax rate of 27.7 % ) for 2015 . the company 's provision for income taxes and effective tax rate for 2015 were impacted by the previously discussed restructuring , integration , and other charges , loss on prepayment of debt , gain on sale of investment , and loss on investment . excluding the impact of the aforementioned items , the company 's effective tax rate for 2015 was 27.6 % . 27 the company recorded a provision for income taxes of $ 184.9 million ( an effective tax rate of 27.1 % ) for 2014 . the company 's provision for income taxes and effective tax rate for 2014 were impacted by the previously discussed restructuring , integration , and other charges , gain on sale of investment , and trade name impairment charge .
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executive summary consolidated sales for 2015 increased by 2.3 % , compared with the year-earlier period , due to a 0.6 % increase in the global components business segment sales and a 5.0 % increase in the global ecs business segment sales . the translation of the company 's international financial statements into u.s. dollars resulted in a decrease in consolidated sales of 5.4 % for 2015 compared with the year-earlier period , due to a stronger u.s. dollar . adjusted for the change in foreign currencies and acquisitions , consolidated sales increased 2.9 % compared with the year-earlier period . net income attributable to shareholders for 2015 of $ 497.7 million was relatively flat compared with net income attributable to shareholders of $ 498.0 million in the year-earlier period . the following items impacted the comparability of the company 's results for the years ended december 31 , 2015 and 2014 : restructuring , integration , and other charges of $ 68.8 million ( $ 51.3 million net of related taxes ) in 2015 and $ 39.8 million ( $ 29.3 million net of related taxes ) in 2014 ; identifiable intangible asset amortization of $ 51.0 million ( $ 41.3 million net of related taxes ) in 2015 and $ 44.1 million ( $ 36.0 million net of related taxes ) in 2014 ; a gain on sale of investment of $ 2.0 million ( $ 1.7 million net of related taxes ) in 2015 and $ 29.7 million ( $ 18.3 million net of related taxes ) in 2014 ; a loss on investment of $ 3.0 million ( $ 1.8 million net of related taxes ) in 2015 ; a loss on prepayment of debt of $ 2.9 million ( $ 1.8 million net of related taxes ) in 2015 ; and a non-cash impairment charge associated with discontinuing the use of a trade name of $ 78.0 million ( $ 47.9 million net of related taxes ) in 2014. excluding the aforementioned items
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as of december 31 , 2017 , eqgp owned 21,811,643 eqm common units , representing a 26.6 % limited partner interest in eqm ; 1,443,015 eqm general partner units , representing a 1.8 % general partner interest in eqm ; and all of eqm 's incentive distribution rights ( idrs ) . following the rice merger , the company owned 100 % of the outstanding limited liability company interests story_separator_special_tag you should read the following discussion and analysis of financial condition and results of operations in conjunction with the consolidated financial statements , and the notes thereto , included in item 8 of this annual report on form 10-k. consolidated results of operations 2017 eqt highlights : closed the rice merger on november 13 , 2017 achieved annual production sales volumes of 887.5 bcfe , 17 % higher than 2016 completed the 2017 notes offering ( defined in note 15 to the consolidated financial statements ) totaling $ 3.0 billion received ferc certificate for mountain valley pipeline net income attributable to eqt corporation for 2017 was $ 1,508.5 million , $ 8.04 per diluted share , compared with a loss attributable to eqt corporation of $ 453.0 million , a loss of $ 2.71 per diluted share , in 2016 . the $ 1,961.5 million increase in net income attributable to eqt corporation was primarily attributable to an income tax benefit recorded as a result of the lower federal corporate tax rate beginning in 2018 , the result of a gain on derivatives not designated as hedges in 2017 compared to a loss in 2016 , a 23 % increase in the average realized price , a 17 % increase in production sales volumes , and higher pipeline , water and net marketing services , partially offset by higher operating expenses , higher interest expense , higher net income attributable to noncontrolling interests and a loss on debt extinguishment in 2017. during the year ended december 31 , 2017 , the company recorded acquisition expenses of approximately $ 237.3 million related to the rice merger , including $ 141.3 million of employee related expenses for payments to former rice employees under the merger agreement . additional expenses were for investment banking , legal and other professional fees . acquisition costs are reflected in unallocated expenses and not recorded on any operating segment . eqt production received $ 40.7 million and $ 279.4 million of net cash settlements for derivatives not designated as hedges for the years ended december 31 , 2017 and 2016 , respectively , that are included in the average realized price but are not in gaap operating revenues . net loss attributable to eqt corporation for 2016 was $ 453.0 million , a loss of $ 2.71 per diluted share , compared with net income attributable to eqt corporation of $ 85.2 million , $ 0.56 per diluted share , in 2015 . the $ 538.2 million decrease in income attributable to eqt corporation was primarily attributable to a loss on derivatives not designated as hedges , a 20 % decrease in the average realized price , higher operating expenses and higher net income attributable to noncontrolling interests , partially offset by a 26 % increase in production sales volumes and lower income tax expense . eqt production received $ 279.4 million and $ 172.1 million of net cash settlements for derivatives not designated as hedges for the years ended december 31 , 2016 and 2015 , respectively , that are included in the average realized price but are not in gaap operating revenues . during the year ended december 31 , 2016 , the company recorded an impairment of long-lived assets of approximately $ 59.7 million related to certain gathering assets sold to eqm in october 2016. the impairment was a result of a reduction in estimated future cash flows caused by the low commodity price environment and the related reduced producer drilling activity and throughput . this impairment is reflected in unallocated expenses and not recorded on any operating segment . see โ business segment results of operations โ for a discussion of items impacting operating income , โ other income statement items โ for a discussion of other income , interest expense , income taxes and net income attributable to noncontrolling interests , and โ investing activities โ under the caption โ capital resources and liquidity โ for a discussion of capital expenditures . consolidated operational data the following table presents detailed natural gas and liquids operational information to assist in the understanding of the company 's consolidated operations , including the calculation of the company 's average realized price ( $ /mcfe ) , which is based on eqt production adjusted operating revenues , a non-gaap supplemental financial measure . eqt production adjusted operating revenues is presented because it is an important measure used by the company 's management to evaluate period-to-period comparisons of earnings trends . eqt production adjusted operating revenues should not be considered as an alternative to eqt production total operating revenues . see โ reconciliation of non-gaap financial measures โ for a reconciliation of eqt production 37 adjusted operating revenues to eqt production total operating revenues and note 6 to the consolidated financial statements for a reconciliation of eqt production total operating revenues to eqt corporation total operating revenues . replace_table_token_14_th ( a ) the company 's volume weighted nymex natural gas price ( actual average nymex natural gas price ( $ /mmbtu ) was $ 3.11 , $ 2.46 and $ 2.66 for the years ended december 31 , 2017 , 2016 and 2015 , respectively ) . ( b ) basis represents the difference between the ultimate sales price for natural gas and the nymex natural gas price . ( c ) ngls , ethane and crude oil were converted to mcfe at the rate of six mcfe per barrel for all periods . ( d ) also referred to in this report as eqt production adjusted operating revenues , a non-gaap supplemental financial measure . story_separator_special_tag ( c ) includes cash capital expenditures of $ 819.0 million , non-cash capital expenditures of $ 10.0 million and measurement period adjustments of $ ( 14.3 ) million for acquisitions during the year ended december 31 , 2017. includes cash capital expenditures of $ 1,051.2 million and non-cash capital expenditures of $ 87.6 million related to acquisitions during the year ended december 31 , 2016. see note 10 to the consolidated financial statements for additional information related to these transactions . ( d ) for the year ended december 31 , 2017 , the operating income for eqt production includes the results of operations for the production operations and retained midstream operations acquired in the rice merger for the period of november 13 , 2017 through december 31 , 2017. see note 2 for a discussion of the rice merger . 41 year ended december 31 , 2017 vs. december 31 , 2016 eqt production 's operating income totaled $ 589.7 million for 2017 compared to operating loss of $ 719.7 million for 2016 . the $ 1,309.4 million increase was primarily due to gains on derivatives not designated as hedges for the year ended december 31 , 2017 compared to losses on derivatives not designated as hedges for the year ended december 31 , 2016 , higher average realized price and increased sales volumes of produced natural gas and ngls , partly offset by increased operating expenses . these variances include the impact of the operations of rice for the period subsequent to the rice merger , which added approximately $ 165.6 million of operating income for the year ended december 31 , 2017 , including $ 114.6 million in gains on derivatives not designated as hedges . total operating revenues were $ 3,106.3 million for 2017 compared to $ 1,387.1 million for 2016 . sales of natural gas , oil and ngls increased as a result of a higher average realized price and a 17 % increase in production sales volumes in 2017. eqt production received $ 40.7 million and $ 279.4 million of net cash settlements for derivatives not designated as hedges for the years ended december 31 , 2017 and 2016 , respectively , that are included in the average realized price but are not in gaap operating revenues . changes in fair market value of derivative instruments prior to settlement are recognized in gain ( loss ) on derivatives not designated as hedges . the increase in production sales volumes was primarily the result of recent acquisition activity , including the rice merger , as well as increased production from the 2015 and 2016 drilling programs , primarily in the marcellus play , partially offset by the normal production decline in the company 's producing wells in 2017. the $ 0.57 per mcfe increase in the average realized price for the year ended december 31 , 2017 was primarily due to the increase in the average nymex natural gas price net of cash settled derivatives of $ 0.29 per mcf , an increase in the average natural gas differential of $ 0.19 per mcf and an increase in liquids prices . the improvement in the average differential primarily related to more favorable basis partly offset by unfavorable cash settled basis swaps . during 2017 , basis improved in the appalachian basin and at sales points reached through the company 's transportation portfolio , particularly in the united states northeast . in addition , the company started flowing its produced volumes to its rockies express pipeline capacity and texas eastern transmission gulf markets pipeline capacity in the fourth quarter of 2016 , which resulted in a favorable impact to basis for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. pipeline and net marketing services primarily includes gathering revenues for gathering services provided to third parties and both the cost of and recoveries on third party pipeline capacity not used to transport the company 's produced volumes . the $ 24.0 million increase in these revenues primarily related to increased gathering revenues for services provided to third parties on gathering lines acquired from rice in addition to costs , net of recoveries , for the company 's rockies express pipeline capacity in 2016. eqt production total operating revenues for the year ended december 31 , 2017 included a $ 390.0 million gain on derivatives not designated as hedges compared to a $ 249.0 million loss on derivatives not designated as hedges for the year ended december 31 , 2016 . the gains for the year ended december 31 , 2017 primarily related to increases in the fair market value of eqt production 's nymex swaps due to decreased nymex prices , partly offset by decreases in the fair market value of its basis swaps due to increased basis prices . gathering expense increased due to increased affiliate and third party gathering capacity . the rice merger increased affiliate gathering expense as a result of volumes gathered by rmp gathering which added approximately $ 21.0 million of expense for the post-rice merger period . in addition , eqt production increased firm gathering capacity on the affiliate gathering systems owned by eqm gathering in the fourth quarter of 2016 and 2017. the company 's 2016 and 2017 acquisitions , excluding rice , added third party gathering capacity and expense . transmission expense increased due to increased third party capacity and increased firm contracts with affiliates incurred to move eqt production 's natural gas out of the appalachian basin . during the fourth quarter of 2016 , eqm 's ohio valley connector ( ovc ) was placed into service and as a result , the company started flowing its produced volumes to its rockies express pipeline capacity . additionally , the company 's firm capacity on rockies express pipeline increased in the first quarter of 2017. firm capacity acquired in connection with the rice merger also increased transmission expenses by approximately $ 24.2 million .
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results of operations replace_table_token_19_th ( a ) this table sets forth selected financial and operational data for rmp gathering for the period november 13 , 2017 through december 31 , 2017 , as the company acquired rmp gathering on november 13 , 2017 as part of the rice merger . the majority of rmp gathering revenues are from contracts with eqt production to gather gas in washington and greene counties , pennsylvania . rmp gathering provides all services under long-term contracts that are supported in most cases by acreage dedications . rmp gathering charges separate rates for gathering and compression services based on the actual volumes gathered and compressed . during the period from november 13 , 2017 through december 31 , 2017 , operating expenses are composed of customary expenses for a gathering business . 48 rmp water results of operations replace_table_token_20_th ( a ) this table sets forth selected financial and operational data for rmp water for the period november 13 , 2017 through december 31 , 2017 , as the company acquired rmp water on november 13 , 2017 as part of the rice merger . rmp water provides fresh water for well completions operations in the marcellus and utica shales and collects and recycles or disposes of flowback and produced water . the majority of rmp water 's services are provided to eqt production . rmp water offers its services on a volumetric basis , supported by an acreage dedication from eqt production for certain drilling areas . rmp water charges customers a fee per gallon of water ; this fee is tiered and thus is lower on a per gallon basis once the customer meets certain volumetric thresholds . during the period from november 13 , 2017 through december 31 , 2017 , operating expenses are composed of customary expenses for a water business .
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with respect to each non-employee director serving on our board of directors upon the completion of our initial public offering , these options will vest concurrently with the expiration of the initial term of office for the class in which such director serves , subject to the director 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 . ยrisk factorsย and ยspecial note regarding forward-looking statementsย 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 . overview we are a clinical stage biotechnology company focused on the discovery and development of novel glycomimetic drugs to address unmet medical needs resulting from diseases in which carbohydrate biology plays a key role . glycomimetics are molecules that mimic the structure of carbohydrates involved in important biological processes . using our expertise in carbohydrate chemistry and knowledge of carbohydrate biology , we are developing a pipeline of proprietary glycomimetics that inhibit disease-related functions of carbohydrates , such as the roles they play in inflammation , cancer and infection . we believe this represents an innovative approach to drug discovery to treat a wide range of diseases . we are focusing our initial efforts on drug candidates for rare diseases that we believe will qualify for orphan drug designation . we are developing our lead drug candidate , rivipansel , previously known as gmi-1070 , for the treatment of vaso-occlusive crisis , or voc , one of the most severe complications of sickle cell disease . rivipansel has received both orphan drug designation and fast track designation from the u.s. food and drug administration , or fda , for the treatment of voc . in october 2011 , we entered into a license agreement with pfizer under which we were responsible for the clinical development of rivipansel through the completion of a phase 2 clinical trial . following our completion of the phase 2 clinical trial in april 2013 , pfizer is now responsible for all further clinical development , regulatory approval and potential commercialization of rivipansel for all indications and pfizer has commercial rights to rivipansel worldwide . in july 2014 , pfizer reached an agreement with the fda under a special protocol assessment , or spa , for the phase 3 trial . however , in september 2014 , we were informed by pfizer that initiation of the phase 3 clinical trial with rivipansel will be significantly delayed due to a manufacturing development issue impacting formulated drug supply . pfizer advised us that the issue is under review and noted that upon identifying the specific cause of and planned remedy for the manufacturing issue , we will be informed of a more specific timeframe for commencing the phase 3 trial . building on our experience with rivipansel , we are developing a pipeline of other glycomimetic drug candidates . our second most advanced drug candidate , gmi-1271 , is a specific e-selectin inhibitor , which we are developing to be used in combination with chemotherapy to treat patients with acute myeloid leukemia , or aml , and potentially other hematologic cancers . in june 2014 , we commenced a phase 1 clinical trial to evaluate the safety , tolerability and pharmacokinetics of gmi-1271 for the treatment of aml . we have initiated preparations for a multinational , phase 1/2 , open-label trial of gmi-1271 as an adjunct to standard chemotherapy in patients with aml , and we expect patient recruitment for this trial to begin in the first quarter of 2015. we are also collaborating with the university of michigan to evaluate gmi-1271 as a potential new class of anticoagulant to treat persons at risk for venous thromboembolic disease , or vte , a serious blood-clotting disorder . the university of michigan of gmi-1271 began dosing healthy volunteers in a phase 1 clinical study starting in december 2014. the phase 1 clinical study is a randomized , partially blinded , active placebo-controlled trial expected to last approximately 10 months . 63 we are also developing a pipeline of other preclinical drug candidates based on our expertise in carbohydrate chemistry . we have retained the worldwide development and commercialization rights to all of our drug candidates other than rivipansel . we commenced operations in 2003 , and our operations to date have been limited to organizing and staffing our company , business planning , raising capital , developing our glycomimetics platform , identifying potential drug candidates , undertaking preclinical studies and , beginning in 2008 , conducting clinical trials of rivipansel and gmi-1271 . to date , we have financed our operations primarily through private placements of our securities , upfront and milestone payments under our collaboration with pfizer and the net proceeds from our ipo in january 2014. we have no products currently available for sale , and substantially all of our revenue to date has been revenue from the upfront and milestone payments from pfizer , although we have received nominal amounts of revenue under research grants . prior to our ipo , we raised an aggregate of $ 86.6 million to fund our operations , of which $ 22.5 million was an upfront payment under our collaboration with pfizer and $ 64.1 million was from the sale of our convertible promissory notes and convertible preferred stock . the ipo provided us with net proceeds of $ 57.2 million , and we received a non-refundable milestone payment from pfizer in may 2014 of $ 15.0 million . story_separator_special_tag for each of the research terms ended in february 2014 and 2015 , we paid the university approximately $ 200,000. as part of the original consideration for entering into this agreement , we granted to the university the right to receive payments from us under specified circumstances . if we receive any future milestone payments or royalties from pfizer with respect to rivipansel , we have agreed to pay 10 % of those amounts to the university . as of december 31 , 2014 , we have recorded an accrued expense of $ 1.5 million payable to the university , which is equal to 10 % of the $ 15.0 million non-refundable milestone payment we received from pfizer in may 2014. amounts paid to the university are recorded as research and development expense on our statements of operations . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states , or gaap . the preparation of these financial statements requires us to make estimates , judgments and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of revenue and expenses during the reporting periods . in accordance with gaap , we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made . actual results may differ materially from our estimates and judgments under different assumptions or 65 conditions . we periodically review our estimates in light of changes in circumstances , facts and experience . the effects of material revisions in estimates are reflected in our financial statements prospectively from the date of the change in estimate . we define our critical accounting policies as those accounting principles generally accepted in the united states that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations , as well as the specific manner in which we apply those principles . while our significant accounting policies are more fully described in note 2 to our financial statements appearing elsewhere in this annual report , we believe the following are the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments . revenue recognition license and collaboration agreements we have entered into a license agreement with pfizer . under the agreement , pfizer made a nonrefundable $ 22.5 million upfront payment to us in 2011 and may become obligated to make potential milestone payments to us upon the achievement of significant clinical development milestones , regulatory approvals and sales-based events . the agreement also contemplates royalty payments to us on any future net sales of rivipansel worldwide . collaborative research and development agreements can provide for one or more of upfront license fees , research payments and milestone payments . agreements with multiple components , such as deliverables or similar items , are referred to as multi-element revenue arrangements and are evaluated according to the provisions of accounting standards codification , or asc , topic 605-25 , revenue recognition ย multiple-element arrangements , to determine whether the deliverables can be separated into more than one unit of accounting . an item can generally be considered to be a separate unit of accounting if both of the following criteria are met : the delivered item ( s ) has value to our customer on a standalone basis ; and the arrangement includes a general right of return relative to the delivered item ( s ) , and delivery or performance of the undelivered item ( s ) is considered probable and substantially in our control . items that can not be divided into separate units are combined with other units of accounting , as appropriate . consideration received is then allocated among the separate units based on a selling price hierarchy . the selling price hierarchy for each deliverable is based on vendor-specific objective evidence , or vsoe , if it is available ; third-party evidence of selling price , or tpe , if vsoe is not available ; or an estimated selling price , if neither vsoe nor tpe is available . our license agreement with pfizer represents a multiple-element revenue arrangement . to account for this transaction , we determined the elements , or deliverables , included in the arrangement and allocated arrangement consideration to the various elements based on each element 's relative selling price . the identification of individual elements in a multiple-element arrangement and the estimation of the selling price of each element involve significant judgment , including consideration as to whether each delivered element has standalone value to our collaborator . the primary deliverable under our license arrangement with pfizer is an exclusive worldwide license to rivipansel , which is currently being developed to treat people experiencing voc . the arrangement also includes 66 deliverables related to research and preclinical development activities to be performed by us on pfizer 's behalf and our participation on a joint steering committee . we concluded that these deliverables should be accounted for as a single unit of accounting , and we therefore determined to recognize the upfront payment of $ 22.5 million as revenue over the expected development period of 1.5 years , which was the period over which we expected to provide our research and development services and participate on the joint steering committee under the arrangement . our determination of the appropriate length of the period over which to recognize revenue was consistent with the research plan agreed to with pfizer and the actual development timeline . in reaching this conclusion , we evaluated whether the license to rivipansel has standalone value to pfizer .
