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new accounting guidanceโ not yet adopted the story_separator_special_tag the following discussion is intended to enhance the reader 's understanding of our operations and current business environment and should be read in conjunction with the description of our business ( see part i , item 1 of this annual report on form 10-k ) and our consolidated financial statements and notes ( see part iv , item 15 of this annual report on form 10-k ) . this โ management 's discussion and analysis of financial condition and results of operations โ contains forward-looking statements within the meaning of the private securities litigation reform act of 1995 and should be read in 40 conjunction with the disclosures and information contained and referenced under โ forward-looking statements โ and โ risk factors โ included in this annual report on form 10-k. business overview on may 7 , 2019 , we completed the ipo as described in note 1. we are a leading developer and publisher of digital games on mobile and web platforms . we currently offer seven core games , including social casino games jackpot party casino , gold fish casino , hot shot casino and quick hit slots , and casual games monopoly slots , bingo showdown and 88 fortunes slots , and recently added a solitaire social game targeted toward casual game players as a part of the come2play acquisition on various platforms referenced herein . our social casino games typically include slots-style game play and occasionally include table games-style game play , while our casual games blend slots-style or bingo game play with adventure game features . all of our games are offered and played on multiple platforms , including apple , google , facebook , amazon , and microsoft . in addition to our internally created games , our content library includes recognizable , real-world slot and table games content from scientific games . this content allows players who like playing land-based slot machines to enjoy some of those same titles in our free-to-play games . we have access to scientific games ' library of more than 1,500 iconic casino titles , including titles and content from third-party licensed brands such as monopoly , james bond , the flintstones , michael jackson , and playboy . we generate substantially all of our revenue from the sale of coins , chips and cards , which players of our games can use to play casino-style slot games and table games and bingo games . players who install our games receive free coins , chips or cards upon the initial launch of the game and additional free coins , chips or cards at specific time intervals . players may exhaust the coins , chips or cards that they receive for free and may choose to purchase additional coins , chips or cards in order to extend their time of game play . trends and recent updates in march 2020 , the world health organization declared the rapidly spreading covid-19 outbreak a pandemic . in response to the covid-19 pandemic , governments across the world are implementing measures to prevent its spread , including the temporary closure of all non-essential businesses and travel restrictions . many of our current and potential players may have significantly more free time to play our games , however they may also experience sustained consumer unease and have lower discretionary income . while the increased player engagement we experienced during the first half of this year as a result of the stay at home measures across the u.s. has begun to recede , we are still seeing higher player engagement as compared to before stay at home measures began . we are not able to predict and quantify the ultimate impact of further covid-19 developments on our results of operations in future periods . on june 22 , 2020 , we completed the acquisition of the privately held mobile and social game company come2play ( see note 1 ) , which expanded and diversified our portfolio of social games . as a result of this acquisition we now offer a solitaire social game targeted towards casual game players on the same platforms in which we currently offer our existing games . we currently plan to launch an additional casual game in 2022. on september 14 , 2020 , our parent , scientific games corporation , announced that a number of long-term institutional investors , including highly credentialed gaming industry investor caledonia investments , reached an agreement to acquire a 34.9 % stake in sgc from macandrews & forbes incorporated ( `` macandrews & forbes โ ) at a price of $ 28.00 per share . this transaction was completed on october 27 , 2020 , with no investor owning more than 9.9 % of scientific games shares . m. mendel pinson , executive vice president at macandrews and forbes , and frances f. townsend , executive vice president of worldwide government , legal and business affairs of macandrews & forbes , resigned from the board of directors of sciplay effective october 2 , 2020. throughout 2019 and 2020 , we deployed significant updates across a number of our portfolio games , and we continued testing in certain international markets . we expect to deploy further updates to games in future years and to continue testing in international markets . our year over year total revenue growth of 25 % was in-line with the overall industry trend . we believe that there is an opportunity for improved operating results in 2021 and beyond , as we continue to execute on our strategic game updates , enhanced analytics , and an upcoming new game release . 41 key performance indicators and non-gaap measures we manage our business by tracking several key performance indicators , each of which is tracked by our internal analytics systems and more fully described below and referred to in our discussion of operating results . story_separator_special_tag components of results of operations revenue we generate substantially all of our revenue from the sale of coins , chips and cards , which players of our games can use to play slot games , table games and bingo games . revenue from the sale of coins , chips and cards is generated on mobile and web platforms . other revenue primarily represents advertising revenue , which is currently an insignificant portion of our total revenue . we expect our overall revenue to continue to grow as we continue to increase our market share and execute our strategy . as player platform preferences change and continue to migrate to mobile , we expect revenue generated on web platforms to continue to decline . operating expenses operating expenses consist primarily of cost of revenue , sales and marketing expenses , general and administrative expenses , r & d , d & a , contingent acquisition consideration , and restructuring and other expenses , each more fully described below . d & a expense is excluded from cost of revenue and other operating expenses , and is separately presented on the consolidated statements of income . cost of revenue cost of revenue consists primarily of fees paid to platform providers such as facebook , google , apple , amazon and microsoft , which generally represent approximately 30 % of our revenue , and licensing fees , which includes intellectual property royalties paid to both affiliated and unaffiliated third parties , and other direct expenses incurred to generate revenue . we expect the aggregate amount of cost of revenue to increase for the foreseeable future as we grow our revenue and expand our business . sales and marketing sales and marketing expenses consist primarily of advertising costs related to marketing and player acquisition and retention , salaries and benefits for our sales and marketing employees and fees paid to consultants . we intend to continue to invest in sales and marketing to grow our player base both for our existing games and future games we may deploy . as a result , we expect the aggregate amount of sales and marketing expenses to increase for the foreseeable future as we grow our 43 revenues and business and deploy new games . as deployed games mature , we generally expect sales and marketing expenses as a percentage of revenue attributable to such games to decrease . general and administrative general and administrative expenses consist primarily of salaries , benefits , and stock-based compensation for our executives , finance , information technology , human resources and other administrative employees , and includes administrative parent services ( see note 10 ) . in addition , general and administrative expenses include outside consulting , legal and accounting services , facilities and other supporting overhead costs not allocated to other departments . we expect that our aggregate amount of general and administrative expenses will increase for the foreseeable future as we continue to grow our business and incur additional expenses associated with being a publicly traded company . research & development research & development expenses consist primarily of costs associated with game development , such as associated salaries , benefits , and other supporting overhead costs associated with game development . continued investment in enhancing existing games and developing new games is important to attaining our strategic objectives . as a result , we expect the aggregate amount of r & d expenses to increase for the foreseeable future as we grow our business , focus on retention of our development team and grow our facilities . contingent acquisition consideration contingent acquisition consideration expense consists of incremental consideration to be paid to former owners of businesses we acquired , the amount of which exceeds the acquisition date estimation . as described in note 1 , when an acquisition includes future consideration to be paid to previous owners of those businesses we have acquired , we estimate the fair value of the future payments and record the acquisition-date fair value as a component of the purchase price . we monitor such arrangements and evaluate them when conditions change . any adjustments subsequent to the acquisition date estimate are recorded as contingent acquisition consideration expense . because such expense is based on our current expectations of the future results of the acquired businesses , any adjustments are recorded if our expectations for the future change . although we currently do not have any expectation that we will incur future contingent acquisition consideration , any such expenses will be dependent on future merger and acquisition activities and terms of those arrangements . restructuring and other our restructuring and other expenses include charges or expenses attributable to : ( i ) employee severance ; ( ii ) management restructuring and related costs ; ( iii ) restructuring and integration ; ( iv ) cost savings initiatives ; and ( v ) acquisition related and other unusual items . restructuring and other expenses will increase or decrease based on management actions and or occurrence of charges described herein . 44 results of operations story_separator_special_tag 0 ; text-align : right ; vertical-align : bottom '' > stock-based compensation 22.0 8.9 other expense , net 0.6 1.5 aebitda ( 2 ) $ 188.7 $ 122.3 revenue $ 582.2 $ 465.8 net income margin ( net income/revenue ) 25.1 % 20.1 % aebitda margin ( aebitda/revenue ) ( 2 ) 32.4 % 26.3 % royalties for scientific games ip ( 1 ) $ โ $ 10.2 ( 1 ) under the terms of the revised ip license agreement , as more fully described in note 10 , we acquired an exclusive ( subject to certain limited exceptions ) , perpetual , non-royalty-bearing license for intellectual property created or acquired by sg gaming , inc. or its affiliates , which resulted in no future royalties or fees for our use of intellectual property owned by sg gaming , inc. or its affiliates in our currently available games .
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summary of results of operations years ended december 31 , variance ( $ in millions , except percentages ) 2020 2019 2020 vs. 2019 revenue $ 582.2 $ 465.8 $ 116.4 25 % operating expenses 427.2 362.1 65.1 18 % operating income 155.0 103.7 51.3 49 % net income 146.0 93.5 52.5 56 % net income attributable to sciplay 20.9 32.4 ( 11.5 ) ( 35 ) % aebitda $ 188.7 $ 122.3 $ 66.4 54 % net income margin 25.1 % 20.1 % 5.0 pp nm aebitda margin 32.4 % 26.3 % 6.1 pp nm pp = percentage points . nm = not meaningful . the following table reconciles net income attributable to sciplay to aebitda and aebitda margin : years ended december 31 , ( $ in millions , except percentages ) 2020 2019 net income attributable to sciplay ( 1 ) $ 20.9 $ 32.4 net income attributable to noncontrolling interest 125.1 61.1 net income 146.0 93.5 restructuring and other 2.0 2.7 depreciation and amortization 9.7 7.0 income tax expense 8.4 8.7 < td style= '' background-color : # ffffff ; padding:2px 1pt 2px
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the company matches 50 % of each participant 's contribution , up to a maximum of 3 % of each participant 's salary . effective january 1 , 2015 , the employee match was increased to a maximum of 3.5 % of each participant 's salary . for employees covered by the winchester bargaining unit savings plan , the company matches 15 % of each participant 's contribution , up to a maximum of 6 % of each participant 's salary . contributions to the 401 ( k ) plan were $ 439 thousand and $ 430 thousand for the years ended january 31 , 2015 and 2014 , respectively . deferred compensation plan the company had a supplemental retirement and deferred compensation plan ( `` supplemental plan `` ) , pursuant to which key employees deferred compensation . participants receive distributions from the plan at the later of age 65 or six months after separation from service . life insurance contracts have been purchased which may be used to fund the company 's obligation under these agreements . 44 replace_table_token_35_th on april 10 , 2014 , the company 's boar d of directors terminated the supplemental plan and its deferred stock purchase plan , adopted on december 5 , 2012 ( collectively , the `` plans `` ) , effective april 10 , 2014 ( `` termination date `` ) . no additional contributions will be made by the company or participants under the plans after the termination date . all funds and company stock remaining in participant accounts will be distributed not later than 24 months after the termination date . t he company is obligated to deliver 9,991 shares of company common stock under the deferred stock purchase plan . multi-employer plans the company contributes to a multi-employer plan for certain collective bargaining u.s. employees and for foreign employees according to their countries ' requirements . the risks of participating in this multi-employer plan are different from a single employer plan in the following aspects : assets contributed to the multi-employer plans by one employer may be used to provide benefits to employees of other participating employers . if a participating employer ceases contributing to the plan , the unfunded obligations of the plan may be inherited by the remaining participating employers . if the company chooses to stop participating in the multi-employer plan , the company may be required to pay those plans an amount based on the underfunded status of the plan , referred to as a withdrawal liability . the company has assessed and determined that the multi-employer plans to which it contributes are not significant to the company 's consolidated financial statements . the company does not expect to incur a withdrawal liability or expect to significantly increase its contribution over the remainder of the contract period . the company made contributions to the bargaining unit supported multi-employer pension plans . replace_table_token_36_th note 10 - stock-based compensation the company has stock-based compensation awards that can be granted to eligible employees , officers or directors . replace_table_token_37_th stock-based compensation was a benefit year-to-date due to cancellations . a majority of these cancellations related to former employees story_separator_special_tag the statements contained under the caption md & a and other information contained elsewhere in this annual report on form 10-k , which can be identified by the use of forward-looking terminology such as `` may , '' `` will , '' `` expect , '' `` continue , '' `` remains , '' `` intend , '' `` aim , '' `` should , '' `` prospects , '' `` could , '' `` future , '' `` potential , '' `` believes , '' `` plans , '' `` likely '' and `` probable '' or the negative thereof or other variations thereon or comparable terminology , constitute `` forward-looking statements '' within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the exchange act and are subject to the safe harbors created thereby . these statements should be considered as subject to the many risks and uncertainties that exist in the company 's operations and business environment . such risks and uncertainties could cause actual results to differ materially from those projected as a result of many factors , including , but not limited to , those under the heading item 1a . risk factors . 10 story_separator_special_tag style= '' font-family : inherit ; font-size:11pt ; '' > in the prior year . income from the joint venture in 2014 was $ 2.0 million , an increase of $ 1.4 million over prior year , driven by growth in revenues . filtration products the timing of large orders can have a material effect on net sales and gross profit from period to period . pricing on large orders was extremely competitive and therefore resulted in comparatively low gross margins in all periods . filtration products ' demand is partially impacted by government regulation of air quality at the federal and state levels . the company believes that growth in the domestic sales of its filtration products and services will be materially dependent on continued enforcement of environmental laws such as the clean air act . although there can be no assurance what the ultimate effect of the clean air act will be on filtration products , the company believes the clean air act is likely to have a positive long-term effect on demand for the company 's filtration products and services . replace_table_token_3_th net sales of $ 67.9 million in 2014 decreased 0.7 % from $ 68.4 million in 2013 . sales declines were the result of generally weaker demand from international markets . gross margin decreased to 11.6 % of net sales in 2014 from 13.1 % of net sales in 2013 . story_separator_special_tag during the third quarter of 2014 , the company received a distribution of foreign earnings of $ 0.8 million from a denmark subsidiary . these foreign earnings were previously considered to be indefinitely reinvested outside the u.s. the repatriation by the denmark subsidiary was a one-time nonrecurring event . the company has not provided federal tax on unremitted earnings of its denmark and middle east subsidiaries . the company does not believe that it will be necessary to repatriate investments from these subsidiaries . during the fourth quarter of 2014 , the company has concluded that not all of the undistributed earnings of perma-pipe india ltd , will remain permanently reinvested outside the u.s. and are now available for use in the u.s. or in entities in other foreign countries . as a result of that conclusion , the company has provided deferred taxes on a portion of the outside basis differences in the stock of this subsidiary . in the fourth quarter of 2014 , mfri recorded $ 0.8 million in tax expense related to withholding tax that would be paid to the indian government in the event that a dividend of up to $ 4.2 million is paid to its foreign parent company . no u.s. cash tax payments will be made upon distribution of these foreign earnings as long as the company is in a net loss operating position . net cash provided by investing activities in 2014 was $ 5.7 million . the company estimates that capital expenditures for 2015 could be as high as $ 18.7 million , and the company may finance capital expenditures through real estate mortgages , term loans , equipment financing loans , internally generated funds and its revolving line of credit . the majority of such expenditures relates to expected capacity expansion for piping systems in the middle east . debt totaled $ 18.3 million at january 31 , 2015 , a decrease of $ 13.5 million since january 31 , 2014 . net cash used in financing activities was $ 0.5 million . for additional information , see note 6 - debt , in the notes to consolidated financial statements . other long-term liabilities of $ 3.8 million were composed primarily of accrued pension cost and deferred revenue . the following table summarizes the company 's estimated contractual obligations at january 31 , 2015 . replace_table_token_5_th 13 notes to contractual obligations table ( 1 ) interest obligations exclude floating rate interest on debt payable under the domestic revolving line of credit . based on the amount of such debt at january 31 , 2015 , and the weighted average interest rate of 2.95 % on that debt , such interest was being incurred at an annual rate of approximately $ 0.3 million . ( 2 ) scheduled maturities , including interest . ( 3 ) scheduled maturities of foreign revolver line , including interest . ( 4 ) minimum contractual amounts , assuming no changes in variable expenses . ( 5 ) includes estimated future benefit payments . ( 6 ) non-qualified deferred compensation plan - the company had a supplemental retirement and deferred compensation plan ( `` supplemental plan '' ) , pursuant to which key employees deferred compensation , that was terminated on april 10 , 2014. refer to note 9 - retirement plans , in the notes to consolidated financial statements . ( 7 ) refer to the proxy statement for a description of compensation plans for named executive officers . ( 8 ) included payments for other liabilities . ( 9 ) refer to note 8 - income taxes , in the notes to consolidated financial statements for a description of the uncertain tax position obligations . financing on september 24 , 2014 , the company entered into a credit and security agreement with a financial institution ( as amended , `` credit agreement '' ) . under the terms of the credit agreement , which matures on september 24 , 2019 , the company can borrow up to $ 25.0 million , subject to borrowing base and other requirements , under a revolving line of credit . the credit agreement covenants restrict debt , liens , and certain investments , and require attainment of specific levels of profitability and cash flows when reaching certain levels of availability when reaching certain levels of availability . interest rates are based on options selected by the company as follows : ( a ) a margin in effect plus a base rate , if below certain availability limits ; or ( b ) a margin in effect plus the eurodollar rate for the corresponding interest period . as of january 31 , 2015 , the company had borrowed $ 11.4 million at 3.25 % and 1.7 % and had $ 8.2 million available to it under the revolving line of credit . in addition , $ 0.1 million of availability was used under the credit agreement primarily to support letters of credit to guarantee amounts committed for inventory purchases . cash required for operations is provided by draw-downs on the line of credit . the credit agreement replaces a secured loan and security agreement with a bank originally signed on july 11 , 2002 , as amended , which provided a revolving line of credit up to $ 25.0 million ( `` prior loan agreement '' ) . the outstanding amount under the prior loan agreement was paid off in full . at january 31 , 2015 , the company was in compliance with all covenants under the credit agreement .
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consolidated results of operations replace_table_token_1_th mfri , inc. is engaged in the manufacture and sale of products in two reportable segments : piping systems and filtration products . since the piping systems segment is based on large discrete projects , operating results could be negatively impacted in the future as a result of large variations in the level of market demand in both geographies and reporting periods . the analysis presented below and discussed in more detail throughout the md & a was organized to provide instructive information for understanding the business going forward . however , this discussion should be read in conjunction with the consolidated financial statements in item 8 of this report , including the notes thereto and the risk factors contained herein . an overview of the segment results is provided in note 1 - business and segment information , in the notes to consolidated financial statements . for the year ended january 31 , 2015 , one customer in piping systems accounted for 11.2 % of the company 's net sales , and for the year ended january 31 , 2014 , one customer in piping systems accounted for 10.6 % of the company 's net sales . at january 31 , 2015 , one customer in piping systems accounted for 30.7 % of accounts receivable . at january 31 , 2014 one customer in piping systems accounted for 24.5 % of accounts receivable . in october 2013 , the company decided to sell its remaining industrial process cooling business in denmark . this business was sold on february 28 , 2014 and was previously reported as industrial process cooling . this business is reported as discontinued operations in the consolidated financial statements . loss from discontinued operations net of tax was $ 0.3 million and income from discontinued operations net of tax was $ 8.2 million for the years ended january 31 , 2015 and 2014 , respectively .
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goodwill and other indefinite-lived intangible assets goodwill is calculated as the excess of the cost of purchased businesses over the fair value of their underlying net assets . indefinite-lived other intangible assets principally consist of trademarks . goodwill is allocated and evaluated at the reporting units level story_separator_special_tag the following discussion and analysis of the financial condition and results of operations of coty inc. and its majority and wholly-owned subsidiaries , should be read in conjunction with the information contained in the consolidated financial statements and related notes included elsewhere in this document . when used in this discussion , the terms โ coty , โ the โ company , โ โ we , โ โ our , โ or โ us โ mean , unless the context otherwise indicates , coty inc. and its majority and wholly-owned subsidiaries . the following discussion contains forward-looking statements . see โ special note regarding forward-looking statements โ and โ risk factors โ for a discussion on the uncertainties , risks and assumptions associated with these statements . actual results may differ materially from those contained in any forward-looking statements . the following discussion includes certain non-gaap financial measures . see โ overviewโnon-gaap financial measures โ for a discussion of non-gaap financial measures and how they are calculated . all dollar amounts in the following discussion are in millions of united states ( โ u.s. โ ) dollars , unless otherwise indicated . overview we are a leading global beauty company . we manufacture and market beauty products in the fragrances , color cosmetics and skin & body care segments with distribution in over 130 countries and territories across both prestige and mass markets . we continue to operate in a challenging market environment particularly in mass fragrance and color cosmetics with heightened promotional activities in mass retail in western europe and the u.s. we are focused on growing our ten power brands around the world through innovation , strong support levels and excellence in market execution . with respect to our non-power brands , we expect to see a gradual decline of certain of those brands which are later in their lifecycle . we are also focused on expanding our geographic footprint into emerging markets and diversifying our distribution channels within existing geographies to increase market presence . as part of our expansion efforts , we entered into agreements to broaden distribution in asia , south africa , brazil , the united kingdom ( โ u.k. โ ) , united arab emirates ( โ u.a.e. โ ) and kingdom of saudi arabia ( โ k.s.a. โ ) during fiscal 2014 and 2015 and our results from certain of these efforts reflect incremental net revenues from joint venture consolidations and conversion from third party to direct distribution in these geographies . we have determined that our operating and reportable segments are fragrances , color cosmetics and skin & body care ( also referred to as โ segments โ ) . the reportable segments also represent our product groupings . during the three months ended september 30 , 2014 , in conjunction with the organizational redesign restructuring program ( see note 7 , โ restructuring costs โ in item 4 , โ consolidated financial statements โ ) , we reclassified revenues and costs associated with a brand from fragrances to skin & body care operating segment . this change has been reflected in each reporting period presented , both in the segment results below and in note 11 , โ goodwill and other intangible assets , net โ in item 4 โ consolidated financial statements โ . non-gaap financial measures adjusted operating income , adjusted income before income taxes , adjusted net income attributable to coty inc. and adjusted net income attributable to coty inc. per common share are non-gaap financial measures which we believe better enable management and investors to analyze and compare the underlying business results from period to period . these non-gaap financial measures should not be considered in isolation , or as a substitute for or superior to , financial measures calculated in accordance with gaap . moreover , these non-gaap financial measures have limitations in that they do not reflect all the items associated with the operations of our business as determined in accordance with gaap . we compensate for these limitations by analyzing current and future results on a gaap basis as well as a non-gaap basis , and we provide reconciliations from the most directly comparable gaap financial measures to the non-gaap financial measures . our non-gaap financial measures may not be comparable to similarly titled measures of other companies . other companies , including companies in our industry , may calculate similarly titled non-gaap financial measures differently than we do , limiting the usefulness of those measures for comparative purposes . adjusted operating income , adjusted income before income taxes , adjusted net income attributable to coty inc. and adjusted net income attributable to coty inc. per common share provide an alternative view of performance used by management and we believe that an investor 's understanding of our performance is enhanced by disclosing these adjusted performance measures . in addition , our financial covenant compliance calculations under our debt agreements are substantially derived from these adjusted performance measures . the following are examples of how these adjusted performance measures are utilized by management : senior management receives a monthly analysis of our operating results that are prepared on an adjusted performance basis ; strategic plans and annual budgets are prepared on an adjusted performance basis ; and 28 senior management 's annual compensation is calculated , in part , using adjusted performance measures . adjusted operating income we define adjusted operating income as operating income adjusted for the following : share-based compensation adjustment : for grants issued prior to june 12 , 2013 , the effective date of the share-based compensation plan amendments , the component of share-based compensation expense adjustment represents the difference between the grant date fair value and the fair value at june 12 , 2013 using equity plan accounting . story_separator_special_tag in the quarter ended june 30 , 2014 , we announced the discontinuation of our tjoy brand and the reorganization of our mass business in china , which resulted in a one-time charge related to product returns . this one-time charge had an immaterial impact on our consolidated results , h owever it negatively affected primarily our skin & body care segment in asia pacific . new launches represented approximately 15 % of our net revenues for fiscal 2014 . the contribution from new launches was partially offset by an approximate 16 % decline in net revenues from existing products that are later in their life cycles . net revenues by segment replace_table_token_5_th fragrances in fiscal 2015 , net revenues of fragrances decreased 6 % , or $ 145.7 to $ 2,178.3 from $ 2,324.0 in fiscal 2014 . the decrease was primarily the result of a negative price and mix impact of 6 % and a negative foreign currency exchange translations impact 30 of 4 % , partially offset by an increase in unit volume of 4 % . excluding the negative impact of foreign currency exchange translations , net revenues of fragrances decreased 2 % . the decrease in the segment primarily reflects lower net revenues from existing celebrity brands that are later in their lifecycles , calvin klein , whose lower net revenues were primarily due to the negative impact of foreign currency exchange translations , and davidoff and roberto cavalli , reflecting lower new launch activity in fiscal 2015 relative to the strong contribution from new launches in fiscal 2014 , and declines from existing product lines . the decline in the segment also reflects continued deterioration of fragrance market trends , particularly in europe . partially offsetting the decrease in the segment were higher net revenues from marc jacobs , in part due to the new launch marc jacobs daisy dream , along with incremental net revenues from recently launched enrique iglesias adrenaline and vespa . results for chloรฉ were negatively impacted by foreign currency exchange translations . excluding the impact of foreign currency exchange translations , net revenues for chloรฉ increased in part due to the new launch of chloรฉ love story . the negative price and mix impact primarily reflects an ongoing increased level of promotional and discounted pricing activity , reflecting a competitive retail environment . also contributing to the negative price and mix were higher relative volumes of lower-priced products sold in the mass retail channel in a certain emerging market , driven by a change in our distribution model . in fiscal 2014 , net revenues of fragr ances increased $ 11.2 to $ 2,324.0 from $ 2,312.8 in fiscal 2013 . foreign currency exchange translations had an immaterial impact on net revenues in fragrance s. an increase in unit volume of 3 % , which includes a negative impact on net revenues related to the 2013 ceased activities of 1 % , was offset by a negative price and mix impact of 3 % . excluding the impact to net revenues from the 2013 ceased activities , net revenues of fragrances increased 1 % . segment growth was primarily driven by incremental net revenues from the newly established brand katy perry killer queen and higher net revenues from calvin klein , davidoff and roberto cavalli in part due to the launches of calvin klein downtown , calvin klein endless euphoria , davidoff cool water night dive , davidoff cool water woman sea rose , davidoff the game , roberto cavalli nero assoluto and just cavalli for him . power brands marc jacobs and chloรฉ also positively impacted segment results in part due to the launches of marc jacobs honey , roses de chloรฉ and continued growth of marc jacobs daisy . also contributing to segment growth were higher net revenues from david beckham , jil sander , guess , bottega veneta and nautica . partially offsetting the increase in the segment was a decline in net revenues from lady gaga , beyoncรฉ and vera wang in part due to a lower level of new launch activity for these brands in fiscal 2014 compared to fiscal 2013 , the expiration of certa in licenses and lower net revenues from existing celebrity brands that are later in their lifecycles . segment growth reflects weak market conditions in developed markets . the negative price and mix impact primarily reflects an increased level of promotional and discounted pricing activity in select developed markets , reflecting a competitive retail environment . also contributing to lower price and mix was lower prices for select brands as we cascade them into different distribution channels in accordance with our strategy . color cosmetics in fiscal 2015 , net revenues of color cosmetics increased 6 % , or $ 78.8 , to $ 1,445.0 from $ 1,366.2 in fiscal 2014 . the increase was primarily the result of a positive price and mix impact of 7 % and an increase in unit volume of 5 % , partially offset by a negative foreign currency exchange translations impact of 6 % . the bourjois acquisition positively impacted net revenues by 4 % , contributing 4 % to the unit volume increase . excluding the impact to net revenues from the bourjois acquisition and the impact of foreign currency exchange translations , net revenues of color cosmetics increased 8 % . higher net revenues were primarily driven by strong growth in sally hansen and rimmel . the increase in sally hansen was primarily driven by the success of new launch sally hansen miracle gel . higher net revenues in rimmel primarily reflect incremental net revenues from new launches such as rimmel wonder'full mascara and rimmel provocalips liquid lipstick along with growth from existing brands , such as rimmel lasting finish foundation and rimmel exaggerate eyeliner . results for opi were negatively impacted by foreign currency exchange translations .
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. results for southeast asia were negatively impacted by foreign currency exchange translations . excluding the impact of foreign currency exchange translations , net revenues for southeast asia in fiscal 2015 were consistent with fiscal 2014 . results in the region were adversely impacted by lower net revenues in china . the decline in china was primarily driven by lower net revenues from adidas , in part due to the change in our distribution model . in fiscal 2014 , net revenues in asia pacific decreased $ 0.5 , to $ 544.9 from $ 545.4 in fiscal 2013 . the negative impact of foreign currency exchange translations of approximately 4 % was predominantly driven by the devaluation of the australian dollar and japanese yen . excluding the impact to net revenues associated with the reorganization of our mass business in china of 3 % and the negative impact of foreign currency exchange translations , net revenues in asia pacific increased 7 % . n ew subsidiaries in taiwan , korea and southeast asia contributed incremental net revenue growth to the region . higher net revenues in hong kong , australia , singapore and our travel retail business in the region also positively impacted results . growth in hong kong and singapore primarily reflected higher net revenues in fragrances while the increase in our travel retail business was primarily due to expanded distribution of opi . higher net revenues from australia also positively impacted the region primarily reflecting strong growth in fragrances , rim mel and incremental net revenues from the introduction of opi , partially offset by the negative impact of foreign currency exchange translations . results in the region were adversely impacted by lower net revenues in japan and china . lower net revenues in japan primarily reflected the negative impact of foreign currency exchange translations as mentioned above .
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inventory is shown net of valuation reserves of $ 374,000 and $ 208,000 at december 31 , 2016 , respectively . inventories consist of the following : replace_table_token_21_th note 7 - fixed assets fixed assets are stated at cost , less accumulated depreciation and amortization , and are summarized as follows : replace_table_token_22_th the company had expenditures of approximately $ 1,909,000 and $ 1,919,000 for computer equipment and software which had not been placed in service as of december 31 , 2015 and 2016 , respectively . depreciation and amortization expense is not recorded for such assets until they are placed in service . depreciation and amortization expense for the years ended december 31 , 2014 , 2015 and story_separator_special_tag the following discussion is intended to assist you in understanding our financial condition and results of operations and should be read in conjunction with the financial statements and related notes included elsewhere in this annual report on form 10-k. many of the amounts and percentages in this section have been rounded for convenience of presentation , but actual recorded amounts have been used in computations . accordingly , some information may appear not to compute accurately . overview i.d . systems , inc. ( โ ids โ , and together with its subsidiaries , โ i.d . systems , โ the โ company , โ โ we , โ โ our , โ or โ us โ ) develops , markets and sells wireless machine-to-machine ( โ m2m โ ) solutions for managing and securing high-value enterprise assets . these assets include industrial vehicles , such as forklifts and airport ground support equipment ; rental vehicles ; and transportation assets , such as dry van trailers , refrigerated trailers , railcars and containers . our patented wireless asset management systems utilize radio frequency identification ( rfid ) , wi-fi , satellite or cellular communications , and sensor technology to address the needs of organizations to control , track , monitor and analyze their assets . our solutions enable our customers to achieve tangible economic benefits by making timely , informed decisions that increase the safety , security , revenue , productivity and efficiency of their operations . we have focused our business activities on three primary applications : ( i ) industrial fleet management , ( ii ) transportation asset management , and ( iii ) rental fleet management . our solution for industrial fleet management allows our customers to reduce operating risks including unsafe activity , facility equipment and goods damage , operational costs and capital expenditures and to comply with certain safety regulations by accurately and reliably measuring and controlling fleet activity . this solution also enhances security at industrial facilities and areas of critical infrastructure , such as airports , by controlling access to , and restricting the use of , vehicles and equipment . our solution for transportation asset management allows our customers to increase revenue per asset deployed , reduce fleet size , and improve the monitoring and control of sensitive cargo . our solution for rental fleet management allows rental car companies to generate higher revenue by more accurately tracking vehicle data , such as fuel consumption and odometer readings , and improve customer service by expediting the rental and return processes . in addition , our wireless solution for โ carsharing โ enables rental car companies to establish a network of vehicles positioned strategically around cities for use by their members , control vehicles remotely , manage member reservations by phone or internet , and charge members for vehicle use by the hour . we sell our system to both executive and division-level management . typically , our initial system deployment serves as a basis for potential expansion across the customer 's organization . we work closely with customers to help maximize the utilization and benefits of our system and demonstrate the value of enterprise-wide deployments . post-implementation , we consult with our customers to further extend and customize the benefits to the enterprise by delivering enhanced analytics capabilities . we market and sell our solutions to a wide range of customers in the commercial and government sectors . our customers operate in diverse markets , such as automotive manufacturing , heavy industry , retail and wholesale distribution , transportation , aerospace and defense , homeland security , and vehicle rental . we have incurred net losses of approximately $ 11.6 million , $ 10.0 million and $ 6.4 million for the years ended december 31 , 2014 , 2015 and 2016 , respectively , and have incurred additional net losses since inception . as of december 31 , 2016 , we had cash , cash equivalents and marketable securities of $ 6.9 million , working capital of $ 10.1 million , and an accumulated deficit of $ 91.5 million . our primary sources of cash are cash flows from operating activities and the company 's holdings of cash , cash equivalents and investments and available borrowing capacity under our revolving credit facility in an aggregate principal amount of up to $ 7.5 million of which approximately $ 3.0 million was outstanding as of december 31 , 2016. to date , the company has not generated sufficient revenue solely from operating activities to fund our operations . during the year ended december 31 , 2016 , we generated revenues of $ 36.8 million with wal-mart stores , inc. accounting for 18 % of our revenues . during the year ended december 31 , 2015 , we generated revenues of $ 41.8 million with wal-mart stores , inc. accounting for 23 % of our revenues . during the year ended december 31 , 2014 , we generated revenues of $ 45.6 million with wal-mart stores , inc. and the raymond corporation accounting for 16 % and 14 % , respectively , of our revenues . story_separator_special_tag our significant accounting policies are described in note 2 to our consolidated financial statements included in this annual report on form 10-k. certain accounting policies involve significant judgments and assumptions by our management that can have a material impact on the carrying value of certain assets and liabilities . we consider such accounting policies to be our critical accounting policies . the judgments and assumptions used by our management in these critical accounting policies are based on historical experience and other factors that our management believes to be reasonable under the circumstances . because of the nature of these judgments and assumptions , actual results could differ significantly from these judgments and estimates , which could have a material impact on the carrying values of our assets and liabilities and our results of operations . our critical accounting policies are described below . 37 revenue recognition we derive revenue from : ( i ) sales of our industrial and rental fleet wireless asset management systems and services , which includes training and technical support ; ( ii ) sales of our transportation asset management systems and spare parts sold to customers ( for which title transfers on the date of customer receipt ) and from the related communication services under contracts that generally provide for service over periods ranging from one to five years ; ( iii ) post-contract maintenance , hosting and support agreements ; and ( iv ) periodically , leasing arrangements . our industrial and rental fleet wireless asset management systems consist of on-asset hardware , communication infrastructure , software , and hosting infrastructure . revenue derived from the sale of our industrial and rental fleet wireless asset management systems is allocated to each element based upon vendor specific objective evidence ( vsoe ) of the fair value of the element . vsoe of the fair value is based upon the price charged when the element is sold separately . revenue is recognized as each element is earned based on the selling price of each element based upon vsoe , and when there are no undelivered elements that are essential to the functionality of the delivered elements . the company 's system is typically implemented by the customer or a third party and , as a result , revenue is recognized when title and risk of loss passes to the customer , which usually is upon delivery of the system , persuasive evidence of an arrangement exists , sales price is fixed and determinable , collectability is reasonably assured and contractual obligations have been satisfied . in some instances , we are also responsible for providing installation services . the installation services , which could be performed by third parties , are considered another element in a multi-element deliverable and revenue for installation services is recognized at the time the installation is provided . training and technical support revenue are recognized at time of performance . we recognize revenues from the sale of remote transportation asset management systems and spare parts when persuasive evidence of an arrangement exists , delivery has occurred , the price is fixed or determinable , and collectability is reasonably assured . these criteria include requirements that the delivery of future products or services under the arrangement is not required for the delivered items to serve their intended purpose . the company has determined that the revenue derived from the sale of transportation asset management systems does not have stand-alone value to the customer separate from the communication services provided and , therefore , the arrangements constitute a single unit of accounting . under the applicable accounting guidance , all of the company 's billings for equipment and the related cost are deferred , recorded , and classified as a current and long-term liability and a current and long-term asset , respectively . deferred revenue and cost are recognized over the service contract life , beginning at the time that a customer acknowledges acceptance of the equipment and service . the customer service contracts typically range from one to five years . the service revenue for our remote asset monitoring equipment relates to charges for monthly messaging usage and value-added features charges . the usage fee is a monthly fixed charge based on the expected utilization according to the rate plan chosen by the customer . service revenue generally commences upon equipment installation and customer acceptance , and is recognized over the period such services are provided . spare parts sales are reflected in product revenues and recognized on the date of customer receipt of the part . revenue from remote asset monitoring equipment activation fees are deferred and amortized over the life of the contract . we also enter into post-contract maintenance , hosting and support agreements for our wireless asset management systems . revenue is recognized over the service period and the cost of providing these services is expensed as incurred . deferred revenue also includes prepayment of extended maintenance , hosting and support contracts . under certain customer contracts , we invoice progress billings once certain milestones are met . the milestone terms vary by customer and can include the receipt of the customer purchase order , delivery , installation and launch . as the systems are delivered , and services are performed , and all of the criteria for revenue recognition are satisfied , we recognize revenue . if the amount of revenue recognized for financial reporting purposes is greater than the amount invoiced , an unbilled receivable is recorded . if the amount invoiced is greater than the amount of revenue recognized for financial reporting purposes , deferred revenue is recorded . sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenues in the consolidated statements of operations . financing receivables notes receivable relate to interest-bearing product financing arrangements that exceed one year and are recorded at face value . interest income is recognized over the life of the note .
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results of operations the following table sets forth certain items related to our statement of operations as a percentage of revenues for the periods indicated and should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. a detailed discussion of the material changes in our operating results is set forth below . replace_table_token_5_th 41 year ended december 31 , 2016 compared to year ended december 31 , 2015 the following table sets forth our revenues by product line for the periods indicated : replace_table_token_6_th revenues . revenues decreased by approximately $ 5.0 million , or 11.9 % , to $ 36.8 million in 2016 from $ 41.8 million in 2015. the decrease in revenue is attributable to decrease in total transportation asset management revenue of approximately $ 5.4 million to $ 15.8 million in 2015 from $ 21.2 million in 2015 , partially offset by an increase in total industrial and rental fleet management revenue of approximately $ 0.4 million to $ 21.0 million in 2015 from $ 20.6 million in 2015. revenues from products decreased by approximately $ 3.2 million , or 12.9 % , to $ 21.4 million in 2016 from $ 24.5 million in 2015. transportation asset management product revenue decreased by approximately $ 4.3 million to $ 7.1 million in 2016 from $ 11.3 million in 2015. the decrease in transportation asset management product revenue resulted principally from decreased product revenue of approximately $ 0.5 million to ashley distribution services , ltd. and spare parts sales of approximately $ 2.9 million to wal-mart stores , inc and $ 1.0 million to knight transportation inc. industrial and rental fleet management product revenue increased by approximately $ 1.1 million to $ 14.3 million in 2016 from $ 13.2 million in 2015. the increase in industrial and rental fleet management product revenue
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customer service and technical support customer service and technical support costs are included as selling , general and administrative expenses in story_separator_special_tag the following discussion and analysis of our financial condition and results of operations focuses on and is intended to clarify the results of our operations , certain changes in our financial position , liquidity , capital structure and business developments for the periods covered by the consolidated financial statements included in this form 10-k. this discussion should be read in conjunction with , and is qualified by reference to , the other related information including , but not limited to , the audited consolidated financial statements ( including the notes thereto ) , the description of our business , all as set forth in this form 10-k , as well as the risk factors discussed above in item 1a . this section provides discussion and a year-to-year comparison for the fiscal years ended december 26 , 2020 and december 28 , 2019. discussion regarding our results of operations for the fiscal year ended december 29 , 2018 and a year-to-year comparison between the fiscal years ended december 28 , 2019 and december 29 , 2018 can be found in item 7 of our annual report on form 10-k for the fiscal year ended december 28 , 2019. as previously noted , the discussion set forth below , as well as other portions of this form 10-k , contain statements concerning potential future events . readers can identify these forward-looking statements by their use of such verbs as โ expects , โ โ anticipates , โ โ believes โ or similar verbs or conjugations of such verbs . if any of our assumptions on which the statements are based prove incorrect or should unanticipated circumstances arise , our actual results could materially differ from those anticipated by such forward-looking statements . the differences could be caused by a number of factors or combination of factors including , but not limited to , those discussed above in item 1a . readers are strongly encouraged to consider those factors when evaluating any such forward-looking statement . except as may be required by law , we do not undertake to update any forward-looking statements in this form 10-k. garmin 's fiscal year is a 52-53 week period ending on the last saturday of the calendar year . fiscal years 2020 , 2019 and 2018 contained 52 weeks . unless otherwise stated , all years and dates refer to the company 's fiscal year and fiscal periods . unless the context otherwise requires , references in this document to `` we , '' `` us , '' `` our '' and similar terms refer to garmin ltd. and its subsidiaries . unless otherwise indicated , dollar amounts set forth in the tables are in thousands , except per share data . overview we are a leading worldwide provider of navigation , communications and information devices , most of which are enabled by global positioning system , or gps , technology . garmin is organized in the six operating segments of auto oem , aviation , consumer auto , fitness , marine , and outdoor . the company 's chief executive officer , who has been identified as the chief operating decision maker ( codm ) , allocates resources and assesses performance of each operating segment individually . the aviation , fitness , marine , and outdoor operating segments represent reportable segments . the auto oem and consumer auto operating segments , which serve the auto market , do not meet the quantitative thresholds to separately qualify as reportable segments , and they are therefore reported together in an โ all other โ category captioned as auto . auto , aviation , fitness , marine , and outdoor are collectively referred to as our reported segments . the operating segments offer products through our network of subsidiary distributors and independent dealers and distributors , our own webshop , as well as through various auto , aviation , and marine oems . each of the operating segments is managed separately . the consumer auto operating segment was previously referred to as our auto pnd operating segment . we have revised the name of this operating segment to reflect the evolution of the product lines and focus of that part of our business . the name change did not impact the composition or operating results of the segment . since our first products were delivered in 1991 , we have generated positive income from consolidated operations each year and have funded our growth from these profits . 34 impacts of covid-19 the covid-19 pandemic has created disruption and uncertainty in the global economy and has affected our business , suppliers , and customers . our operating segments were not all impacted equally , as covid-19 had an unfavorable impact on net sales and profitability of the auto and aviation segments during fiscal year 2020. however , the diversity of our business and product offerings helped mitigate the impacts to our consolidated net sales and operating income . with pre-existing fundamentals such as trade credit insurance , direct online sales through our webshops , direct fulfillment arrangements with certain retailers , our strong cash and marketable securities position , market and product diversity , a vertically integrated business model , and ample inventory on hand , we were well-positioned to mitigate the initial impacts of covid-19 . while covid-19 continues to evolve into a complicated and prolonged global pandemic , we have implemented further mitigation measures , such as initiating additional direct fulfillment arrangements with retailers , mitigating single source supplier dependencies , enhancing cleaning and sanitation within our facilities to maintain a healthy and safe environment for essential on-site functions , boosting functionality and security of technology for employees who are working from home , and fostering the safe reintegration of our on-site workforce . these mitigation efforts complement our top priorities of ensuring the health and safety of our employees and continuing to serve our customers . story_separator_special_tag we aim to achieve a quick turnaround on orders we receive from our retail , dealer , and distributor customers . certain arrangements with oem customers are entered into at the beginning of an aircraft or vehicle life cycle with the intent to fulfill customer purchasing requirements for the entire production life , although there are generally no firm volume commitments , and sales are therefore generated on an order-by-order basis . as a result , we do not believe backlog information is material to the understanding of our business . net sales are subject to seasonal fluctuation . typically , sales of our consumer products are highest in the fourth quarter due to increased demand during the holiday buying season , and in the second quarter , due to increased demand during the spring and summer season . our auto oem and aviation products do not experience much seasonal variation but are more influenced by the timing of auto program manufacturing , aircraft certifications , regulatory mandates , and the release of new products when the initial demand is typically the strongest . cost of sales/gross profit raw material costs are our most significant component of cost of goods sold . our existing practice of performing the design and manufacture of our products in-house has enabled us to source components from different suppliers and , where possible , to redesign our products to leverage lower cost components . we believe that our flexible production model allows our factories to experience relatively low costs of manufacturing . in general , products manufactured in taiwan have been our highest volume products . our manufacturing labor costs historically have been lower in taiwan and china than in olathe and salem . sales price variability has had and can be expected to have an effect on our gross profit . our gross profit is dependent on segment mix , and to a lesser extent , product mix within each segment . advertising expense our advertising expenses consist primarily of costs for media advertising , cooperative advertising with our retail partners , point of sale displays , and sponsorships . selling , general and administrative expenses our selling , general and administrative expenses consist primarily of : salaries for sales , marketing and product support personnel ; salaries and related costs for executives and administrative personnel ; marketing , and other brand building costs ; finance and legal costs ; human resource costs ; information systems and infrastructure costs ; travel and related costs ; and occupancy and other overhead costs . 37 research and development the majority of our research and development costs represent engineering personnel costs , costs of test equipment and components used in product and prototype development , and outside product development costs . we are committed to increasing the level of innovative design and development of new products as we strive for expanded ability to serve our existing consumer and aviation markets as well as new auto oem programs and new markets for active lifestyle products . income taxes we have experienced a relatively low effective income tax rate due to the proportion of our income generated by entities in tax jurisdictions with low statutory rates . story_separator_special_tag normal ; '' > selling , general and administrative expenses replace_table_token_8_th selling , general and administrative expense increased 10 % in absolute dollars and was relatively flat as a percent of revenue when compared to the prior year . the absolute dollar increase was primarily attributable to information technology costs and personnel related expenses . as noted above and in note 8 to the consolidated financial statements , the company refined its methodology to allocate certain selling , general and administrative expenses at the beginning of the 2019 fiscal year . the prior year amounts are presented here as originally reported . for comparative purposes , we estimate selling , general and administrative expenses for fiscal year 2018 would have been approximately $ 18 million more for aviation , approximately $ 11 million less for marine , approximately $ 7 million less for outdoor , and not significantly different for fitness and auto . research and development expense replace_table_token_9_th 41 research and development expense increased 17 % in absolute dollars when compared to the year-ago period and increased slightly as a percent of revenue . the absolute dollar increase was primarily due to engineering personnel costs across all of our operating segments and other expenses related to auto oem programs . the auto oem increase in absolute dollars and as a percent of revenue was primarily attributable to higher engineering personnel costs and other expenses related to investments in auto oem programs and a lower proportion of such costs being contractually reimbursable in fiscal year 2020. this trend of increasing auto oem research and development expense is expected to continue in 2021 as we expect higher total costs and the majority of costs will not be contractually reimbursable . operating income replace_table_token_10_th total operating income increased 11 % in absolute dollars and was relatively flat as a percent of revenue when compared to fiscal year 2019. the growth in total operating income on an absolute dollar basis was the result of revenue growth as discussed above . operating income , in absolute dollars and as a percent of revenue , decreased in aviation primarily due to a decline in sales compared to the year-ago period . auto oem experienced an operating loss in fiscal year 2020 , and we expect this trend of an operating loss to continue in 2021 , primarily due to a lower gross margin and increased expense associated with certain programs , as described above . other income ( expense ) replace_table_token_11_th the average returns on cash and investments , including interest and capital gain/loss returns during the 52-weeks ended december 26 , 2020 and december 28 , 2019 , were 1.4 % and 2.0 % , respectively . interest income decreased primarily due to lower yields on fixed-income securities .
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results of operations the following table sets forth our results of operations as a percentage of net sales during the periods shown ( the table may not foot due to rounding ) : replace_table_token_3_th the table below sets forth our results of operations through operating income for each of our five reported segments and supplemental information for the consumer auto and auto oem operating segments that management believes is useful . the company 's codm uses operating income as the measure of profit or loss , combined with other measures , to assess segment performance and allocate resources . operating income represents net sales less costs of goods sold and operating expenses . net sales are directly attributed to each segment . most costs of goods sold and the majority of operating expenses are also directly attributed to each segment , while certain other costs of goods sold and operating expenses are allocated to the segments in a manner appropriate to the specific facts and circumstances of the expenses being allocated . for each line item in the table below , the total of the reported segments ' amounts equals the amount in the consolidated statements of income data included in item 6. as indicated in note 8 to the consolidated financial statements , the methodology used to allocate certain selling , general , and administrative expenses was refined at the beginning of the 2019 fiscal year . the amounts presented below for the 52-weeks ended december 29 , 2018 are presented here as they were originally reported . for comparative purposes , we estimate operating income for the 52-weeks ended december 29 , 2018 would have been approximately $ 18 million less for aviation , approximately $ 11 million more for marine , approximately $ 7 million more for outdoor , and not significantly different for auto and fitness . 38 replace_table_token_4_th net sales replace_table_token_5_th 39 net sales increased 11 % in 2020 when compared to the year-ago period .