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components of operating results revenue to date , we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of drugs in the near future . substantially all of our revenue recognized to date has consisted of the upfront payment under our agreement with pfizer . as of december 31 , 2014 , we have received a developmental milestone payment of $ 15.0 million but have not received any regulatory or commercial milestone payments or any royalties under the pfizer collaboration . since our inception , we have also recognized a nominal amount of revenue under research grant contracts , generally to the extent of our costs incurred in connection with specific research or development activities . research and development research and development expenses consist of expenses incurred in performing research and development activities , including compensation and benefits for full-time research and development employees , facilities expenses , overhead expenses , cost of laboratory supplies , clinical trial and related clinical manufacturing expenses , fees paid to cros and other consultants and other outside expenses . other preclinical research and platform programs include activities related to exploratory efforts , target validation , lead optimization for our earlier programs and our proprietary glycomimetics platform . to date , our research and development expenses have related primarily to the development of rivipansel and our other drug candidates . as of april 2013 , when we completed our phase 2 clinical trial of rivipansel , all further clinical development obligations associated with rivipansel have shifted to pfizer . we do not currently utilize a formal time allocation system to capture expenses on a project-by-project basis because we are organized and record expense by functional department and our employees may allocate time to more than one development project . accordingly , we only allocate a portion of our research and development expenses by functional area and by drug candidate .
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our intellectual property consist of composition of matter , materials , methods of production , systems incorporating the technology and multiple medical uses with expiration dates ranging from two to 15 years . in march 2011 , we received eu regulatory approval under the ce mark and medical devices directive for our flagship product , cytosorb , as an extracorporeal cytokine filter indicated for use in clinical situations where cytokines are elevated . the goal of cytosorb is to prevent or treat organ failure by reducing cytokine storm and the potentially deadly systemic inflammatory response syndrome in diseases such as sepsis , trauma , burn injury , acute respiratory distress syndrome , pancreatitis , liver failure , and many others . organ failure is the leading cause of death in the icu , and remains a major unmet medical need , with little more than supportive care therapy ( e.g. , mechanical ventilation , dialysis , vasopressors , fluid support , ecmo , etc . ) as treatment options . by potentially preventing or treating organ failure , cytosorb may improve clinical outcome , including survival , while reducing the need for costly icu treatment , thereby potentially saving significant healthcare costs . cytosorb is also being used during and after cardiac surgery to remove inflammatory mediators , such as cytokines and free hemoglobin , which can lead to post-operative complications including multiple organ failure . our ce mark enables cytosorb to be sold throughout all 28 countries of the eu . in addition , many countries outside the eu accept ce mark approval for medical devices , but may also require registration with or without additional clinical studies . the broad approved indication enables cytosorb to be used โ on-label โ in diseases where cytokines are elevated including , but not limited to , critical illnesses such as those mentioned above , autoimmune disease flares , cancer cachexia , and many other conditions where cytokine-induced inflammation plays a detrimental role . as part of the ce mark approval process , we completed our randomized , controlled , european sepsis trial amongst fourteen trial sites in germany in 2011 , with enrollment of 100 patients with sepsis and respiratory failure . the trial established that cytosorb was safe in this critically-ill population , and that it was able to broadly reduce key cytokines in the blood of these patients . we plan to conduct larger , prospective studies in septic patients in the future to confirm the european sepsis trial findings . in addition to ce mark approval , we also achieved iso 13485:2003 full quality systems certification , an internationally recognized quality standard designed to ensure that medical device manufacturers have the necessary comprehensive management systems in place to safely design , develop , manufacture and distribute medical devices in the eu . we manufacture cytosorb at our manufacturing facilities in new jersey for sale and for additional clinical studies . we also established a dedicated reimbursement path for cytosorb in germany and a reimbursement for cytosorb in austria . from september 2011 through june 2012 , we began a controlled market release of cytosorb in select geographic territories in germany with the primary goal of preparing for commercialization of cytosorb in germany in terms of manufacturing , reimbursement , logistics , infrastructure , marketing , contacts , and other key issues . in late june 2012 , following the establishment of our european subsidiary , cytosorbents europe gmbh , we began the commercial launch of cytosorb in germany with the hiring of dr. christian steiner as vice president of sales and marketing and three additional sales representatives . the fourth quarter of 2012 represented the first full quarter of direct sales with the full sales team in place . during this period , we expanded our direct sales efforts to include both austria and switzerland . at the end of 2017 , we had hundreds of kols in our commercialized territories worldwide in critical care , cardiac surgery , and blood purification who were either using cytosorb or supporting its use in clinical practice or clinical trials . in march 2016 , we established cytosorbents switzerland gmbh , a wholly-owned subsidiary of cytosorbents europe gmbh , to conduct marketing and direct sales in switzerland . this subsidiary began operations during the second quarter of 2016. in 2017 , we further expanded our direct sales efforts into belgium and luxemburg . as of february 15 , 2018 , our european sales , marketing and clinical support team includes 18 direct sales people , one contract sales person and 13 sales support staff . 51 we have complemented our direct sales efforts with sales to distributors and or corporate partners . in 2013 , we reached agreements with distributors in the united kingdom , ireland , turkey , russia , and the netherlands . in 2014 , we announced distribution of cytosorb in the middle east , including saudi arabia , the united arab emirates , kuwait , qatar , bahrain , and oman ( the gcc ) and yemen , iraq , and jordan through an exclusive agreement with techno orbits , we entered into an exclusive agreement with smart medical solutions s.r.l. , to distribute cytosorb for critical care applications in romania and the neighboring republic of moldova . in 2015 , we announced exclusive distribution agreements with aferetica srl to distribute cytosorb in italy , alphamedix ltd. to distribute cytosorb in israel , tekmed pty ltd. to distribute cytosorb in australia and new zealand , and hoang long pharma to distribute cytosorb in vietnam . in june 2016 , we announced an exclusive distribution agreement with palex medical sa to distribute cytosorb in spain and portugal . in september 2016 , we announced an exclusive agreement with armaghan salamat kish group ( arsak ) to distribute cytosorb in iran . in october 2016 , we announced an exclusive agreement with foxx medical chile spa to distribute cytosorb in chile . story_separator_special_tag the fda subsequently approved an amendment to the protocol , expanding the trial to be a 40 patient randomized controlled study ( 20 treatment , 20 control ) in eight clinical centers . refresh i represented the first part of a larger clinical trial strategy intended to support the approval of cytosorb in the u.s. for intra-operative use during cardiac surgery . the refresh i study was designed to evaluate the safety and feasibility of cytosorb when used intra-operatively in a heart-lung machine to reduce plasma free hemoglobin ( pfhb ) and cytokines in patients undergoing complex cardiac surgery . the study was not powered to measure effect on clinical outcomes . the length , complexity and invasiveness of these procedures cause hemolysis and inflammation , leading to high levels of plasma free hemoglobin , cytokines , activated complement , and other substances . these inflammatory mediators are correlated with the incidence of serious post-operative complications such as kidney injury , renal failure and other organ dysfunction . the goal of cytosorb is to actively remove these inflammatory and toxic substances as they are being generated during the surgery and reduce complications . enrollment was completed with 46 patients . a total of 38 patients were evaluable for pfhb and completed all aspects of the study . the primary safety and efficacy endpoints of the study were the assessment of serious device related adverse events and the change in plasma free hemoglobin levels , respectively . on october 5 , 2016 , we announced positive top-line safety data . in addition , following a detailed review of all reported adverse events in a total of 46 enrolled patients , the dsmb found no serious device related adverse events with the cytosorb device , achieving the primary safety endpoint of the trial . in addition , the therapy was well-tolerated and technically feasible , implementing easily into the cardiopulmonary bypass circuit without the need for an additional external blood pump . this study represents the first randomized controlled trial demonstrating the safety of intra-operative cytosorb use in patients undergoing high risk cardiac operations . investigators of the refresh i trial submitted an abstract with data , including free hemoglobin data , from the refresh i trial which was selected for a podium presentation at the american association of thoracic surgery conference on may 1 , 2017. on may 5 , 2017 , we announced additional refresh i data , including data from the study on the reduction of pfhb and activated complement , and disclosed that investigators of the study have submitted a manuscript of the refresh i trial for publication . in december 2017 , the fda approved our ide application for our refresh 2 study . the refresh 2 study is a pivotal trial designed to provide the key safety and efficacy data needed to support united states regulatory approval for the use of cytosorb in cardiac surgery , which we are planning to pursue via the premarket approval ( pma ) pathway . the ide approval allows us to aggressively move forward with our clinical trial sites to complete the final steps prior to the official start of the study . the refresh 2 pivotal study will assess the effectiveness of intraoperative cytosorb blood treatment on postoperative acute kidney injury ( aki ) , the primary endpoint of the study and one of the most common adverse events in patients undergoing complex cardiac surgery . the refresh 2 trial is a randomized , controlled , multi-center , clinical trial designed to evaluate intraoperative cytosorb use as a therapy to reduce the incidence and severity of aki , as measured by kidney disease improving global outcomes ( kdigo ) criteria , following complex cardiac surgery . the trial will enroll up to 400 patients at increased risk of cardiovascular surgery associated aki , undergoing elective , non-emergent open heart surgery for either valve replacement , or aortic reconstruction with hypothermic cardiac arrest . the company has initiated discussions with previous trial sites that participated in the refresh i study that are familiar with the cytosorb device and intraoperative use during cpb . the company believes using sites that previously participated in refresh i will accelerate the process of site startup and launch of refresh 2. the company is ramping the trial , and has begun screening patients at a key site involved in refresh i and is working to add additional centers experienced in the conduct of clinical trials in complex cardiac surgery . we anticipate that this study will take at least two years to complete , and could take longer if enrollment challenges and other factors causing delays are encountered . the market focus of cytosorb is prevention or treatment of organ failure in life-threatening conditions , including commonly seen illnesses in the icu such as infection and sepsis , trauma , burn injury , ards , and others . severe sepsis and septic shock , a potentially life-threatening systemic inflammatory response to a serious infection , accounts for approximately 10 % to 20 % of all icu admissions and is one of the largest target markets for cytosorb . sepsis is a major unmet medical need with no approved products in the u.s. or europe to treat it . as with other critical care illnesses , multiple organ failure is the primary cause of death in sepsis . when used with standard of care therapy , that includes antibiotics , the goal of cytosorb in sepsis is to reduce the excessive levels of cytokines and other inflammatory toxins , to help reduce the sirs response and either prevent or treat organ failure . in addition to the sepsis indication , we intend to conduct or support additional clinical studies in sepsis , cardiac surgery , and other critical care diseases where cytosorb could be used , such as ards , trauma , severe burn injury , acute pancreatitis , and other acute conditions that may benefit by the reductions of cytokines in the bloodstream .
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results of operations our financial statements have been presented on the basis that it is a going concern , which contemplates the realization of revenues and the satisfaction of liabilities in the normal course of business . we have incurred losses from inception of operations . these factors raise substantial doubt about our ability to continue as a going concern . comparison of the year ended december 31 , 2017 and 2016 revenues : for the year ended december 31 , 2017 , we generated total revenue , which includes product revenue and grant income , of approximately $ 15,151,000 as compared to revenues of approximately $ 9,528,000 for the year ended december 31 , 2016 , an increase of approximately $ 5,623,000 , or 59 % . revenue from product sales was approximately $ 13,382,000 for the year ended december 31 , 2017 , as compared to approximately $ 8,206,000 in the year ended december 31 , 2016 , an increase of approximately $ 5,176,000 or 63 % . this increase was largely driven by an increase in direct sales from both new customers and repeat orders from existing customers , along with an increase in distributor sales . grant income increased by approximately $ 447,000 , or 34 % , to approximately $ 1,769,000 in 2017 from $ 1,322,000 in 2016 as a result of revenue received from new grants awarded during 2017 . 55 cost of revenue : for the years ended december 31 , 2017 and 2016 , cost of revenue was approximately $ 5,518,000 and $ 3,954,000 , respectively , an increase of approximately $ 1,564,000 , or 40 % .
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disposition of real estate assets gains and losses from dispositions are recognized once the various criteria relating to the terms of sale and any subsequent involvement by the company with the asset sold are met . a discontinued operation includes only the disposal of a component of an entity and represents a strategic shift that has ( or will have ) a major effect on an entity 's financial results . the disposition of the company 's individual properties did not qualify for discontinued operations presentation , and thus , the results of the properties that have been sold remain in operating income , and any associated gains or losses from the disposition are included in gain on disposition of real estate , net . allocation of purchase price of real estate assets upon the acquisition of real properties , the company allocates the purchase price to acquired tangible assets , consisting of land , buildings and improvements , and to identified intangible assets and liabilities , consisting of the value of above- and below-market leases and the value of in-place leases and other intangibles , based in each case on their respective fair values . story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with part ii , item 6. selected financial data section in this annual report on form 10-k and our accompanying consolidated financial statements and the notes thereto . see also the โ cautionary note regarding forward-looking statements โ section preceding part i. overview we were formed on july 27 , 2010 , to acquire and operate a diversified portfolio of ( 1 ) necessity retail , office and industrial properties that are leased to creditworthy tenants under long-term net leases , and are strategically located throughout the united states , ( 2 ) notes receivable and other investments secured by commercial real estate , including the origination of loans , and ( 3 ) u.s. government securities , agency securities , corporate debt and other investments for which there is reasonable liquidity . we commenced our principal operations on december 7 , 2011 , when we issued the initial $ 10.0 million in shares of our common stock in the offering and acquired our first real estate property . when we refer to our share classes in this annual report on form 10-k with respect to dates prior to the restructure date , we are referring to our shares under our prior share structure , and when we refer to our share classes in this annual report on form 10-k with respect to dates on or after the restructure date , we are referring to our shares under our new share structure . we have no paid employees and are externally advised and managed by cim income nav management . on february 1 , 2018 , the transaction , as discussed in part i , item 1 business โ formation , was completed . as a result of the transaction , cim indirectly owns and or controls cim income nav management ; our dealer manager , cco capital ; our property manager , crei advisors ; and cco group . as part of the transaction , pursuant to the services agreement , vereit op is obligated to provide certain services to cco group and to us , including operational real estate support . vereit op is obligated to provide such services through march 31 , 2019 ( or , if later , the date of the last government filing other than a tax filing made by us , ccpt iv , ccpt v , ccit ii and or ccit iii with respect to its 2018 fiscal year ) and is obligated to provide consulting and research services through december 31 , 2023 as requested by cco group , llc . the services provided by vereit op during the initial services term , including but not limited to any advisory , dealer manager and property management services , have been , or by march 31 , 2019 , will be , transitioned to , and will be provided directly by , our sponsor , advisor , dealer manager or an affiliate thereof . as we acquire additional commercial real estate , we will be subject to changes in real estate prices and changes in interest rates on any current variable rate debt , refinancings or new indebtedness used to acquire the properties . we may manage our risk of changes in real estate prices on future property acquisitions , when applicable , by entering into purchase agreements and loan commitments simultaneously , or through loan assumptions , so that our operating yield is determinable at the time we enter into a purchase agreement , by contracting with developers for future delivery of properties , or by entering into sale-leaseback transactions . we manage our interest rate risk by monitoring the interest rate environment in connection with our future property acquisitions , when applicable , or upcoming debt maturities to determine the appropriate financing or refinancing terms , which may include fixed rate loans , variable rate loans or interest rate hedges . if we are unable to acquire suitable properties or obtain suitable financing terms for future acquisitions or refinancing , our results of operations may be adversely affected . as of december 31 , 2018 , we ow ned 152 properties located in 35 states , comprising 5.7 million rentable square feet of commercial space , which includes the rentable square feet of buildings on land subject to ground leases . our operating results and cash flows are primarily influenced by rental income from our commercial properties and interest expense on our property indebtedness and acquisition and operating expen ses . rental and other property income accounted for 90 % , 91 % , 90 % of our total revenue for the years ended december 31 , 2018 , 2017 , and 2016 , respectively . story_separator_special_tag issued approximately 9.8 million shares of common stock in the offering , including 758,000 in shares issued pursuant to the drip , for gross offering proceeds of $ 181.4 million before organization and offering costs , upfront selling commissions , dealer manager fees , and the current portion of stockholder servicing fees of $ 7.9 million . total debt increased by $ 78.7 million , from $ 278.2 million to $ 356.9 million . portfolio information real estate portfolio as of december 31 , 2018 , we owned 152 commercial properties located in 35 states , comprising 5.7 million rentable square feet , which includes the rentable square feet of buildings on land subject to ground leases . as of december 31 , 2018 , these properties were 99.6 % leased ( including any month-to-month agreements ) with a weighted average remaining lease term of 10.9 years . the following table shows the property statistics of our real estate assets as of december 31 , 2018 , 2017 and 2016 : replace_table_token_6_th ( 1 ) includes square feet of buildings on land that are subject to ground leases . ( 2 ) investment-grade tenants are those with a credit rating of bbb- or higher by standard & poor 's or a credit rating of baa3 or higher by moody 's . the ratings may reflect those assigned by standard & poor 's or moody 's to the lease guarantor or the parent company , as applicable . the weighted average credit rating is weighted based on annualized rental income , and is for only those tenants rated by standard & poor 's . the following table summarizes our real estate acquisition activity during the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_7_th ( 1 ) includes square feet of buildings on land that are subject to ground leases . 61 the following table shows the tenant diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2018 : replace_table_token_8_th ( 1 ) includes leases which are master lease agreements . ( 2 ) including square feet of buildings on land that is subject to ground leases . the following table shows the tenant industry diversification of our real estate portfolio , based on annualized rental income as of december 31 , 2018 : replace_table_token_9_th ( 1 ) includes leases which are master lease agreements . ( 2 ) including square feet of buildings on land that is subject to ground leases . 62 the following table shows the geographic diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2018 : replace_table_token_10_th ( 1 ) including square feet of buildings on land that is subject to ground leases . the following table shows the property type diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2018 : replace_table_token_11_th ( 1 ) includes square feet of buildings on land parcels subject to ground leases . leases although there are variations in the specific terms of the leases of our properties , the following is a summary of the general structure of our current leases . generally , the leases of the properties acquired provide for initial terms of ten or more years , and provide the tenant with one or more multi-year renewal options , subject to generally the same terms and conditions as the initial lease term . certain leases also provide that in the event we wish to sell the property subject to that lease , we first must offer the lessee the right to purchase the property on the same terms and conditions as any offer which we intend to accept for the sale of the property . the properties are generally leased under net leases pursuant to which the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation , including utilities , property taxes and insurance , while certain of the leases require us to maintain the roof , structure and parking areas of the building . additionally , certain leases provide for increases in rent as a result of fixed increases , increases in the consumer price index , and or increases in the tenant 's sales volume . our leases , as of december 31 , 2018 , provided for annual base rental payments ( payable in monthly installments ) ranging from $ 15,000 to $ 3.0 million , and had an average annual base rental payment of $ 365,000 , with a weighted average remaining lease term of 10.9 years . 63 the following table shows lease expirations of our real estate portfolio as of december 31 , 2018 , during each of the next ten years and thereafter , assuming no exercise of renewal options : replace_table_token_12_th * represents less than 1 % of the total annual base rent . ( 1 ) includes leases which are master lease agreements . ( 2 ) including square feet of buildings on land that is subject to ground leases . the following table shows the economic metrics of our real estate assets as of and for the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_13_th ( 1 ) based on annualized rental income of our real estate portfolio as of the respective reporting date . ( 2 ) through the end of the next five years as of the respective reporting date . 64 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; background-color : # ffffff ; '' > $ 533,000 for the year ended december 31 , 2018 , compared to the same period in 2017 , was primarily due to an increase in platform fees related to the increase in the size of our portfolio and operating expense reimbursements to our advisor . advisory fees and expenses the advisory fees and expenses that we pay to our advisor are based upon our nav .
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results of operations overview we are not aware of any material trends or uncertainties , other than national economic conditions affecting real estate in general , that may reasonably be expected to have a material impact on our results from the acquisition , management and operations of properties other than those listed in part i , item 1a โ risk factors . same store analysis our results of operations are influenced by the timing of acquisitions and the operating performance of our real estate assets . we review our stabilized operating results , measured by net operating income ( โ noi โ ) , from properties that we owned for the entirety of both the current and prior year reporting periods , referred to as โ same store โ properties , and we believe that the presentation of operating results for same store properties provides useful information to stockholders . net operating income is a supplemental non-gaap financial measure of a real estate company 's operating performance . net operating income is considered by management to be a helpful supplemental performance measure , as it enables management to evaluate the impact of occupancy , rents , leasing activity , and other controllable property operating results at our real estate properties , and it provides a consistent method for the comparison of our properties . we define noi as operating revenues less operating expenses , which exclude ( i ) depreciation and amortization , ( ii ) interest expense and other non-property related revenue and expenses items such as ( a ) general and administrative expenses , ( b ) advisory fees , ( c ) transaction-related expenses and ( d ) income from marketable securities . our noi may not be comparable to that of other reits and should not be considered to be more relevant or accurate in evaluating our operating performance than the current gaap methodology used in calculating net income .
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> liquidity and capital resources : this section provides a discussion of our financial condition and an analysis of our cash flows for each of the three years ended december 31 , 2016 , 2015 and 2014. this section also provides a discussion of our contractual obligations , other purchase commitments and customer credit risk that existed at december 31 , 2016 , as well as a discussion of our ability to fund our future commitments and ongoing operating activities through internal and external sources of capital . > critical accounting policies and estimates : this section identifies and summarizes those accounting policies that significantly impact our reported results of operations and financial condition and require significant judgment or estimates on the part of management in their application . overview the company is a leader in home and security products focused on the design , manufacture and sale of market-leading branded products in the following categories : kitchen and bath cabinetry , plumbing and accessories , entry door systems , and security products . for the year ended december 31 , 2016 , net sales based on country of destination were : replace_table_token_8_th we believe the company has certain competitive advantages including market-leading brands , a diversified mix of customer channels , lean and flexible supply chains , a decentralized business model and a strong capital structure as well as a tradition of strong innovation and customer service . we are focused on outperforming our markets in growth , profitability and returns in order to drive increased shareholder value . we believe the company 's track record reflects the long-term attractiveness and potential of our categories and our leading brands . as consumer demand and the housing market grow , we expect the benefits of operating leverage and strategic spending to support increased manufacturing capacity and long-term growth initiatives will help us to continue to achieve profitable organic growth . 19 we believe our most attractive opportunities are to invest in profitable organic growth initiatives . we also believe that as the market grows , we have the potential to generate additional growth from leveraging our cash flows and balance sheet strength by pursuing accretive strategic acquisitions and joint ventures , and by returning cash to shareholders through a combination of dividends and repurchases under our share repurchase program as explained in further detail under ยliquidity and capital resourcesย below . the u.s. market for our home products consists of spending on both new home construction and repair and remodel activities within existing homes , with the substantial majority of the markets we serve consisting of repair and remodel spending . we believe that the u.s. market for our home products is in the midst of an elongated recovery from the u.s. economic recession that ended in mid-2009 and that a continued recovery will largely depend on consumer confidence , employment , home prices , stable mortgage rates and credit availability . over the long term , we believe that the u.s. home products market will benefit from favorable population and immigration trends , which will drive demand for new housing units , and from aging existing housing stock that will continue to need to be repaired and remodeled . we may be impacted by fluctuations in raw material , transportation costs and foreign exchange rates and promotional activity among our competitors . we strive to offset the potential unfavorable impact of these items with productivity improvements initiatives and price increases . during the three years ended december 31 , 2016 , our net sales grew at a compounded annual rate of 10 % as we benefited from an improving u.s. home products market , acquisitions , and growth in international markets . operating income grew at a compounded annual rate of 25 % with consolidated operating margins improving from 9 % in 2013 to 13 % in 2016. growth in operating income was primarily due to higher sales volume , changes to our portfolio of businesses , control and leverage of our operating expenses and the benefits of productivity programs . during 2016 , the u.s. home products market grew due to increases in new home construction and repair and remodel activities . we believe new housing construction experienced low double-digit growth in 2016 compared to 2015 and spending for home repair and remodeling increased in the range of 5 % . in 2016 , net sales grew 9 % and operating income increased 28 % due to higher sales volume primarily resulting from u.s. home products market growth , the acquisitions in our cabinets and plumbing segments , price increases to help mitigate cumulative raw material cost increases and the effect of unfavorable foreign exchange and productivity improvements . during 2015 , the u.s. home products market grew due to increases in new home construction and repair and remodel activities . we believe new housing construction experienced low double-digit growth in 2015 compared to 2014 and spending for home repair and remodeling increased approximately 5 % . in 2015 , net sales grew 14 % and operating income increased 23 % including the benefit of acquisitions of norcraft companies , inc. ( ยnorcraftย ) in 2015 , and john d. brush & co. , inc. ( ยsentrysafeย ) and anaheim manufacturing company ( ยanaheimย ) in 2014 , higher sales volume primarily resulting from u.s. home products market growth , price increases to help mitigate cumulative raw material cost increases and productivity improvements . during the third quarter of 2016 , we announced the creation of gpg , which was designed to support the growth of multiple plumbing brands with an enhanced set of products and brands , while leveraging moen 's existing global supply chain and broad distribution network . in september 2016 , we acquired rohl llc ( ยrohlย ) , a california-based luxury plumbing company and in a related transaction , we acquired tcl manufacturing ltd , which gave us ownership of perrin & rowe limited ( ยperrin & roweย ) , a uk manufacturer and designer of luxury kitchen and 20 bathroom plumbing products . story_separator_special_tag plumbing net sales increased $ 119.9 million , or 8 % , due to higher sales volume in the u.s. driven by improving u.s. market conditions and new product introductions , the benefit from the acquisitions of riobel , rohl and perrin & rowe and price increases to help mitigate cumulative raw material cost increases and the effect of unfavorable foreign exchange . these benefits were partially offset by higher sales rebates and approximately $ 18 million of unfavorable foreign exchange . operating income increased $ 40.9 million , or 14 % , due to higher net sales including the benefits of the acquisitions of riobel , rohl and perrin & rowe , as well as productivity improvements . these 25 benefits were partially offset by higher employee-related costs , higher advertising costs and approximately $ 7 million of unfavorable foreign exchange . operating income in 2016 was also favorably impacted by lower restructuring and other charges ( $ 4.0 million impact ) primarily related to severance costs to relocate a facility in china . doors net sales increased $ 33.9 million , or 8 % , due to higher sales volume driven primarily by improved conditions in the u.s. home products market , new product introductions , price increases to help mitigate cumulative raw material cost increases and favorable mix . operating income increased $ 17.9 million , or 41 % , due to higher net sales , the benefits of productivity improvements and approximately $ 2 million of favorable foreign exchange . these benefits were partially offset by higher employee related costs . security net sales increased $ 27.3 million , or 5 % , due primarily to higher sales volume in the u.s. and europe and price increases to help mitigate cumulative raw material cost increases . these benefits were partially offset by the impact of exiting certain product lines and approximately $ 3 million of unfavorable foreign exchange . operating income increased $ 10.7 million , or 19 % due to higher net sales and the benefits of productivity improvements . these benefits were partially offset by the impact of approximately $ 3 million of unfavorable foreign exchange . corporate corporate expenses in 2016 benefited from the absence of transaction costs associated with the norcraft acquisition ( $ 15.1 million in 2015 ) . this benefit was offset by higher employee-related costs and lower defined benefit plan income . replace_table_token_10_th ( a ) represents external costs directly related to the acquisition of norcraft and primarily includes expenditures for banking , legal , accounting and other similar services . in future periods the company may record , in the corporate segment , material expense or income associated with actuarial gains and losses arising from periodic remeasurement of our liabilities for defined benefit plans . at a minimum the company will remeasure its defined benefit plan liabilities in the fourth quarter of each year . remeasurements due to plan amendments and settlements may also occur in interim periods during the year . remeasurement of these liabilities attributable to updating our liability discount rates and expected return on assets may , in particular , result in material income or expense recognition . 26 2015 compared to 2014 total fortune brands net sales net sales increased $ 565.8 million , or 14 % . the increase was due to the benefit of the acquisitions of norcraft , sentrysafe , and anaheim ( approximately $ 369 million in aggregate ) , higher sales volume primarily from the continuing improvement in u.s. market conditions for home products , price increases to help mitigate cumulative raw material cost increases and favorable mix . these factors were partially offset by unfavorable foreign exchange of approximately $ 66 million and higher sales rebates . cost of products sold cost of products sold increased $ 350.8 million , or 13 % , due to higher net sales , including the impact of the acquisitions of norcraft , sentrysafe and anaheim ( approximately $ 246 million in aggregate ) , and investments to support increased manufacturing capacity and long-term growth initiatives , partially offset by the benefit of productivity improvements . selling , general and administrative expenses selling , general and administrative expenses increased $ 104.3 million , or 11 % , due to the impact of the acquisitions of norcraft , sentrysafe , and anaheim ( approximately $ 82 million in aggregate ) , $ 15.1 million of norcraft transaction costs , higher employee-related costs , and planned increases in strategic spending to support increased capacity and long-term growth initiatives . amortization of intangible assets amortization of intangible assets increased $ 8.5 million due to the acquisitions of norcraft , sentrysafe and anaheim . restructuring charges restructuring charges of $ 16.6 million in 2015 primarily related to the relocation of a manufacturing facility in our security segment , which included severance costs , and severance costs due to the relocation of a plumbing manufacturing facility in china . restructuring charges of $ 7.0 million in 2014 related to severance costs in security , plumbing and corporate , partially offset by a benefit from a foreign currency gain associated with the dissolution of a foreign entity in the plumbing segment . operating income operating income increased $ 92.6 million or 23 % . operating income benefited from higher net sales , including the impact of acquisitions , productivity improvements , and $ 11.2 million in lower defined benefit plan actuarial losses . these benefits were partially offset by investments to support manufacturing capacity increases for long-term growth , higher employee-related costs , higher sales rebates , approximately $ 16 million of unfavorable foreign exchange , $ 15.1 million of norcraft transaction costs and $ 15.0 million of higher restructuring and other charges . interest expense interest expense increased $ 21.5 million to $ 31.9 million due to higher average borrowings and higher average interest rates .
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results of operations the following discussion of both consolidated results of operations and segment results of operations refers to the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , and the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the discussion of consolidated results of operations should be read in conjunction with the discussion of segment results of operations and our financial statements and notes thereto included in this annual report on form 10-k. unless otherwise noted , all discussion of results of operations are for continuing operations . years ended december 31 , 2016 , 2015 and 2014 replace_table_token_9_th ( a ) corporate expenses include the components of defined benefit plan expense other than service cost which totaled ( income ) expense of $ ( 0.6 ) million , $ ( 3.6 ) million , and $ 4.9 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . in addition , corporate expenses for the year ended december 31 , 2015 includes $ 15.1 million of norcraft transaction costs . there are no amounts that represent the elimination or reversal of transactions between reportable segments . certain items had a significant impact on our results in 2016 , 2015 and 2014. these included the acquisitions of riobel , rohl , perrin & rowe , norcraft , anaheim and sentrysafe , dispositions of 22 waterloo and simonton , defined benefit plan recognition of actuarial losses , restructuring and other charges , asset impairment charges and the impact of changes in foreign currency exchange rates .
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our board of directors has established an asset/liability management committee , consisting of senior management . senior management meets daily to review pricing and liquidity needs and to assess our interest rate risk . this committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities , for determining the level of risk that is appropriate , given our business strategy , operating environment , capital , liquidity and performance objectives , and for managing this risk consistent with the guidelines approved by our board of directors . 51 the techniques we are currently using to manage interest rate risk include : using pricing strategies in an effort to balance the proportions of 30-year and 15-year fixed rate loans in our portfolio ; maintaining a modest portfolio of adjustable-rate one- to four-family residential loans ; funding a portion of our operations with deposits with terms greater than one year ; focusing our business operations on local retail customers who value our community orientation and personal service and who may be somewhat less sensitive to interest rate changes than wholesale deposit customers ; and maintaining a strong capital position , which provides for a favorable level of interest-earning assets relative to interest-bearing liabilities . depending on market conditions , from time to time we place more emphasis on enhancing net interest margin rather than matching the interest rate sensitivity of our assets and liabilities . in particular , we believe that the increased net interest income resulting from a mismatch in the maturity of our assets and liabilities portfolios can , during periods of stable or declining interest rates , provide high enough returns to justify increased exposure to sudden and unexpected increases in interest rates . as a result of this philosophy , our results of operations and the economic value of our equity will remain vulnerable to increases in interest rates and to declines due to the difference between long- and short-term interest rates . an important measure of interest rate risk is the amount by which the net present value of an institution 's cash flow from assets , liabilities and off balance sheet items changes in the event of a range of assumed changes in market interest rates . we have utilized the office of thrift supervision net portfolio value model ( `` npv '' ) to provide an analysis of estimated changes in our npv under the assumed instantaneous changes in the united states treasury yield curve . the financial model uses a discounted cash flow analysis and an option-based pricing approach to measuring the interest rate sensitivity of the npv . set forth below is an analysis of the changes to the economic value of our equity as of june 30 , 2011 in the event of designated changes in the united states treasury yield curve . at june 30 , 2011 , our npv exposure related to these hypothetical changes in market interest rates was within the current guidelines we have established . replace_table_token_23_th certain shortcomings are inherent in the methodology used in the above interest rate risk measurement . modeling changes in net portfolio value requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates . in this regard , the net portfolio value table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities . in addition , this the net portfolio value table does not reflect the impact of a change in interest rates on the credit quality of our assets . accordingly , although the net portfolio value table provides an indication of our interest rate risk exposure at a particular point in time , such measurements are not intended to and do not 52 provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results . our policies generally do not permit us to engage in derivative transactions , such as futures , options , caps , floors or swap transactions ; however , such transactions may be entered into with the prior approval of the asset/liability management committee or the board of directors for hedging purposes only . liquidity and capital resources our primary sources of funds are deposits and the proceeds from principal and interest payments on loans and investment securities . while maturities and scheduled amortization of loans and securities are predictable sources of funds , deposit flows and mortgage prepayments are greatly influenced by general interest rates , economic conditions and competition . we generally manage the pricing of our deposits to be competitive within our market and to increase core deposit relationships . our cash flows are derived from operating activities , investing activities and financing activities . net cash flows provided by operating activities were $ 4.1 million for the year ended june 30 , 3011 and $ 2.3 million for the year ended june 30 , 2010. net cash flows provided by investing activities consisted primarily of disbursements for loan originations and the purchase of securities , offset by principal collections on loans , and proceeds from maturation and sales of securities . net cash flows used in investing activities were $ 29.9 million for the year ended june 30 , 2011 and $ 23.1 million for the year ended june 30 , 2010. net cash flows used in financing activities consisted entirely of activity in deposits , and , with respect to the year ended june 30 , 2011 , included proceeds of approximately $ 19.8 million from our offering of common stock . net cash flows provided by financing activities were $ 36.9 million and $ story_separator_special_tag our board of directors has established an asset/liability management committee , consisting of senior management . senior management meets daily to review pricing and liquidity needs and to assess our interest rate risk . this committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities , for determining the level of risk that is appropriate , given our business strategy , operating environment , capital , liquidity and performance objectives , and for managing this risk consistent with the guidelines approved by our board of directors . 51 the techniques we are currently using to manage interest rate risk include : using pricing strategies in an effort to balance the proportions of 30-year and 15-year fixed rate loans in our portfolio ; maintaining a modest portfolio of adjustable-rate one- to four-family residential loans ; funding a portion of our operations with deposits with terms greater than one year ; focusing our business operations on local retail customers who value our community orientation and personal service and who may be somewhat less sensitive to interest rate changes than wholesale deposit customers ; and maintaining a strong capital position , which provides for a favorable level of interest-earning assets relative to interest-bearing liabilities . depending on market conditions , from time to time we place more emphasis on enhancing net interest margin rather than matching the interest rate sensitivity of our assets and liabilities . in particular , we believe that the increased net interest income resulting from a mismatch in the maturity of our assets and liabilities portfolios can , during periods of stable or declining interest rates , provide high enough returns to justify increased exposure to sudden and unexpected increases in interest rates . as a result of this philosophy , our results of operations and the economic value of our equity will remain vulnerable to increases in interest rates and to declines due to the difference between long- and short-term interest rates . an important measure of interest rate risk is the amount by which the net present value of an institution 's cash flow from assets , liabilities and off balance sheet items changes in the event of a range of assumed changes in market interest rates . we have utilized the office of thrift supervision net portfolio value model ( `` npv '' ) to provide an analysis of estimated changes in our npv under the assumed instantaneous changes in the united states treasury yield curve . the financial model uses a discounted cash flow analysis and an option-based pricing approach to measuring the interest rate sensitivity of the npv . set forth below is an analysis of the changes to the economic value of our equity as of june 30 , 2011 in the event of designated changes in the united states treasury yield curve . at june 30 , 2011 , our npv exposure related to these hypothetical changes in market interest rates was within the current guidelines we have established . replace_table_token_23_th certain shortcomings are inherent in the methodology used in the above interest rate risk measurement . modeling changes in net portfolio value requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates . in this regard , the net portfolio value table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities . in addition , this the net portfolio value table does not reflect the impact of a change in interest rates on the credit quality of our assets . accordingly , although the net portfolio value table provides an indication of our interest rate risk exposure at a particular point in time , such measurements are not intended to and do not 52 provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results . our policies generally do not permit us to engage in derivative transactions , such as futures , options , caps , floors or swap transactions ; however , such transactions may be entered into with the prior approval of the asset/liability management committee or the board of directors for hedging purposes only . liquidity and capital resources our primary sources of funds are deposits and the proceeds from principal and interest payments on loans and investment securities . while maturities and scheduled amortization of loans and securities are predictable sources of funds , deposit flows and mortgage prepayments are greatly influenced by general interest rates , economic conditions and competition . we generally manage the pricing of our deposits to be competitive within our market and to increase core deposit relationships . our cash flows are derived from operating activities , investing activities and financing activities . net cash flows provided by operating activities were $ 4.1 million for the year ended june 30 , 3011 and $ 2.3 million for the year ended june 30 , 2010. net cash flows provided by investing activities consisted primarily of disbursements for loan originations and the purchase of securities , offset by principal collections on loans , and proceeds from maturation and sales of securities . net cash flows used in investing activities were $ 29.9 million for the year ended june 30 , 2011 and $ 23.1 million for the year ended june 30 , 2010. net cash flows used in financing activities consisted entirely of activity in deposits , and , with respect to the year ended june 30 , 2011 , included proceeds of approximately $ 19.8 million from our offering of common stock . net cash flows provided by financing activities were $ 36.9 million and $
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general . net income decreased to $ 2.3 million for the year ended june 30 , 2011 from $ 2.6 million for the year ended june 30 , 2010. the decrease reflected an increase in noninterest expense to $ 6.6 for the year ended june 30 , 2011 from $ 4.6 million for the year ended june 30 , 2010 , primarily from an increase in charitable contribution expense of $ 1.6 million from $ 25 thousand for the year ended june 30 , 2010 and a decrease in noninterest income of $ 139 thousand , or 58.6 % , primarily due to a decrease of gains on sales of real estate owned of $ 122 thousand for the year ended june 30 , 2011 from the year ended june 30 , 2010. the increase in charitable contribution expense was related to the cash and common stock contributed to a charitable foundation of $ 1.7 million as part of our mutual to stock conversion . the increase in noninterest expenses and decrease in noninterest income was offset by an increase in net interest income of $ 1.2 million , or 13.10 % , to $ 10.3 million for the year ended june 30 , 2011 from $ 9.1 million for the year ended june 30 , 2010. interest income .