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51 we paid compensation to each of the directors and executive officers in the following amounts during fiscal year 2014 : name salary position gunther than ( 1 ) $ 0 as chairman of the board , director $ 0 as chief executive officer and chief financial officer/treasurer martin maassen $ 0 as director michael bagnoli $ 0 as secretary and director reid miles $ 0 as director ( 1 ) mr. than is reimbursed for his motor vehicle fuel expense . mr. than earns an executive salary of $ 150,000 , which is more fully discussed below in the summary compensation table . summary compensation table โก replace_table_token_11_th ( 1 ) of the $ 240,000 salary , $ -0- was paid in cash , but instead was paid with stock . ( 2 ) of the $ 120,000 salary , $ 87,412 was paid in cash and the remainder accrued . ( 3 ) during fiscal year ended december 31 , 2014 , we issued 2,000,000 shares of series a preferred stock valued at $ 480,000 . of that amount , $ 370,000 was compensation for 2014 and the balance of $ 110,000 was for payment of unpaid salary accrued for periods prior to 2014. mr. than also receives reimbursement of motor fuel expense . ( 4 ) we do not consider mr. price to be an executive officer , but he is included in this table because he is the only other management level employee . payroll is accrued payable to mr. than at the rate of $ 20,000 per month . therefore his annual rate of pay is $ 240,000 . employment contracts and termination of employment and change-in-control arrangements 52 gunther than - executive employment agreement mr. than is our only executive officer and he has a written employment agreement . on january 1 , 2014 , our board of directors authorized the execution of that certain executive employment agreement ( the `` executive agreement `` ) with our president/chief executive officer , secretary , treasurer/chief financial officer , gunther than ( the `` executive `` ) . in accordance with the terms and provisions of the executive agreement : ( i ) the executive shall provide services and perform all duties typical of the offices held by the executive ; ( ii story_separator_special_tag the following analysis of our consolidated financial condition and results of operations for the years ended december 31 , 2014 and 2013 should be read in conjunction with the consolidated financial statements and other information presented elsewhere in this annual report . story_separator_special_tag width : 33 % '' > replace_table_token_2_th revenue is generally considered earned when the product is shipped to the customer . the concealed weapons detection system and the digital video system each require installation and training . training is a revenue source separate and apart from the sale of the product . in those cases revenue is recognized at the completion of the installation and training . the following chart provides a breakdown of our sales in 2014 and 2013. replace_table_token_3_th our sales backlog at december 31 , 2014 and december 31 , 2013 was $ -0 -- . in the event there is a delay between the time of the purchase order and shipping of the product , this results in a delay of recognition of the revenue from the sale . this delay in recognition of revenues will continue as part of our results of operations . we measure backlog as orders for which a purchase order or contract has been signed or a verbal commitment for order or delivery has been made , but which has not yet been shipped and for which revenues have not been recognized . we typically ship our products weeks or months after receiving an order . however , we are attempting to shorten this lead time to several weeks . also , product shipments may require more lead-time and may be delayed for a variety of reasons beyond our control , including additional time necessary to conduct product inspections prior to shipping , design or specification changes by the customer , the customer 's need to prepare an installation site , and delays caused by other contractors on the project . in previous fiscal years , we have had a back log because we do not hold unsold units in inventory . fiscal year ended december 31 , 2014 compared to fiscal year ended december 31 , 2013. our net loss for fiscal year ended december 31 , 2014 was ( $ 1,338,145 ) compared to a net loss of ( $ 2,008,101 ) during fiscal year ended december 31 , 2012 ( a decrease in net loss of $ 669,956 ) . we generated revenues of $ 392,167 during fiscal year ended december 31 , 2014 compared to $ 550,693 during fiscal year ended december 31 , 2013. during fiscal year ended december 31 , 2014 , revenue consisted of : ( i ) $ 278,310 ( 2013 : $ 460,653 ) in product sales and installation ; and ( ii ) $ 113,857 ( 2013 : $ 90,040 ) in extended warranties . 27 the concealed weapons system and the digital video system each require installation and training . training is a revenue source separate and apart from the sale of the product . in those cases revenue is recognized at the completion of the installation and training . revenue recognition may be delayed for other reasons . product shipments may require more lead-time and may be delayed for a variety of reasons beyond our control , including additional time necessary to conduct product inspections prior to shipping , design or specification changes by the customer , the customer 's need to prepare an installation site , and delays caused by other contractors on the project . story_separator_special_tag after deducting other expense , we realized a net loss of ( $ 1,338,145 ) or ( $ 0.01 ) for fiscal year ended december 31 , 2014 compared to a net loss of ( $ 2,008,101 ) or ( $ 0.01 ) for fiscal year ended december 31 , 2013. the weighted average number of shares outstanding was 261,754,044 for fiscal year ended december 31 , 2014 compared to 194,843,005 for fiscal year ended december 31 , 2013. liquidity , capital resources and going concern fiscal year ended december 31 , 2014 as of december 31 , 2014 , our current assets were $ 40,910 and our current liabilities were $ 1,548,964 , which resulted in a working capital deficit of $ 1,508,054. as of december 31 , 2014 , current assets were comprised of : ( i ) $ 13,077 in cash ; ( ii ) $ 26,745 in accounts receivable ( net of allowance for doubtful accounts of $ -0- ) ; and ( iii ) $ 1,088 in inventory . as of december 31 , 2014 , current liabilities were comprised of : ( i ) $ 497,787 in accounts payable and accrued expenses ; ( ii ) $ 565 in deferred compensation ; ( iii ) $ 174,405 in accrued and withheld payroll taxes payable ; ( iv ) $ 65,625 in accrued interest payable ; ( v ) $ 225,000 in accrued royalties payable ; ( vi ) $ 432,293 in loans from stockholders ; ( vii ) $ 80,121 in notes payable ; and ( viii ) deferred revenue of $ 73,168. as of december 31 , 2014 , our total assets were $ 47,704 comprised of : ( i ) $ 40,910 in current assets ; ( ii ) property and equipment ( net ) of $ 3,922 ; and ( iii ) $ 2,872 in deposits . the decrease in total assets during fiscal year ended december 31 , 2014 from fiscal year ended december 31 , 2013 was primarily due to the substantial decrease in inventory , cash and prepaid expenses . as of december 31 , 2014 , our total liabilities were $ 1,560,025 comprised of : ( i ) $ 1,419,772 in current liabilities ; and ( ii ) $ 11,061 in long term portion of notes payable . the increase in liabilities during fiscal year ended december 31 , 2014 from fiscal year ended december 31 , 2013 was primarily due to the increase in accounts payable and accrued expenses and loans from stockholders . stockholders ' deficit decreased from ( $ 1,296,106 ) for fiscal year ended december 31 , 2013 to ( $ 1,512,321 ) for fiscal year ended december 31 , 2014 . 29 cash flows from operating activities we have not generated positive cash flows from operating activities . for fiscal year ended december 31 , 2014 , net cash flows used in operating activities was $ 172,367 compared to $ 784,570 for fiscal year ended december 31 , 2013. net cash flows used in operating activities consisted primarily of a net loss of $ 1,338,145 ( 2013 : $ 2,008,101 ) , which was partially adjusted by : ( i ) $ 6,470 ( 2013 : $ 12,597 ) in depreciation ; ( ii ) $ 591,930 ( 2013 : $ 585,438 ) in common stock issued for payment of services ; ( ii ) $ 480,000 ( 2013 : $ 225,000 ) in preferred stock issued for services ; ( iii ) $ -0- ( 2013 : $ 450,000 ) in stock option expense ; ( iv ) $ -0- ( 2013 : $ 7,848 ) in bad debt ; ( v ) a gain of ( $ 9,234 ) ( 2013 : ( $ 43,561 ) ) from re-negotiated debt ; and ( vi ) $ 2,841 ( 2012 : $ -0- ) in interest expense paid with debt . net cash flows used in operating activities was further changed by : ( i ) decrease of $ 19,679 ( 2013 : decrease of $ 12,597 ) in accounts receivable ; ( ii ) decrease of $ 23,021 ( 2013 : ( $ 117,956 ) in inventory ; ( iii ) decrease of $ 32,889 ( 2013 : ( $ -0- ) in pre-paid expenses ; ( iv ) increase of $ 54,218 ( 2013 : decrease of $ 188,953 ) in accounts payable and accrued expenses ; ( v ) decrease of $ 13,625 ( 2013 : an increase of $ 14,623 ) in deferred compensation ; ( vi ) an increase of $ 3,896 ( 2013 : $ 14,623 ) in payroll taxes accrued and withheld ; ( vii ) an increase of $ 22,500 ( 2013 : $ 36,960 ) in accrued interest ; and ( viii ) a decrease of $ 48,807 ( 2013 : ( $ 94.001 ) in deferred revenue . cash flows from investing activities for fiscal year ended december 31 , 2014 , net cash flows used in investing activities was $ -0- compared to $ 6,839 for fiscal year ended december 31 , 2013 , which related to additions to fixed assets . cash flows from financing activities we have financed our operations primarily from debt or the issuance of equity instruments . for the fiscal year ended december 31 , 2014 , net cash flows provided from financing activities was $ 132,366 compared to $ 737,306 for fiscal year ended december 31 , 2013. cash flows from financing activities for the fiscal year ended december 31 , 2014 consisted of $ 25,000 in proceeds from sales of common stock and $ 156,984 in proceeds/payments from stockholders loans , which was offset by $ 49,618 in principal payment on notes payable .
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overview management believes that heightened attention to personal threats , potential large scale destruction and theft of property in the united states along with spending by the united states government on homeland security will continue to drive growth in the market for security products . we have three main products , namely the concealed weapons detection system , the visual first responder system and the viewmaxx digital video system . with regards to the three products as described below , revenue is considered earned when the product is shipped to the customer , installed ( if necessary ) and accepted by the customer as a completed sale . the concealed weapons detection system and the digital video system each require installation and training . the customer can engage us for installation and training , which is a revenue source separate and apart from the sale of the product . in those cases revenue is recognized at the completion of the installation and training and acceptance by the customer . however , the customer can also self-install or can engage another firm to provide installation and training . each product has an unconditional 30 day warranty , during which time the product can be returned for a complete refund . customers can purchase extended warranties , which provide for replacement or repair of the unit beyond the period provided by the unconditional warranty . warranties can be purchased for various periods but generally they are for one year period that begins after any other warranties expire . during fiscal years ended december 31 , 2013 , we received 47 % of our product sales revenue from a single state municipal agency . the contract with this state municipal agency was completed during 2013. thus , this may results in a significant decrease in future revenue in subsequent years and result in a material effect on our financial results .
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that former customer , in turn , filed a variety of counterclaims against the specialty chemicals segment and alleged $ 3,000,000 in damages . the company settled this case during 2013 with no cash outlay . in november 2013 , a metals segment customer filed suit against bristol metals , llc in louisiana state court alleging damages from breach of warranty , among other claims . the plaintiff 's claim for damages does not state a dollar amount . the story_separator_special_tag critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the 17 reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments based on historical experience and on various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . management believes the following critical accounting policies , among others , affect its more significant judgments and estimates used in the preparation of the company 's consolidated financial statements . allowance for doubtful accounts the company maintained allowances for doubtful accounts of approximately $ 1,079,000 as of december 28 , 2013 , for estimated losses resulting from the inability of its customers to make required payments and for disputed claims and quality issues . the allowance is based upon a review of outstanding receivables , historical collection information and existing economic conditions . the company performs periodic credit evaluations of its customers ' financial condition and generally does not require collateral . receivables are generally due within 30 to 60 days . delinquent receivables are written off based on individual credit evaluations and specific circumstances of the customer . inventory reserves the company establishes a reserve for estimated obsolete or unmarketable inventory in an amount equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and current market conditions . based on historical results , the company also maintains an inventory reserve to provide for the amount of estimated inventory quantity loss since the last physical inventory . as of december 28 , 2013 , the company has approximately $ 2,217,000 accrued for the various inventory reserves . if actual market conditions are less favorable than those estimated by management , additional inventory reserves may be required . environmental reserves as noted in note 5 to the consolidated financial statements included in item 8 of this form 10-k , the company has accrued $ 626,000 as of december 28 , 2013 , in environmental remediation costs which , in management 's best estimate , are sufficient to satisfy anticipated costs of known remediation requirements as explained in note 5. expenditures related to costs currently accrued are not discounted to their present values and are expected to be made over the next three to four years . however , as a result of the evolving nature of the environmental regulations , the difficulty in estimating the extent and necessary remediation of environmental contamination , and the availability and application of technology , the estimated costs for future environmental compliance and remediation are subject to uncertainties and it is not possible to predict the amount or timing of future costs of environmental matters which may subsequently be determined . changes in information known to management or in applicable regulations may require the company to record additional remediation reserves . impairment of long-lived assets the company continually reviews the recoverability of the carrying value of long-lived assets . long-lived assets are reviewed for impairment when events or changes in circumstances , also referred to as `` triggering events '' , indicate that the carrying value of a long-lived asset or group of assets ( the `` assets '' ) may no longer be recoverable . triggering events include : a significant decline in the market price of the assets ; a significant adverse change in the operating use or physical condition of the assets ; a significant adverse change in legal factors or in the business climate impacting the assets ' value , including regulatory issues such as environmental actions ; the generation by the assets of historical cash flow losses combined with projected future cash flow losses ; or the expectation that the assets will be sold or disposed of significantly before the end of the useful life of the assets . the company concluded that there were no indications of impairment requiring further testing during the year ended december 28 , 2013. if the company concluded that , based on its review of current facts and circumstances , there were indications of impairment , testing of the applicable assets would be performed . the recoverability of the assets to be held and used is tested by comparing the carrying amount of the assets at the date of the test to the sum of the estimated future undiscounted cash flows expected to be generated by those assets over the remaining useful life of the assets . in estimating the future undiscounted cash flows , the company uses projections of cash flows directly associated with , and which are expected to arise as a direct result of , the use and eventual disposition of the assets . this approach requires significant judgments including the company 's projected net cash flows , which are derived using the most recent available estimate for the reporting unit containing the assets tested . story_separator_special_tag higher inventory purchases made during the fourth quarter of 2013 increased the accounts payable balance at the end of 2013 by $ 1,541,000 when compared to the 2012 year-end balance . operating cash flows were unfavorably affected by lower accrued expenses at the end of 2013 compared to the end of 2012 of $ 2,242,000 , as profit based incentives decreased $ 1,876,000 reflecting lower 2013 profits , the majority of the tax liability associated with the palmer acquisition was used in 2013 and accrued interest decreased as the line of credit was paid off during the fourth quarter of 2013. cash flows provided by operating activities during 2012 totaled $ 1,635,000 and cash flows used in operating activities in 2011 totaled $ 3,858,000 , an improvement in cash flows of $ 5,493,000. cash flows in 2012 were generated from net income totaling $ 7,634,000 before depreciation and amortization expense of $ 3,399,000. since the company acquired palmer on august 21 , 2012 , cash flows resulting from changes in operating assets and liabilities can not be determined simply by subtracting 2012 balance 19 sheet amounts from 2011 values . the net value of all assets and liabilities acquired are shown in the `` acquisition of palmer of texas '' line in the investing activities section of the consolidated statements of cash flows . accordingly , these individual acquired balances represent beginning balances for palmer cash flow purposes . cash flows were adversely affected by a $ 1,422,000 increase in inventories in 2012 , as year-end balances increased , net of reserves , from $ 43,063,000 at the end of 2011 for historical company operations plus the $ 5,678,000 palmer beginning balance to $ 50,163,000 at the end of 2012. substantially all of the increase occurred in the specialty chemicals segment to support higher 2013 sales projections , including the additional defoamer business acquired during 2012. accounts payable also adversely affected cash flows by $ 4,152,000 in 2012 as there were significant inventory purchases in the fourth quarter of 2011 in the metals segment which increased the 2011 year-end accounts payable balance combined with lower nickel surcharges included in 2012 's year-end accounts payable balance . operating cash flows were also unfavorably affected by higher other assets and liabilities , net . a receivable from the prior owners of palmer was established in december 2012 for $ 1,494,000 which resulted from the final working capital adjustment , uncollected accounts receivable and other items detailed in the spa . this receivable was settled in january 2013. in 2013 , the company 's current assets increased $ 8,689,000 and current liabilities decreased $ 380,000 , from the year ended 2012 amounts , which caused working capital for 2013 to increase by $ 9,069,000 to $ 74,988,000 from the 2012 total of $ 65,919,000. the current ratio for the year ended december 28 , 2013 , increased to 4.0:1 from the 2012 year-end ratio of 3.6:1. on august 26 , 2013 , the a subsidiary of the company , cri tolling , completed the purchase of substantially all of the assets and assumed certain operating liabilities of cri . located in fountain inn , south carolina , cri tolling will continue cri 's business as that of a toll manufacturer that provides outside manufacturing resources to global and regional chemical companies . the assets purchased from cri included equipment and certain other assets and approximately $ 387,000 worth of inventory and accounts receivables , net of assumed payables . the total purchase price was $ 1,100,000. the company acquired the building and land where cri operates in a separate but related transaction on august 9 , 2013 for approximately $ 3,500,000. the company viewed both the building and operating assets of cri together as one business , capable of providing a return to ownership by expanding the segment 's production capacity . accordingly , the acquisition meets the definition of a business and the transaction is structured in a way that meets the definition of a business combination . due to severe financial difficulties cri was experiencing prior to our acquisition , the company was able to purchase the land , building and equipment at below market value . as a result of the favorable purchase price , the company recorded a bargain purchase gain on this transaction in the third quarter of 2013 of $ 1,077,000 , net of deferred taxes . the company also used cash during 2013 for investing activities to fund capital expenditures of $ 5,766,000. financing activities during 2013 generated $ 15,682,000. on september 30 , 2013 , the company closed on an underwritten public offering of 2,000,000 shares of its common stock at a price of $ 15.75 per share . the underwriters also exercised their option to purchase and close upon an additional 300,000 shares of common stock at a price of $ 15.75 per share . the company received net proceeds , after underwriting discounts and estimated expenses , of approximately $ 34,233,000. the company used $ 18,061,000 of the net proceeds to pay off the outstanding line of credit balance during 2013. the company also paid a $ 0.26 dividend on december 3 , 2013 which used $ 2,260,000. the company expects that existing cash balances , cash flows from 2013 operations and available borrowings will be sufficient to make debt payments and fund estimated 2014 capital expenditures of $ 7,800,000. on june 30 , 2010 , the company entered into a credit agreement with a regional bank to provide a $ 20,000,000 line of credit that was to expire on june 30 , 2013. this agreement was amended by the bank on august 19 , 2011 to extend the maturity date of the credit agreement by one additional year to june 30 , 2014. in connection with the palmer acquisition discussed in note 16 to the consolidated financial statements included in item 8 of this form 10-k , on august 21 , 2012 , the company modified the credit agreement to increase the limit of the credit facility by $ 5,000,000
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results of operations comparison of 2013 to 2012 - consolidated for the fiscal year ending december 28 , 2013 , the company generated net earnings of $ 1,761,000 , or $ 0.25 per share , on sales of $ 220,750,000 , compared to net earnings of $ 4,235,000 , or $ 0.66 per share , on sales of $ 197,659,000 in the prior year . the company generated a net loss of $ 3,078,000 , or $ 0.36 loss per share , on sales of $ 52,244,000 in the fourth quarter of 2013 , compared to net earnings of $ 965,000 , or $ 0.15 per share , on sales of $ 53,138,000 in the fourth quarter of 2012. consolidated gross profit decreased twelve percent to $ 19,202,000 in 2013 , compared to $ 21,928,000 in 2012 , and , as a percent of sales , decreased to nine percent of sales in 2013 compared to eleven percent of sales in 2012. for the fourth quarter of 2013 , consolidated gross profit showed a loss of $ 335,000 , or one percent of sales , compared to a profit of $ 5,893,000 , or eleven percent of sales , for the fourth quarter of 2012. the decreases in dollars and in percentage of sales were attributable to the metals segment as discussed in the metals segment comparison of 2013 to 2012 below .
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the company recognizes as an asset or liability in its consolidated balance sheet the funded status of its defined benefit retirement plans , measured on a plan-by-plan basis . changes in the funded status due to actuarial gains/losses are recorded as part of other comprehensive income during the period the changes occur . use of estimates the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the story_separator_special_tag this discussion and analysis of financial condition and results of operations should be read in conjunction with the moody 's corporation consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. this md & a contains forward-looking statements . see ยforward-looking statementsย commencing on page 55 and item 1a . ยrisk factorsย commencing on page 17 for a discussion of uncertainties , risks and other factors associated with these statements . the company moody 's is a provider of ( i ) credit ratings , ( ii ) credit , capital markets and economic related research , data and analytical tools , ( iii ) software solutions and related risk management services , ( iv ) quantitative credit risk measures , financial services training and certification services and ( v ) research and analytical services . moody 's has two reportable segments : mis and ma . mis , the credit rating agency , publishes credit ratings on a wide range of debt obligations and the entities that issue such obligations in markets worldwide . revenue is primarily derived from the originators and issuers of such transactions who use mis ratings in the distribution of their debt issues to investors . additionally , mis earns revenue from certain non-ratings-related operations which consist primarily of the distribution of research and financial instruments pricing services in the asia-pacific region as well as revenue from icra 's non-ratings revenue . the revenue from these operations is included in the mis other lob and is not material to the results of the mis segment . the ma segment develops a wide range of products and services that support financial analysis and risk management activities of institutional participants in global financial markets . within its rd & a business , ma distributes research and data developed by mis as part of its ratings process , including in-depth research on major debt issuers , industry studies and commentary on topical credit-related events . the rd & a business also produces economic research as well as data and analytical tools such as quantitative credit risk scores . within its ers business , ma provides software solutions as well as related risk management services . the ps business provides research and analytical services and financial training and certification programs . critical accounting estimates moody 's discussion and analysis of its financial condition and results of operations are based on the company 's consolidated financial statements , which have been prepared in accordance with gaap . the preparation of these financial statements requires moody 's to make estimates and judgments that affect reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the dates of the financial statements and revenue and expenses during the reporting periods . these estimates are based on historical experience and on other assumptions that are believed to be reasonable under the circumstances . on an ongoing basis , moody 's evaluates its estimates , including those related to revenue recognition , accounts receivable allowances , contingencies , goodwill and intangible assets , pension and other retirement benefits , utbs and stock-based compensation . actual results may differ from these estimates under different assumptions or conditions . the following accounting estimates are considered critical because they are particularly dependent on management 's judgment about matters that are uncertain at the time the accounting estimates are made and changes to those estimates could have a material impact on the company 's consolidated results of operations or financial condition . revenue recognition revenue is recognized when persuasive evidence of an arrangement exists , delivery has occurred or the services have been provided and accepted by the customer when applicable , fees are determinable and the collection of resulting receivables is considered probable . pursuant to asc topic 605 , when a sales arrangement contains multiple deliverables , the company allocates revenue to each deliverable based on its relative selling price which is determined based on its vendor specific objective evidence if available , third party evidence if vsoe is not available , or estimated selling price if neither vsoe nor tpe is available . the company 's products and services will generally qualify as separate units of accounting under asc topic 605. the company evaluates each deliverable in an arrangement to determine whether it represents a separate unit of accounting . a deliverable constitutes a separate unit of accounting when it has stand-alone value to the customers and if the arrangement includes a customer refund or return right relative to the delivered item and the delivery and performance of the undelivered item is considered probable and substantially in the company 's control . in instances where the aforementioned criteria are not met , the deliverable is combined with the undelivered items and revenue recognition is determined as one single unit . 28 moody 's 2016 10k the company determines whether its selling price in a multi-element transaction meets the vsoe criteria by using the price charged for a deliverable when sold separately or , if the deliverable is not yet being sold separately , the price established by management having the relevant authority to establish such a price . story_separator_special_tag in the instances where the company is not able to determine vsoe for all of the deliverables of an arrangement , the company allocates the revenue to the undelivered elements equal to its vsoe and the moody 's 2016 10k 29 residual revenue to the delivered elements . if the company is unable to determine vsoe for an undelivered element , the company defers all revenue allocated to the software deliverables until the company has delivered all of the elements or when vsoe has been determined for the undelivered elements . in cases where software implementation services are considered essential and vsoe of fair value exists for post-contract customer support ( ยpcsย ) , once the delivery criteria has been met on the standard software , license and service revenue is recognized on a percentage-of-completion basis as implementation services are performed , while pcs is recognized over the coverage period . if vsoe of fair value does not exist for pcs , once the delivery criteria has been met on the standard software , service revenue is recognized on a zero profit margin basis until essential services are complete , at which point total remaining arrangement revenue is then spread ratably over the remaining pcs coverage period . if vsoe does not exist for pcs at the beginning of an arrangement but is established during implementation , revenue not recognized due to the absence of vsoe will be recognized on a cumulative basis . accounts receivable allowance moody 's records an allowance for estimated future adjustments to customer billings as a reduction of revenue , based on historical experience and current conditions . such amounts are reflected as additions to the accounts receivable allowance . additionally , estimates of uncollectible accounts are recorded as bad debt expense and are reflected as additions to the accounts receivable allowance . actual billing adjustments and uncollectible account write-offs are charged against the allowance . moody 's evaluates its accounts receivable allowance by reviewing and assessing historical collection and invoice adjustment experience as well as the current aging status of customer accounts . moody 's also considers the economic environment of the customers , both from an industry and geographic perspective , in evaluating the need for allowances . based on its analysis , moody 's adjusts its allowance as considered appropriate in the circumstances . this process involves a high degree of judgment and estimation and could involve significant dollar amounts . accordingly , moody 's results of operations can be affected by adjustments to the allowance . management believes that the allowance for uncollectible accounts receivable is adequate to cover anticipated adjustments and write-offs under current conditions . however , significant changes in any of the above factors , or actual write-offs or adjustments that differ from the estimated amounts could impact the company 's consolidated results of operations . contingencies accounting for contingencies , including those matters described in note 19 to the consolidated financial statements , is highly subjective and requires the use of judgments and estimates in assessing their magnitude and likely outcome . in many cases , the outcomes of such matters will be determined by third parties , including governmental or judicial bodies . the provisions made in the consolidated financial statements , as well as the related disclosures , represent management 's best estimates of the then current status of such matters and their potential outcome based on a review of the facts and in consultation with outside legal counsel where deemed appropriate . the company regularly reviews contingencies and as new information becomes available may , in the future , adjust its associated liabilities . for claims , litigation and proceedings and governmental investigations and inquiries not related to income taxes , where it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated , the company records liabilities in the consolidated financial statements and periodically adjusts these as appropriate . when the reasonable estimate of the loss is within a range of amounts , the minimum amount of the range is accrued unless some higher amount within the range is a better estimate than another amount within the range . in other instances , where a loss is reasonably possible , management does not record a liability because of uncertainties related to the probable outcome and or the amount or range of loss , but discloses the contingency if significant . as additional information becomes available , the company adjusts its assessments and estimates of such matters accordingly . in view of the inherent difficulty of predicting the outcome of litigation , regulatory , governmental investigations and inquiries , enforcement and similar matters and contingencies , particularly where the claimants seek large or indeterminate damages or where the parties assert novel legal theories or the matters involve a large number of parties , the company can not predict what the eventual outcome of the pending matters will be or the timing of any resolution of such matters . the company also can not predict the impact ( if any ) that any such matters may have on how its business is conducted , on its competitive position or on its financial position , results of operations or cash flows . as the process to resolve any pending matters progresses , management will continue to review the latest information available and assess its ability to predict the outcome of such matters and the effects , if any , on its operations and financial condition . however , in light of the large or indeterminate damages sought in some of them , the absence of similar court rulings on the theories of law asserted and uncertainties regarding apportionment of any potential damages , an estimate of the range of possible losses can not be made at this time .