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some of the information contained in this discussion and analysis or set forth elsewhere in this report , including information with respect to our plans and strategy for our business , includes forwardโlooking statements that involve risks and uncertainties . you should review the โ cautionary note regarding forwardโlooking statements โ and โ risk factors โ sections of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forwardโlooking statements contained in the following discussion and analysis . overview the container storeยฎ is the original and leading specialty retailer of storage and organization products and solutions in the united states and the only national retailer solely devoted to the category . we provide a collection of creative , multifunctional and customizable storage and organization solutions that are sold in our stores and online through a high-service , differentiated shopping experience . our vision is to be a beloved brand and the first choice for customized organization solutions and services . our customers are highly educated , very busy and primarily homeowners with a higher than average household income . we service them with storage and organization solutions that help them accomplish projects , maximize their space , and make the most of their home . we believe an organized life is a happy life . our operations consist of two operating segments : ยท the container store ( โ tcs โ ) , which consists of our retail stores , website and call center ( which includes business sales ) , as well as our installation and organizational services business . as of march 30 , 2019 , we operated 92 stores with an average size of approximately 25,000 square feet ( 19,000 selling square feet ) in 33 states and the district of columbia . we also offer all of our products directly to customers through our website , responsive mobile site , and call center . our stores receive substantially all of our products directly from our distribution center co-located with our corporate headquarters and call center in coppell , texas and we are currently in the process of opening a second distribution center in aberdeen , maryland , which is expected to be fully operational in late fiscal 2019 . ยท elfa , the container store , inc. 's wholly owned swedish subsidiary , elfa international ab ( โ elfa โ ) , designs and manufactures componentโbased shelving and drawer systems and madeโtoโmeasure sliding doors . elfa was founded in 1948 and is headquartered in malmรถ , sweden . elfa 's shelving and drawer systems are customizable for any area of the home , including closets , kitchens , offices and garages . elfa operates three manufacturing facilities with two located in sweden and one in poland . the container store began selling elfa ยฎ products in 1978 and acquired elfa in 1999. today our tcs segment is the exclusive distributor of 38 elfa ยฎ products in the u.s. elfa also sells its products on a wholesale basis to various retailers in approximately 30 countries around the world , with a concentration in the nordic region of europe . management transition on january 24 , 2019 , as part of its ongoing long-term succession planning , the company announced that melissa reiff , chief executive officer , will succeed william a . ( โ kip โ ) tindell , iii as chairman of the board effective as of the conclusion of the company 's 2019 annual meeting of shareholders ( the โ 2019 annual meeting โ ) . the company also announced that sharon tindell , president and chief merchandising officer , will retire from her role as president and chief merchandising officer at the conclusion of the 2019 annual meeting . at that time , john gehre , who joined the container store in june 2018 as executive vice president of merchandising and planning , will succeed ms. tindell as the company 's chief merchandising officer , and melissa reiff will add president to her title . in addition , the company announced that jodi taylor will continue to serve as the company 's chief financial officer , chief administrative officer and secretary until a mutually agreed upon date after march 1 , 2020 , but before september 1 , 2020 , at which point she will no longer serve as the company 's chief financial officer and a successor chief financial officer will be named , but ms. taylor will continue to serve as the company 's chief administrative officer and secretary . in connection with the management changes described above , the company entered into amended and restated employment agreements on january 23 , 2019 with ms. reiff , ms. tindell , and ms. taylor . each of the employment agreements continue to provide for annual grants of equity awards subject to the company 's 2013 incentive award plan and award agreements thereunder . how we assess the performance of our business we consider a variety of financial and operating measures in assessing the performance of our business . the key measures we use to determine how our business is performing are net sales , gross profit , gross margin , and selling , general and administrative expenses . in addition , we also review other important operating metrics such as comparable store sales and non-gaap measures such as ebitda , adjusted ebitda , and adjusted net income . optimization plan as previously announced on may 23 , 2017 , the company launched a four-part optimization plan to drive improved sales and profitability ( the โ optimization plan โ ) . this plan included sales initiatives , certain full-time position eliminations at tcs , which were concluded in the first quarter of fiscal 2017 , organizational realignment at elfa and ongoing savings and efficiency efforts . story_separator_special_tag the store then becomes comparable on the first day of the following fiscal month in which it reopens . net sales from our website and call center ( which includes business sales ) are also included in calculations of comparable store sales . comparable store sales allow us to evaluate how our retail store base is performing by measuring the change in periodโoverโperiod net sales in stores that have been open for fifteen months or more . the comparable store sales growth metric is an operating measure intended only as supplemental information and is not a substitute for net sales presented in accordance with gaap . various factors affect comparable store sales , including : ยท national and regional economic trends in the united states ; ยท changes in our merchandise mix ; ยท changes in pricing ; ยท changes in timing of promotional events or holidays ; and ยท weather . opening new stores is part of our growth strategy . as we continue to pursue our growth strategy , we anticipate that a portion of our net sales will come from stores not included in our comparable store sales calculation . accordingly , comparable store sales is only one measure we use to assess the success of our growth strategy . ebitda and adjusted ebitda ebitda and adjusted ebitda are key metrics used by management , our board of directors and lgp to assess our financial performance . in addition , we use adjusted ebitda in connection with covenant compliance , executive performance evaluations , and to supplement gaap measures of performance to evaluate the effectiveness of our business strategies , to make budgeting decisions and to compare our performance against that of other peer companies using similar measures . we believe it is useful for investors to see the measures that management uses to evaluate the company , its executives and our covenant compliance , as applicable . ebitda and adjusted ebitda are also frequently used by analysts , investors and other interested parties to evaluate companies in our industry . we define ebitda as net income before interest , taxes , depreciation , and amortization . adjusted ebitda is calculated in accordance with the senior secured term loan facility and the revolving credit facility and is one of the components for performance evaluation under our executive compensation programs . adjusted ebitda reflects further adjustments to ebitda to eliminate the impact of certain items , including certain nonโcash and other items , that we do not consider representative of our ongoing operating performance . for reconciliation of adjusted ebitda to the most directly comparable gaap measure , refer to โ item 6 : selected financial and operating data . โ adjusted net income and adjusted net income per common shareโdiluted we use adjusted net income and adjusted net income per common shareโdiluted to supplement gaap measures of performance to evaluate the effectiveness of our business strategies , to make budgeting decisions and to compare our performance against that of other peer companies using similar measures . we present adjusted net income and adjusted net income per common shareโdiluted because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance and because we believe it is useful for investors to see the measures that management 41 uses to evaluate the company . adjusted net income is a supplemental measure of financial performance that is not required by , or presented in accordance with , gaap . we define adjusted net income as net income before restructuring charges , impairment charges related to intangible assets , losses on extinguishment of debt , certain gains on disposal of assets , certain management transition costs incurred and benefits realized , charges incurred as part of the implementation of our optimization plan , charges associated with an elfa manufacturing facility closure , and the tax impact of these adjustments and unusual or infrequent tax items . we define adjusted net income per common shareโdiluted as adjusted net income divided by the diluted weighted average common shares outstanding . for a reconciliation of adjusted net income to the most directly comparable gaap measure , refer to โ item 6 : selected financial and operating data . โ adjustment for currency exchange rate fluctuations additionally , this management 's discussion and analysis of financial condition and results of operations also refers to elfa third party net sales after the conversion of elfa 's net sales from swedish krona to u.s. dollars using the prior year 's conversion rate . the company believes the disclosure of elfa third party net sales without the effects of currency exchange rate fluctuations helps investors understand the company 's underlying performance . note on dollar amounts all dollar amounts in this management 's discussion and analysis of financial condition and results of operations are in thousands , except per share amounts , unless otherwise stated . story_separator_special_tag style= '' width:02.70 % ; border-top:1pt none # d9d9d9 ; border-left:1pt none # d9d9d9 ; border-bottom:1pt none # d9d9d9 ; border-right:1pt none # d9d9d9 ; height:1.00pt ; padding:0pt ; '' valign= '' bottom '' > net sales net sales for fiscal 2017 $ 857,228 incremental net sales increase ( decrease ) due to : comparable stores ( including a $ 12,916 , or 19.1 % , increase in online sales ) 26,751 new stores 15,058 elfa third party net sales ( excluding impact of foreign currency translation ) 450 impact of foreign currency translation on elfa third party net sales ( 4,832 ) shipping and delivery 438 net sales for fiscal 2018 $ 895,093 during fiscal 2018 , comparable stores generated $ 26,751 , or 350 basis points , of the 4.4 % increase in net sales .
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results of operations the following data represents the amounts shown in our audited consolidated statements of operations for the fiscal years ended march 30 , 2019 , march 31 , 2018 and april 1 , 2017 expressed in dollars and as a percentage of net sales and certain operating data and non-gaap financial information . for segment data , see note 14 to our audited consolidated financial statements included elsewhere in this annual report on form 10-k. replace_table_token_7_th 42 replace_table_token_8_th ( 1 ) a store is included in the comparable store sales calculation on the first day of the sixteenth full fiscal month following the store 's opening . comparable store sales are net of discounts and returns . when a store is relocated , we continue to consider sales from that store to be comparable store sales . a store temporarily closed for more than seven days is not considered comparable in the fiscal month it is closed . the store then becomes comparable on the first day of the following fiscal month in which it reopens . net sales from our website and call center are also included in calculations of comparable store sales . the comparable store sales growth metric is an operating measure intended only as supplemental information and is not a substitute for net sales presented in accordance with gaap . ( 2 ) we have presented ebitda , adjusted ebitda , adjusted net income , and adjusted net income per common shareโdiluted as supplemental measures of financial performance that are not required by , or presented in accordance with , gaap .
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for 2017 , costs associated with the write-off of specific inventory and higher product service costs also adversely impacted costs of products and gross profit margin . in 2017 , the mix of product sales was more heavily weighted toward lower margin products , and certain products were sold using promotional pricing designed to drive sales growth . following leadership changes , in the third quarter of 2017 , we launched a comprehensive evaluation of our products , markets and strategies through the remainder of the year . as a result of this evaluation , we recognized a charge of $ 3.2 million to write-off inventory with limited customer market opportunities , primarily due to concerns regarding technology and production costs . we also incurred approximately $ 1.8 million in incremental product costs associated with addressing customer requests for modification and upgrades . gross profit margins for the prior year reflected competitive factors associated with the tsa sales , which comprised a significant portion of our sales for 2016. we continue to utilize contract manufacturing relationships for production efficiencies and to manage material and labor costs . we anticipate that our current contract manufacturing relationships or comparable alternatives will be available to us in the future . we believe gross margin improvements can be realized by leveraging increased sales volumes , manufacturing efficiencies and quality . we may encounter product cost and competitive pricing pressures in the future . however , the extent of their impact on gross margins , if any , is uncertain . selling , general and administrative expenses sg & a expenses consist of marketing , sales , commissions , engineering , product development , management information systems , accounting , headquarters expenses and non-cash , share-based employee compensation expense . for 2017 , sg & a expenses totaled approximately $ 14.6 million , or 37.0 % of sales , compared with approximately $ 12.8 million , or 25.3 % of sales , for 2016. engineering and product development expenses for 2017 totaled approximately $ 5.0 million ( 12.7 % of total sales ) , compared with approximately $ 4.1 million ( 8.1 % of total sales ) for the previous year . expenses related to new product development projects were the primary contributor to the increase in engineering expenses . marketing and selling expenses for 2017 totaled approximately $ 5.2 million ( 13.3 % of sales ) , compared with $ 5.4 million ( 10.6 % of sales ) for the prior year . the decrease is attributed primarily to decreases in commissions and incentive compensation directly related to sales performance , which were partially offset by expenses related to new sales staff . general and administrative expenses for 2017 totaled approximately $ 4.3 million ( 11.0 % of total sales ) , compared with approximately $ 3.3 million ( 6.5 % of total sales ) for 2016. the increase was related primarily to headquarters professional fees and expenses incurred in the first quarter associated with changes in senior management . operating ( loss ) income the operating loss for 2017 totaled approximately $ 5.0 million ( 12.8 % of sales ) , compared with operating income of approximately $ 4.3 million ( 8.5 % of sales ) for 2016. the decrease in operating income was attributed to several factors , which included a ) higher costs of products , derived in large part from charges associated with the write-off of inventory , b ) product costs related to addressing customer requested modifications and upgrade , c ) engineering expenses related to new product development , and d ) headquarters professional fees and expenses associated with senior management changes . 21 other income ( expense ) interest income ( expense ) , net for 2017 , we realized interest income of approximately $ 46,000 on our cash balances , compared with approximately $ 9,000 for the prior year . we incurred no interest expense in 2017 or 2016. interest expense may be incurred from time to time on outstanding borrowings under our revolving credit facility . the interest rate on such revolving credit facility as of december 31 , 2017 was 4.00 % per annum . this rate is variable based on the wall street journal prime rate plus 25 basis points . effective as of december 27 , 2017 , we entered into a seventh amendment to our loan and security agreement with svb primarily to extend the maturity date by approximately a year , to december 26 , 2018. our revolving credit facility was not utilized during 2017 or 2016. gain on sales of available-for-sale securities during the year ended december 31 , 2017 , we sold 460,546 shares of iteris , which generated proceeds of approximately $ 2.6 million and gains of approximately $ 1.8 million . there were no comparable gains recorded for last year . legal settlement on december 19 , 2017 , we entered into an agreement to settle a dispute with tsg , a former sales representative ( see note 13 to the consolidated financial statements ) . pursuant to the settlement agreement , we agreed to pay an amount of $ 900,000 to tsg on or before december 31 , 2017 , which was recorded as an expense in 2017. we also agreed to pay to tsg commissions , at the rates in effect since february 7 , 2013 , on all orders for our products received and accepted from the states of arizona , california , nevada and hawaii from january 1 , 2018 through december 31 , 2018 , excluding ( i ) sales to federal government agencies , ( ii ) sales to other end-users , excepting state and local government agencies and offices , and ( iii ) sales of parts or service , including warranty service . these commissions were estimated to total approximately $ 536,000 , which was recorded as an expense in december 2017. other expense during 2017 , we incurred a loss on the disposal of assets related to a discontinued product initiative . story_separator_special_tag 23 general and administrative expenses for 2016 totaled approximately $ 3.3 million ( 6.5 % of total sales ) , compared with approximately $ 3.0 million ( 10.2 % of total sales ) for 2015. the increase for the year was related primarily to incentive compensation and other headquarters expenses . operating income operating income for 2016 increased 199.7 % to approximately $ 4.3 million ( 8.5 % of sales ) , compared with approximately $ 1.4 million ( 4.8 % of sales ) for 2015. increased operating income for the year was primarily the product of sales growth , which was partially offset by reduced gross profit margins for the tsa delivery orders . interest income ( expense ) , net for 2016 , we realized interest income of approximately $ 9,000 on our cash balances , compared with approximately $ 1,000 for the prior year . we incurred no interest expense in 2016 or 2015. effective as of december 28 , 2016 , we entered into a sixth amendment to our loan and security agreement with svb primarily to extend the maturity date by approximately a year , to december 27 , 2017 , and to reduce the maximum facility amount to $ 1 million . our revolving credit facility was not utilized during 2016 or 2015. income tax expense we recorded income tax expense for 2016 of approximately $ 1.6 million , compared with $ 345,000 for 2015. our income tax expense is primarily non-cash . as of december 31 , 2016 and 2015 , our net deferred tax assets totaled approximately $ 3.4 million and $ 5.5 million , respectively , and are primarily composed of nols , offset by deferred tax liabilities of $ 1.8 million and $ 671,000 , respectively , primarily derived from depreciation and the unrealized gain on available-for-sale securities . the nols , as of december 31 , 2016 , totaled $ 1.6 million for federal and $ 11.9 million for state purposes , with expirations starting in 2018 through 2030. we evaluated the available evidence and the likelihood of realizing the benefit of our net deferred tax assets . based on our evaluation , we concluded that , based on the weight of available evidence , it was more likely than not that we would not realize a portion of the benefit of our state net deferred tax assets recorded at december 31 , 2016. accordingly , we established a valuation allowance totaling approximately $ 76,000 for the portion of state deferred tax assets that more likely than not will not be realized . there was no significant impact on our operations as a result of inflation for the fiscal years ended december 31 , 2017 , 2016 and 2015. liquidity and capital resources for the year ended december 31 , 2017 , net cash used in operating activities totaled approximately $ 2.3 million , compared with cash provided by operations of approximately $ 10.7 million for 2016. cash used in operating activities was primarily related to net loss , accounts receivable and deferred tax assets , inventories and accrued compensation and related taxes , partially offset by accounts payable , depreciation and amortization and accrued expenses . 24 for the year ended december 31 , 2017 , we realized a net loss of approximately $ 3.6 million , compared with net income of approximately $ 2.7 million last year . accounts receivable increased approximately $ 2.1 million during the year ended december 31 , 2017 , reflecting sales that were consummated later in the year that had not yet completed their collection cycle , compared with a $ 657,000 decrease for last year . deferred tax assets for 2017 increased by approximately $ 1.2 million primarily due to our pre-tax loss , and partially offset by the impact of revaluation derived from tax reform . for the prior year , deferred tax assets decreased approximately $ 1.1 million primarily as a result of pre-tax income . net inventories increased during 2017 by approximately $ 508,000 primarily due to material purchases , which were partially offset by the write-off of certain inventory items . last year , inventories decreased approximately $ 2.1 million , primarily due to fulfilling the tsa delivery orders . accrued compensation and related taxes decreased by approximately $ 829,000 during 2017 as performance incentives were paid . for the same period last year , accrued compensation and related taxes increased by approximately $ 1.1 million , related primarily to incentive compensation . accounts payable for 2017 increased approximately $ 4.0 million , primarily related to material purchases and product development expenses , compared with a decrease of $ 312,000 last year . depreciation and amortization totaled approximately $ 942,000 for both 2017 and 2016. cash provided by investing activities for 2017 totaled approximately $ 2.0 million , which was primarily related to proceeds totaling approximately $ 2.6 million from the sale of securities , partially offset by purchases of equipment totaling approximately $ 628,000. last year , approximately $ 481,000 was used for the investment in iteris common stock and $ 1.4 million was utilized for the purchase of manufacturing and engineering equipment . during 2017 , approximately $ 3.5 million was used in financing activities , primarily related to our capital return program , which included quarterly dividends totaling approximately $ 3.0 million , compared with $ 2.5 million in 2016. we also repurchased stock totaling approximately $ 648,000 in 2017 , compared with $ 162,000 for the prior year . in 2017 , we received approximately $ 183,000 provided by the issuance of common stock upon the exercise of stock options , compared with $ 30,000 last year . we have a revolving credit facility with svb with a maximum borrowing availability of $ 1.0 million and a maturity date of december 26 , 2018. the loan and security agreement governing the revolving credit facility contains customary borrowing terms and conditions , including the accuracy of representations and warranties , compliance with financial maintenance and restrictive covenants and the absence of events of default .
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executive summary 2017 was a year of transition during which we implemented significant changes . these changes included reconfiguring the board of directors and senior management , while transforming our strategic direction and improving many aspects of our operations . after assessing our business and markets , new product development initiatives were launched , while others that were not consistent with our strategic plans were discontinued . we also performed a comprehensive review of our operations , making changes to improve efficiencies and quality . total sales in 2017 decreased 22.3 % to approximately $ 39.4 million , compared with approximately $ 50.7 million for the prior year . the prior year benefited from significant sales to one customer under our contract with the u.s. transportation security administration ( โ tsa โ ) , which were not fully replicated in 2017. absent the impact of sales to the tsa , 2017 sales increased approximately 20.9 % from 2016. gross profit margin as a percentage of sales in 2017 was approximately 24.2 % , compared with 33.7 % for 2016. our gross profit margin is primarily a reflection of the mix of products sold , manufacturing volumes and competitive factors . gross profit margin for 2017 was impacted by a $ 3.2 million one-time charge to write-off inventory and approximately $ 1.8 million of product-related service charges . gross profit margin for the prior year reflected competitive pressures associated with the tsa contract .
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in addition , the company focuses on selling high-growth , high-margin products to its customers through the development of certified organic products , bakery departments and prepared foods including delicatessen sections . as of september 26 , 2020 , the company operated 109 in-store pharmacies and 106 fuel centers . ingles also operates a fluid dairy and earns shopping center rentals . critical accounting policies critical accounting policies are those accounting policies that management believes are important to the presentation of ingles ' financial condition and results of operations , and require management 's most difficult , subjective or complex judgments , often as a result of the need to estimate the effect of matters that are inherently uncertain . estimates are based on historical experience and 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 apparent from other sources . management estimates , by their nature , involve judgments regarding future uncertainties , and actual results may therefore differ materially from these estimates . self-insurance the company is self-insured for workers ' compensation , general liability , and group medical and dental benefits . risks and uncertainties are associated with self-insurance ; however , the company has limited its exposure by maintaining excess liability coverage of $ 1,000,000 per occurrence for workers ' compensation and for general liability , and $ 450,000 per covered person for medical care benefits for a policy year . since october 1 , 2019 , the excess liability limit has been $ 1,000,000 for general liability . self-insurance liabilities are established based on claims filed and estimates of claims incurred but not reported . the estimates are based on data provided by the respective claims administrators which is then applied to appropriate actuarial methods . these estimates can fluctuate if historical trends are not predictive of the future . the majority of the company 's properties are self-insured for casualty losses and business interruption ; however , liability coverage is maintained . the company 's self-insurance reserves totaled $ 34.1 million and $ 31.0 million for employee group insurance , workers ' compensation insurance and general liability insurance at september 26 , 2020 and september 28 , 2019 , respectively . these amounts are inclusive of expected recoveries from excess cost insurance or other sources that are recorded as receivables of $ 4.7 million at september 26 , 2020 and $ 3.6 million at september 28 , 2019. asset impairments the company accounts for the impairment of long-lived assets in accordance with financial accounting standards board accounting standards codification ( โ fasb asc โ ) topic 360. asset groups are primarily comprised of our individual store and shopping center properties . for assets to be held and used , the company tests for impairment using undiscounted cash flows and calculates the amount of impairment using discounted cash flows . for assets held for sale , impairment is recognized based on the excess of remaining book value over expected recovery value . the recovery value is the fair value as determined by independent quotes or expected sales prices developed by internal associates , net of costs to sell . estimates of future cash flows and expected sales prices are judgments based upon the company 's experience and knowledge of local operations and cash flows that are projected for several years into the future . these estimates can fluctuate significantly due to changes in real estate market conditions , the economic environment , capital spending decisions and inflation . the company monitors the carrying value of long-lived assets for potential impairment each quarter based on whether any indicators of impairment have occurred . vendor allowances the company receives funds for a variety of merchandising activities from the many vendors whose products the company buys for resale in its stores . these incentives and allowances are primarily composed of volume or purchase based incentives , advertising allowances , slotting fees , and promotional discounts . the purpose of these incentives and allowances is generally to help defray the costs incurred by the company for stocking , advertising , promoting and selling the applicable vendor 's products . these allowances generally relate to short term arrangements with vendors , often relating to a period of one month or less and are negotiated on a purchase-by-purchase or transaction-by-transaction basis . whenever practical , vendor discounts and allowances that relate to buying and merchandising activities are recorded as a reduction of item cost in inventory and recognized in merchandise costs when the item is sold . due to the use of the retail method for store inventory and the nature of certain allowances , it is sometimes not practicable to apply allowances to the item cost of inventory . in those instances , the allowances are applied as a reduction of merchandise costs using a rational and systematic methodology , which results in the recognition of these incentives when the inventory related to the 16 vendor consideration received is sold . vendor allowances applied as a reduction of merchandise costs totaled $ 107.5 million , $ 111.7 million and $ 116.5 million for the fiscal years ended september 26 , 2020 , september 28 , 2019 and september 29 , 2018 , respectively . vendor advertising allowances that represent a reimbursement of specific identifiable incremental costs of advertising the vendor 's specific products are recorded as a reduction to the related expense in the period that the related expense is incurred . vendor advertising allowances recorded as a reduction of advertising expense totaled $ 8.0 million , $ 13.8 million , and $ 14.1 million for the fiscal years ended september 26 , 2020 , september 28 , 2019 and september 29 , 2018 , respectively . during fiscal year 2020 , the covid-19 pandemic increased the company 's sales . as a result , vendors offered the company a lower level of incentives to sell their products . story_separator_special_tag net income totaled $ 178.6 million for the fiscal year ended september 26 , 2020 compared with net income of $ 81.6 million for the fiscal year ended september 28 , 2019. basic and diluted earnings per share for class a common stock were $ 9.06 and $ 8.82 , respectively , for the fiscal year ended september 26 , 2020 compared with $ 4.14 and $ 4.03 , respectively , for the fiscal year ended september 28 , 2019. basic and diluted earnings per share for class b common stock were each $ 8.24 for the fiscal year ended september 26 , 2020 compared with $ 3.76 of basic and diluted earnings per share for the fiscal year ended september 28 , 2019. fiscal year ended september 28 , 2019 compared to the fiscal year ended september 29 , 2018 see โ item 7. management 's discussion and analysis of financial condition and results of operations , โ in ingles annual report on form 10-k for the year ended september 28 , 2019 , filed with the sec on december 10 , 2019 , for a discussion of the year ended september 28 , 2019 as compared to september 29 , 2018 . 19 liquidity and capital resources capital expenditures the company believes that a key to its ability to continue to increase sales and develop a loyal customer base is providing conveniently located , clean and modern stores which provide customers with good service and an increasingly diverse selection of competitively priced products . as such , the company has invested and plans to continue to invest significant amounts of capital toward the modernization of its store base . the company 's modernization program includes the opening of new stores , the completion of major remodels and expansion of selected existing stores , and the relocation of selected existing stores to larger , more convenient locations . capital expenditures totaled $ 122.8 million and $ 161.8 million for fiscal 2020 and 2019 , respectively . major capital expenditures included the following : replace_table_token_14_th ( including those added at new or replacement stores ) capital expenditures include upgrading and replacing store equipment , technology investments , those related to the company 's distribution operation and its milk processing plant , and expenditures for stores to open in subsequent fiscal years . ingles ' capital expenditure plans for fiscal 2021 include investments of approximately $ 120 to $ 160 million . at this time , the company does not anticipate that the covid-19 pandemic will have an adverse impact on its capital expenditure plans . the company currently plans to dedicate the majority of its fiscal 2021 capital expenditures to continued improvement of its store base including the construction of one or more new/remodeled stores . additionally , the company 's planned fiscal 2021 capital expenditures include investments in stores expected to open in fiscal 2022 , as well as technology improvements , upgrading and replacing existing store equipment and warehouse and transportation equipment and improvements to the company 's milk processing plant . the company also plans to consider property acquisitions for future store development . the company currently expects that its net annual capital expenditures will be in the range of approximately $ 100 to $ 160 million going forward in order to maintain a modern store base . among other things , planned expenditures for any given future fiscal year will be affected by the availability of financing , which can affect both the number of projects pursued at any given time and the cost of those projects . the number of projects may also fluctuate due to the varying costs of the types of projects pursued including new stores , major store remodels/expansions , and build-out of tenant space under the long-term leases . the company makes decisions on the allocation of capital expenditure dollars based on many factors including the competitive environment , other company capital initiatives and its financial condition . in general , the company finances its capital expenditures to the extent possible from cash on hand and cash flow from operations . additional financing sources for capital expenditures include borrowings under the company 's $ 175 million of committed line of credit , other borrowings that could be collateralized by unencumbered real property and equipment with a net book value of approximately $ 1.1 billion , and the public debt or equity markets . the company has used each of these to finance past capital expenditures and expects to have them available in the future . the company does not generally enter into commitments for capital expenditures other than on a store-by-store basis at the time it begins construction on a new store or begins a major or minor remodeling project . construction commitments at september 26 , 2020 totaled $ 16.9 million . liquidity the company generated $ 350.1 million of cash from operations in fiscal 2020 compared with $ 211.5 million for fiscal 2019. the increase was primarily due to higher pre-tax income and increased working capital from higher accounts payable . cash used by investing activities for fiscal 2020 totaled $ 117.4 million compared with $ 152.8 million for fiscal 2019. the company 's most significant investing activity is capital expenditures , which declined in fiscal 2020 as compared to fiscal 2019. the company 's cash used by net financing activities totaled $ 268.0 million and $ 27.1 million for fiscal years 2020 and 2019 , respectively . the current fiscal year increase is due primarily to early redemption of a portion of the outstanding notes . in june 2013 , the company issued $ 700.0 million aggregate principal amount of the โ notes โ . the notes bear interest at the rate of 5.75 % per annum and were issued at par . in november 2019 , the company closed the $ 155 million loan and issued a notice to redeem a like principal amount of the notes . the loan was funded and the notes were redeemed thirty days after the redemption notice in december 2019. the notes were 20 redeemed at 101.917
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results of operations ingles operates on a 52- or 53-week fiscal year ending on the last saturday in september . the consolidated statements of income for the fiscal years ended september 26 , 2020 , september 28 , 2019 and september 29 , 2018 , each consisted of 52 weeks of operations . comparable store sales are defined as sales by grocery stores in operation for five full fiscal quarters . the company has an ongoing renovation and expansion plan to modernize the appearance and layout of its existing stores . sales from replacement stores , major remodels and the addition of fuel stations to existing stores are included in the comparable store sales calculation from the date of completion of the replacement , remodel or addition . a replacement store is a newly opened store that replaces an existing nearby store that is closed . a major remodel entails substantial remodeling of an existing store and may include additional retail square footage . for the fiscal years ended september 26 , 2020 and september 28 , 2019 comparable store sales each included 196 stores . the following table sets forth , for the periods indicated , selected financial information as a percentage of net sales . replace_table_token_10_th fiscal year ended september 26 , 2020 compared to the fiscal year ended september 28 , 2019 the company 's fiscal year 2020 performance was heavily influenced by the covid-19 pandemic , which was declared a national emergency on march 13 , 2020. various stay-at-home measures were enacted , most schools closed to in-person learning , and restaurant dining was severely restricted . many of these measures , though relaxed , have remained in place during the fall of 2020 and resulted in higher retail grocery sales throughout the united states .
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such fair value ( level 3 ) was based on the present value of estimated annual installments to be received during 2016 through 2020 from forecasted net income of the transferred business plus a final settlement in 2021 , discounted at 11.5 % ( representing sbs 's weighted average cost of capital ) . the discount recorded for the purchase obligation is being amortized as interest income using an effective yield initially calculated based on the original carrying amount of the obligation and estimated annual installments to be received and adjusted in future periods to reflect actual installments received and changes in estimates of future installments . interest income recognized on the obligation for the year ended december 31 , 2016 amounted to $ 207,000 based on a yield of approximately 12 % . as a result of the siebert 's continuing involvement in the capital markets business through its then 49 % ownership in sbsf , results of operations of the capital markets business and the gain on sale were not reflected as discontinued operations in the accompanying financial statements . f- 6 note d - sale of investment in affiliate discontinued operations : in april 2014 , the financial accounting standards board ( โ fasb โ ) issued accounting standard update ( โ asu โ ) asu no . 2014-08 , reporting discontinued operations and disclosures of disposals of components of an entity . asu no . 2014-08 changes the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has ( or will have ) a major effect on the entity 's operations and financial results . asu no . 2014-08 is effective prospectively to all new disposals of components ( including equity method investees ) and new classification as held for sale beginning in fiscal years beginning after december 15 , 2014 with early adoption permitted . the company adopted this update in 2015. the revised standard can not be applied to a component that was previously disposed of that was initially precluded from discontinued operations because of significant continuing involvement even where there are subsequent changes in the activities with a disposed component that would no longer preclude discontinued operations ( see note c ) . on november 9 , 2015 , the company sold its 49 % membership investment in sbsf back to sbsf for $ 8,000,000 of which $ 4,000,000 was paid in cash and the balance of which was paid in the form of a secured junior subordinated promissory note of $ 4,000,000 ( the โ sbsf junior note โ ) . the sale of the investment in sbsf , which was story_separator_special_tag this discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto contained elsewhere in this annual report . our working capital is invested primarily in bank accounts . in november 2015 , siebert sold its 49 % equity interest in sbsf to our former affiliate resulting in discontinued operations . a loss resulted from the disposal of this equity investment in the amount of $ 52,000 for 2015 which includes equity earnings of former affiliate of $ 671,000 , net of $ 448,000 loss related to disposal of investment in 2015 , net of income tax of $ 275,000. siebert also earned interest income from the receivable from the scm sale to sbsf of $ 207,000 in 2016. the receivable was sold by siebert in december 2016 in connection with the acquisition agreement . the company 's professional expenses during 2016 include the costs of associated with the acquisition . 16 the following table sets forth certain metrics as of december 31 , 2016 , 2015 and 2014 , respectively , which we use in evaluating our business . replace_table_token_4_th replace_table_token_5_th * based on new management 's analysis . description : total retail trades represents retail trades that generate commissions . average commission per retail trade represents the average commission generated for all types of retail customer trades . retail customer net worth represents the total value of securities and cash in the retail customer accounts before deducting margin debits . retail customer money market fund value represents all retail customers accounts invested in money market funds . retail customer margin debit balances represents credit extended to our customers to finance their purchases against current positions . retail customer accounts with positions represent retail customers with cash and or securities in their accounts . we , like other securities firms , are directly affected by general economic and market conditions including fluctuations in volume and prices of securities , changes and the prospect of changes in interest rates , and demand for brokerage and investment banking services , all of which can affect our profitability . in addition , in periods of reduced financial market activity , profitability is likely to be adversely affected because certain expenses remain relatively fixed , including salaries and related costs , portions of communications costs and occupancy expenses . accordingly , earnings for any period should not be considered representative of earnings to be expected for any other period . competition continues to intensify among all types of brokerage firms , including established discount brokers and new firms entering the on-line brokerage business . electronic trading continues to account for an increasing amount of trading activity , with some firms charging very low trading execution fees that are difficult for any conventional discount firm to meet . some of these brokers , however , impose asset based charges for services such as mailing , transfers and handling exchanges which we do not currently impose , and also direct their orders to market makers where they have a financial interest . story_separator_special_tag continued competition could limit our growth or even lead to a decline in our customer base , which would adversely affect our results of operations . industry-wide changes in trading practices , such as the continued use of electronic communications networks , are expected to put continuing pressure on commissions/fees earned by brokers while increasing volatility . the company 's sia subsidiary offers to its clients a number of asset management programs ( โ managed programs โ ) consisting of asset allocation , flexible asset management and focused or completion strategies . in these managed programs , sia acts as the co-adviser to clients . ia representatives will assist each client in reviewing information about the programs , completing a client questionnaire to determine the client 's risk tolerance , financial situation and investment objectives and selecting an investment strategy . sia does not ever act as portfolio manager directly , sia selects other investment advisers to act as portfolio manager on behalf of its clients . during 2016 , the results of sia operations are immaterial to the operations of the company . 17 critical accounting policies we generally follow accounting policies standard in the brokerage industry and believe that our policies appropriately reflect our financial position and results of operations . our management makes significant estimates that affect the reported amounts of assets , liabilities , revenues and expenses and the related disclosure of contingent assets and liabilities included in the financial statements . the estimates relate primarily to revenue and expense items in the normal course of business as to which we receive no confirmations , invoices , or other documentation , at the time the books are closed for a period . we use our best judgment , based on our knowledge of revenue transactions and expenses incurred , to estimate the amount of such revenue and expenses . we are not aware of any material differences between the estimates used in closing our books for the last five years and the actual amounts of revenue and expenses incurred when we subsequently receive the actual confirmations , invoices or other documentation . estimates are also used in determining the useful lives of intangibles assets , and the fair market value of intangible assets . our management believes that its estimates are reasonable . results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 revenues . total revenues for 2016 were $ 9.8 million , a decrease of $ 284,000 , or 2.8 % , from 2015. commission and fee income decreased $ 861,000 , or 9.4 % , from the prior year to $ 8.3 million primarily due to a decrease in retail trading . trading gains increased $ 346,000 or 60.2 % to $ 921,000 primarily as a result of liquidating the company 's securities . income from interest and dividends increased $ 225,000 , or 69 % , from the prior year to $ 551,000 in 2016 primarily due to accrued interest on our receivable from business sold to affiliate and interest from a subordinated note from our former affiliate . expenses . total expenses for 2016 were $ 15.4 million , an increase of $ 2.2 million or 16.7 % from the prior year primarily due to expenses associated with the sale of the company . employee compensation and benefit costs decreased $ 503,000 , or 9.3 % , from the prior year to $ 4.9 million in 2016. this decrease was primarily due to a reduction in head count from the previous year . clearing and floor brokerage fees decreased $ 373,000 , or 30.1 % , from the prior year to $ 866,000 in 2016 primarily due to lower retail trading volume . professional fees increased $ 258,000 , or 8.1 % form the prior year to $ 3.5 million in 2016. this increase was primarily due to increased professional fees incurred as a result of the change in control of the company in additional to the professional fees discussed below . in december 2015 , a then current employee of the company commenced an arbitration before finra against the company alleging a single cause of action for employment retaliation under the sarbanes-oxley act of 2002. in february 2016 , the employee amended his claim to replace the sarbanes-oxley claim with a substantially identical claim arising under the dodd-frank act of 2010. in february 2017 , a settlement agreement was entered into pursuant to which the arbitration was dismissed with prejudice and the employee was paid $ 825,000 which was funded by kennedy cabot acquisition , llc . effective december 2016 , the company entered into an acquisition agreement with kennedy cabot acquisition , llc . as a result of this transaction , the company incurred $ 2,206,000 of professional fees and other expenses related to change in control . communications expense decreased $ 133,000 , or 22.4 % from the prior year to $ 462,000 in 2016 primarily due to a reduction in expenses associated with quote usage . occupancy costs decreased $ 30,000 , or 3.9 % from the prior year to $ 746,000 in 2016. other general and administrative expenses decreased $ 30,000 , or 2.2 % , from the prior year to $ 1.7 million in 2016 due to expenses associated with the sale of the company . income tax benefit for the year ended december 31 , 2015 was $ 275,000. the benefit for income taxes for 2015 represents the utilization of the loss from continuing operations against income from discontinued operations , exclusive in 2015 of the capital loss from disposal of the investment in former affiliate . the company has recorded a valuation allowance to fully offset our deferred tax asset at december 31 , 2016 and 2015 . 18 story_separator_special_tag december 31 , 2016 were $ 3.8 million , of which we regarded $ 2.7 million , or 72.0 % , as highly liquid . msco
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results of operations year ended december 31 , 2015 compared to year ended december 31 , 2014 revenues . total revenues for 2015 were $ 10.1 million , a decrease of $ 5.8 million , or 36.3 % , from 2014. commission and fee income decreased $ 1.6 million , or 14.9 % , from the prior year to $ 9.2 million primarily due to a decrease in retail trading . the capital markets division was sold to our former affiliate sbsf on november 4 , 2014 resulting in reduced institutional trading commissions and investment banking revenues . commission recapture operations were shut down on september 30 , 2014. investment banking revenues decreased $ 1.8 million or 97.8 % , from the prior year to $ 40,000 in 2015 due to the capital markets division being sold on november 4 , 2014 to our former affiliate . trading profits decreased $ 776,000 , or 57.4 % , from the prior year to $ 575,000 in 2015 primarily due to an overall decrease in trading volume primarily in the debt markets . the company recorded a gain on the sale of our capital markets segment of $ 1,820,000 , which reflected the fair value of the purchase obligation ( transferred assets of the company 's capital markets business , consisted of customer accounts and goodwill , which had no carrying value to the company . such fair value was based on the present value of estimated annual installments to be received during 2016 through 2020 from forecasted net income of the transferred business plus a final settlement in 2021 , discounted at 11.5 % ( representing sbs 's weighted average cost of capital ) , the sale was for $ 3,000,000 recorded at a discount .