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segment results moody 's investors service the table below provides a summary of revenue and operating results , followed by further insight and commentary : replace_table_token_15_th 44 moody 's 2016 10k the following is a discussion of external mis revenue and operating expenses : global mis revenue of $ 2,334.2 million in 2015 increased $ 68.4 million , or 3 % , compared to 2014. excluding unfavorable changes in fx translation rates , mis revenue grew 8 % over the prior year and reflected growth across all lobs . transaction revenue for mis was 61 % in both 2015 and 2014. in the u.s. , revenue was $ 1,474.3 million in 2015 , an increase of $ 133.3 million compared to 2014 reflecting changes in the mix of fee type , new fee initiatives and certain pricing increases coupled with growth in rated issuance volumes for investment-grade corporate debt and higher public finance refunding volumes . the increase also reflects growth across most asset classes in sfg coupled with higher banking revenue . these increases were partially offset by lower rated issuance volumes for bank loans compared to the prior year . non-u.s. revenue was $ 859.9 million in 2015 , a decrease of $ 64.9 million compared to 2014. excluding unfavorable changes in fx translation rates , revenue grew 4 % over the prior year reflecting the favorable impact of changes in the mix of fee type , new fee initiatives and certain pricing increases , higher investment-grade revenue in emea , growth across most asset classes within sfg in emea and revenue from the icra acquisition . partially offsetting these increases was lower revenue from rating high-yield corporate debt and bank loans as well as lower indicative ratings revenue in the emea region . additionally , there was an approximate $ 99 million unfavorable impact relating to changes in fx translation rates .
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we offer a wide range of manufactured products , often under multi-year sole-source contracts with corporations and government agencies . we are organized into two business segments , sypris technologies and sypris electronics . sypris technologies , which is comprised of sypris technologies , inc. and its subsidiaries , generates revenue primarily from the sale of forged , machined , welded and heat-treated steel components primarily for the heavy commercial vehicle and high-pressure energy pipeline applications . sypris electronics , which is comprised of sypris electronics , llc , is focused on circuit card and full โ box build โ manufacturing , high reliability manufacturing , systems assembly and integration , design for manufacturability and design to specification work . we target those markets where we have the expertise , qualifications and leadership position to sustain a competitive advantage . we focus our resources to support the needs of industry leaders that embrace technological innovation and flexibility , coupled with multi-year contractual relationships where possible , as a strategic component of their supply chain management . our leading-edge processes and technologies help our customers remain competitive , and the resulting productivity and flexibility offer an important opportunity for differentiating ourselves from our competitors when it comes to cost , quality , reliability and customer service . sypris technologies outlook the sypris technologies segment continues to migrate from its historical , concentrated dependence upon the commercial vehicle markets to a more diversified base of customers who place value on our innovation , flexibility and lean manufacturing capabilities . the continued strength of the u.s. dollar , the tightening of margins in certain sectors of the commercial vehicle markets and the generally softening markets led the company to reevaluate the strategic importance of each of its customers to the company 's long-term success . in connection with this reevaluation process , the company and meritor determined not to renew their supply agreement for certain of meritor 's domestic , forged axle shafts beginning in 2017. the company has also not renewed its business with eaton . however , the company continues to supply component parts to sistemas automotrices de mexico , s.a de c.v. ( โ sistemas โ ) , meritor 's joint venture in mexico , and continues to supply axle shafts to meritor 's brazilian subsidiary . during the fourth quarter of 2018 , the company entered into a new three-year agreement to supply axle shafts to sistemas , as well as a number of other product lines for periods of up to six years from the commencement of production . the oil and gas markets , served by our tube turnsยฎ brand of engineered product lines , have strengthened along with the overall economy , and domestic pipeline projects continue to be active with u.s. domestic gas and oil production increasing in 2017 and 2018. we are pursuing new business in a wide variety of markets from light automotive to refrigeration valves to new energy related product lines to achieve a more balanced portfolio across our customers , markets and products . we have recently announced new program awards in each of these markets that have contributed to revenue growth for sypris technologies in 2018. we believe these opportunities provide a solid multi-year foundation for growth and that additional prospective business will result in increased revenue in 2019. sypris electronics outlook we have faced challenges within sypris electronics , such as the uncertainty in the worldwide macroeconomic climate and its impact on aerospace and defense spending patterns globally over the last several years , the emergence of new competitors to our manufacturing capabilities , as well as federal government spending uncertainties in the u.s. and the allocation of funds by the u.s. department of defense . more recently , we have begun to generate revenue from the ramp-up of new electronic manufacturing programs . 19 we announced new program awards for sypris electronics that contributed to revenue in 2017 and 2018 , with certain programs continuing into 2019. in addition to program awards related to weapons systems , electronic warfare and infrared countermeasures in our traditional aerospace and defense markets , we have also been awarded programs related to the communication and navigation markets which align with our unique capabilities for delivering products for complex , high cost of failure platforms . the national defense authorization act for fiscal year 2019 provides nearly $ 700 billion in funding for the u.s. department of defense , which is expected to support program growth and market expansion during the coming year for aerospace and defense participants . we expect to compete favorably for follow-on business opportunities on future builds of these programs , as our competitiveness is enhanced by the reduction in our overhead structure following our relocation into a new manufacturing facility as of the beginning of 2017. in the near term , certain electronic component shortages and extensive lead-time issues are becoming prevalent in many of the segments in the electronic manufacturing industry that we serve . we are working with our customers to qualify alternative components or suppliers to mitigate the impact on our business . the majority of our aerospace and defense programs require specific components that are sole-sourced to specific suppliers ; therefore , the resolution of supplier constraints requires coordination with our customers or the end-users of the products . strategic actions the company completed a number of strategic actions during the past three years in response to the nonrenewal of its supply agreement with certain tier i automotive customers primarily due to global pricing constraints , the downturn in the commercial vehicle market beginning in the fourth quarter of 2015 and other market and economic factors impacting the company during this period . story_separator_special_tag a performance obligation is a promise in a contract to transfer a distinct product or render a service to a customer and is the unit of account to which the transaction price is allocated under asc 606 , revenue from contracts with customers . when a contract contains multiple performance obligations , we allocate the transaction price to the individual performance obligations using the price at which the promised goods or services would be sold to customers on a standalone basis . for most sales within our sypris technologies segment and a portion of sales within sypris electronics , control transfers to the customer at a point in time . indicators that control has transferred to the customer include the company having a present right to payment , the customer obtaining legal title and the customer having the significant risks and rewards of ownership . the company 's principal terms of sale are fob shipping point , or equivalent , and , as such , the company primarily transfers control and records revenue for product sales upon shipment . for contracts where sypris electronics serves as a contractor for aerospace and defense companies under federally funded programs , we generally recognize revenue over time as we perform due to the continuous transfer of control to the customer . this continuous transfer of control to the customer is supported by clauses in the contracts that allow the customer to unilaterally terminate the contract for convenience , pay us for costs incurred plus a reasonable profit and take control of any work in process . because control is transferred over time , revenue is recognized based on the extent of progress towards completion of the performance obligation . we use labor hours incurred as a measure of progress for these contracts because it best depicts the company 's performance of the obligation to the customer , which occurs as we incur labor on our contracts . under this measure of progress , the extent of progress towards completion is measured based on the ratio of labor hours incurred to date to the total estimated labor hours at completion of the performance obligation . our contract profit margins may include estimates of revenues for goods or services on which the customer and the company have not reached final agreements , such as contract changes , settlements of disputed claims , and the final amounts of requested equitable adjustments permitted under the contract . these estimates are based upon management 's best assessment of the totality of the circumstances and are included in our contract profit based upon contractual provisions and our relationships with each customer . 21 long-lived asset impairment . we perform periodic impairment analysis on our long-lived amortizable assets whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable . when indicators are present , we compare the estimated future undiscounted net cash flows of the operations to which the assets relate to their carrying amount . if the operations are unable to recover the carrying amount of their assets , the long-lived assets are written down to their estimated fair value . fair value is determined based on discounted cash flows , third party appraisals or other methods that provide appropriate estimates of value . a considerable amount of management judgment and assumptions are required in performing the impairment test , principally in determining whether an adverse event or circumstance has triggered the need for an impairment review . the company did not have any long-lived assets measured at fair value on a nonrecurring basis as of december 31 , 2018 or 2017. pension plan funded status . our u.s. defined benefit pension plans are closed to new entrants and only $ 4,000 of service-related costs was recorded in 2018 related to a small number of participants who are still accruing benefits in the louisville hourly and salaried plans . changes in our net obligations are principally attributable to changing discount rates and the performance of plan assets . pension obligations are valued using discount rates established annually in consultation with our outside actuarial advisers using a theoretical bond portfolio , adjusted according to the timing of expected cash flows for our future obligations . plan liabilities at december 31 , 2018 are based upon a discount rate of 4.25 % which reflects the above mean mercer yield curve rate as of december 31 , 2018 rounded to the nearest 5 th basis point . declining discount rates increase the present value of future pension obligations ; a 25 basis point decrease in the discount rate would increase our u.s. pension liability by about $ 0.8 million . as indicated above , when establishing the expected long-term rate of return on our u.s. pension plan assets , we consider historical performance and forward looking return estimates reflective of our portfolio mix and investment strategy . based on the most recent analysis of projected portfolio returns , we concluded that the use of 3.95 % for the louisville hourly plan , 4.30 % for the marion plan and 4.20 % for the louisville salaried plan as the expected return on our u.s. pension plan assets for 2018 was appropriate . a change in the assumed rate of return on plan assets of 100 basis points would result in a $ 0.3 million change in the estimated 2019 pension expense . at december 31 , 2018 , we have $ 13.8 million of unrecognized losses relating to our u.s. pension plans . actuarial gains and losses , which are primarily the result of changes in the discount rate and other assumptions and differences between actual and expected asset returns , are deferred in accumulated other comprehensive income and amortized to expense following the corridor approach . we use the average remaining service period of active participants unless almost all of the plan 's participants are inactive , in which case we use the average remaining life expectancy for all active and inactive participants . reserve for excess , obsolete and scrap inventory .
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quarterly results the following table presents our unaudited condensed consolidated statements of operations data for each of the eight quarters in the two-year period ended december 31 , 2018. the quarterly results are presented on a 13-week period basis . we have prepared this data on the same basis as our audited consolidated financial statements and , in our opinion , have included all normal recurring adjustments necessary for a fair presentation of this information . you should read these unaudited quarterly results in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. the consolidated results of operations for any quarter are not necessarily indicative of the results to be expected for any subsequent period . the sum of quarterly earnings per share may differ from the full-year amounts due to rounding . replace_table_token_2_th liquidity and capital resources gill family capital management note . the company has received the benefit of cash infusions from gfcm in the form of secured promissory note obligations totaling $ 6.5 million in principal as of december 31 , 2018 and 2017. gfcm is an entity controlled by the company 's chairman , president and chief executive officer , jeffrey t. gill and one of our directors , r. scott gill . gfcm , jeffrey t. gill and r. scott gill are significant beneficial stockholders of the company .
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( see note 7 . โ goodwill and other intangible assets โ ) . servicing rights servicing rights are included with other assets on the balance sheet . when mortgage loans are sold with servicing retained , servicing rights story_separator_special_tag forward-looking statements we make statements in this report , and we may from time to time make other statements , regarding our outlook or expectations for earnings , revenues , expenses and or other financial , business or strategic matters regarding or affecting sterling bancorp that are forward-looking statements within the meaning of the private securities litigation reform act of 1995 , as amended . forward-looking statements are typically identified by words such as โ believe , โ โ expect , โ โ anticipate , โ โ intend , โ โ outlook , โ โ target , โ โ estimate , โ โ forecast , โ โ project โ by future conditional verbs such as โ will , โ โ should , โ โ would , โ โ could โ or โ may , โ or by variations of such words or by similar expressions . these statements are not historical facts , but instead represent our current expectations , plans or forecasts and are based on the beliefs and assumptions of the management and the information available to management at the time that these disclosures were prepared . forward-looking statements are subject to numerous assumptions , risks ( both known and unknown ) and uncertainties , and other factors which change over time . forward-looking statements speak only as of the date they are made . we do not assume any duty and do not undertake to update our forward-looking statements . because forward-looking statements are subject to assumptions , risks , uncertainties , and other factors , actual results or future events could differ , possibly materially , from those that we anticipated in our forward-looking statements and future results could differ materially from our historical performance . the following factors , among others , could cause our future results to differ materially from the plans , objectives , goals , expectations , anticipations , estimates and intentions expressed in forward-looking statements : our ability to successfully implement growth , reduce expenses and other strategic initiatives and to integrate and fully realize cost savings and other benefits we estimate in connection with acquisitions ; a deterioration in general economic conditions , either nationally , internationally , or in our market areas , including extended declines in the real estate market and constrained financial markets ; the possibility that the benefits anticipated from the hvb merger will not be fully realized ; as a result of the hvb merger , the bank 's total assets exceed $ 10 billion , which makes the bank subject to regulatory oversight by the consumer financial protection bureau and the bank will also become subject to provisions of the durbin amendment , which will impact the bank 's debit card interchange fees ; 25 adverse publicity , regulatory actions or litigation with respect to us or other well-known companies and the financial services industry in general and a failure to satisfy regulatory standards ; the effects of and changes in monetary and fiscal policies of the board of governors of the federal reserve system and the u.s. government , respectively ; our ability to make accurate assumptions and judgments about an appropriate level of allowance for loan losses and the collectability of our loan portfolio , including changes in the level and trend of loan delinquencies and write-offs that may lead to increased losses and non-performing assets in our loan portfolio , result in our allowance for loan losses not being adequate to cover actual losses , and require us to materially increase our reserves ; our use of estimates in determining the fair value of certain of our assets , which may prove to be incorrect and result in significant declines in valuation ; changes in the levels of general interest rates , and the relative differences between short and long term interest rates , deposit interest rates , our net interest margin and funding sources ; our ability to capitalize on our substantial investments in our information technology and operational infrastructure and systems ; changes in other economic , competitive , governmental , regulatory , and technological factors affecting our markets , operations , pricing , products , services and fees ; and our success at managing the risks involved in the foregoing and managing our business . additional factors that may affect our results are discussed in this annual report on form 10-k under โ item 1a , risk factors โ and elsewhere in this report or in other filings with the sec . these risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements . you should read such statements carefully . critical accounting policies our accounting and reporting policies are prepared in accordance with accounting principles generally accepted in the united states of america ( โ gaap โ ) and conform to general practices within the banking industry . accounting policies considered critical to our financial results include the allowance for loan losses , accounting for business combinations , accounting for goodwill , trade names and other intangible assets , accounting for deferred income taxes and the recognition of interest income . for additional information on our significant accounting policies see note 1 . โ basis of financial statement presentation and summary of significant accounting policies โ in the notes to consolidated financial statements . allowance for loan losses . the methodology for determining the allowance for loan losses is considered by us to be a critical accounting policy due to the high degree of judgment involved , the subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount of the allowance for loan losses considered necessary . story_separator_special_tag loans are returned to accrual status when collectability is no longer considered doubtful . loans we acquired in mergers are initially recorded at fair value , which involves estimating the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest . we continue to evaluate reasonableness of expectations for the timing and amount of cash to be collected . subsequent decreases in expected cash flows may result in changes in the amortization or accretion of fair market value adjustments , and in some cases may result in the loan being considered impaired . general on january 27 , 2015 , the board amended our bylaws to change our fiscal year end from september 30 to december 31. as a result of the change in year end , we filed a transition report on form 10-kt with the sec on march 6 , 2015 , which included audited financial statements as of december 31 , 2014 and for the three months then ended . for comparative purposes we presented financial statements as of december 31 , 2013 and for the three months then ended , which are unaudited . in this report , in accordance with guidance that is applicable to a financial reporting period that follows a transition period , our discussion and analysis will present the more significant factors affecting our financial condition at december 31 , 2015 and december 31 , 2014. for the results of operations , our discussion and analysis will present the more significant factors affecting the periods presented as follows : the calendar year ended december 31 , 2015 ( โ calendar 2015 โ ) compared to the fiscal year ended september 30 , 2014 ( โ fiscal 2014 โ ) ; the transition periods from october 1 , 2014 through december 31 , 2014 ( the โ transition period โ ) compared to the year earlier period october 1 , 2013 through december 31 , 2013 ( the โ 2013 transition period โ ) ; and fiscal 2014 compared to the fiscal year ended september 30 , 2013 ( โ fiscal 2013 โ ) . 27 the hvb merger , the provident merger , and the other acquisitions discussed in note 2 . โ acquisitions โ in the notes to consolidated financial statements were accounted for as purchase transactions , and accordingly , their related results of operations are included from the date of acquisition . the discussion and analysis should be read in conjunction with the consolidated financial statements , notes to consolidated financial statements and other information contained in this report . on june 30 , 2015 , we completed the hvb merger . the hvb merger was consistent with our strategy of expanding in the greater new york metropolitan region and beyond , and building a diversified company with significant commercial and consumer banking capabilities . we believe the hvb merger created a larger , more efficient and more profitable bank by combining our differentiated team-based distribution channels with hvhc 's strong presence and deposit base in westchester county . we anticipate that the hvb merger will allow us to accelerate organic loan growth , increase our ability to gather low cost core deposits and generate substantial cost savings and revenue enhancement opportunities . we completed the provident merger on october 31 , 2013. this acquisition was consistent with our strategy of expanding in the greater new york metropolitan region and focusing on commercial banking . we believe the provident merger created a larger , more profitable company by combining legacy provident 's differentiated team-based distribution channels with legacy sterling 's diverse commercial and consumer lending product capabilities . the provident merger significantly diversified our business . legacy sterling was predominately a commercial & industrial lender , which complemented our loan portfolio , which was substantially collateralized by real estate . further , legacy sterling provided us greater non-interest income revenue streams . story_separator_special_tag style= '' vertical-align : top '' > ( 3 ) net interest rate spread represents the difference between the tax equivalent yield on average interest earning assets and the cost of average interest bearing liabilities . ( 4 ) net interest earning assets represents total interest earning assets less total interest bearing liabilities . the following table presents the dollar amount of changes in interest income ( on a fully tax equivalent basis ) and interest expense for the major categories of our interest earning assets and interest bearing liabilities . information is provided for each category of interest earning assets and interest bearing liabilities with respect to ( i ) changes attributable to changes in volume ( i.e. , changes in average balances multiplied by the prior period average rate ) ; and ( ii ) changes attributable to rate ( i.e. , changes in average rate multiplied by prior period average balances ) . for purposes of this table , changes attributable to both rate and volume , which can not be segregated , have been allocated proportionately to the change due to volume and the change due to rate . 31 for the year ended december 31 , 2015 vs. for the three months ended december 31 , for the fiscal year ended september 30 , the fiscal year ended september 30 , 2014 2014 vs. 2013 2014 vs. 2013 increase ( decrease ) due to total increase increase ( decrease ) due to total increase increase ( decrease ) due to total increase volume rate ( decrease ) volume rate ( decrease ) volume rate ( decrease ) interest earning assets : loans $ 101,940 $ ( 12,426 ) $ 89,514 $ 15,017 $ ( 1,437 ) $ 13,580 $ 95,915 $ ( 743 ) $ 95,172 securities taxable 8,320 982 9,302 132 382 514 8,891 3,667 12,558 securities tax exempt 4,259 ( 1,762 ) 2,497 1,412 ( 329 ) 1,083 7,339 โ 7,339 interest earning deposits 95 ( 90 ) 5 9 ( 37 ) ( 28 ) 141 ( 42 ) 99 frb and
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results of operations we reported net income of $ 66.1 million , or $ 0.60 per diluted common share for calendar 2015 , compared to net income of $ 27.7 million , or $ 0.34 per diluted common share for fiscal 2014 , and net income of $ 25.3 million , or $ 0.58 per diluted common share , in fiscal 2013. in connection with the hvb merger , the company issued 38.5 million common shares , which increased weighted average diluted shares outstanding from 80.5 million for fiscal 2014 to 110.3 million for calendar 2015 . in connection with the provident merger , the company issued 39.1 million common shares , which increased weighted average diluted shares outstanding from 43.8 million in fiscal 2013 to 80.5 million in fiscal 2014. we reported net income of $ 17.0 million , or $ 0.20 per diluted common share for the transition period , compared to a net loss of $ 14.0 million , or $ 0.20 per common share in the 2013 transition period . the net loss incurred in the 2013 transition period was mainly the result of merger-related expense and restructuring charges incurred in connection with the provident merger . the table below summarizes our results of operations on a tax-equivalent basis . tax equivalent adjustments are the result of increasing income from tax-free securities by an amount equal to the taxes that would be paid if the income were fully taxable based on a 35 % federal tax rate , thus making tax-exempt yields comparable to taxable asset yields . dollar amounts in tables and the accompanying discussion that follows are stated in thousands , except for per share amounts and ratios .
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as of march 31 , 2018 , there were 1,131,992 shares story_separator_special_tag management 's discussion and analysis of financial condition and results of operations ( โ md & a โ ) is intended to provide a reader of our financial statements with a narrative of our financial condition , results of operations , liquidity and certain other factors that may affect our future results from the perspective of management . our md & a should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this form 10-k. a more comprehensive description of our products and markets for such products is provided in part i. item 1. business . overview we are an agricultural company and a world leader in the production of natural products derived from microalgae grown in complex and intricate agricultural systems on the kona coast of hawaii . we have a core competency in cultivating and processing microalgae into high-value , high-quality natural products for the human nutrition market . we are unique in that our microalgae are grown year-round in open ponds which , similar to natural land and plant based horticulture , require favorable weather conditions . in our case these conditions include consistent light , warm temperatures and low rainfall to achieve optimum production . equally important is a nutrient-rich environment , which requires the proper control and balance of necessary nutrients to support growth and yields . greater variability in these environmental factors more commonly occur in our winter growing season . 16 our products are sold as consumer packaged goods through natural products distributors , retailers and online channels , and direct to consumers , primarily in the u.s. , as well as in bulk form to manufacturers , formulators and distributors worldwide in the health foods and nutritional supplements markets . we will continue to focus on growing the market for our high quality , higher margin consumer products by emphasizing the higher nutritional content of our hawaiian spirulina and the benefits of our natural astaxanthin . we generated 23 % , 28 % and 29 % of our revenues outside of the united states during the years ended march 31 , 2018 , 2017 and 2016 , respectively . competing in a global marketplace , we are influenced by the general economic conditions of the countries in which our customers operate , including adherence to our customers ' local governmental regulations and requirements . since all sales are made in u.s. currency , we have no material foreign exchange exposure . our production levels have a significant impact on our gross profit margin , as well as our ability to meet customer demand . because our processes are agricultural and a large percentage of our production costs are fixed , it is important to maintain production volumes to support the minimal resource levels required to sustain a large-scale open culture agricultural facility . our production costs include customary variables such as availability and costs of personnel , raw materials , energy , water and freight . these variables fluctuate based on changes in the local , national and world economies . more complex variables include cultivation methods , feeding formulations and harvesting processes , all of which include efforts to anticipate the extent of weather and environmental events and make timely and sufficient adjustments . although the variability of such costs can not be fully anticipated , we have focused increased effort in this area in order to produce both spirulina and astaxanthin at levels sufficient to fully absorb production costs into inventory . fresh water is critical for our natural astaxanthin and spirulina production , and while we have not experienced any long-term constraint on fresh water availability , future availability could be negatively impacted by significant growth in the local population as well as by throughput constraints on the water delivery infrastructure owned by the county of hawaii . given the criticality of fresh water to our operations and the community , we recycle fresh water where possible and have developed additional water recycling systems in our efforts to utilize fresh water efficiently . both fresh and sea water require electricity for pumping ; and electricity , our single largest expenditure , depends on the cost of fuel which is , in turn , tied to the global price of crude oil . complex biological processes in the cultivation and processing of our microalgae are influenced by factors beyond our controlโthe weather , for example . as a result , we can not assure that adequate production levels will be consistent period over period . to the extent that our production levels are not sufficient to absorb these costs on a period basis , we recognize abnormal and non-inventoriable production costs , including fixed cost variances from normal production capacity , as an expense in the period incurred . abnormal amounts of freight , handling costs and wasted material ( spoilage ) are recognized as current-period charges and fixed production overhead costs are allocated to inventory based on the normal capacity of production facilities . normal capacity is defined as โ the production expected to be achieved over a number of periods or seasons under normal circumstances , taking into account the loss of capacity resulting from planned maintenance. โ to offset increased production costs , we seek ways to increase production efficiencies in volume yield , potency , and quality consistent with our commitment to produce high-value , high-quality products . we utilize several third-party contractors for encapsulation of our gelcaps and for the packaging of our finished nutrex hawaii products . although these services are available from a limited number of sources , we believe that we have the ability to use other parties if any of the current contractors become unavailable . story_separator_special_tag off-balance sheet arrangements as of march 31 , 2018 , we had no off-balance sheet arrangements or obligations . impact of inflation inflationary factors such as increases in the costs of materials and labor directly affect the company 's operations . most of the company 's leases provide for cost-of-living adjustments and require it to pay for insurance and maintenance expenses , all of which are subject to inflation . additionally , the company 's future lease cost for new facilities may include potentially escalating costs of real estate and construction . there is no assurance that the company will be able to pass on increased costs to its customers . depreciation expense is based on the historical cost to the company of its fixed assets , and is therefore potentially less than it would be if it were based on current replacement cost . while property and equipment acquired in prior years will ultimately have to be replaced at higher prices , it is expected that replacement will be a gradual process over many years . 20 ( 4 ) purchase obligations include agreements to purchase goods or services that are enforceable , are legally binding and specify all significant terms , including fixed or minimum quantities to be purchased ; fixed , minimum or variable price provisions ; and the approximate timing of the transaction . purchase obligations do not include agreements that are cancelable without penalty . cash flows the following table summarizes our cash flows from operating , investing and financing activities for each of the past three fiscal years ( $ in thousands ) : replace_table_token_6_th cash provided by operating activities in fiscal 2018 was the result of $ 1.0 million in net income and non-cash charges of $ 2.5 million , totaling $ 3.5 million . this was offset by an increase in working capital of $ 2.0 million . the increase in working capital was primarily the result of a $ 1.1 million increase in astaxanthin safety stock levels and a $ 0.5 million increase in accounts receivable due to the timing of sales relative to the prior year . cash provided by operating activities in fiscal 2017 was the result of a net loss of $ 1.2 million offset by non-cash charges of $ 2.3 million , totaling $ 1.1 million and a $ 0.1 million decrease in working capital . cash used in investing activities in fiscal years 2018 and 2017 includes costs for leasehold improvements and equipment acquisitions as our kona facility . cash used in financing activities in fiscal 2018 consists of a $ 0.7 million in principal payments on debt in the normal course of business , offset by $ 0.2 million in proceeds from equipment financing . cash used in financing activities during fiscal 2017 included proceeds of $ 0.6 million , net , from our line of credit , offset by payments on long-term debt and payments in lieu of stock issuance and settlement of taxes related to the former ceo separation agreement . . effect of recently issued accounting standards and estimates in may 2017 , the financial accounting standards board ( `` fasb '' ) issued accounting standards update ( `` asu '' ) 2017-09 , compensation-stock compensation ( topic 718 ) scope of modification accounting . asu 2017-09 will clarify and reduce both ( i ) diversity in practice and ( ii ) cost and complexity when applying the guidance in topic 718 , to a change to the terms and conditions of a share-based payment award . this guidance will become effective for fiscal years beginning after december 15 , 2017 and interim periods within those fiscal years . early adoption is permitted . the amendments in this asu should be applied prospectively to an award modified on or after the adoption date . we are currently evaluating the impact of this updated standard . we do not expect this update will have a significant impact on our consolidated financial statements . in november 2016 , the fasb issued asu 2016-18 , โ statement of cash flows ( topic 230 ) : restricted cash โ ( โ asu no . 2016-18 โ ) . this update addresses the fact that diversity exists in the classification and presentation of changes in restricted cash on the statement of cash flows under topic 230 , statement of cash flows . asu 2016-18 will take effect for public companies for the fiscal years beginning after december 15 , 2017 , and interim periods within those fiscal years . this guidance is applicable to our fiscal year beginning april 1 , 2018. we do not anticipate that this guidance will have a material impact on our consolidated financial statements and related disclosures . in august 2016 , fasb issued asu 2016-15 , โ statement of cash flows ( topic 230 ) : classification of certain cash receipts and cash payments โ ( โ asu no . 2016-15 โ ) . this asu clarifies and provides specific guidance on eight cash flow classification issues that are not currently addressed by current gaap and thereby reduces the current diversity in practice . asu no . 2016-15 is effective for public business entities for annual periods , including interim periods within those annual periods , beginning after december 15 , 2017 , with early application permitted . this guidance is applicable to our fiscal year beginning april 1 , 2018. we do not anticipate that this guidance will have a material impact on our consolidated financial statements and related disclosures . 21 in march 2016 , the fasb issued asu 2016-09 , โ compensation โ stock compensation ( topic 718 ) : improvements to employee share-based payment accounting โ ( โ asu no . 2016-09 โ ) . this asu makes several modifications to topic 718 related to the accounting for forfeitures , employer tax withholding on share-based compensation , and the financial statement presentation of excess tax benefits or deficiencies . asu no . 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards .
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results compared with fiscal 201 7 net sales net sales increased 6.5 % in the year ended march 31 , 2018 compared with 2017. this increase was driven by a 13.6 % increase in sales of our packaged nutrex hawaii products , offset by a 23.3 % decrease in bulk sales . the increase in packaged sales for both astaxanthin and spirulina was the result of continued growth in sales through costco and amazon . the bulk sales decrease is primarily the result of a 29.8 % decrease in spirulina sales , related to the production declines we experienced during the year . demand for our bulk spirulina remains high . two customers accounted for 32 % and 16 % , respectively , of our total net sales in the fiscal year ended march 31 , 2018. in fiscal 2017 , one customer accounted for 24 % of our total revenue . 18 gross profit our gross profit percent of net sales increased by 1.1 percentage points compared to fiscal 2017 as a result of a higher mix of packaged sales , which deliver a higher gross profit margin , and lower astaxanthin costs . this improvement is net of $ 0.8 million of non-inventoriable costs expensed during fiscal 2018 related to lower spirulina production in the 4 th quarter of fiscal 2018 , compared to $ 0.2 million in fiscal 2017. operating expenses operating expenses decreased $ 0.9 million , or 7.4 % , in fiscal 2018 as compared to fiscal 2017 , and decreased as a percentage of net sales by 5.3 % .
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the eps management team and other employees were hired by metabank and eps operations have continued to be based out of easton , pa. the purchase price for the acquisition of approximately $ 42.5 million included the payment of approximately $ 21.3 million in cash and the issuance of 369,179 shares of meta financial common stock to drake . the cash portion of the purchase price was funded from the proceeds of the previously announced subordinated debt issuance . on december 14 , 2016 , metabank completed the acquisition of substantially all of the assets and specified liabilities of scs , a fintech provider of consumer tax advances and other consumer credit services through its propriety underwriting model and loan management system . the assets acquired by metabank in the scs acquisition include the scs trade name , propriety underwriting model and loan management system and other assets . the purchase price for the acquisition included the payment of approximately $ 7.5 million in cash to scs and the issuance of 113,328 shares of meta financial common stock to scs ' stakeholders on behalf of scs . in addition , metabank paid out $ 17.5 million of contingent cash consideration and 264,431 shares of meta financial common stock due to the achievement of certain performance benchmarks during fiscal year 2017. metabank acquired scs assets with estimated fair values of $ 28.1 million of intangible assets , including customer relationships , trademark , and non-compete agreements , and negligible other assets , resulting in goodwill of $ 31.6 million . on december 20 , 2016 , metabank purchased , net of purchase discount , a $ 133.8 million seasoned , floating rate , private student loan portfolio . all loans are indexed to three-month libor plus various margins . the portfolio is serviced by reliamax lending services , llc and insured by reliamax surety company . on july 27 , 2017 , metabank was advised they will not be providing interest-free tax advance loans for h & r block tax preparation customers during the 2018 tax season . the company 's relationship with h & r block represented approximately $ 12.0 million in net earnings during fiscal year 2017. given the loss of this relationship , the company recognized a total impairment charge of $ 10.2 million , which was expensed during the 2017 fiscal fourth quarter . on august 2 , 2017 , metabank , entered into an extension to its current agreement with jackson hewitt tax service to offer on an annual basis up to $ 750 million of interest-free refund advance loans , an increase of $ 300 million in available funds over last year . the agreement includes underwriting , origination , servicing , and loan retention , and is supported by specialty consumer services , a division of metabank . under the extended agreement , metabank will continue to provide these services through the 2020 tax season . on september 25 , 2017 , sheree thornsberry joined the company as executive vice president and head of payments . ms. thornsberry is responsible for the prepaid , debit , correspondent and atm business lines . on october 11 , 2017 , the company completed the purchase of a $ 73 million , seasoned , floating rate , private student loan portfolio . all loans are indexed to one-month libor . the portfolio is serviced by reliamax lending services llc and insured by reliamax surety company . the company expects to realize initial net yields of over 6 % . this portfolio purchase builds on our existing student loan platform and we expect that the acquired loan portfolio will be easily integrated with minimal impact to the business . on november 13 , 2017 , shelly schneekloth joined the company as executive vice president and head of technology and operations . ms. schneekloth is responsible for directing information technology and operations initiatives to align and support business strategies . the company recorded net income of $ 44.9 million in fiscal 2017 compared to $ 33.2 million in fiscal 2016 . the increase in net income was primarily due to increases in non-interest income and net interest income . in fiscal 2017 , non-interest income increased to $ 172.2 million from $ 100.8 million in fiscal 2016 , primarily due to increases in tax advance product fee income , card fee income and refund transfer product fee income . the company 's net interest income grew to $ 93.2 million in fiscal 2017 , compared to $ 77.3 million in fiscal 2016 . the increase was driven by growth in both loan and investment volumes as well as increased yields in the investment portfolio . additionally , the continuous improvement in the overall interest-earning asset mix contributed to the increased net interest income , primarily due to loan growth , including as a result of the december 2016 purchased student loan portfolio , and purchases of highly rated tax-exempt municipal securities at relatively high tax equivalent yields . partially offsetting the higher non-interest income and net interest income was non-interest expense , which rose $ 65.0 million , from $ 134.6 million in fiscal 2016 to $ 199.7 million in fiscal 2017 , and income tax expense which rose from $ 5.6 million to $ 10.2 million year over year . 75 overall , the cost of funds at metabank averaged 0.43 % during fiscal 2017 , compared to 0.15 % for 2016 . this increase was primarily due to a combination of the issuance of the company 's subordinated debt in the fourth quarter of fiscal year 2016 , the addition of wholesale deposits , and an increase in short-term borrowing rates . tangible book value per common share decreased by $ 2.10 , or 7 % , to $ 29.47 per share at september 30 , 2017 , from $ 31.57 per share at september 30 , 2016 . story_separator_special_tag the increase directly correlates with the higher short-term borrowings balances . 76 total deposits increased by $ 793.3 million , or 33 % , to $ 3.22 billion at september 30 , 2017 , from $ 2.43 billion at september 30 , 2016 . the increase in end-of-period deposits was primarily the result of an increase in wholesale deposits of $ 476.2 million , an increase in non-interest bearing checking deposits of $ 286.5 million , and a $ 29.2 million increase in interest-bearing checking deposits . wholesale deposits were added during fiscal year 2017 at advantageous rates when compared to the overnight borrowing rates , thereby lowering funding costs , or to target strategic maturities which are expected to aid in tax season tax advance loan funding . deposits attributable to the payments divisions were up $ 305.9 million , or 14 % , at september 30 , 2017 , as compared to september 30 , 2016 . the increase is due to continued growth in our core business relationships related to the payments divisions . the company 's total borrowings increased $ 302.5 million , or 25 % , from $ 1.19 billion at september 30 , 2016 , to $ 1.49 billion at september 30 , 2017 , primarily due to the increases in short-term advances from the fhlb , which was done as part of a temporary repositioning of the balance sheet , as noted above . the company 's short-term borrowings fluctuate on a daily basis due to the nature of a portion of its non-interest-bearing deposit base , primarily related to payroll processing timing with a higher volume of short-term borrowings on monday and tuesday , which are typically paid down throughout the week . this predictable fluctuation may be augmented near a month-end by a prefunding of certain programs . see notes 8 and 9 to the โ notes to consolidated financial statements , โ which are included in part ii , item 8 โ financial statements and supplementary data โ of this annual report on form 10-k. at september 30 , 2017 , the company 's stockholders ' equity totaled $ 434.5 million , an increase of $ 99.5 million from $ 335.0 million at september 30 , 2016 . stockholders ' equity increased primarily as a result of an increase in additional paid-in capital and retained earnings . at september 30 , 2017 , the bank continued to meet regulatory requirements for classification as a well-capitalized institution . see note 13 to the โ notes to consolidated financial statements , โ which is included in part ii , item 8 โ financial statements and supplementary data โ of this annual report on form 10-k. story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 11.7 million . the increase in net income was primarily caused by an increase in tax advance fee income of $ 30.3 million , a $ 24.2 million increase in card fee income , a $ 15.9 million increase in net interest income , and a $ 15.6 million increase in refund advance fee income . the net income increase was offset in part by an increase in compensation and benefits expense of $ 27.1 million , a $ 10.2 million intangible impairment expense , a $ 7.5 million increase in amortization expense , and an increase in other expense of $ 5.5 million . 79 net interest income . net interest income for fiscal 2017 increased by $ 15.9 million , or 21 % , to $ 93.2 million from $ 77.3 million for the prior year . net interest margin decreased to 3.05 % in fiscal 2017 as compared to 3.19 % in 2016 . the increase in net interest income was primarily due to an increase in interest income of $ 26.7 million to $ 108.1 million from $ 81.4 million for the prior year . the increase in interest income was primarily due to an increase in the company 's average earning assets of $ 796.8 million , or 28 % , to $ 3.62 billion during fiscal 2017 from $ 2.82 billion during 2016 . this was due to a significant increase in volume in commercial real estate loans and specialty finance loans , which includes premium finance loans and the december 2016 purchased student loan portfolio . growth in investment security balances and yields attained on those investment securities also contributed to the increase in net interest income . the increase in interest income was partially offset by an increase in interest expense of $ 10.8 million , to $ 14.9 million from $ 4.1 million for the prior year . overall , when using a taxable equivalent yield ( โ tey โ ) , the company 's interest earning asset yield increased by 12 basis points due to improved yields achieved within the securities portfolio and a shift in the earning asset mix due to increased volume in loans . the yield on non-mbs investment securities increased by 19 basis points on a tey basis . the yield on government-related mbs increased six basis points while longer-term interest rates generally decreased throughout the fiscal year . average tey on the securities portfolio increased by 20 basis points in fiscal 2017 compared to fiscal 2016 . the increased volume in loans receivable reflects the growth in specialty finance loans , which includes premium finance loans and the purchased student loan portfolio , as well as growth in the typical retail banking sectors . the company 's average balance of total deposits and interest-bearing liabilities increased $ 829.7 million , or 31 % , to $ 3.49 billion during fiscal 2017 from $ 2.66 billion during 2016 .
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results of operations the company 's results of operations are dependent on net interest income , provision for loan losses , non-interest income , non-interest expense and income tax expense . net interest income is the difference , or spread , between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities . the interest rate spread is affected by regulatory , economic and competitive factors that influence interest rates , loan demand and deposit flows . notwithstanding that a significant amount of the company 's deposits , primarily those attributable to the payments divisions , pay relatively low rates of interest or none at all , the company , like other financial institutions , is subject to interest rate risk to the extent that its interest-earning assets mature or reprice at different times , or on a different basis , than its interest-bearing liabilities . the provision for loan loss is the adjustment to the allowance for loan loss balance for the applicable period . the allowance for loan loss is management 's estimate of probable loan losses in the loan portfolio based upon loan losses that have been incurred as of the balance sheet date . the company 's non-interest income is derived primarily from tax product fees , prepaid cards , credit products , atm fees attributable to the mps division and fees charged on bank loans and transaction accounts . non-interest income is also derived from net gains on the sale of securities available for sale as well as the company 's holdings of bank-owned life insurance . this income is offset by non-interest expenses , such as compensation and occupancy expenses associated with additional personnel and office locations as well as card processing expenses attributable to payments . non-interest expense is also impacted by acquisition-related expenses , occupancy and equipment expenses , regulatory expenses , and legal and consulting expenses .
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15. employee benefit plans the company provides a 401 ( k ) savings plan for story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with โ selected financial data โ and the financial statements and related disclosures included elsewhere in this report . the following discussion may contain forward-looking statements . such forward-looking statements include those that express plans , anticipation , intent , contingency , goals , targets or future development and or otherwise are not statements of historical fact . these forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements . in some cases , you can identify forward-looking statements by terminology , such as โ goals , โ or โ expects , โ โ anticipates , โ โ intends , โ โ plans , โ โ believes , โ โ seeks , โ โ estimates , โ or the negative of such terms or other similar expressions . you are urged not to place undue reliance on any such forward- looking statements , any of which may turn out to be wrong due to inaccurate assumptions , unknown risks , uncertainties or other factors . factors that could cause or contribute to differences in results and outcomes from those in our forward-looking statements include , without limitation , those discussed elsewhere in this report in part i , item 1a . โ risk factors โ and in item 1 โ businessโforward-looking statements , โ as well as those discussed in our other securities and exchange commission ( sec ) filings . 40 overview we are a leading global provider of technology-enabled asset protection solutions used to evaluate the structural integrity of critical energy , industrial and public infrastructure . we combine industry-leading products and technologies , expertise in mechanical integrity ( mi ) and non-destructive testing ( ndt ) services and proprietary data analysis software to deliver a comprehensive portfolio of customized solutions , ranging from routine inspections to complex , plant-wide asset integrity assessments and management . these mission critical solutions enhance our customers ' ability to extend the useful life of their assets , increase productivity , minimize repair costs , comply with governmental safety and environmental regulations , manage risk and avoid catastrophic disasters . given the role our services play in ensuring the safe and efficient operation of infrastructure , we have historically provided a majority of our services to our customers on a regular , recurring basis . we serve a global customer base of companies with asset-intensive infrastructure , including companies in the oil and gas , fossil and nuclear power , public infrastructure , chemicals , aerospace and defense , transportation , primary metals and metalworking , pharmaceuticals and food processing industries . during fiscal 2010 , we provided our asset protection solutions to approximately 4,800 customers . as of may 31 , 2010 , we had approximately 2,300 employees , including 30 ph.d. 's and more than 100 other degreed engineers and highly-skilled , certified technicians , in 72 offices across 15 countries . we have established long-term relationships as a critical solutions provider to many leading companies in our target markets . our current principal market is the oil and gas industry , which accounted for approximately 63 % , 58 % and 50 % of our revenues for fiscal 2010 , 2009 and 2008 , respectively . during the last several years , we have focused on introducing our advanced asset protection solutions to our customers using proprietary , technology-enabled software and testing instruments , including those developed by our products and systems segment . during this period , the demand for outsourced asset protection solutions has , in general , increased , creating demand from which our entire industry has benefited . we have experienced compounded annual growth rate ( cagr ) for revenue of 31 % over the last three fiscal years , including the impact of acquisitions and currency fluctuations . during the same period , revenues from our customers in the oil and gas market , historically our largest target market , had a cagr of 40 % . all of our other target markets , collectively , had a cagr of 19 % . we believe further growth can be realized in all of our target markets . concurrent with this growth , we have worked to build our infrastructure to profitably absorb additional growth and have made a number of small acquisitions in an effort to leverage our fixed costs , grow our base of experienced personnel , expand our technical capabilities and increase our geographical reach . we have increased our capabilities and the size of our customer base through the development of applied technologies and managed support services , organic growth and the successful and seamless integration of acquired companies . these acquisitions have provided us with additional products , technologies , resources and customers that have enhanced our sustainable competitive advantages over our competition . the global economy continues to be fragile . global financial markets continue to experience disruptions , including severely diminished liquidity and credit availability , declines in consumer confidence , declines in economic growth , persistently high unemployment rates , volatility in interest and currency exchange rates and continued uncertainty about economic stability . there may be further deterioration and volatility in the global economy , the global financial markets , and consumer confidence . the downturn has negatively impacted our profitability and may negatively impact our future results if it continues . however , we believe it also has allowed us to selectively hire new talented individuals that otherwise might not have been available to us , to acquire and develop new technology in order to aggressively expand our proprietary portfolio of customized solutions , and to make acquisitions of complementary businesses at reasonable valuations . story_separator_special_tag depreciation used in determining gross profit is directly related to our revenues and primarily relates to depreciation of equipment used for the delivery of our asset protection solutions and to a lesser extent depreciation of manufacturing equipment . we also have other depreciation primarily related to our corporate headquarters which is included in deriving our income from operations as discussed below . gross profit our gross profit equals our revenues less our cost of revenues and attributed depreciation . our gross profit , both in absolute dollars and as a percentage of revenues , can vary based on our volume , sales mix , actual manufacturing costs and our utilization of labor . as a result , gross profit may vary from quarter to quarter . for instance , our gross profit can decline during holiday periods when we incur labor costs without any corresponding revenues . under our time-and-materials contracts , we negotiate hourly billing rates and charge our clients based on the actual time that we expend on a project . our profit margins on time-and-materials contracts fluctuate based on actual labor and overhead costs that we directly charge or allocate to contracts compared to negotiated billing rates . in recent years , there has been an increasing demand for asset protection solutions and , until recently , a limited supply of certified technicians . accordingly , we experienced increases in our cost of labor in our services segment . the customers of our services segment have been aware of these supply constraints and generally have , to some extent , accepted corresponding price increases for our services . however , in the current economic environment we have experienced certain pricing pressures from customers and we are uncertain whether our ability to increase prices for our services will continue . in our products and systems segment , our ability to increase prices for any product or system to offset associated cost increases is based principally on the extent to which its incorporates our proprietary technology . we believe our efforts to develop and offer our customers value-added proprietary solutions instead of commodity-type products help us , in part , to resist margin erosion . our international segment offers services , products and systems similar to those of our other segments , so our ability to increase prices in this segment as costs increase is determined by the same factors affecting the pricing of our other segments , and the relative mix of services , products and systems it provides in the applicable period . selling , general and administrative expenses our selling , general and administrative expenses are comprised primarily of expenses of our sales and marketing operations , field location administrative costs and our corporate headquarters related to our executive , general management , finance , accounting and administrative functions and legal fees and expenses . these costs can vary based on our volume of business or as expenses are incurred to support corporate activities and initiatives such as training . the largest single category is salaries and related costs . in the near term , we expect these expenses to increase as we support the growth of our business and expand our sales and marketing efforts , improve our information processes and systems and implement the financial reporting , compliance and other infrastructure required for a public company . we also expect that our selling , general and administrative expenses will decline as a percentage of our revenues , particularly over the long term . research and engineering research and engineering expense consists primarily of engineering salaries and personnel-related costs and the cost of products , materials and outside services used in our process and product development activities primarily in our products and systems segment . other research and development is conducted in our services segment by various billable personnel and our management on a collaborative basis . these costs are not separated and are included in cost of revenues . specific development costs on software are capitalized and amortized in our depreciation and amortization included in our income from operations . from time-to-time , we receive minor grants or contracts for paid research which are recorded in our revenues with the related costs included in cost of revenues . we expect to continue our investment in research and engineering activities and anticipate that our associated expense will increase in absolute terms in the future as we hire additional personnel and increase research and engineering activity . however , as a percentage of revenues , we expect research and engineering expense to decline over time . depreciation and amortization included in income from operations our depreciation and amortization used in deriving our income from operations represents the expense charge for our capitalized assets , and primarily relates to buildings and improvements , including our corporate headquarters , office furniture , equipment , and intangibles acquired as part of our acquisitions of other businesses . these intangible assets include , but are not limited to , non-competition agreements , customer lists and trade names . to the extent we ascribe value to identifiable intangible assets that have finite lives , we amortize those values over the estimated useful lives of those assets . such amortization expense , although non-cash in the period expensed , directly impacts our results of operations . it is difficult to predict with any precision the amount of expense we may record relating to acquired intangible assets . 43 income from operations our income from operations is our gross profit less our selling , general and administrative expenses , research and engineering and depreciation and amortization included in income from operations . we refer to our income from operations as a percentage of our revenues as our operating margin . interest expense our interest expense consists primarily of interest paid to our lenders under our credit agreement . also included is the interest incurred on our capital leases and on subordinated notes issued as part of our acquisitions .