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the appropriate amounts of foreign exchange rate gains or losses classified in accumulated other comprehensive income will be reflected in our consolidated statements of operations when there is a sale or partial sale of our investment in these operations or upon a complete or substantially complete liquidation of the investment . f-11 2. basis of presentation and summary of significant accounting policies ( continued ) investments in real estate and properties classified as held for sale in january 2017 , the fasb issued an asu ( see โ recent accounting pronouncements โ below ) that clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business . the revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business , which is expected to story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and notes thereto under item 15 in this annual report on form 10-k. forward-looking statements involve inherent risks and uncertainties regarding events , conditions , and financial trends that may affect our future plans of operations , business strategy , results of operations , and financial position . a number of important factors could cause actual results to differ materially from those included within or contemplated by such forward-looking statements , including , but not limited to , those described under โ item 1a . risk factors โ in this annual report on form 10-k. we do not undertake any responsibility to update any of these factors or to announce publicly any revisions to any of the forward-looking statements contained in this or any other document , whether as a result of new information , future events , or otherwise . as used in this annual report on form 10-k , references to the โ company , โ โ alexandria , โ โ we , โ โ us , โ and โ our โ refer to alexandria real estate equities , inc. and its consolidated subsidiaries . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > percentage of annual rental revenue from investment-grade tenants in effect as of december 31 , 2016 : 49 % percentage of annual rental revenue from class a properties in aaa locations in effect as of december 31 , 2016 : 79 % occupancy for operating properties in north america at 96.6 % as of december 31 , 2016 operating margin at 70 % for the year ended december 31 , 2016 adjusted ebitda margin at 66 % for the year ended december 31 , 2016 see โ solid internal growth โ in the above section for information on our leasing activity and same property net operating income growth 64 external growth disciplined allocation of capital to visible , multiyear , highly leased value-creation pipeline refer to โ executive summary โ within this item 7 in this annual report on form 10-k for information . strategic acquisitions in november 2016 , we acquired the remaining 49 % interest in our real estate joint venture with uber technologies , inc. for $ 90.1 million . the real estate joint venture owned land parcels located at 1455 and 1515 third street and a parking garage structure in our mission bay/soma submarket of san francisco . the former real estate joint venture was expected to complete the development of two new class a properties in 2018 , pursuant to leases with uber . as a result of the acquisition of the remaining 49 % ownership interest , we own a 100 % fee simple interest in both land parcels and the parking garage and are no longer obligated to fund the development of the two class a properties . in connection with the acquisition of the remaining interest in the land and parking garage , we leased these assets to uber for 75 years , beginning in november 2016. uber will develop and own 100 % of the two class a properties on the land parcels . the $ 90.1 million purchase price includes $ 56.8 million payable in 2017. initial stabilized yields on our total project investment of $ 155.0 million ( including our investment in our initial 51 % interest ) are 14.4 % and 7.0 % ( cash basis ) . cash rents for the parking structure and land commence in february 2017 , and november 2017 , respectively . in november 2016 , we acquired one kendall square , a 644,771 rsf , nine-building collaborative life science and technology campus located in the east side of our cambridge submarket of greater boston , for a purchase price of $ 725.0 million , including the assumption of a $ 203.0 million secured note payable . the campus is 97.3 % occupied , and we expect to achieve an initial stabilized yield ( cash basis ) of 6.2 % upon completion of near-term renewals and re-leasing of space ( see below ) . this acquisition provides us with a significant opportunity to increase cash flows through the following : $ 47/rsf average in-place annual rents ( mix of office gross rents and lab triple net rents ) , significantly below-market ; 55 % contractual lease expirations through 2019 ; conversion of campus office space into office/laboratory space through redevelopment ; and entitled land parcel for near-term ground-up development of an additional building aggregating 172,500 square feet . in october 2016 , we acquired the torrey ridge science center , a 294,993 rsf , three-building collaborative life science campus located in the heart of our torrey pines submarket of san diego , for a purchase price of $ 182.5 million . the campus is 87.1 % occupied , and we expect to achieve an initial stabilized yield ( cash basis ) of 6.8 % at stabilization in the first half of 2018 upon completion of near-term renewals/re-leasing of acquired below-market leases and the conversion of 75,953 rsf of existing shell and office space into office/laboratory space . story_separator_special_tag 66 external growth โ value-creation development and redevelopment of new class a properties placed into service during 2016 the following table presents value-creation development and redevelopment of new class a properties , including our unconsolidated real estate joint venture , placed into service during the year ended december 31 , 2016 ( dollars in thousands ) : replace_table_token_21_th ( 1 ) below is our originally disclosed total project investment and unlevered yields : replace_table_token_22_th ( 2 ) improvement of our initial yields is due to a variety of factors , including ( i ) use of building information modeling ( bim ) , ( ii ) avoided use of owner 's contingency , ( iii ) early use of consultants , ( iv ) co-location of consultants during construction , and ( v ) adaptive reuse of special permit . ( 3 ) refer to note 4 โ โ investment in unconsolidated real estate joint venture โ to our consolidated financial statements under item 15 in this annual report on form 10-k for information about our acquisition of the remaining 49 % ownership interest . ( 4 ) our project cost at completion and unlevered yields are based upon our share of the investment in real estate , including costs incurred directly by us outside of the real estate joint venture . 67 external growth โ value-creation development and redevelopment of new class a properties placed into service during 2016 ( continued ) replace_table_token_23_th replace_table_token_24_th ( 1 ) refer to note 4 โ โ investment in unconsolidated real estate joint venture โ to our consolidated financial statements under item 15 in this annual report on form 10-k for information about our acquisition of the remaining 49 % ownership interest in our real estate joint venture with uber technologies , inc. ( 2 ) represents incremental annual net operating income upon stabilization of our development and redevelopment of new class a properties , including only our share of real estate joint venture projects . 68 acquisitions in 2016 our real estate asset acquisitions during the year ended december 31 , 2016 , consisted of the following ( dollars in thousands ) : replace_table_token_25_th ( 1 ) at stabilization in the first half of 2018 , upon completion of near-term renewals/re-leasing of acquired below-market leases and the conversion of 75,953 rsf of existing shell and office space into office/laboratory space . ( 2 ) upon stabilization at completion of the ground-up development of our entitled land parcel . ( 3 ) the purchase price includes $ 56.8 million payable in 2017 . ( 4 ) refer to โ external growth โ value-creation development and redevelopment of new class a properties placed into service during 2016 โ earlier within this item 7 for discussion of our overall project investment and yields after our acquisition of the 49 % noncontrolling interest . 69 70 71 72 real estate asset sales our asset sale strategy consists of ( i ) the recycling of capital from high-value assets ( via the sale of partial interests to high-quality institutional investors or the sale of 100 % ) , ( ii ) the sale of non-core/ โ core-like โ operating assets , which increases the quality of our asset base , and ( iii ) the sale of non-strategic land parcels , all of which provide a significant source of capital to fund our highly pre-leased value-creation development and redevelopment projects . our real estate asset sales completed during the year ended december 31 , 2016 , consisted of the following ( dollars in thousands ) : replace_table_token_26_th ( 1 ) represents annualized amounts for the quarter ended prior to the date of sale . cash net operating income excludes straight-line rent and amortization of acquired below-market leases . ( 2 ) represents the completion of the sale of all of our investments in real estate in india . during 2016 , we recognized impairments of real estate related to the dispositions of assets in asia aggregating $ 194.3 million . refer to note 18 โ โ assets classified as held for sale โ to our consolidated financial statements under item 15 of this annual report on form 10-k for additional information . ( 3 ) represents a 45 % partial interest share of net operating income and cash net operating income : ( i ) anticipated upon stabilization of the redevelopment of 10290 campus point drive and ( ii ) realized for 10300 campus point drive during the third quarter of 2016 . ( 4 ) aggregate proceeds of $ 256.3 million , including gross proceeds of $ 68.6 million received as of september 30 , 2016 , $ 153.0 million received during the three months ended december 31 , 2016 , and additional future proceeds of $ 34.7 million to be received primarily during the first quarter of 2017 . 73 execution of capital strategy during 2016 , we continued to execute on many of the long-term components of our capital strategy . some of our key accomplishments include the following : 2016 capital strategy achieved targeted key credit metric ratios , including a net debt to adjusted ebitda ratio of 6.1 x and a fixed-charge coverage ratio of 3.8 x for the fourth quarter of 2016 on an annualized basis ; continued the process of prudently laddering our debt maturities as we completed the successful offering in june 2016 of $ 350.0 million of unsecured senior notes payable with a stated interest rate of 3.95 % due in 2027 ; $ 2.2 billion of liquidity as of december 31 , 2016 ; executed additional interest rate swap agreements with an aggregate notional amount of $ 700 million during the year ended december 31 , 2016 , to provide a minimum of hedged variable-rate debt of $ 900 million and $ 450 million as of december 31 , 2017 and 2018 , respectively ; as of december 31 , 2016 , our unhedged variable-rate debt as a percentage to total debt was 4 % ; in april 2016 , we closed a secured construction loan for our development project at 100
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executive summary we concluded another successful year where our best-in-class team delivered solid results and continued growth . below are the key highlights : solid internal growth total revenues of $ 921.7 million , up 9.3 % , for the year ended december 31 , 2016 , compared to $ 843.5 million for the year ended december 31 , 2015 ; solid leasing activity in light of minimal contractual lease expirations at the beginning of 2016 and a highly leased value-creation pipeline : 2016 total leasing activity โ rsf 3,390,067 lease renewals and re-leasing of space : rental rate increases 27.6 % rental rate increases ( cash basis ) 12.0 % rsf 2,129,608 same property net operating income growth of 4.7 % and 6.0 % ( cash basis ) for the year ended december 31 , 2016 , compared to the year ended december 31 , 2015 . solid external growth ; disciplined allocation of capital to highly leased value-creation pipeline deliveries of class a properties in urban innovation clusters from our value-creation pipeline is expected to significantly increase net operating income : delivery date rsf ( 1 ) percentage leased ( 1 ) incremental annual net operating income ( 1 ) ytd 3q16 1,003,795 99 % $ 55 million 4q16 890,133 89 % $ 37 million 2017 1,405,117 80 % $ 95 million to $ 105 million ( 1 ) represents incremental annual net operating income upon stabilization of our development and redevelopment of new class a properties , including only our share of real estate joint venture projects . rsf and percentage leased represent 100 % of each property .
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executive overview cms energy is an energy company operating primarily in michigan . it is the parent holding company of several subsidiaries , including consumers , an electric and gas utility , and cms enterprises , primarily a domestic independent power producer . consumers ' electric utility operations include the generation , purchase , transmission , distribution , and sale of electricity , and consumers ' gas utility operations include the purchase , transmission , storage , distribution , and sale of natural gas . consumers ' customer base consists of a mix of residential , commercial , and diversified industrial customers . cms enterprises , through its subsidiaries and equity investments , is engaged in domestic independent power production , the marketing of independent power production , and the development of renewable generation . cms energy and consumers manage their businesses by the nature of services each provides . cms energy operates principally in three business segments : electric utility ; gas utility ; and enterprises , its non-utility operations and investments . consumers operates principally in two business segments : electric utility and gas utility . cms energy 's and consumers ' businesses are affected primarily by : ยท regulation and regulatory matters ยท state and federal legislation ยท economic conditions ยท weather ยท energy commodity prices ยท interest rates ยท their securities ' credit ratings the triple bottom line cms energy 's and consumers ' purpose is to achieve world class performance while delivering hometown service . in support of this purpose , the companies employ the ยconsumers energy way , ย a lean operating model designed to improve safety , quality , cost , delivery , and employee morale . cms energy and consumers measure their progress toward the purpose by considering their impact on the ยtriple bottom lineย of people , planet , and profit , which is underpinned by performance ; this consideration takes into account not only the economic value that the companies create for customers and investors , but also their responsibility to social and environmental goals . the triple bottom line balances the interests of the companies ' employees , customers , suppliers , regulators , creditors , michigan 's residents , the investment community , and other stakeholders , and it reflects the broader societal impacts of the companies ' activities . 54 consumers ' 2017 sustainability report , which is available to the public , describes the company 's commitment to world class performance and to the triple bottom line and discusses its progress in the areas of safety , environmental stewardship , social responsibility , and economic development . people : the people element of the triple bottom line represents cms energy 's and consumers ' commitment to their employees , their customers , the residents of local communities in which the companies do business , and other stakeholders . the safety of employees , customers , and the general public is a priority of cms energy and consumers . accordingly , cms energy and consumers have worked to integrate a set of safety principles into their business operations and culture . these principles include complying with applicable safety , health , and security regulations and implementing programs and processes aimed at continually improving safety and security conditions . the number of recordable safety incidents in 2017 was 65 , compared with 73 in 2016 and 106 in 2015. the number of recordable safety incidents in 2017 was the lowest in consumers ' history , and consumers is on track to have the best safety results of its eei peer group , as it did in 2016. cms energy and consumers also place a high priority on customer value and on providing a hometown customer experience . consumers ' customer-driven investment program is aimed at improving safety and increasing electric and gas reliability , which has resulted in measureable improvements in customer satisfaction . central to consumers ' commitment to its customers are the initiatives it has undertaken to keep electricity and natural gas affordable . these initiatives include the adoption of its lean operating model that is focused on completing work safely and correctly the first time , thus minimizing rework and waste , while delivering services on time . other cost-saving initiatives undertaken by consumers include : ยท replacement of coal-fueled generation with cleaner and more efficient gas-fueled generation , renewable energy , and energy waste reduction and demand response programs ยท targeted infrastructure investment , including the installation of smart meters ยท information and control system efficiencies ยท employee and retiree health care cost sharing ยท workforce productivity enhancements in addition , consumers ' gas commodity costs declined by 60 percent from 2007 through 2017 , due not only to a decrease in market prices but also to consumers ' improvements to its gas infrastructure and optimization of its gas purchasing and storage strategy . these gas commodity savings are passed on to customers . planet : the planet element of the triple bottom line represents cms energy 's and consumers ' commitment to protect the environment ; this commitment extends beyond complying with the various state and federal environmental and health and safety laws and regulations to which cms energy and consumers are subject . consideration of climate change risk and other environmental risks is embedded in the companies ' strategy , business planning , and enterprise risk management processes . cms energy and consumers continue to focus on opportunities to reduce their carbon footprint by replacing coal-fueled generation with gas-fueled generation and renewable energy . in 2016 , consumers retired seven of its coal-fueled electric generating units , representing 33 percent of its owned coal-fueled generating capacity . as a result of these retirements and other actions taken by cms energy and consumers , the companies ' combined percentage of electric supply ( self-generated and purchased ) from coal has decreased by 16 percentage points since 2015 . story_separator_special_tag 57 presented in the following illustration are planned capital expenditures of $ 10.1 billion that consumers expects to make from 2018 through 2022 : gas infrastructure ( $ 4.9 billion ) electric distribution ( $ 3.5 billion ) electric supply ( $ 1.7 billion ) consumers plans to spend $ 8.4 billion over the next five years to maintain and upgrade its gas infrastructure and electric distribution systems in order to enhance reliability , improve customer satisfaction , and reduce energy waste on those systems . the gas infrastructure projects comprise $ 4.9 billion to sustain deliverability and enhance pipeline integrity and safety . these projects , which involve replacement of mains and services and enhancement of transmission and storage systems , should reduce the minor quantity of methane emissions released as gas is transported . the electric distribution projects comprise $ 3.5 billion to strengthen circuits and substations and replace poles . consumers also expects to spend $ 1.7 billion on electric supply projects , representing new generation , including renewable generation , and environmental investments needed to comply with state and federal laws and regulations . regulation : regulatory matters are a key aspect of consumers ' business , particularly rate cases and regulatory proceedings before the mpsc , which permit recovery of new investments while helping to ensure that customer rates are fair and affordable . important regulatory events and developments are summarized below . ยท tax cuts and jobs act : in december 2017 , president trump signed the tcja , which changed existing federal tax law and included numerous provisions that affect businesses . subsequently , the mpsc ordered all rate-regulated utilities in michigan to report the impact that the new federal tax law will have on their customers . consumers filed its response to the mpsc in january 2018 , indicating that the tcja reduces its annual electric revenue requirement by an estimated $ 116 million , and reduces its annual gas revenue requirement by an estimated $ 49 million . these amounts exclude potential refunds associated with consumers ' remeasurement of its deferred income taxes , which consumers has proposed addressing in a future filing . in the january 2018 filing , consumers recommended that the income tax benefits be provided to customers through a bill credit by the end of 2018. the timing and amortization period of any future rate adjustments or refunds are subject to change based on mpsc orders . 58 ยท electric rate case : in march 2017 , consumers filed an application with the mpsc seeking an annual rate increase of $ 173 million , based on a 10.5 percent authorized return on equity . the filing requested authority to recover new investment in system reliability , environmental compliance , and technology enhancements . in september 2017 , consumers reduced its requested annual rate increase to $ 148 million . in october 2017 , consumers self-implemented an annual rate increase of $ 130 million , subject to refund with interest and potential penalties . a final order is expected by the end of march 2018 . ยท gas rate case : in october 2017 , consumers filed an application with the mpsc seeking an annual rate increase of $ 178 million , based on a 10.5 percent authorized return on equity . the largest component of the request is an annual revenue requirement of $ 162 million related to infrastructure investment and related costs that will allow consumers to improve system safety , capacity , and deliverability . the filing also seeks approval of two rate adjustment mechanisms : a revenue decoupling mechanism and an investment recovery mechanism . the revenue decoupling mechanism would annually reconcile consumers ' actual weather-adjusted nonfuel revenues with the revenues approved by the mpsc . the investment recovery mechanism would provide for additional annual rate increases of $ 39 million beginning in july 2019 and another $ 39 million beginning in july 2020 for incremental investments that consumers plans to make in those years , subject to reconciliation . these future investments are intended to help ensure adequate system capacity and deliverability . the mpsc previously approved an investment recovery mechanism in july 2017 that will be in effect until rates are changed in the pending proceeding . ยท state reliability mechanism : in november 2017 , the mpsc issued an order establishing a state reliability mechanism for consumers , as directed by the 2016 energy law , which required that forward capacity be secured for all electric customers in michigan , including customers served by alternative electric suppliers under roa . under michigan law , electric customers in consumers ' service territory are allowed to buy electric generation service from alternative electric suppliers in an aggregate amount up to ten percent of consumers ' weather-adjusted retail sales for the preceding calendar year . under the mechanism approved by the mpsc , beginning june 1 , 2018 , if an alternative electric supplier does not demonstrate that it has procured its capacity requirements for the four-year forward period , its customers will pay a set charge to the utility for capacity that is not provided by the alternative electric supplier . looking forward cms energy and consumers will continue to consider the impact on the triple bottom line of people , planet , and profit in their daily operations as well as in their long-term strategic decisions . consumers will continue to seek fair and timely regulatory treatment that will support its customer-driven investment plan , while pursuing cost-control initiatives that will allow it to maintain sustainable customer base rates . the consumers energy way is an important means of realizing cms energy 's and consumers ' purpose of achieving world class performance while delivering hometown service . 59 results of operations cms energy consolidated results of operations replace_table_token_12_th replace_table_token_13_th presented in the following table are specific after-tax changes to net income available to common stockholders : replace_table_token_14_th 60 1 cms energy and consumers have reclassified certain prior-period amounts to conform to the presentation in the current period .
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consumers electric utility results of operations replace_table_token_15_th following is a discussion of significant changes to net income available to common stockholders for 2017 versus 2016 and for 2016 versus 2015. electric deliveries and rate increases : for 2017 , electric delivery revenues increased $ 55 million compared with 2016. this change reflected $ 82 million from a march 2017 rate increase and from an october 2017 self-implemented rate increase . also contributing to the change were $ 13 million in higher revenues associated with the energy waste reduction program and a $ 10 million increase in the financial incentive associated with energy waste reduction performance standards . these increases were offset partially by a $ 45 million decrease in sales due primarily to mild weather and a $ 5 million reduction in other revenues . deliveries to end-use customers were 37.4 billion kwh in 2017 and 37.9 billion kwh in 2016. for 2016 , electric delivery revenues increased $ 122 million compared with 2015. this change reflected $ 91 million from a december 2015 rate increase and from a september 2016 self-implemented rate increase , and a $ 62 million increase in sales due primarily to favorable weather . these increases were offset partially by a $ 25 million net decrease in securitization revenue , reflecting the conclusion in october 2015 of consumers ' 2001 securitization program , and a $ 6 million decrease in other revenues .