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consolidated results of operations fiscal 2010 , 2009 and 2008 our revenues , gross profit , income from operations and net income for fiscal 2010 , 2009 and 2008 were as follows : replace_table_token_5_th we estimated that our growth rates for fiscal 2010 , 2009 and 2008 , respectively , were as follows : replace_table_token_6_th fiscal 2010 compared to fiscal 2009 revenues . our revenues , by segment for fiscal 2010 , 2009 and 2008 , were as follows : replace_table_token_7_th ( 1 ) revenues by operating segment includes intercompany transactions , which are eliminated in corporate and eliminations . 45 revenues increased $ 63.0 million , or 30 % , for fiscal 2010 compared to fiscal 2009 as a result of growth in all our segments . for fiscal 2010 and fiscal 2009 , we estimate that our organic growth rate , as compared to growth driven by acquisitions , was approximately 18 % and 16 % , respectively . in fiscal 2010 , we estimate that all of our segments had organic growth , with the services segments leading the way with 20 % . although growth was slower due to the lingering effects of the economy , especially as to capital spending patterns , our products and systems segment and our international segment each had organic growth of 9 % and 7 % respectively . this organic growth was the result of continued demand for our asset protection solutions , including growth from new and existing customers . in fiscal 2010 , we estimate that growth from acquisitions was approximately $ 25.8 million , or 12 % , compared to $ 33.6 million , or 23 % , in fiscal 2009. we completed three acquisitions in fiscal 2010 compared to five acquisitions in fiscal 2009 , and seven acquisitions in fiscal 2008 , increasing our capabilities and adding to our base of qualified technicians .
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other premises and equipment are carried at cost , less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets . in general , estimated lives for buildings are up to 40 years , furniture and equipment useful lives range from three to 20 years and the lives of software and computer related equipment range from three to five years . leasehold improvements are amortized over the life of the related lease , or the related assets , whichever is shorter . expenditures for major improvements of the company 's premises and equipment are capitalized and depreciated over their estimated useful lives . minor repairs , maintenance and improvements are charged to operations as incurred . when assets are sold story_separator_special_tag overview during 2011 , the company reported net income available to common shareholders of $ 17.9 million , or $ 0.76 per share , compared to a net loss available to common shareholders in 2010 of $ 7.2 million , or ( $ 0.35 ) per share . the company 's income/ ( loss ) as a percentage of average assets for 2011 and 2010 was 0.71 % and ( 0.37 % ) , respectively , while the company 's income/ ( loss ) as a percentage of average shareholders ' equity was 8.52 % and ( 4.44 % ) , respectively . highlights of the company 's performance in 2011 include the following : the company participated in two fdic-assisted acquisitions during 2011. these transactions resulted in after-tax gains of $ 17.5 million , representing the difference between the fair values of the assets acquired and the liabilities assumed . the company received a net cash payment of $ 24.5 million from the fdic to settle the acquisitions . tangible common equity to tangible assets increased from 7.35 % at december 31 , 2010 to 7.99 % at december 31 , 2011. tangible common book value increased 9.1 % per share from $ 9.22 per share at december 31 , 2010 to $ 10.06 per share at december 31 , 2011. total credit costs for the year ended december 31 , 2011 were $ 58.1 million , a decrease of 16.5 % when compared to 2010. credit costs include the loan loss provision , losses on the sale of problem loans or oreo and legal costs associated with problem loans or oreo . provision for loan loss expense for the full year 2011 amounted to $ 32.7 million , compared to $ 50.5 million for 2010. the lower provision costs were possible because of a reduction in new problem loans in 2011 when compared to 2010. the company 's net interest margin expanded in 2011 to 4.57 % from 4.11 % in 2010 because of strong incremental spreads on new business , steady yields on earning assets and continued decreases in funding costs . yields on earning assets increased from 5.47 % in 2010 to 5.68 % in 2011 , due primarily to improvements in the yield on covered loans . as expected cash flow on covered loans improves , a portion of the loan discount that was previously attributable to credit problems is reclassified into interest income . this reclassification occurs over the estimated life of the loan , which sometimes is a very short period of time . total assets at december 31 , 2011 increased only slightly , growing 0.7 % to $ 2.99 billion , compared to $ 2.97 billion at december 31 , 2010. average assets for the year reflected higher levels of growth considering the three acquisitions completed in the fourth quarter of 2010. average assets and average earning assets in 2011 were $ 2.97 billion and $ 2.50 billion , respectively , compared to $ 2.50 billion and $ 2.20 billion , respectively , for 2010. the company 's deposit mix improved during 2011 with 65.7 % of total deposits in non-cd accounts at december 31 , 2011 compared to 58.2 % at december 31 , 2010. growth in deposits came through acquisitions and through the continued efforts of our seasoned bankers . at december 31 , 2011 , non-interest bearing deposit accounts totaled $ 395.3 million , representing growth of 30.9 % over balances at december 31 , 2010. critical accounting policies ameris has established certain accounting and financial reporting policies to govern the application of accounting principles generally accepted in the united states of america in the preparation of our financial statements . our significant accounting policies are described in note 1 to the consolidated financial statements . certain accounting policies involve significant judgments and assumptions by management which have a material impact on the carrying value of certain assets and liabilities ; management considers these accounting policies to be critical accounting policies . the judgments and assumptions used by management are based on historical experience and other factors which are believed to be reasonable under the circumstances . because of the nature of the judgments and assumptions made by management , actual results could differ from the judgments and estimates adopted by management which could have a material impact on the carrying values of assets and liabilities and the results of our operations . we believe the following accounting policies applied by ameris represent critical accounting policies . allowance for loan losses we believe the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in the preparation of our consolidated financial statements . the allowance for loan losses represents management 's estimate of probable loan losses inherent in the company 's loan portfolio . calculation of the allowance for loan losses represents a critical accounting estimate due to the significant judgment , assumptions and estimates related to the amount and timing of estimated losses , consideration of subjective environmental factors and the amount and timing of cash flows related to impaired loans . 30 index to financial statements management believes that the allowance for loan losses is adequate . story_separator_special_tag on the date of acquisition , when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the company will not collect all contractually required principal and interest payments , the difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference . the company must estimate expected cash flows at each reporting date . subsequent decreases to the expected cash flows will generally result in a provision for loan losses . subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges and adjusted accretable yield which will have a positive impact on interest income . in addition , purchased loans without evidence of credit deterioration are also handled under this method . income taxes gaap requires the asset and liability approach for financial accounting and reporting for deferred income taxes . we use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant income tax temporary differences . see note 13 , ยincome taxes , ย in the notes to consolidated financial statements for additional details . as part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items , such as gains on fdic-assisted transactions and the provision for loan losses , for tax and financial reporting purposes . these differences result in deferred tax assets and liabilities that are included in our consolidated balance sheet . we must also assess the likelihood that our deferred tax assets will be recovered from future taxable income , and to the extent we believe that recovery is not likely , we must establish a valuation allowance . significant management judgment is required in determining our provision for income taxes , our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets . to the extent we establish a valuation allowance or adjust this allowance in a period , we must include an expense within the tax provisions in the statement of income . we have recorded on our consolidated balance sheet net deferred tax liabilities of $ 9.8 million as of december 31 , 2011. deferred gains on fdic-assisted transactions represent the company 's largest deferred tax liability , totaling $ 16.9 million . allowances for loan losses associated with loans where no loss has yet been recorded for tax purposes represent the company 's largest deferred tax asset , totaling $ 12.3 million . long-lived assets , including intangibles during 2009 , the company engaged an independent third party to evaluate the carrying value of goodwill , and it was determined that the balance of goodwill was impaired . as such , the company recorded an impairment charge of $ 54.8 million , representing the entire balance of goodwill during the fourth quarter of 2009. no goodwill was expensed or amortized during 2011 or 2010 in accordance with gaap . during 2010 , the bank recorded new goodwill totaling $ 956,000 related to the acquisition of tbc . the company 's balance of intangible assets at december 31 , 2011 totaled $ 3.3 million and is being amortized over its previously determined useful life . during 2010 , the bank recorded new core deposit intangibles totaling $ 1.7 million related to the acquisitions of scb , fbj , tbc and dbt . net income/ ( loss ) and earnings per share the company 's net income available to common shareholders during 2011 was $ 17.9 million , or $ 0.76 per diluted share . this is compared to a net loss available to common shareholders during 2010 of $ 7.2 million , or $ 0.35 per diluted share , and a net loss available to common shareholders during 2009 of $ 45.0 million , or $ 3.27 per diluted share . during the fourth quarter of 2009 , the company recorded a non-cash charge for goodwill impairment totaling $ 54.8 million . excluding this non-cash charge for goodwill impairment that did not affect the company 's tangible equity or liquidity , the company reported net income available to common shareholders of $ 9.9 million , or $ 0.72 per diluted share , for the year ended december 31 , 2009. for the fourth quarter of 2011 , the company recorded net income available to common shareholders of $ 322,000 , or $ 0.01 per diluted share , compared to net income available to common shareholders of $ 1.1 million , or $ 0.04 per diluted share , for the quarter ended december 31 , 2010 and to a net loss available to common shareholders of $ 39.2 million , or $ 2.82 per diluted share , for the quarter ended december 31 , 2009. excluding the $ 54.8 million goodwill impairment recorded in the fourth quarter of 2009 , net income available to common shareholders for the fourth quarter of 2009 totaled $ 15.7 million , or $ 1.14 per diluted share . 32 index to financial statements earning assets and liabilities average earning assets in 2011 increased 13.5 % to $ 2.50 billion as compared to 2010. the earning asset and interest-bearing liability mix is constantly monitored to maximize the net interest margin and , therefore , increase return on assets and shareholders ' equity . the following statistical information should be read in conjunction with the remainder of ยmanagement 's discussion and analysis of financial condition and results of operationย and the consolidated financial statements and related notes included elsewhere in this annual report and in the documents incorporated herein by reference .
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results of operations net interest income net interest income represents the amount by which interest income on interest-earning assets exceeds interest expense incurred on interest-bearing liabilities . net interest income is the largest component of our income and is affected by the interest rate environment and the volume and composition of interest-earning assets and interest-bearing liabilities . our interest-earning assets include loans , investment securities , interest-bearing deposits in banks and federal funds sold . our interest-bearing liabilities include deposits , other short-term borrowings , fhlb advances and subordinated debentures . 2011 compared to 2010. for the year ended december 31 , 2011 , interest income was $ 141.1 million , an increase of $ 22.0 million , or 18.5 % , compared to the same period in 2010. average earning assets increased $ 297.4 million , or 13.49 % , to $ 2.50 billion for the year ended december 31 , 2011 compared to $ 2.20 billion as of december 31 , 2010. yield on average earning assets on a taxable equivalent basis increased during 2011 to 5.68 % compared to 5.47 % for the year ended december 31 , 2010. higher yields on covered loans offset the lower yield on investment securities . interest expense on deposits and other borrowings for the year ended december 31 , 2011 was $ 27.5 million , compared to $ 29.8 million for the year ended december 31 , 2010. the company 's funding mix improved during 2011 , leading to significant savings in cost of funds .
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factors that could cause or contribute to such differences include those described under part i , item 1aยrisk factors included in this annual report on form 10-k and factors described in other cautionary statements , cautionary language and risk factors set forth in other documents filed with the securities and exchange commission . we undertake no obligation to publicly update forward-looking statements , whether as a result of new information , future events or otherwise . overview our key therapeutic products and product candidates include : prostacyclin analogues ( remodulin ยฎ , tyvaso ยฎ , orenitram ยฎ and esuberaprost , formally known as 314d ) : stable synthetic forms of prostacyclin , an important molecule produced by the body that has powerful effects on blood vessel health and function ; phosphodiesterase type 5 ( pde-5 ) inhibitor ( adcirca ยฎ ) : a molecule that acts to inhibit the degradation of cyclic guanosine monophosphate ( cyclic gmp ) in cells . cyclic gmp is activated by nitric oxide ( no ) , a naturally occurring substance in the body that mediates the relaxation of vascular smooth muscle ; monoclonal antibody for oncologic applications ( ch14.18 mab ) : an antibody that treats cancer by activating the immune system ; glycobiology antiviral agents : a novel class of small , sugar-like molecules that have shown antiviral activity in a range of preclinical settings ; cell-based therapy : a cell-based product known as placental expanded ( plx ) cells we are developing for the treatment of pulmonary hypertension ; and lung transplantation : engineered lungs and lung tissue , which we are developing using xenotransplantation and regenerative medicine technologies , for transplantation in patients suffering from pulmonary arterial hypertension ( pah ) and other lung diseases . we are also developing technologies aimed at improving outcomes for lung transplant recipients and increasing the supply of donor lungs through ex-vivo lung perfusion . we concentrate substantially all of our research and development efforts on the preceding key therapeutic programs . we currently market and sell the following commercial products : remodulin ( treprostinil ) injection ( remodulin ) . remodulin , a continuously-infused formulation of the prostacyclin analogue treprostinil , is approved by the united states food and drug administration ( fda ) for subcutaneous ( under the skin ) and intravenous ( in the vein ) administration . remodulin is indicated to diminish symptoms associated with exercise in world health organization ( who ) group 1 pah patients . remodulin is also approved for the treatment of patients requiring transition from flolan ยฎ ( epoprostenol sodium ) for injection . remodulin has also been approved in various countries outside of the united states . in the second and third quarters of 2014 , we commenced sales of remodulin to distributors in china and japan , respectively . remodulin is sold in japan under the brand name treprostย . 61 tyvaso ( treprostinil ) inhalation solution ( tyvaso ) . tyvaso , an inhaled formulation of treprostinil , is approved by the fda to improve exercise ability in who group 1 pah patients . orenitram ( treprostinil ) extended-release tablets ( orenitram ) . in december 2013 , the fda approved orenitram , a tablet dosage form of treprostinil , for the treatment of pah in who group 1 pah patients to improve exercise capacity . orenitram 's label provides for dosing either twice per day ( bid ) or three times per day ( tid ) , and we anticipate that tid dosing may lead to a more favorable pharmacokinetic profile than bid , although tid dosing was not studied in our pivotal trial . we commenced sales of orenitram during the second quarter of 2014. adcirca ( tadalafil ) tablets ( adcirca ) . we acquired exclusive commercialization rights to adcirca , an oral pah therapy , in the united states and puerto rico from eli lilly and company ( lilly ) . adcirca is approved by the fda to improve exercise ability in who group 1 pah patients . revenues sales of remodulin , tyvaso and adcirca comprise substantially all of our revenues . despite commencing orenitram sales during the second quarter of 2014 , we remain substantially reliant on sales of remodulin , tyvaso and adcirca for the next several years as our principal sources of revenue . we have entered into separate , non-exclusive distribution agreements with accredo health group , inc. ( accredo ) and cvs caremark ( caremark ) in the united states , to distribute remodulin , tyvaso and orenitram . in april 2012 , express scripts , inc. , the parent company of curascript inc. ( curascript ) , then one of our specialty pharmaceutical distributors , completed its acquisition of medco health solutions , inc. , the parent company of accredo . as a result , curascript 's operations have been integrated into accredo 's , and in december 2013 we consolidated our distribution agreements with the two organizations into one contract for each product . we also sell remodulin to distributors internationally . we sell adcirca through lilly 's pharmaceutical wholesaler network at a wholesale price determined by lilly , which lilly generally increases two or three times per year . most recently , lilly increased the wholesale price of adcirca by 9.9 percent effective december 4 , 2014. under our distribution agreements , we sell each of our treprostinil-based products to these distributors at a transfer price that we establish . we have generally increased the price of tyvaso by 4.9 percent annually , and the last price increase became effective on january 1 , 2015. we have not increased the price of remodulin since 2010. we require our specialty pharmaceutical distributors to maintain reasonable levels of inventory reserves as the interruption of remodulin , tyvaso or orenitram therapy can be life threatening . our specialty pharmaceutical distributors typically place monthly orders based on estimates of future demand and contractual minimum inventory requirements . story_separator_special_tag these agreements obligate us to pay royalties based on specified percentages of our net revenues from related products . we paid glaxosmithkline plc ( glaxo ) a royalty of ten percent of net sales of our treprostinil-based products ( remodulin , tyvaso and orenitram ) until october 2014 , when the patents we acquired from glaxo expired . we no longer have any royalty obligations for remodulin or tyvaso , and our only remaining royalty obligation on orenitram sales will be a single-digit royalty relating to technology used in its formulation . we pay a five percent royalty to lilly on net sales of adcirca . we synthesize treprostinil , the active ingredient in remodulin and tyvaso , and treprostinil diolamine , the active ingredient in orenitram , and produce remodulin and tyvaso , at our facility in silver spring , maryland . we produce orenitram in our research triangle park , north carolina facility ( rtp facility ) . we intend to use our own facilities to produce our primary supply of remodulin , tyvaso and orenitram . we utilize third-party contract manufacturers to supplement our remodulin and tyvaso production capacity and mitigate the risk of shortages and we are working to obtain fda approval of a third party to serve as an additional producer of orenitram . we engage a third-party contract manufacturer to produce the tyvaso inhalation system . we began selling orenitram during the second quarter of 2014. typical of the initial commercial activities of a newly-launched product , orenitram 's cost of product sales as a percentage of its net revenue is significantly higher than that of our other commercial products . we expect that as orenitram 's revenues increase , its cost of product sales as a percentage of net revenue will decrease to levels more comparable to our other treprostinil-based commercial products . lilly manufactures adcirca . we take title to adcirca upon its manufacture and bear any losses related to the storage , distribution and sale of adcirca . operating expenses since our inception , we have devoted substantial resources to our various clinical trials and other research and development efforts , which are conducted both internally and through third parties . from time to time , we also license or acquire additional technologies and compounds to be incorporated into our development pipeline . share-based compensation our operating expenses and net income are often materially impacted by the recognition of share-based compensation expense ( benefit ) associated with awards granted under our share tracking award plans ( stap ) and potential stock option grants containing a market or performance condition , as the fair value of these awards varies with the changes in our stock price . the fair values of stap awards and potential stock option grants are measured using inputs and assumptions under the black-scholes-merton model that can materially impact the amount of compensation expense ( benefit ) for a given period . we account for stap awards as liabilities because they are settled in cash . as such , we must re-measure the fair value of outstanding stap awards at the end of each financial reporting period until the awards are no longer outstanding . changes in our stap-related liability resulting from such re-measurements are recorded as adjustments to share-based compensation expense ( benefit ) and can create substantial volatility within our operating expenses from financial reporting period to period . the 64 following factors , among others , have a significant impact on the amount of share-based compensation expense ( benefit ) recognized in connection with the stap from period to period : ( 1 ) volatility in the price of our common stock ( specifically , increases in the price of our common stock will generally result in an increase in our stap liability and related compensation expense , while decreases in our stock price will generally result in a reduction in our stap liability and related compensation expense ) ; ( 2 ) changes in the number of outstanding awards ; ( 3 ) changes in the number of vested and partially vested awards ; and ( 4 ) the probability of meeting the relevant performance criteria . through december 31 , 2014 , we were contractually obligated to award stock options each year to our chairman and co-chief executive officer , dr. rothblatt , based on a formula tied to the growth ( if any ) in our market capitalization . these awards were granted at year-end , and vested immediately upon grant . we accrued compensation expense for dr. rothblatt 's estimated stock option grant when we determined that it was probable that the performance criteria would be met . beginning in 2015 , dr. rothblatt 's long term incentive compensation will be similar to other employees in that she will be eligible for an annual grant of performance-based stap awards based on the achievement of our annual corporate milestones , which will vest over a four year period from the grant date . major research and development projects our major research and development projects focus on : ( 1 ) the use of prostacyclin analogues and other therapies , as well as lung transplantation technologies , to treat cardiopulmonary diseases ; ( 2 ) monoclonal antibodies to treat a variety of cancers ; and ( 3 ) glycobiology antiviral agents to treat infectious diseases . cardiopulmonary disease projects remodulin intravenous remodulin administered via implantable pump in 2009 , we entered into an agreement with exclusive rights in the united states , united kingdom , france , germany , italy and japan , with medtronic , inc. ( medtronic ) to develop its proprietary intravascular infusion catheter to be used with medtronic 's synchromed ยฎ ii implantable infusion pump and related infusion system components ( together referred to as the remodulin implantable system ) in order to deliver remodulin for the treatment of pah . if the remodulin implantable system is successful , it could reduce many of the patient burdens and other complications associated with infused prostacyclin analogues .
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results of operations years ended december 31 , 2014 and 2013 revenues the following table presents the components of net revenues ( dollars in thousands ) : replace_table_token_6_th the growth in revenues for the year ended december 31 , 2014 , compared to the year ended december 31 , 2013 , corresponded primarily to the continued increase in the number of patients being treated with our products and the commencement of orenitram sales . for the years ended december 31 , 2014 and 2013 , approximately 74 percent and 76 percent , respectively , of total net revenues were derived from sales to our u.s.-based specialty pharmaceutical distributors . remaining revenues were derived primarily from sales of adcirca and sales of remodulin to our international distributors . 70 the tables below include a reconciliation of the accounts associated with estimated rebates , prompt-pay discounts , sales allowances and distributor fees ( in thousands ) : replace_table_token_7_th replace_table_token_8_th research and development expense the table below summarizes research and development expense by major project and non-project component ( dollars in thousands ) : replace_table_token_9_th cardiopulmonary . the increase in cardiopulmonary program expenses of $ 15.7 million for the year ended december 31 , 2014 , compared to the year ended december 31 , 2013 , resulted from a $ 20.1 million increase in expenses related to our esuberaprost program offset by a $ 7.9 million decrease of our sustained-release , self-injectable product development which we terminated during 2014. share-based compensation . the decrease in share-based compensation of $ 62.0 million for the year ended december 31 , 2014 , compared to the year ended december 31 , 2013 , resulted from the approximately 15 percent appreciation in the price of our common stock during the year ended 71 december 31 , 2014 , compared to the approximately 112 percent increase in the price of our common stock price during the year ended december 31 , 2013. other .
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those set forth under `` risk factors '' in this annual report on form 10-k. our company during the year ended december 31 , 2011 , our only sources of income were revenues from the velardeรฑa operations following our business combination transaction with ecu , payments in settlement of an arbitration claim , royalty and interest income , and sales of non-core properties . we incurred net operating losses for the years ended december 31 , 2011 , 2010 , and 2009. we expect to report increased revenues from the velardeรฑa operations during 2012 as a result of increased production rates . we were incorporated in delaware under the delaware general corporation law in march 2009 , and are the successor to apex silver for purposes of reporting under the u.s. exchange act . in january 2009 , apex silver and its wholly-owned subsidiary , apex silver mines corporation , filed voluntary petitions for relief under chapter 11 of the u.s. bankruptcy code . references in this discussion and analysis to `` successor '' refer to golden minerals and its subsidiaries on or after the march 25 , 2009 emergence from chapter 11 reorganization proceedings under the u.s. bankruptcy code . references to `` predecessor '' refer to apex silver and its subsidiaries prior to march 25 , 2009 . 2011 highlights during the year ended december 31 , 2011 we focused our efforts primarily on our business combination with ecu , improving the velardeรฑa operations , advancing our el quevar project , and raising additional capital through a private placement of our common stock . we have also continued to make progress in advancing our portfolio of exploration properties . an overview of certain significant 2011 events is provided below : on september 2 , 2011 , we completed a business combination with ecu ( the `` transaction '' ) . with the completion of the transaction , we became a mining company with producing mines . at closing , each ecu common share was exchanged for the right to receive 0.05 of a share of golden minerals common stock and $ 0.000394 in cash , and ecu became a wholly-owned subsidiary of golden minerals . in connection with the transaction and as consideration for the arrangement , we issued 16,004,111 shares of common stock , 653,000 replacement options , 2,218,292 replacement warrants , and paid approximately cdn $ 126,112 in cash . as part of the transaction with ecu , we assumed a term loan , payable to two investment funds managed by iig capital , llc with an outstanding balance of $ 15.5 million , which required equal monthly principal payments of approximately $ 0.6 million through december 31 , 2013 and quarterly interest payments at the greater of 12.0 % or the one-month london interbank offered rate plus 6.0 % . we prepaid the term loan in full on december 5 , 2011. the prepayment totaled approximately $ 15.0 million , consisting of the remaining principal balance of $ 14.4 million , an early prepayment fee of $ 0.5 million , and accrued interest of $ 0.1 million . on october 7 , 2011 , private equity funds managed by the sentient group ( collectively , `` sentient '' ) , purchased in a private placement an aggregate 4,118,150 shares of our common stock at a price of $ 7.44 per share , the closing price of the company 's stock on the nyse amex 41 on september 30 , 2011 , resulting in gross proceeds to us of $ 30.6 million . following the private placement , sentient held approximately 19.9 % of our outstanding common stock ( excluding restricted common stock held by our employees ) . during 2010 we focused on defining the extent of the yaxtchรฉ deposit and conducting feasibility work at our 100 % controlled el quevar silver project , located in the salta province of argentina . the yaxtchรฉ deposit is our primary target currently identified at the el quevar project . to date , we completed approximately 100,000 meters of diamond drilling in 400 drill holes . of these holes , 271 were drilled to test the main yaxtchรฉ zone for potential mineralization , with approximately 75 % of the holes intersecting significant silver mineralization . in addition , we completed an underground decline in the central yaxtchรฉ deposit to further define the mineral model . current modeling suggests that the east and central yaxtchรฉ deposit could be mined by open pit methods and that the west yaxtchรฉ , which makes up approximately 75 % of the deposit , could be mined by underground bulk mining methods . story_separator_special_tag compensation in the amount of $ 5.5 million compared to $ 3.3 million for the year ended december 31 , 2010 and $ 4.4 million ( $ 1.7 million and $ 2.7 million for successor and predecessor , respectively ) for the year ended december 31 , 2009. stock based compensation was higher in 2011 compared to previous years due to the accelerated vesting of stock grants at the completion of the transaction , which resulted in a change of control of golden minerals . stock based compensation varies from period to period depending on the number and timing of shares granted , the type of grant , the market value of the shares on the date of grant and other variables . reclamation expense . during the year ended december 31 , 2011 we incurred $ 0.2 million of reclamation costs related to activity at el quevar and the accretion of an asset retirement obligation at the velardeรฑa operations . we incurred no reclamation expenses for the years ended december 31 , 2010 and 2009 . ( impairment ) reversal of impairment of long lived assets . story_separator_special_tag the reorganization expenses relate to expenses for professional services incurred as a result of the predecessor 's bankruptcy filing and the sale of its interest in the san cristรณbal mine . we incurred no such expenses for the years ended december 31 , 2011 and 2010. income taxes . our income tax benefit for the year ended december 31 , 2011 was $ 2.1 million related primarily to an increase in net operating losses in mexico and the amortization of the mineral resource in mexico . our income tax provisions of $ 1.4 million for the year ended december 31 , 2010 and $ 1.2 million ( $ 1.0 million and $ 0.2 million for the successor and predecessor , respectively ) for the year ended december 31 , 2009 consist primarily of withholding taxes either accrued or paid to bolivia in connection with management services provided to the san cristรณbal mine . net income and losses attributable to noncontrolling interests ( formerly minority interest ) . for the years ended december 31 , 2011 and 2010 we did not allocate any income or losses to noncontrolling interests . for the year ended december 31 , 2009 we allocated income to the noncontrolling interest of $ 7.9 million ( all related to the predecessor ) . the 2009 amount is primarily related to sumitomo 's interest in income generated by the san cristรณbal mine during the period . 45 discontinued operationsยsan cristรณbal . during the years ended december 31 , 2011 and 2010 we had no discontinued operations to report . the predecessor reported losses from discontinued operations related to the san cristรณbal asset group , which was sold effective march 24 , 2009 , from discontinued operations for the year ended december 31 , 2009 of $ 4.2 million ( all related to the predecessor ) . see note 25 , `` discontinued operations , '' in our consolidated financial statements for detailed components of the losses from discontinued operations for each of the periods presented . liquidity and capital resources at december 31 , 2011 our aggregate cash and short-term investments totaled $ 48.6 million , which were comprised entirely of cash and cash equivalents . our cash and short-term investment balance at december 31 , 2011 is lower than the $ 121.6 million in similar assets held at december 31 , 2010 due primarily to expenditures during the year of approximately $ 33.0 million on the el quevar project ; $ 20.9 million related to debt service ( including interest ) and the payoff of debt and sales advances from customers related to the ecu transaction ; $ 17.8 million on exploration ; $ 15.7 million on interim financing of ecu pending completion of the transaction to fund ongoing operating expenses , exploration and capital equipment at the velardeรฑa operations and ecu corporate overhead and debt service ; $ 8.7 million on general and administrative activities , $ 7.2 million on transaction costs related to the ecu transaction , and $ 7.5 million on the velardeรฑa operations following completion of the transaction . these expenditures were offset partially by $ 30.6 million of net proceeds received from the private placement to sentient , $ 11.3 million of net proceeds from the settlement of an arbitration claim , and the receipt of approximately $ 1.0 million from royalties and other income , including the sale of apogee common shares relating to the sale of the subsidiary holding the paca pulacayo exploration property . on october 7 , 2011 , the company completed a private placement ( the `` private placement '' ) to certain investment funds managed by the sentient group ( `` sentient '' ) of 4,118,150 shares of the company 's common stock at a price of $ 7.44 per share , resulting in net proceeds to the company of approximately $ 30.6 million after costs related to the transaction of less than $ 0.1 million . on december 5 , 2011 we repaid in full our term loan obligation assumed in the transaction to two investment funds managed by iig capital , llc . the repayment totaled approximately $ 15.0 million , consisting of the remaining principal balance of $ 14.4 million , an early prepayment fee of $ 0.5 million , and accrued interest of $ 0.1 million . in accordance with our recent guidance , we expect to produce approximately 740,000 ounces of silver and 9,000 ounces of gold during 2012 from the velardeรฑa operations . assuming metals prices of $ 30.00 per ounce of silver and $ 1,500 per ounce of gold we expect to generate revenue from the sale of metals net of costs of metals sold of approximately $ 4.0 million during 2012. with our cash and investment balance at december 31 , 2011 of $ 48.6 million , $ 4.0 million of revenue from the sale of metals net of cost of metals sold from the velardeรฑa operations and approximately $ 1.0 million from royalties and other income during 2012 , we plan to spend the following amounts during 2012 pursuant to our long-term business strategy : approximately $ 24.0 million on capital and development costs related to the phased intermediate expansion project at the velardeรฑa operations , including continued development of the san mateo drift and other mine development and capital expenditures intended to increase the capacity and productivity of mine operations and plant facilities associated with an increase in oxide and sulfide ore production to 1,300 tonnes per day by 2013 ; approximately $ 4.0 million at our el quevar project to fund the continuation of project evaluation costs ; 46 approximately $ 7.0 million on other exploration activities and property holding costs related to our portfolio of exploration properties located in south america and mexico as we pursue strategies to monetize portions of the portfolio ; approximately $ 8.0 million on general and administrative costs and $ 1.0 million on working capital and other .
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results of operations in this form 10-k we include the historical financial statements of the predecessor . these financial statements have been updated to reclassify the activity of the predecessor 's san cristรณbal mine and related subsidiaries to discontinued operations as the result of the sale of the san cristรณbal mine effective march 24 , 2009. because of the significant differences between the business operations of the predecessor and successor companies , the historical operating performance of the predecessor does not compare to the operating results of the current company and may not be indicative of our future performance . for the results of continuing operations discussed below , we compare the results from continuing operations for the year ended december 31 , 2011 of the successor to ( i ) results of the continuing operations of the successor for the year ended december 31 , 2010 , ( ii ) results of the continuing operations of the successor for the period from march 25 , 2009 through december 31 , 2009 and ( iii ) the results of continuing operations of the predecessor for the 83-day period ended march 24 , 2009. the results of operations of the san cristรณbal mine and related subsidiaries that were sold during the first quarter of 2009 are aggregated and presented as discontinued operations of the predecessor for the 83-day period ended march 24 , 2009. the successor has no discontinued operations to report . continuing operations revenue from the sale of metals . we recorded $ 1.8 million of revenue for the year ended december 31 , 2011 , all from the sale of dore metal produced at the velardeรฑa operations . there were no revenues recorded for the years ended december 31 , 2010 or december 31 , 2009. management service fees .
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our norfolk southern railway company subsidiary operates approximately 19,500 route miles in 22 states and the district of columbia , serves every major container port in the eastern united states , and provides efficient connections to other rail carriers . norfolk southern is a major transporter of industrial products , including chemicals , agriculture , and metals and construction materials . in addition , the railroad operates the most extensive intermodal network in the east and is a principal carrier of coal , automobiles , and automotive parts . we achieved records for income from railway operations and railway operating ratio ( a measure of the amount of operating revenues consumed by operating expenses ) for the year , the result of significant revenue growth , partially offset by increased operating expenses . progress on our strategic initiatives established in 2015 has created a sustainable platform positioning us for the continued execution of transformational changes that will provide greater long-term value for our shareholders . story_separator_special_tag style= '' line-height:120 % ; font-size:11pt ; '' > for 2019 , merchandise revenues are expected to increase , primarily the result of pricing gains . chemicals revenues rose in 2018 compared to a modest increase in 2017. in 2018 the rise was the result of higher volume and higher average revenue per unit , due to pricing gains and higher fuel surcharge revenue . volumes grew due to increased shipments of crude oil , liquefied petroleum gas , and plastics , partially offset by a decrease in coal ash shipments . the increase in 2017 was due to higher average revenue per unit , a result of favorable mix and price improvements , which outweighed declines in volume . volume declines were the result of fewer shipments of crude oil from the bakken oil fields , lower shipments of coal ash , partially offset by an increase in shipments of plastics . for 2019 , chemicals revenues are anticipated to increase , as average revenue per unit is expected to be higher , the effect of overall pricing gains . we expect carloads to be relatively flat year-over-year , as declines in liquefied petroleum gas are expected to be offset by gains in crude oil . agriculture , consumer products , and government revenues increased in 2018 and were flat in 2017 compared to the prior years . growth in 2018 was due to higher volume and higher average revenue per unit , a result of pricing gains and higher fuel surcharge revenues . higher ethanol and fertilizer shipments more than offset declines in soybean and corn shipments . in 2017 , lower traffic volume was offset by higher revenue per unit , driven by pricing gains . volume declines in ethanol and soybeans , reflecting reduced market demand , more than offset increases in fertilizer . k 21 for 2019 , agriculture , consumer products , and government revenues are expected to increase , driven by increased average revenue per unit , primarily a result of pricing gains . we expect volumes to decrease due to lower fertilizer shipments . metals and construction revenues grew in both periods , more significantly so in 2017. in 2018 , higher average revenue per unit , the result of pricing gains and higher fuel surcharge revenue , more than offset volume declines . volume declines in aggregates , cement , aluminum , and iron and steel were partially offset by increases in frac sand shipments for use in natural gas drilling in the marcellus and utica regions . in 2017 , higher volume and average revenue per unit contributed to the rise in revenues . volume growth was a result of more frac sand shipments for use in natural gas drilling in the marcellus and utica regions and more iron and steel shipments driven by continued improvement in construction activity . these increases were partially offset by a decline in coil steel traffic due to customer sourcing changes . revenue per unit growth in 2017 was driven by favorable changes in traffic mix . for 2019 , metals and construction revenues are expected to rise , a result of increased revenue per unit driven by pricing gains , and volume growth is expected in aggregates and coil steel traffic . automotive revenues rose in 2018 , but declined in 2017 compared to the prior years . in 2018 , higher average revenue per unit , driven by price increases and higher fuel surcharge revenues , more than offset volume declines . traffic declines were the result of shortages of availability of multilevel equipment and scheduled automotive plant downtime . the drop in volume in 2017 was driven mainly by decreases in u.s. light vehicle production , as well as temporary shutdowns for retooling of several ns-served facilities . average revenue per unit increased for the year , primarily the result of higher fuel surcharge revenue . for 2019 , automotive revenues are expected to increase as a result of higher volumes , reflecting increased demand at ns-served plants , and higher average revenue per unit driven by price increases . paper , clay and forest products revenues rose in both 2018 and 2017 compared to the prior years . in 2018 , higher average revenue per unit , the result of pricing gains and higher fuel surcharge revenue , and volume gains drove the increase . gains in pulpboard and municipal waste shipments , a result of tightened truck capacity and growth with existing customers , respectively , were partially offset by decreases in pulp , woodchip , and graphic paper traffic . the increase in 2017 was due to higher average revenue per unit , a result of pricing gains and changes in the traffic mix . traffic was flat for the year as increases in waste and pulp shipments were offset by losses in woodchip volume due to customer sourcing changes . for 2019 , paper , clay , and forest products revenues are anticipated to increase , reflecting pricing gains . story_separator_special_tag as previously discussed , in 2017 , this line item includes a $ 151 million benefit from the 2017 tax adjustments ( $ 36 million in purchased services and $ 115 million in equipment rents ) in the form of higher income of certain equity investees . replace_table_token_20_th the increase in purchased services in 2018 was largely the result of the absence of the benefit from the 2017 tax adjustments , higher intermodal volume-related costs , additional transportation and engineering activities as well as higher technology costs . in addition to the tax reform impacts discussed above , the remaining increase in purchased services expense in 2017 was a result of higher intermodal volume-related costs . equipment rents , which includes our cost of using equipment ( mostly freight cars ) owned by other railroads or private owners less the rent paid to us for the use of our equipment , increased in 2018 , but decreased in 2017. in 2018 , the rise was due to the absence of the benefits from the 2017 tax adjustments , the impact of slower network velocity , the cost of additional short-term locomotive resources as well as growth in volume . in 2017 , in addition to the benefit from the 2017 tax adjustments , the decline was a result of lower automotive volume . fuel expense , which includes the cost of locomotive fuel as well as other fuel used in railway operations , increased in both periods . the change in both years was principally due to locomotive fuel prices ( up 25 % in 2018 and up 22 % in 2017 ) which increased expenses $ 208 million and $ 143 million , respectively . locomotive fuel consumption increased 3 % in 2018 , but declined 1 % in 2017. we consumed approximately 472 million gallons of diesel fuel in 2018 , compared with 458 million gallons in 2017 and 462 million gallons in 2016. depreciation expense increased in both periods , a reflection of growth in our roadway and equipment capital base as we continue to invest in our infrastructure and rolling stock . k 25 materials and other expenses decreased in both periods as shown in the following table . replace_table_token_21_th materials expense increased in 2018 , due primarily to higher locomotive repair costs . in 2017 , the decline was a result of lower freight car repairs . casualties and other claims expenses include the estimates of costs related to personal injury , property damage , and environmental matters . the 2018 expense increased , primarily the result of higher derailment-related costs . the decrease in 2017 was the result of lower loss and damage , offset in part by unfavorable developments in personal injury cases . other expense decreased in both periods , largely a result of higher gains from sales of operating properties , up $ 79 million and $ 42 million in 2018 and 2017 , respectively , compared to the prior periods . in 2018 , the decline was additionally impacted by the inclusion of net rental income from operating property previously included in โ other income โ net โ of $ 78 million , partially offset by increased costs as a result of the relocation of our train dispatchers to atlanta , georgia . other income โ net other income โ net decreased in 2018 , following an increase in 2017. the decline was driven by the absence of net rental income as discussed above and unfavorable returns from corporate-owned life insurance ( coli ) investments . in 2017 , the rise was mainly the result of favorable returns on coli investments . income taxes the effective income tax rate was 23.1 % in 2018 , compared with negative 72.8 % in 2017 and 35.4 % in 2016. income taxes in 2018 benefited from the effects of the enactment of tax reform in late 2017 that lowered the federal corporate income tax rate . income taxes in 2017 included a benefit of $ 3,331 million related to the effects of the enactment of tax reform from the reduction in our net deferred tax liabilities driven by the change in the federal rate . all three years benefited from favorable tax benefits associated with stock-based compensation . both 2018 and 2016 benefited from favorable reductions in deferred taxes for state tax law changes and certain business tax credits , while 2017 and 2016 benefited from higher returns from corporate-owned life insurance . the statute of limitations on internal revenue service ( irs ) examinations has expired for all years prior to 2015. our consolidated federal income tax return for 2015 is currently being audited by the irs . we do not expect that the resolution of the examination will have a material effect on our financial position , results of operations , or liquidity . financial condition , liquidity , and capital resources cash provided by operating activities , our principal source of liquidity , was $ 3.7 billion in 2018 , $ 3.3 billion in 2017 , and $ 3.0 billion in 2016 . the increases in both 2018 and 2017 were primarily the result of improved k 26 operating results . we had working capital deficits of $ 729 million and $ 396 million at december 31 , 2018 , and 2017 , respectively . cash , cash equivalents , and restricted cash totaled $ 446 million and $ 690 million at december 31 , 2018 , and 2017 , respectively . we expect cash on hand combined with cash provided by operating activities will be sufficient to meet our ongoing obligations .
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summarized results of operations replace_table_token_10_th on december 22 , 2017 , the tax cuts and jobs act ( โ tax reform โ ) was signed into law . as a result of the enactment of this law , in 2017 , โ purchased services and rents โ included a $ 151 million benefit and โ income taxes โ included a $ 3,331 million benefit , which added $ 3,482 million to โ net income โ and $ 12.00 to โ diluted earnings per share. โ the 2017 operating ratio was favorably impacted by 1.5 percentage points . for more information on the impact of tax reform , see note 4. the following table adjusts our 2017 gaap financial results to exclude the effects of tax reform , specifically , the effects of remeasurement of net deferred tax liabilities related to the reduction of the federal tax rate from 35 % to 21 % ( the โ 2017 tax adjustments โ ) . we use these non-gaap financial measures internally and believe this information provides useful supplemental information to investors to facilitate making period-to-period comparisons by excluding the 2017 tax adjustments . while we believe that these non-gaap financial measures are useful in evaluating our business , this information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with gaap . in addition , these non-gaap financial measures may not be the same as similar measures presented by other companies . k 18 reconciliation of non-gaap financial measures replace_table_token_11_th in the table below and the paragraph following , references to 2017 results and related comparisons use the adjusted , non-gaap results from the reconciliation in the table above . replace_table_token_12_th income from railway operations rose in both comparisons resulting from higher railway operating revenues that more than offset higher expenses .
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our mission is to be the best private bank for the western wealth management client . we target entrepreneurs , professionals and high-net worth individuals , typically with $ 1.0 million-plus in liquid net worth , and their related philanthropic and business organizations , which we refer to as the `` western wealth management client. `` we believe that the western wealth management client shares our entrepreneurial spirit and values our sophisticated , high-touch wealth management services that are tailored to meet their specific needs . we partner with our clients to solve their unique financial needs through our expert integrated services provided in a team approach . we offer our services through a branded network of boutique private trust bank offices , which we believe are strategically located in affluent and high-growth markets in locations across colorado , arizona , wyoming and california . our profit centers , which are comprised of private bankers , lenders , wealth planners and portfolio managers , under the leadership of a local chairman and or president , are also supported centrally by teams providing management services such as operations , risk management , credit administration , marketing , technology support , human capital and accounting/finance services , which we refer to as support centers . from 2004 , when we opened our first profit center , until december 31 , 2020 , we have expanded our footprint into eleven full service profit centers , two loan production offices , and two trust offices located across four states . following the completion of the branch purchase and assumption agreement ( `` branch acquisition '' ) in the second quarter 2020 , we added one full service profit center in lone tree , colorado . during the third quarter of 2020 , we closed two branch locations which were acquired in the branch acquisition during the second quarter of 2020. as of and for the year ended december 31 , 2020 , we had $ 1.97 billion in total assets , $ 92.6 million in total revenues and provided fiduciary and advisory services on $ 6.26 billion of assets under management ( `` aum `` ) . response to covid-19 the spread of covid-19 has caused significant disruptions in the u.s. economy since it was declared a pandemic in march 2020 by the world health organization . disruptions include temporary closures of many businesses that have led to a loss of revenues and a rapid increase in unemployment , disrupted global supply chains , market downturns and volatility , changes in consumer behavior related to pandemic fears , related emergency response legislation and an expectation that federal reserve policy will maintain a low interest rate environment for the foreseeable future . the changes have impacted our clients and their industries , as well as the financial services industry . at this time , we can not predict the impact or how long the economy or our impacted clients will be disrupted . the company activated its business continuity plan in early march in response to the emergence of covid-19 and has continued to adjust as the crisis continues to impact our markets , clients and business . since march , a majority of our associates have been working remotely . all of our offices are open , functioning , and continue to operate in an appointment only model for client service to limit the risk of potential exposure to covid-19 for our associates and clients . we are taking additional precautions within our profit centers , including enhanced cleaning procedures and physical distancing measures , to ensure the safety of our clients and our associates . 63 a provision in the coronavirus aid , relief and economic security act ( `` cares act '' ) created the paycheck protection program ( `` ppp '' ) , which is administered by the small business administration ( `` sba '' ) . the ppp is intended to provide loans to small businesses to pay their employees , rent , mortgage interest and utilities . the loans may be forgiven conditioned upon the client providing payroll documentation evidencing their compliant use of funds and otherwise complying with the terms of the program . the bank is an approved sba lender and began accepting applications for the program on april 3 , 2020. as of december 31 , 2020 , we held 423 ppp loans for a total of $ 142.9 million with an average loan size of $ 0.3 million . as of february 28 , 2021 , the company had submitted 509 loans with original loan amounts of $ 142.0 million to the sba for forgiveness and had received forgiveness on 456 loans totaling $ 78.5 million all related to the first round of the ppp . on january 11 , 2021 the sba reopened the ppp , to first draw ppp loans and began accepting applications for second draw ppp loans on january 13 , 2021. the bank began accepting applications for the reopened program on january 19 , 2021. as of february 28 , 2021 , we had received 660 applications for the newest round of ppp loans from borrowers for $ 91.4 million with an average loan size of $ 0.1 million ; of the applications received , 410 applications for $ 68.7 million have been approved and funded by the sba under the reopened program . as a result of the covid-19 pandemic , a loan modification program was designed and implemented to assist our clients experiencing financial stress resulting from the economic impacts caused by the global pandemic . the company has offered loan extensions , temporary payment moratoriums , and financial covenant waivers for commercial and consumer borrowers impacted by the pandemic who have a pass risk rating and have not been delinquent over 30 days on payments in the last two years . the company had eighty-nine loans across multiple industries in the amount of $ 160.8 million of loans that took part in the company 's covid loan modification program . story_separator_special_tag non-interest expense non-interest expense is comprised primarily of the following : โ salaries and employee benefits โall forms of compensation-related expenses including salary , incentive compensation , payroll-related taxes , stock-based compensation , benefit plans , health insurance , 401 ( k ) plan match costs and other benefit-related expenses . salaries and employee benefit costs are primarily impacted by changes in headcount and fluctuations in benefits costs . โ occupancy and equipment โcosts related to leasing our office space , depreciation charges for the furniture , fixtures and equipment , amortization of leasehold improvements , utilities and other occupancy-related expenses . occupancy and equipment costs are primarily impacted by the number of locations we occupy . 65 โ professional services โcosts related to legal , accounting , tax , consulting , personnel recruiting , insurance and other outsourcing arrangements . professional services costs are primarily impacted by corporate activities requiring specialized services . fdic insurance expense is also included in this line and represents the assessments that we pay to the fdic for deposit insurance . โ technology and information systems โcosts related to software and information technology services to support office activities and internal networks . technology and information system costs are primarily impacted by the number of locations we occupy , the number of associates we have and the level of service we require from our third-party technology vendors . โ data processing โcosts related to processing fees paid to our third-party data processing system providers relating to our core private trust banking platform . data processing costs are primarily impacted by the number of loan , deposit and trust accounts we have and the level of transactions processed for our clients . โ marketing โcosts related to promoting our business through advertising , promotions , charitable events , sponsorships , donations and other marketing-related expenses . marketing costs are primarily impacted by the levels of advertising programs and other marketing activities and events held throughout the year . โ amortization of other intangible assets โprimarily represents the amortization of intangible assets , including client lists and other similar items recognized in connection with acquisitions . โ goodwill impairment โrepresents the $ 1.6 million goodwill impairment charge in 2019 related to the company 's los angeles-based fixed income portfolio management team . โ net loss on assets held for sale โrepresents the fair value adjustment on disposal groups held for sale . โ provision for other real estate owned โrepresents the fair value adjustment for other real estate owned ( `` oreo `` ) . โ other โincludes costs related to operational expenses associated with office supplies , postage , travel expenses , meals and entertainment , dues and memberships , costs to maintain or prepare oreo for sale , director compensation and travel , and other general corporate expenses that do not fit within one of the specific non-interest expense lines described above . other operational expenses are generally impacted by our business activities and needs . operating segments we measure the overall profitability of operating segments based on income before income tax . we believe this is a more useful measurement as our wealth management products and services are fully integrated with our private trust bank . we allocate costs to our segments , which consist primarily of compensation and overhead expense directly attributable to the products and services within the wealth management and mortgage segments . we measure the profitability of each segment based on a post-allocation basis , as we believe it better approximates the operating cash flows generated by our reportable operating segments . a description of each segment is provided in note 19 - segment reporting of the accompanying notes to the consolidated financial statements . during the year ended december 31 , 2020 , we evaluated our reportable segments following the sale of our los angeles-based fixed income portfolio management team and certain related advisory and sub-advisory arrangements ( `` la fixed income team '' ) . we determined that the income before income tax related to the capital management segment was no longer significant and management will no longer be evaluating capital management separately for internal reporting . as such , capital management is no longer a reporting unit and the company has discontinued reporting of the capital management segment on a standalone basis . the residual assets that remained in the capital management segment are now included in the wealth management segment . all reported periods are presented under the wealth management segment as of december 31 , 2020 . 66 p rimary factors used to evaluate our balance sheet the primary factors we use to evaluate our balance sheet include asset and liability levels , asset quality , capital , liquidity , and potential profit production from assets . we manage our asset levels to ensure our lending initiatives are efficiently and profitably supported and to ensure we have the necessary liquidity and capital to meet the required regulatory capital ratios . funding needs are evaluated and forecasted by communicating with clients , reviewing loan maturity and draw expectations , and projecting new loan opportunities . we manage the diversification and quality of our assets based upon factors that include the level , distribution , severity and trend of problem assets such as those determined to be classified , delinquent , non-accrual , non-performing or restructured ; the adequacy of our allowance for loan losses ; the diversification and quality of loan and investment portfolios ; the extent of counterparty risks , credit risk concentrations , and other factors .