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f-14 teleflex incorporated and subsidiaries notes to consolidated financial statements โ ( continued ) ยท on may 3 , 2012 , the company acquired substantially all of story_separator_special_tag overview we are a global provider of medical technology products that enhance clinical benefits , improve patient and provider safety and reduce total procedural costs . we primarily design , develop , manufacture and supply single-use medical devices used by hospitals and healthcare providers for common diagnostic and therapeutic procedures in critical care and surgical applications . we sell our products to hospitals and healthcare providers in more than 150 countries through a combination of our direct sales force and distributors . because our products are used in numerous markets and for a variety of procedures , we are not dependent upon any one end-market or procedure . we categorize our products into four groups : critical care , surgical care , cardiac care and original equipment manufacturer and development services ( โ oem โ ) . critical care , representing our largest product group , includes medical devices used in vascular access , anesthesia , respiratory care and specialty markets ; surgical care includes surgical instruments and devices ; and cardiac care includes cardiac assist devices and equipment . oem designs and manufactures instruments and devices for other medical device manufacturers . effective january 1 , 2014 , we realigned our operating segments . the vascular , anesthesia/respiratory and surgical businesses , which previously comprised much of the americas operating segment , are now separate operating segments . additionally , the company made changes to the allocation methodology of certain costs , including manufacturing variances and research and development costs , among the businesses to improve accountability . because the change in segment reporting structure became effective in the first quarter of 2014 , the segment information presented in this document does not reflect this change . through an extensive acquisition and divestiture program , we have significantly expanded our presence in the medical technology industry , while divesting all of our businesses serving the aerospace , automotive , industrial and marine markets . the following is a listing of our more significant acquisitions and divestitures that have occurred since the beginning of 2011. with respect to divested businesses listed below , we have reported results of operations , cash flows and ( gains ) losses on the disposition of these businesses as discontinued operations for all periods presented . see note 18 to the consolidated financial statements included in this annual report on form 10-k for additional information regarding our significant divestitures . medical device business transactions ยท december 2013 โ a cquired vidacare corporation , a provider of intraosseous , or inside the bone , access devices ( โ vidacare โ ) , which complements the vascular access and specialty product portfolios ; ยท june 2013 โ acquired the assets of ultimate medical pty . ltd. and its affiliates , a supplier of airway management devices with a full range of laryngeal mask airways , which complements our anesthesia product portfolio ; ยท june 2013 โ a cquired eon surgical , ltd. , a developer of a minimally invasive microlaparoscopy surgical platform technology designed to enhance a surgeon 's ability to perform scarless surgery while producing better patient outcomes , which complements our surgical care product portfolio ; ยท october 2012 โ acquired substantially all of the assets of lma international n.v. ( lma ) , a global provider of laryngeal masks whose products are used in anesthesia and emergency care , which enhanced our anesthesia product portfolio . ยท 2012 โ completed four late-stage technology acquisitions in furtherance of our strategy to invest in new technologies and research and development to support our future growth . 34 we may be required to pay contingent consideration in connection with some of the acquisitions listed above . the amount of contingent consideration we ultimately will pay will be based upon the achievement of specified objectives , including regulatory approvals and sales targets . for additional information on the contingent consideration , see note 3 to the consolidated financial statements included in this annual report on form 10-k. former aerospace segment divestiture in december 2011 , we sold the cargo systems and container businesses for approximately $ 280 mill ion and realized a gain of $ 126.8 million , net of tax . former commercial segment divestiture in march 2011 , we sold the marine businesses that were engaged in the design , manufacture and distribution of steering and throttle controls and engine and drive assemblies for the recreational marine market , heaters for commercial vehicles and burner units for military field feeding appliances for $ 123.1 million , consisting of $ 101.6 million in cash , net of $ 1.5 million of cash included in the marine business as part of the net assets sold , plus a subordinated promissory note in the amount of $ 4.5 million ( which has subsequently been repaid in full ) and the assumption by the buyer of approximately $ 15.5 million in liabilities related to the marine business . we realized a gain of $ 57.3 million , net of tax benefits , in connection with the sale . looking ahead , our strategy is to continue to be opportunistic and focus our attention on adding a combination of technology and strategic acquisitions to further strengthe n our existing product portfolio within the medical technology industry . additionally , we will continue to identify opportunities to expand our margins by evaluating our existing product portfolio and shedding product lines that do not meet our financial criteria as well as optimizing our overall facility footprint to further reduce our cost base . health care reform on march 23 , 2010 the patient protection and affordable care act was signed into law . t his legislation will have a significant impact on our business . story_separator_special_tag in addition , management uses this financial measure for internal managerial purposes , when publicly providing guidance on possible future results , and to assist in our evaluation of period-to-period comparisons . this financial measure may not be comparable to similarly titled measures used by other companies , is presented in addition to results presented in accordance with gaap and should not be relied upon as a substitute for gaap financial measures . comparison of 2013 and 2012 net revenues for the twelve months ended december 31 , 2013 increased 9.4 % to $ 1,696.3 million from $ 1,551.0 million in the twelve months ended december 31 , 2012. the $ 145.3 million increase in net revenues is largely due to the businesses acquired during 2012 and 2013 , which generated net revenues of approximately $ 121.1 million in 2013 , including approximately $ 110.3 million generated by the lma business . net revenues further benefited from new products ( $ 19.2 million ) primarily in the americas , emea and oem , price increases ( $ 15.2 million ) in the americas , emea and asia , volume gains in asia ( $ 9.3 million ) and emea ( $ 1.3 million ) and the favorable impact of foreign currency exchange rates ( $ 5.7 million ) . these increases were partly offset by volume declines in the americas ( $ 14.7 million ) , in anesthesia , respiratory , vascular , surgical and cardiac products , and oem ( $ 11.8 million ) , primarily on lower sales of catheters and performance fibers . critical care net revenues increased 13.7 % in 2013 to $ 1,182.7 million from $ 1,040.3 million in 2012. on a constant currency basis , net revenues increased 13.4 % over the corresponding prior year period . the increase in net revenues for the twelve months ended december 31 , 2013 was due primarily to higher sales of anesthesia products as well as higher sales of vascular , urology and interventional access products . the growth in sales of anesthesia products was primarily related to the acquisition of the lma business . the increase in net revenues for the twelve months ended december 31 , 2013 was partially offset by a decline in sales of respiratory products . surgical care net revenues increased 5 . 3 % in 2013 to $ 306.5 million from $ 291.1 million in 2012. on a constant currency basis , net revenues increased 4.5 % over the corresponding prior year period . the increase in net revenues for the twelve months ended december 31 , 2013 was due to higher sales of ligation , suture and access products , partially offset by a decline in sales of general surgical instrument products . cardiac care net revenues decreased 4.5 % to $ 75.9 million in 2013 from $ 79.4 million in 2012. on a constant currency basis , net revenues decreased 4.1 % over the corresponding prior year period . the decrease in net revenues for the twelve months ended december 31 , 2013 was primarily due to a decline in sales of intra-aortic balloon pumps . oem net revenues decreased 6.5 % to $ 131 . 2 million in 2013 from $ 140.2 million in 2012. on a constant currency basis , net revenues decreased 7.0 % over the corresponding prior year period . the decrease in net revenues for the twelve months ended december 31 , 2013 was due to a decline in sales of catheter , extrusion and performance fiber products . comparison of 2012 and 2011 net revenues increased 3.9 % in 2012 to $ 1,551.0 million from $ 1,492.5 million in 2011. the $ 58.5 million increase in net revenues was largely due to higher volume ( approximately $ 39.7 million ) , reflecting core growth in all segments , 37 acquisitions ( approximately $ 25.3 million ) , primarily from our acquisition of lma ( approximately $ 24.4 million ) , price increases ( approximately $ 18.6 million ) across all segments and new products ( approximately $ 17.5 million ) in north america and emea . these increases were partly offset by the $ 42.3 million unfavorable impact of foreign currency exchange rates in 2012. critical care net revenues increased 3.5 % in 2012 to $ 1,040.3 million from $ 1,005.4 million in 2011. excluding the impact of foreign currency exchange rates , net revenues increased 6.5 % over the corresponding prior year period . the increase in net revenues was due to higher sales of vascular access , anesthesia , urology and respiratory products . surgical care net revenues increased 5.1 % in 2012 to $ 291.1 million from $ 276.9 million in 2011. excluding the impact of foreign currency exchange rates , net revenues increased 7.9 % over the corresponding prior year period . the increase in net revenues was due to higher sales of ligation , general surgical instrument and closure products . cardiac care net revenues decreased 1.5 % in 2012 to $ 79.4 million from $ 80.6 million in 2011. excluding the impact of foreign currency exchange rates , net revenues increased 2.4 % over the corresponding prior year period . the increase in net revenues was due to higher sales of intra-aortic pumps and catheters . oem net revenues increased 8.2 % in 2012 to $ 140.2 million from $ 129.6 million in 2011. excluding the impact of foreign currency exchange rates , net revenues increased 9.5 % over the corresponding prior year period . the increase in net revenues was due to higher sales of specialty suture and catheter fabrication products . gross profit replace_table_token_9_th comparison of 2013 and 2012 for the twelve months ended december 31 , 2013 , gross profit as a percentage of revenues increased 130 basis points compared to the corresponding prior year period .
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segment results segment net revenues replace_table_token_16_th segment operating profit replace_table_token_17_th ( 1 ) see note 16 to the consolidated financial statements included in this annual report on form 10-k for a reconciliation of segment operating profit to our consolidated income/ ( loss ) from continuing operations before interest , loss on extinguishments of debt and taxes . the following is a discussion of our segment operating results . comparison of 2013 and 2012 americas americas net revenues for the twelve months ended december 31 , 2013 increased 10.1 % compared to the corresponding period in 2012. the increase was primarily due to businesses acquired in 2012 and 2013 , which added net revenues of $ 67.1 million , including $ 60.5 million generated by the lma business and $ 5.8 million generated by the vidacare business ; new product sales ( $ 13.6 million ) , primarily of vascular and anesthesia/respiratory products ; and price increases ( $ 8.8 million ) , principally related to surgical care products , vascular products and latin america . these increases in net revenues were partly offset by lower volumes ( $ 14.7 million ) , primarily in anesthesia/respiratory products , vascular products , surgical instruments and cardiac products and the unfavorable impact of foreign currency exchange rates ( $ 1.1 million ) . americas segment operating profit for the twelve months ended december 31 , 2013 increased 6.3 % compared to the corresponding period in 2012. the increase was primarily due to the operating profit generated by certain of the businesses acquired in 2012 and 2013 including lma ( $ 25.4 million ) and vidacare ( $ 3.5 million ) , the reversal of contingent consideration related to the hotspur , semprus and axiom acquisitions ( $ 11.1 million ) , price increases ( $ 8.8 million ) and new product sales ( $ 5.1 million ) .
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revenue is recognized from the sale of gas upon settlement of the transportation and exchange imbalances . 93 the williams companies , inc. notes to consolidated financial statements โ ( continued ) we market ngls , crude oil , natural gas , and olefins that we purchase from our producer customers as part of the overall service provided to producers . revenues from marketing ngls are recognized when the products have been sold and delivered . under our keep-whole and percent-of-liquids processing contracts , we retain the rights to all or a portion of the ngls extracted from the producers ' natural gas stream and recognize revenues when the extracted ngls are sold and delivered . our domestic olefins business produces olefins from purchased or produced feedstock and we recognize revenues when the olefins are sold and delivered . our canadian businesses that were sold in september 2016 had processing and fractionation operations where we retained certain ngls and olefins from an upgrader 's offgas stream and we recognized revenues when the fractionated products were sold and delivered . interest capitalized we capitalize interest during construction on major projects with construction periods of at least 3 months and a total project cost in excess of $ 1 million . interest is capitalized on borrowed funds and , where regulation by the ferc exists , on internally generated funds ( equity afudc ) . the latter is included in other income ( expense ) โ net below operating income ( loss ) in the consolidated statement of operations . the rates used by regulated companies are calculated in accordance with ferc rules . rates used by nonregulated companies are based on our average interest rate on debt . employee stock-based awards we recognize compensation expense on employee stock-based awards , net of estimated forfeitures , on a straight-line basis . ( see note 16 โ equity-based compensation . ) pension and other postretirement benefits the funded status of each of the pension and other postretirement benefit plans is recognized separately in the consolidated balance sheet as either an asset or liability . the funded status is the difference between the fair value of plan assets and the plan 's benefit obligation . the plans ' benefit obligations and net periodic benefit costs are actuarially determined and impacted by various assumptions and estimates . ( see note 10 โ employee benefit plans . ) the discount rates are determined separately for each of our pension and other postretirement benefit plans based on an approach specific to our plans . the year-end discount rates are determined considering a yield curve comprised of high-quality corporate bonds and the timing of the expected benefit cash flows of story_separator_special_tag story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 69 commercial paper program and credit facility during 2016 was $ 2.326 billion . at december 31 , 2016 , wpz was in compliance with the financial covenants associated with this credit facility . see note 14 โ debt , banking arrangements , and leases of notes to consolidated financial statements for additional information on wpz 's credit facility and wpz 's commercial paper program . borrowing capacity available under wpz 's $ 3.5 billion credit facility as of february 20 , 2017 , was $ 3.5 billion . as described in note 14 โ debt , banking arrangements , and leases of notes to consolidated financial statements , we have determined that we have net assets that are technically considered restricted in accordance with rule 4-08 ( e ) of regulation s-x of the securities and exchange commission in excess of 25 percent of our consolidated net assets . we do not expect this determination will impact our ability to pay dividends or meet future obligations as the terms of wpz 's partnership agreement require it to make quarterly distributions of all available cash , as defined , to its unitholders . wpz incentive distribution rights as part of the financial repositioning , we permanently waived our right to incentive distributions from wpz . ( see overview in management 's discussion and analysis of financial condition and results of operations . ) through december 31 , 2016 , our ownership interest in wpz included the right to incentive distributions determined in accordance with wpz 's partnership agreement . in connection with the sale of wpz 's canadian operations in the third quarter of 2016 , we agreed to waive $ 150 million of incentive distributions otherwise payable by wpz to us in the fourth quarter of 2016 . ( see note 3 โ divestiture of notes to consolidated financial statements . ) we had agreed to temporarily waive incentive distributions of approximately $ 2 million per quarter in connection with wpz 's acquisition of an approximate 13 percent additional interest in ueom on june 10 , 2015. the waiver would have continued through the quarter ending september 30 , 2017. we were required to pay a $ 428 million termination fee to wpz , associated with the termination agreement ( as described in note 1 โ general , description of business , basis of presentation , and summary of significant accounting policies of notes to consolidated financial statements ) , which settled through a reduction of quarterly incentive distributions we are entitled to receive from wpz ( such reduction not to exceed $ 209 million per quarter ) . the november 2015 , february 2016 , and may 2016 distributions from wpz were reduced by $ 209 million , $ 209 million , and $ 10 million , respectively , related to this termination fee . registrations in september 2016 , wpz filed a registration statement for its new drip discussed above . in november 2016 , wpz received reinvested distributions of $ 260 million , of which $ 250 million related to us . story_separator_special_tag includes an estimated $ 586 million long-term mixed ngls purchase obligation with index-based pricing terms that is reflected in this table at december 31 , 2016 prices . in addition , we have not included certain natural gas life-of-lease contracts for which the future volumes are indeterminable . we have not included commitments , beyond purchase orders , for the acquisition or construction of property , plant , and equipment or expected contributions to our jointly owned investments . ( see company outlook โ expansion projects . ) ( 4 ) does not include estimated contributions to our pension and other postretirement benefit plans . we made contributions to our pension and other postretirement benefit plans of $ 72 million in 2016 and $ 70 million in 2015 . in 2017 , we expect to contribute approximately $ 69 million to these plans ( see note 10 โ employee benefit plans of notes to consolidated financial statements ) . tax-qualified pension plans are required to meet minimum contribution requirements . in the past , we have contributed amounts to our tax-qualified pension plans in excess of the minimum required contribution . these excess amounts can be used to offset future minimum contribution requirements . during 2016 , we contributed $ 60 million to our tax-qualified pension plans . in addition to these contributions , a portion of the excess contributions was used to meet the minimum contribution requirements . during 2017 , we expect to contribute approximately $ 60 million to our tax-qualified pension plans and use excess amounts to satisfy minimum contribution requirements , if needed . additionally , estimated future minimum funding requirements may vary significantly from historical requirements if actual results differ significantly from estimated 73 results for assumptions such as returns on plan assets , interest rates , retirement rates , mortality , and other significant assumptions or by changes to current legislation and regulations . ( 5 ) we have not included income tax liabilities in the table above . see note 8 โ provision ( benefit ) for income taxes of notes to consolidated financial statements for a discussion of income taxes , including our contingent tax liability reserves . effects of inflation our operations have historically not been materially affected by inflation . approximately 39 percent of our gross property , plant , and equipment is comprised of our interstate natural gas pipeline assets . they are subject to regulation , which limits recovery to historical cost . while amounts in excess of historical cost are not recoverable under current ferc practices , we anticipate being allowed to recover and earn a return based on increased actual cost incurred to replace existing assets . cost-based regulations , along with competition and other market factors , may limit our ability to recover such increased costs . for our gathering and processing assets , operating costs are influenced to a greater extent by both competition for specialized services and specific price changes in crude oil and natural gas and related commodities than by changes in general inflation . crude oil , natural gas , and ngl prices are particularly sensitive to the market perceptions concerning the supply and demand balance in the near future , as well as general economic conditions . however , our exposure to certain of these price changes is reduced through the fee-based nature of certain of our services and the use of hedging instruments . environmental we are a participant in certain environmental activities in various stages including assessment studies , cleanup operations , and or remedial processes at certain sites , some of which we currently do not own ( see note 18 โ contingent liabilities and commitments of notes to consolidated financial statements ) . we are monitoring these sites in a coordinated effort with other potentially responsible parties , the epa , or other governmental authorities . we are jointly and severally liable along with unrelated third parties in some of these activities and solely responsible in others . current estimates of the most likely costs of such activities are approximately $ 38 million , all of which are included in accrued liabilities and regulatory liabilities , deferred income , and other on the consolidated balance sheet at december 31 , 2016 . we will seek recovery of approximately $ 9 million of these accrued costs through future natural gas transmission rates . the remainder of these costs will be funded from operations . during 2016 , we paid approximately $ 6 million for cleanup and or remediation and monitoring activities . we expect to pay approximately $ 9 million in 2017 for these activities . estimates of the most likely costs of cleanup are generally based on completed assessment studies , preliminary results of studies , or our experience with other similar cleanup operations . at december 31 , 2016 , certain assessment studies were still in process for which the ultimate outcome may yield different estimates of most likely costs . therefore , the actual costs incurred will depend on the final amount , type , and extent of contamination discovered at these sites , the final cleanup standards mandated by the epa or other governmental authorities , and other factors . in march 2008 , the epa promulgated a new , lower national ambient air quality standard ( naaqs ) for ground-level ozone . in may 2012 , the epa completed designation of new eight-hour ozone nonattainment areas . several transco facilities are located in 2008 ozone nonattainment areas . in december 2014 , the epa proposed to further reduce the ground-level ozone naaqs from the march 2008 levels and subsequently finalized a rule on october 1 , 2015. we are monitoring the rule 's implementation as the reduction will trigger additional federal and state regulatory actions that may impact our operations . to date , no federal actions have been proposed to mandate additional emission controls at these facilities . pursuant to recently
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overview in 2016 , we continued to focus upon growth in our businesses through disciplined investment and reducing our costs and funding needs . examples of this activity included : expansion of wpz 's interstate natural gas pipeline system through projects such as rock springs to meet the demand of growth markets ; completion of wpz 's gulfstar one expansion project to provide production handling and gathering services for the gunflint oil and gas discovery in the eastern deepwater gulf of mexico ; wpz 's restructuring of contracts in the barnett shale and mid-continent region , which included cash payments to wpz of $ 820 million ; sale of our canadian operations ( see note 3 โ divestiture of notes to consolidated financial statements ) . outlook fee-based businesses are becoming an even more significant component of our portfolio and serve to reduce the influence of commodity price fluctuations on our cash flows . we expect to benefit as continued growth in demand for low-cost natural gas is driven by increases in lng exports , industrial demand , and power generation . we believe we have , or have access to , the financial resources and liquidity necessary to meet our requirements for working capital , capital and investment expenditures , dividends and distributions , debt service payments , and tax payments , while maintaining a sufficient level of liquidity . in particular , as previously discussed in company outlook , our expected growth capital and investment expenditures total approximately $ 2.1 billion to $ 2.8 billion in 2017. approximately $ 1.4 billion to $ 1.9 billion of our growth capital funding needs include transco expansions and other interstate pipeline growth projects , most of which are fully contracted with firm transportation agreements .
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as talkingnets had filed a voluntary petition for chapter 11 reorganization in february 2003 , the talkingnets asset purchase agreement was subject to the approval of the u.s. bankruptcy court for the eastern district of virginia . on april 9 , 2003 , the talkingnets asset purchase story_separator_special_tag the following discussion and analysis of the financial condition and results of operations should be read in conjunction with โ item 6 - selected consolidated financial data โ and โ item 8 - financial statements and supplementary data โ that appear elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements . factors that might cause such a difference include , but are not limited to , those set forth under โ risk factors โ and elsewhere in this annual report on form 10-k. existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements , which speak only as of the date hereof . we undertake no obligation , and disclaim any obligation , to update or revise the information contained in this annual report on form 10-k , whether as a result of new information , future events or circumstances or otherwise . overview our business we provide high-speed data communications , internet access , and related services to small and medium sized businesses and branch offices of larger businesses and their remote office users , throughout the united states , primarily utilizing digital subscriber line ( โ dsl โ ) and t-1 technology . in september 2003 , we expanded our service offerings to business customers in the washington , d.c. metropolitan region to include integrated voice and data services using voice over internet protocol technology ( โ voip โ ) . in february 2004 , we introduced our voip and data bundles in the new york city metropolitan area . our networks enable data transport over existing copper telephone lines at speeds of up to 1.5 megabits per second . our product offerings also include web hosting , domain name system management , enhanced e-mail , on-line data 23 ( dollars in thousands , except per share amounts ) backup and recovery services , firewalls , nationwide dial-up services , private frame relay services and virtual private networks . we sell directly to businesses through our own sales force utilizing a variety of sales channels , including referral channels such as local information technology professionals , application service providers and marketing partners . we also sell directly to third party resellers whose end-users are typically business-class customers . we deploy our own local communications equipment primarily in select first and second tier cities . in certain markets where we have not deployed our own equipment , we utilize the local facilities of other carriers to provide our service . our challenges and opportunities our business is in transition from an earlier strategy focused primarily on growth to a strategy focused primarily on financial performance . in 2003 , in an effort to expand our network footprint , customer base and product offerings , we completed the acquisitions of substantially all of the assets and operations of network access solutions corporation ( โ nas โ ) , and talkingnets , inc. and its affiliate ( collectively , โ talkingnets โ ) . the nas acquisition significantly increased our facilities-based network in central offices from virginia to massachusetts . the talkingnets acquisition provided us the ability to offer , in the business-intensive , mid-atlantic and northeast regions , carrier-class integrated voice and data services utilizing voip technology . we completed the integration of both of these acquisitions into our operations during 2004. during 2004 we focused on reducing operating losses and increasing gross margins . on march 25 and september 21 , 2004 , we implemented reductions-in-force of 62 and 32 employees , respectively , as part of our cost reduction measures . in connection with this latter reduction-in-force , during the third quarter of 2004 , we began implementing a new sales and marketing strategy by reorganizing our inside sales force , reducing funding for certain sales and marketing activities , and re-directing our focus to sales of multi-line accounts and sales of higher margin services , including our integrated voice and data services and t-1 data services . as a result of these and other cost-savings measures , we achieved positive operating cash flow results in the fourth quarter of 2004 for the first time in our history . however , our cost reduction measures , and particularly , our sales force reductions , have and continue to place downward pressure on our ability to sustain or grow our revenue base . additionally , like many of our competitors , we experience a degree of customer disconnects or โ churn โ due to competitive pricing pressures and other factors , which churn is in excess of the rate that we are currently acquiring new customers . in response to this , we have implemented a program pursuant to which our customer retention representatives proactively endeavor to renew existing customers to service agreements prior to or at the time of initial term expiration . while we are taking measures to control customer churn , our ability to generate and sustain positive operating cash flow in future periods will be dependent , in large part , on our ability to obtain additional funding to support our working capital needs and increase our sales and customer acquisition activities , while continuing to further control our operating costs . there can be no assurance that we will be able to obtain additional funding , increase our sales or further control our operating costs in future periods ( see โ liquidity and capital resources โ ) . story_separator_special_tag we establish a reserve based on historical experience for such estimated rebate costs , with a corresponding reduction to revenue and deferred revenue , as applicable . establishing such reserves requires subjective judgments and estimates primarily pertaining to the number and amounts of such credits , allowances and rebates . actual results may differ from our estimates that could result in an overstatement or understatement of revenues . we seek to price our services competitively . the market for high-speed data communications services and internet access is rapidly evolving and intensely competitive . while many of our competitors and potential competitors enjoy competitive advantages over us , we are pursuing a significant market that , we believe , is currently under-served . although pricing is an important part of our strategy , we believe that direct relationships with our customers and consistent , high quality service and customer support are key to generating customer loyalty . during the past several years , market prices for many telecommunications services and equipment have been declining , a trend that might continue . goodwill and other long-lived assets we account for our long-lived assets ( excluding goodwill ) in accordance with statement of financial accounting standards ( โ sfas โ ) no . 144 , โ accounting for the impairment of long-lived assets and for long-lived assets to be disposed of , โ which requires that long-lived assets and certain intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable such as technological changes or significant increased competition . if undiscounted expected future cash flows are less than the carrying value of the assets , an impairment loss is to be recognized based on the fair value of the assets , calculated using a discounted cash flow model . there were no impairment 26 ( dollars in thousands , except per share amounts ) charges taken during the years ended 2004 , 2003 and 2002. there is inherent subjectivity and judgments involved in cash flow analyses such as estimating revenue and cost growth rates , residual or terminal values and discount rates , which can have a significant impact on the amount of any impairment . effective january 1 , 2002 , we adopted sfas no . 142 , โ goodwill and other intangible assets . โ this statement requires that the amortization of goodwill be discontinued and instead an impairment approach be applied . if impairment exists , under sfas no . 142 , the resulting charge is determined by the recalculation of goodwill through a hypothetical purchase price allocation of the fair value and reducing the current carrying value to the extent it exceeds the recalculated goodwill . the impairment tests were performed initially upon adopting sfas 142 in 2002 and annually thereafter and were based upon the fair value of reporting units rather than an evaluation of the undiscounted cash flows . we estimated the fair value of the goodwill based on discounted forecasts of future cash flows . there is inherent subjectivity and judgments involved in cash flow analyses such as estimating revenue and cost growth rates , residual or terminal values and discount rates , which can have a significant impact on the amount of any impairment . we did not record any goodwill impairment adjustments resulting from our impairment reviews during 2004 , 2003 and 2002. other long-lived assets , such as identifiable intangible assets and fixed assets , are amortized or depreciated over their estimated useful lives . these assets are reviewed for impairment whenever events or circumstances provide evidence that suggests that the carrying amount of the assets may not be recoverable , with impairment being based upon an evaluation of the identifiable undiscounted cash flows . if impaired , the resulting charge reflects the excess of the asset 's carrying cost over its fair value . as described above , there is inherent subjectivity involved in estimating future cash flows , which can have a significant impact on the amount of any impairment . also , if market conditions become less favorable , future cash flows ( the key variable in assessing the impairment of these assets ) may decrease and as a result we may be required to recognize impairment charges in the future . allowance for doubtful accounts we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . such allowances require management 's estimates and judgments and are computed based on historical experience using varying percentages of aged receivables . actual experience may differ from our estimates and require larger or smaller charges to income . we primarily sell our services directly to end users mainly consisting of small to medium sized businesses , but we also sell our services to certain resellers , such as to internet service providers ( โ isps โ ) . we believe that we do not have significant exposure or concentrations of credit risk with respect to any given customer . however , if the country or any region we service , experiences an economic downturn , the financial condition of our customers could be adversely affected , which could result in their inability to make payments to us . this could require additional provisions for allowances . in addition , a negative impact on revenue related to those customers may occur . with the acquisition of the nas assets on january 10 , 2003 , we acquired a number of end users , some of whom we service indirectly through various isps . we sell our services to such isps who then resell such services to the end users . we have some increased exposure and concentration of credit risk pertaining to such isps . however , no individual customer accounted for more than 5 % of revenue for the years ended december 31 , 2004 , 2003 and 2002 or more than 10 % of accounts receivable at december 31 , 2004 and 2003 .
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results of operations the following table depicts our results of operations data and the components of net loss as a percentage of revenue : replace_table_token_5_th 30 ( dollars in thousands , except per share amounts ) revenue . revenue for the year ended december 31 , 2004 , decreased by approximately $ 2,884 ( 4 % ) to approximately $ 68,449 , from approximately $ 71,333 for the year ended december 31 , 2003. the decrease in revenue primarily resulted from the decrease in the number of customers subscribing to our services . revenue for the year ended december 31 , 2003 , increased by approximately $ 25,803 ( 57 % ) to approximately $ 71,333 from approximately $ 45,530 for the year ended december 31 , 2002. the revenue increase was primarily due to the expansion of our network , the increased number of customers subscribing for our services and contributions from acquisitions of certain network assets , equipment and associated subscriber lines of nas during 2003. the revenue attributable to contributions from acquired businesses was approximately $ 0 , $ 23,013 and $ 2,069 and for the years ended december 31 , 2004 , 2003 and 2002 , respectively . network expenses . our network expenses include costs related to network engineering and network field operations personnel , costs for telecommunications lines between customers , central offices , network service providers and our network , costs for rent and power at our central offices , costs to connect to the internet , costs of customer line installations and the costs of customer premise equipment when sold to our customers . we lease high-speed lines and other network capacity to connect our central office equipment and our network . costs incurred to connect to the internet are expected to vary as the volume of data communications traffic generated by our customers varies .
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factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in โ special note regarding forward-looking statements โ and โ risk factors. โ the forward-looking statements included in this annual report on form 10-k are made only as of the date hereof . overview we are a leading provider of social game services with approximately 80 million average maus during 2017. we develop , market and operate social games as live services played on mobile platforms , such as ios and android , and social networking sites such as facebook . generally , all of our games are free to play , and we generate revenue through the sale of in-game virtual goods ( โ online game revenue โ ) and advertising services ( โ advertising revenue โ ) . we are a pioneer and innovator of social games and a leader in making โ play โ a core activity on mobile devices and social networking sites . our objective is to become the worldwide leader in play by connecting the world through games . consistent with our free-to-play business model , a small portion of our players have historically been payers . because the opportunity for social interactions increases as the number of players increases , we believe that maintaining and growing our overall number of players , including the number of players who may not purchase virtual goods , is important to the success of our business . as a result , we believe that the number of players who choose to purchase virtual goods will continue to constitute a small portion of our overall players . our top three online game revenue-generating games historically have contributed a significant portion of our revenue , though the games that represent our top three online game revenue-generating games vary over time . our top three online game revenue-generating games accounted for 45 % , 44 % , and 53 % of our online game revenue in 2017 , 2016 and 2015 , respectively . in 2017 , our top three online game revenue generating games were zynga poker , csr racing 2 , and hit it rich ! slots . with respect to advertising and other revenue , our words with friends games generated a substantial portion of our advertising and other revenue in 2017 , 2016 and 2015 . 29 how we generate revenue we operate our social games as live services that allow players to play for free . we generate revenue primarily from the sale of in-game virtual goods and advertising services . revenue growth will continue to depend largely on our ability to attract and retain players and more effectively monetize our player base through the sale of in-game virtual goods and advertising services . we intend to do this through the launch of new games , enhancements to current games and expansion into new markets and distribution platforms . online game . we provide our players with the opportunity to purchase virtual goods that enhance their game-playing experience . we believe players choose to pay for virtual goods for the same reasons they are willing to pay for other forms of entertainment โ they enjoy the additional playing time or added convenience , the ability to personalize their own game boards , the satisfaction of leveling up , and the opportunity for sharing creative expressions . we believe players are more likely to purchase virtual goods when they are connected to and playing with their friends , whether those friends play for free or also purchase virtual goods . players may also elect to pay a one-time download fee to obtain certain mobile games free of third-party advertisements . in 2017 , our business continued generating a higher percentage of revenue and bookings through mobile platforms than through the facebook platform . in 2017 , we estimate that 51 % , 33 % and 12 % of our revenue and 51 % , 34 % and 11 % of our bookings were generated from apple , google and facebook , respectively , while in 2016 , we estimate that 46 % , 29 % and 20 % of revenue and 47 % , 30 % and 18 % of our bookings were generated from apple , google and facebook , respectively . this information is estimated because certain payment methods we accept and certain advertising networks do not allow us to determine the platform used . for all payment transactions in our games under facebook 's local currency-based payments model , facebook remits to us an amount equal to 70 % of the price we requested to be charged to our players . on platforms other than facebook , players purchase our virtual goods through various widely accepted payment methods offered in the games , including apple itunes accounts , google wallet , paypal and credit cards . advertising and other . advertising revenue primarily includes mobile and display ads , engagement ads and offers , and branded virtual goods and sponsorships . we generally report our advertising revenue net of amounts due to advertising agencies and brokers . other revenue includes software licensing and maintenance related to technology acquired in our acquisition of naturalmotion as well as the licensing of our brands . key metrics we regularly review a number of metrics , including the following key financial and operating metrics , to evaluate our business , measure our performance , identify trends in our business , prepare financial projections and make strategic decisions . key financial metrics bookings . bookings is a non-gaap financial measure that is equal to revenue recognized plus or minus the change in deferred revenue during the period . we record the sale of virtual goods as deferred revenue and then recognize that revenue over the estimated average life of the purchased virtual goods or as the virtual goods are consumed . story_separator_special_tag we define abpu as our total bookings in a given period , divided by the number of days in that period , divided by the average daus during the period . we believe that abpu provides useful information to investors and others in understanding and evaluating our results in the same manner as management . we use abpu as a measure of overall monetization across all of our players through the sale of virtual goods and advertising . our business model for social games is designed so that , as there are more players that play our games , social interactions increase and the more valuable the games and our business become . all engaged players of our games help drive our bookings and , consequently , both online game revenue and advertising revenue . virtual goods are purchased by players who are socializing with , competing against or collaborating with other players , most of whom do not buy virtual goods . accordingly , we primarily focus on bookings , daus , maus , muus , mups and abpu , which together we believe best reflect key audience metrics . 31 the table below shows average daus , maus , mups and abpu for the last eight quarters : replace_table_token_7_th ( 1 ) games referenced in footnote ( 2 ) below are included incrementally in dau and mau because we do not have the third party network login data to link an individual who has played under multiple user accounts . as such , actual dau and mau may be lower than reported due to the potential duplication of these individuals . ( 2 ) for the fourth quarter of 2017 , muus and mups exclude daily celebrity crossword , solitaire , our facebook messenger games , and games recently acquired from peak games . for the first , second and third quarters of 2017 , muus and mups exclude daily celebrity crossword , solitaire , and our facebook messenger games . for the third and fourth quarters of 2016 , muus and mups exclude daily celebrity crossword and vegas diamond slots . for the first and second quarters of 2016 , muus and mups exclude black diamond casino , vegas diamond slots , yummy gummy and crazy kitchen . these games are excluded to avoid potential double counting of muus and mups as our systems are unable to distinguish whether a player of these games is also a player of the company 's other games during the applicable time periods . average daus and maus increased in the first quarter of 2017 primarily due to the contribution from solitaire , which was acquired from harpan llc ( โ harpan โ ) in february 2017 , in addition to strong performance from zynga poker . average daus were flat , while average maus increased in the second quarter of 2017 due to the contribution from games on mobile messenger platforms ( i.e . imessage and facebook messenger ) , in addition to strong performance from solitaire and words with friends . average daus and maus were flat in the third quarter of 2017. average daus and maus increased in the fourth quarter of 2017 primarily due to the contribution from games acquired from the casual card game division of peak oyun yazilim ve pazarlama anoim sirketi ( โ peak games โ ) in december 2017 , in addition to strong performance from words with friends . when comparing the fourth quarter of 2017 to the fourth quarter of 2016 , average daus and maus increased primarily due to the contribution from games acquired in 2017 in addition to strong performance from zynga poker and words with friends . for average maus , the fourth quarter year over year increase was also attributed to the contribution from games on mobile messenger platforms . average muus were flat in the first quarter of 2017 and subsequently decreased in the second , third and fourth quarters of 2017. the decrease was primarily due to declines in unique users for farmville 2 and our slots games . when comparing the fourth quarter of 2017 to the fourth quarter of 2016 , average muus decreased primarily due to declines in unique users for farmville 2 , looney tunes dash ! , and our slots games . average mups were relatively consistent throughout 2017. abpu decreased in the first quarter of 2017 due to average daus increasing faster than bookings . abpu increased in the second and third quarters of 2017 due to an increase in bookings as there was no change in average daus . abpu was flat in the fourth quarter of 2017 and decreased when compared to the fourth quarter of 2016 due to average dau increasing faster than bookings . other metrics although our management primarily focuses on the operating metrics above , we also monitor periodic trends in our paying players of our games . the table below shows average monthly unique payer bookings , average mups and unique payer bookings per unique payer for the last eight quarters : replace_table_token_8_th ( 1 ) average monthly unique payer bookings represent the monthly average amount of bookings for the applicable quarter that we received through payment methods for which we can quantify the number of unique payers and excludes bookings from certain payment methods for which we can not quantify the number of unique payers . also excluded are bookings from advertising . for the fourth quarter of 2017 , bookings from daily celebrity crossword , solitaire , our facebook messenger games , and games recently acquired from peak games are excluded . for the first , second and third quarters of 2017 , bookings from daily celebrity crossword , solitaire and our facebook messenger games are excluded . for the third and fourth quarters of 2016 , bookings from daily celebrity crossword and vegas diamond slots are excluded . for the first and second quarters of 2016 , bookings from black diamond casino , vegas diamond slots , yummy gummy and crazy kitchen are excluded .
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results of operations revenue replace_table_token_9_th 35 2017 compared to 2016. total revenue increased $ 120.0 million in 2017 as compared to 2016 as a result of both inc reases in online game revenue and advertising and other revenue . bookings increased $ 99.3 million in 2017 due to increases in both online game and advertising and other bookings . average daus increased from 19 million in 2016 to 21 million in 2017 , abpu wa s flat at $ 0.111 in 2016 and 2017 and average mups increased from 1.1 million in 2016 to 1.2 million in 2017. online game revenue increased $ 118.3 million in 2017 as compared to 2016. this increase is primarily attributable to increases in revenue from csr racing 2 , zynga poker , the wizard of oz : magic match and dawn of titans in the amounts of $ 72.7 million , $ 41.0 million , $ 35.1 million and $ 31.2 million , respectively . online game revenue increased for zynga poker due to growth in bookings and audience metrics in this game , while online game revenue increased for the wizard of oz : magic match , csr racing 2 and dawn of titans as these games were launched in may 2016 , june 2016 and december 2016 , respectively . the overall increase in online game revenue was offset by decreases in online game revenue from empires and allies 2 , farmville 2 , farmville 2 : country escape and farmville : harvest swap in the amounts of $ 28.8 million , $ 15.3 million , $ 9.4 million and $ 9.0 million , respectively , due to the overall decay rate in bookings and audience metrics in these games . all other games accounted for the net increase of $ 0.8 million .
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