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results of operations overview the year ended december 31 , 2020 compared with the year ended december 31 , 2019 . for the year ended december 31 , 2020 , we reported net income available to common shareholders of $ 24.5 million , compared to net income available to common shareholders for december 31 , 2019 of $ 8.0 million , a $ 16.5 million , or 206.3 % increase . for the year ended december 31 , 2020 , our income before income tax was $ 33.1 million , a $ 22.9 million , or 224.4 % , increase from december 31 , 2019. for the year ended december 31 , 2020 , compared to the year ended december 31 , 2019 , income before income tax increased primarily as a result of a $ 14.0 million , or 43.8 % , increase in net interest income and an increase of $ 18.6 million , or 57.1 % , in non-interest income . the increase in non-interest income was primarily the result 67 of a $ 691.4 million increase in mortgage loans funded , which resulted in a $ 18.7 million increase in net gain on mortgage loans during the year ended december 31 , 2020 compared to december 31 , 2019. the increase in income before income taxes was partially offset by an increase of $ 5.8 million , or 10.7 % , in non-interest expense , which was primarily due to an increase in expenses related to salaries and employee benefits and professional services . net interest income the year ended december 31 , 2020 compared with the year ended december 31 , 2019 . for the year ended december 31 , 2020 , compared to the year ended december 31 , 2019 , net interest income , before the provision for loan losses , increased $ 14.0 million , or 43.8 % , to $ 46.1 million .
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we have built a strong set of capabilities to engage internet visitors with targeted media and to connect our marketing clients with their potential customers online . we focus on serving clients in large , information-intensive industry verticals where relevant , targeted media and offerings help visitors make informed choices , find the products that match their needs , and thus become qualified customer prospects for our clients . we deliver cost-effective marketing results to our clients most typically in the form of a qualified lead or inquiry , or in the form of a click . these leads or clicks can then convert into a customer or sale for clients at a rate that results in an acceptable marketing cost to them . we are typically paid by clients when we deliver qualified leads or clicks as defined by our agreements with them . we bear the costs of media , thus our programs must deliver value to our clients and provide for a media yield , or margin on our media costs , that provides a sound financial outcome for us . our general process is : we own or access targeted media ; we run advertisements or other forms of marketing messages and programs in that media to create visitor responses or clicks through to client offerings ; we match these responses or clicks to client offerings that meet visitor interests or needs , converting visitors into qualified leads or clicks ; and we optimize client matches and media yield such that we achieve desired results for clients and a sound financial outcome for us . our primary financial objective has been and remains creating revenue growth from sustainable sources , at target levels of profitability . our primary financial objective is not to maximize profits , but rather to achieve target levels of profitability while investing in various growth initiatives , as we believe we are in the early stages of a large , long-term market . our direct marketing services , or dms , business accounted for substantially all of our net revenue in fiscal years 2012 , 2011 and 2010. our dms business derives its net revenue from fees earned through the delivery of qualified leads and clicks and , to a lesser extent , display advertisement , or impressions . through a vertical focus , targeted media presence and our technology platform , we are able to deliver targeted , measurable marketing results to our clients . our two largest client verticals are financial services and education . our financial services client vertical represented 42 % , 45 % and 43 % of net revenue in fiscal years 2012 , 2011 and 2010 , respectively . our education client vertical represented 42 % , 44 % and 45 % of net revenue in fiscal years 2012 , 2011 and 2010 , respectively . other dms client verticals , consisting primarily of business-to-business technology , home services and medical , represented 16 % , 11 % and 11 % of net revenue in fiscal years 2012 , 2011 and 2010 , respectively . in addition , we derived less than 1 % of our net revenue in fiscal years 2012 , 2011 and 2010 from our direct selling services , or dss , business . we generated substantially all of our revenue from sales to clients in the united states . 39 trends affecting our business client verticals to date , we have generated the majority of our revenue from clients in our education and financial services client verticals . we expect that a majority of our revenue in fiscal year 2013 will be generated from clients in these two client verticals . our education client vertical has been significantly affected by the adoption of regulations affecting for-profit educational institutions over the past several years . the regulations have affected and are expected to continue to affect our clients ' businesses and marketing practices , including an overall decrease in our clients ' external marketing expenditures and a related decrease in our revenues from this client vertical . the effect of these regulations may continue to result in fluctuations in the volume and mix of our business with these clients . in our financial services client vertical , prices are largely determined by bidding . in fiscal year 2012 , we have seen pricing that we receive from clients stabilize . throughout the year , our revenue has declined primarily due to volume declines caused by losses of traffic from third-party publishers resulting from acquisitions of media sources by competitors , changes in a search engine 's algorithms which reduced or eliminated traffic from some third-party publishers , and increased competition for quality media . acquisitions acquisitions in fiscal year 2012 in february 2012 , we acquired certain assets of ziff davis enterprise from enterprise media group , inc. , a new york-based online media and marketing company in the business-to-business technology market , in exchange for $ 17.3 million in cash , to broaden our registered user database and brand name in the business-to-business technology market . in august 2011 , we acquired 100 % of the outstanding equity interests of narrowcast group , llc , or it businessedge , a kentucky-based internet media company in the business-to-business technology market , in exchange for $ 24.0 million in cash , to broaden our registered user database and media access in the business-to-business technology market . during fiscal year 2012 , in addition to certain assets of ziff davis enterprise and all of the equity interests of it businessedge , we acquired eleven other online publishing businesses . acquisitions in fiscal year 2011 in november 2010 , we acquired 100 % of the outstanding shares of car insurance.com , inc. , or carinsurance.com , a florida-based online insurance business , and certain of its affiliated companies , in exchange for $ 49.7 million in cash , for its capacity to generate online visitors in the financial services market . story_separator_special_tag we believe that continued investment in technology is critical to attaining our strategic objectives and , as a result , we expect product development expenses to increase in absolute dollars in the future . sales and marketing . sales and marketing expenses consist primarily of personnel costs and , to a lesser extent , professional services fees , travel costs and advertising . we expect sales and marketing expenses to increase in absolute dollars as we hire additional personnel in sales and marketing to support our product offerings . general and administrative . general and administrative expenses consist primarily of personnel costs of our executive , finance , legal , corporate and business development , employee benefits and compliance , technical support and other administrative personnel , as well as accounting and legal professional services fees and insurance . we expect general and administrative expenses to increase in absolute dollars in future periods as we continue to invest in corporate infrastructure and expanding our business internationally , including increased legal and accounting costs . interest and other income ( expense ) , net interest and other income ( expense ) , net , consists primarily of interest expense , other income and expense and interest income . interest expense is related to our credit facility , including the related interest rate swap as well as promissory notes issued in connection with our acquisitions , and includes imputed interest on non-interest bearing notes . borrowings under our credit facility and related interest expense could increase as we continue to implement our acquisition strategy . interest income represents interest earned on our cash , cash equivalents and marketable securities , which may increase or decrease depending on market interest rates and the amounts invested . other income ( expense ) , net , includes foreign currency exchange gains and losses and other non-operating items . income tax expense we are subject to tax in the united states as well as other tax jurisdictions or countries in which we conduct business . earnings from our limited non-u.s. activities are subject to local country income tax and may be subject to u.s. income tax . 42 story_separator_special_tag style= '' margin-top:12px ; margin-bottom:0px ; text-indent:4 % '' > general and administrative expenses increased $ 1.9 million , or 10 % , in fiscal year 2011 compared to fiscal year 2010 , due to increased professional service fees of $ 1.4 million , higher insurance premiums of $ 0.3 million , state franchise tax charges of $ 0.3 million and various smaller increases in general and administrative expenses , partially offset by decreased personnel costs of $ 0.2 million . professional service fees and insurance premiums increased due to our continued investment in corporate infrastructure and related expenses associated with being a public company , including increased compliance costs . the decrease in personnel costs was driven by a decline in stock-based compensation expense of $ 1.6 million primarily due to the grant of fully-vested options to certain members of the board of directors in fiscal year 2010. the decrease in stock-based compensation expense was partially offset by increased compensation expense of $ 1.4 million primarily due to higher salaries and performance bonus expenses associated with the achievement of specified financial metrics during fiscal year 2011. interest and other income ( expense ) , net replace_table_token_12_th interest and other income ( expense ) , net increased by $ 0.4 million , or 10 % , in fiscal year 2012 compared to fiscal year 2011 , primarily due to increased interest expense of $ 0.2 million in fiscal year 2012 and $ 0.2 million attributable to proceeds from a settlement of a legal matter in fiscal year 2011. interest and other income ( expense ) , net decreased by $ 1.6 million , or 69 % , in fiscal year 2011 compared to fiscal year 2010 , due to a decrease in other income of $ 1.5 million primarily from a gain of $ 1.2 million in fiscal year 2010 on the extinguishment of acquisition-related promissory notes that we paid off at discounts prior to maturity . provision for taxes replace_table_token_13_th 45 the increase in our effective tax rate for fiscal year 2012 compared to fiscal year 2011 , was primarily due to higher non-deductible stock-based compensation expense . the decrease in our effective tax rate in fiscal year 2011 compared to fiscal year 2010 , was primarily driven by lower state income tax expense . as of june 30 , 2012 , we had net deferred tax assets of $ 16.1 million . our net deferred tax assets consist primarily of stock-based compensation expense , accruals and reserves not currently deductible for tax purposes . see note 8 to our consolidated financial statements for more information about our deferred tax assets . selected quarterly financial data the following table sets forth our unaudited quarterly consolidated statements of operations data for the eight quarters ended june 30 , 2012. we have prepared the statements of operations for each of these quarters on the same basis as the audited consolidated financial statements included elsewhere in this report and , in the opinion of management , each statement of operations includes all adjustments , consisting solely of normal recurring adjustments , necessary for the fair statement of the results of operations for these periods . this information should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this report . these quarterly operating results are not necessarily indicative of our operating results for any future period . replace_table_token_14_th ( 1 ) net income per share for the four quarters of each fiscal year may not sum to the total for the fiscal year because of the different number of shares outstanding during each period . 46 adjusted ebitda our use of adjusted ebitda .
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results of operations the following table sets forth our consolidated statement of operations for the periods indicated : replace_table_token_8_th ( 1 ) cost of revenue and operating expenses include stock-based compensation expense as follows : replace_table_token_9_th net revenue replace_table_token_10_th net revenue decreased $ 32.6 million , or 8 % , in fiscal year 2012 compared to fiscal year 2011. this was primarily due to a decrease in revenue from our financial services and education client verticals , which was partially offset by growth in revenue in our other client verticals . our financial services client vertical revenue decreased $ 26.2 million , or 14 % , due to lower volumes resulting from reduced availability of quality publisher media and , to a lesser degree , lower click prices as compared to fiscal year 2011. pricing in our financial services client vertical was relatively stable throughout fiscal year 2012. our education client vertical revenue decreased $ 20.4 million , or 12 % , as a result of our education clients purchasing fewer inquiries due to uncertainty surrounding new regulations affecting for-profit educational institutions . lower inquiry volumes were marginally offset by higher prices . revenue from other client verticals increased $ 14.1 million , or 31 % , primarily due to the acquisition of it businessedge and certain assets of ziff davis enterprise in the business-to-business technology client vertical and , to a lesser extent , higher lead volumes in our home services client vertical . 43 net revenue increased $ 68.2 million , or 20 % , in fiscal year 2011 compared to fiscal year 2010. the majority of this increase was attributable to an increase in revenue from our financial services client vertical and , to a lesser extent , our education client vertical and other client verticals . financial services client vertical revenue increased $ 38.0 million , or 26 % , as increases in click and lead volume were partially offset by lower prices .
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in the event dune fails to redeem shares of preferred stock ยputย to dune by a holder , then the conversion price shall be lowered and the dividend rate increased . after december 1 , 2012 , dune may redeem shares of preferred stock . the company analyzed the adjustment of the conversion right and the make whole premium for derivative accounting under fasb asc 815ยderivatives and hedges and determined that it was not applicable to either provision . the preferred stock discount is deemed a preferred stock dividend and is being amortized over five years using the effective interest method and is charged to additional paid-in capital as the company has a deficit balance in retained earnings . charges to additional paid-in capital story_separator_special_tag the following discussion will assist you in understanding our financial position , liquidity and results of operations . the information below should be read in conjunction with the consolidated financial statements and the related notes to consolidated financial statements . our discussion contains both historical and forward-looking information . we assess the risks and uncertainties about our business , long-term strategy and financial condition before we make any forward-looking statements but we can not guarantee that our assessment is accurate or that our goals and projections can or will be met . statements concerning results of future exploration , exploitation , development and acquisition expenditures as well as expense and reserve levels are forward-looking statements . we make assumptions about commodity prices , drilling results , production costs , administrative expenses and interest costs that we believe are reasonable based on currently available information . critical estimates and accounting policies we prepare our consolidated financial statements in this report using accounting principles that are generally accepted in the united states ( ยgaapย ) . gaap represents a comprehensive set of accounting and disclosure rules and requirements . we must make judgments , estimates , and in certain circumstances , choices between acceptable gaap alternatives as we apply these rules and requirements . the most critical estimate we make is the engineering estimate of total oil and gas reserves . this estimate affects the application of the successful efforts method of accounting , the calculation of depreciation , depletion , and amortization of oil and gas properties and the estimate of the impairment of our oil and gas properties . it also affects the estimated lives used to determine asset retirement obligations . in addition , the estimates of proved oil and gas reserves are the basis for the related standardized measure of discounted future net cash flows . estimated total oil and gas reserves the evaluation of our oil and gas reserves is critical to management of our operations and ultimately our economic success . decisions such as whether development of a property should proceed and what technical methods are available for development are based on an evaluation of reserves . these oil and gas reserve quantities are also used as the basis of calculating the unit-of-production rates for depreciation , evaluating impairment and estimating the life of our producing oil and gas properties in our asset retirement obligations . our total reserves are classified as proved , possible and probable . proved reserves are classified as either proved developed or proved undeveloped . proved developed reserves are those reserves which can be expected to be recovered through existing wells with existing equipment and operating methods . proved undeveloped reserves include reserves expected to be recovered from new wells from undrilled proven reservoirs or from existing wells where a significant major expenditure is required for completion and production . probable reserves are those additional reserves that are less certain to be recovered than proved reserves and when probabilistic methods are used , there should be at least a 50 % probability that the actual quantities recovered will equal or exceed the proved plus probable estimates . possible reserves are those additional reserves that are less certain to be recovered than probable reserves and when probabilistic methods are used , there should be at least a 10 % probability that the total quantities ultimately recovered will equal or exceed proved plus probable plus possible reserve estimates . independent reserve engineers prepare the estimates of our oil and gas reserves presented in this report based on guidelines promulgated under gaap and in accordance with the rules and regulations of the securities and exchange commission . the evaluation of our reserves by the independent reserve engineers involves their rigorous examination of our technical evaluation and extrapolations of well information such as flow rates and reservoir pressure declines as well as other technical information and measurements . reservoir engineers interpret these data to determine the nature of the reservoir and ultimately the quantity of total oil and gas reserves attributable to a specific property . our total reserves in this report include only quantities that we expect to recover commercially using current prices , costs , existing regulatory practices and technology . while we are reasonably certain that the total reserves will be produced , the timing and ultimate recovery can be affected by a number of factors including completion of development projects , reservoir performance , regulatory approvals 28 and changes in projections of long-term oil and gas prices . revisions can include upward or downward changes in the previously estimated volumes or reserves for existing fields due to evaluation of ( 1 ) already available geologic , reservoir or production data or ( 2 ) new geologic or reservoir data obtained from wells . revisions can also include changes associated with significant changes in development strategy , oil and gas prices or production equipment/facility capacity . standardized measure of discounted future net cash flows the standardized measure of discounted future net cash flows relies on these estimates of oil and gas reserves using commodity prices and costs at year-end . story_separator_special_tag the fair value of asset retirement obligation liabilities has been calculated using an expected present value technique . fair value , to the extent possible , should include a market risk premium for unforeseeable circumstances . a five percent market risk premium was included in the company 's asset retirement obligation fair value estimate . when the liability is initially recorded , the entity increases the carrying amount of the related long-lived asset . over time , accretion of the liability is recognized each period and the capitalized cost is amortized over the useful life of the related asset . upon retirement of the liability , an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement . this standard requires the company to record a liability for the fair value of the dismantlement and plugging and abandonment costs , excluding salvage values . derivatives derivative financial instruments , utilized to manage or reduce commodity price risk related to dune 's production , are accounted for under the provisions of fasb asc 815ยderivatives and hedging . under this statement , derivatives are carried on the balance sheet at fair value . if the derivative is designated as a fair value hedge , the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings . if the derivative is designated as a cash flow hedge , the effective portions of changes in the fair value of the derivatives are recorded in other comprehensive income or loss and are recognized in the statement of operations when the hedged item affects earnings . if the derivative is not designated as a hedge , changes in the fair value are recognized in other expense . ineffective portions of changes in the fair value of cash flow hedges are also recognized in loss on derivative liabilities . effective january 1 , 2008 , the company discontinued , prospectively , the designation of its derivatives as cash flow hedges . the net derivative loss related to the discontinued cash flow hedges , as of december 31 , 2007 , 30 continued to be reported in accumulated other comprehensive loss through december 31 , 2009 and were charged to loss as the volumes underlying the cash flow hedges were realized . beginning january 1 , 2008 , the gain or loss on derivatives is recognized currently in earnings . stock-based compensation the company follows the provisions of fasb asc 718ยstock compensation . the statement requires all stock-based payments to employees , including grants of employee stock options , to be recognized in the financial statements based on their fair values on the date of the grant . due to significant declines in the price of dune 's stock since the issuance of many employee grants , stock-based compensation amounts are high compared to current values . business strategy dune is an independent energy company engaged in the exploration , development , acquisition and exploitation of natural gas and crude oil properties , with interest along the gulf coast . on may 15 , 2007 , we closed the stock purchase and sale agreement to acquire all of the capital stock of goldking from goldking energy holdings , l.p. goldking was an independent energy company focused on the exploration , exploitation and development of natural gas and crude properties located onshore and in state waters along the gulf coast . the acquisition of goldking substantially increased our proved reserves , provided significant drilling upside and increased our geographic and geological well diversification . additionally , the acquisition of goldking provided us with exploration opportunities within our core geographic area . our properties now cover over 90,000 gross acres across 26 oil and natural gas fields onshore and in state waters along the texas and louisiana gulf coast . grow through exploitation , development , and exploration of our properties . our primary focus will continue to be the development and exploration efforts in our gulf coast properties . we believe that our properties and acreage position will allow us to grow organically through low risk drilling in the near term , as this property set continues to present attractive opportunities to expand our reserve base through workovers and recompletions , field extensions , delineating deeper formations within existing fields and higher risk/higher reward exploratory drilling . in addition , we will constantly review , rationalize and ยhigh-gradeย our properties in order to optimize our existing asset base . maintain and utilize state of the art technological expertise . we expect to maintain and utilize our technical and operations teams ' knowledge of salt-dome structures and multiple stacked producing zones common in the gulf coast to enhance our growth prospects and reserve potential . we will employ technical advancements , including 3-d seismic data , pre-stack depth migration and directional drilling to identify and exploit new opportunities in our asset base . we also plan to employ the latest drilling , completion and fracturing technology in all of our wells to enhance recoverability and accelerate cash flows associated with these wells . pursue opportunistic acquisitions of underdeveloped properties . we continually review opportunities to acquire producing properties , leasehold acreage and drilling prospects that are in core operating areas . we are seeking to acquire operational control of properties that we believe have a solid proved reserves base coupled with significant exploitation and exploration potential . we intend to continue to evaluate acquisition opportunities and make acquisitions that we believe will further enhance our operations and reserves in a cost effective manner . actively manage the risks and rewards of our drilling program . in summary , our strategy is to increase our oil and gas reserves and production while keeping our finding and development costs and operating costs ( on a per mcf equivalent ( mcfe ) basis ) competitive with our industry peers .
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results of operations comparison of 2009 and 2008 year-over-year production decreased 16 % to 9,521 mmcfe in 2009 compared to 11,364 mmcfe in 2008. this decrease was caused by normal reservoir declines and a very limited capital reinvestment program . additionally , significant reductions in both oil and gas prices were incurred during this time period . the following table reflects the increase ( decrease ) in oil and gas sales revenue due to changes in price and volume : replace_table_token_11_th revenues revenues for the year ended december 31 , 2009 totaled $ 64.9 million as compared to $ 146.6 million for the year ended december 31 , 2008. production volumes for 2009 were 724 mbbls of oil and 5.2 bcf of natural gas or 9.5 bcfe . this compares to 884 mbbls of oil and 6.1bcf of natural gas or 11.4 bcfe for 2008. in 2009 , the average sales price per barrel of oil was $ 58.53 and $ 4.34 per mcf for natural gas as compared to $ 99.87 per barrel and $ 9.62 per mcf , respectively for 2008. the primary reasons behind the decrease in revenue were lower production and lower average sales prices in 2009 versus 2008. average price received per mcfe produced was $ 6.81 in 2009 versus $ 12.90 in 2008 or a decline of 47 % . 34 operating expenses lease operating expense and production taxes the following table presents the major components of dune 's lease operating expense for the last two years on a per mcfe basis : replace_table_token_12_th lease operating expense for the year ended december 31 , 2009 totaled $ 31.9 million versus $ 43.5 million for the year ended december 31 , 2008 representing a reduction of $ 11.6 million or 27 % . this translated to a decrease of $ 0.47/mcfe to $ 3.35/mcfe on a volume basis .
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consequently , an increase in semiconductor or fpd sales does not necessarily result in a corresponding increase in photomask sales . however , the reduced use of customized ics , reductions in design complexity , other changes in the technology or methods of manufacturing or designing semiconductors , or a slowdown in the introduction of new semiconductor or fpd designs could reduce demand for photomasks โ even if the demand for semiconductors and fpds increases . advances in semiconductor , fpd and photomask design and semiconductor and fpd production methods that shift the burden of achieving device performance away from lithography could also reduce the demand for photomasks . historically , the microelectronic industry has been volatile , experiencing periodic downturns and slowdowns in design activity . these downturns have been characterized by , among other things , diminished product demand , excess production capacity and accelerated erosion of selling prices with a concomitant effect on revenue and profitability . we are typically required to fulfill customer orders within a short period of time , sometimes within 24 hours . this results in our having a minimal level of backlog orders , typically one to two weeks of backlog for ic photomasks and two to three weeks of backlog for fpd photomasks . the global semiconductor industry is driven by end markets which have been closely tied to consumer driven applications of high performance semiconductor devices , including , but not limited to , mobile display devices , mobile communications , and computing solutions . while we can not predict the timing of the industry 's transition to volume production of next-generation technology nodes , or the timing of up and down cycles with precise accuracy , we believe that such transitions and cycles will continue into the future , beneficially and adversely affecting our business , financial condition and operating results as they occur . we believe our ability to remain successful in these environments is dependent upon the achievement of our goals of being a service and technology leader and efficient solutions supplier , which we believe should enable us to continually reinvest in our global infrastructure . we are focused on improving our competitiveness by advancing our technology and reducing costs and , in connection therewith , have invested and plan to continue to invest in manufacturing equipment to serve the high-end markets . as we face challenges in the current and near term that require us to make significant improvements in our competitiveness , we continue to evaluate further cost reduction initiatives . as of december 2018 , state-of-the-art production for semiconductor masks is considered to be 28 nanometer and smaller for ics and generation 8 and above and amoled display-based process technologies for fpds . however , 32 nanometer and above geometries for semiconductors and generation 7 and below , excluding amoled , process technologies for fpds constitute the majority of designs currently being fabricated in volume . at these geometries , we can produce full lines of photomasks , and there is no significant technology employed by our competitors that is not available to us . we expect 28 nanometer and below designs to continue to move to wafer fabrication throughout fiscal 2019 , and we believe we are well positioned to service an increasing volume of this business as a result of our investments in manufacturing processes and technology in the regions where our customers are located . the photomask industry has been , and is expected to continue to be , characterized by technological change and evolving industry standards . in order to remain competitive , we will be required to continually anticipate , respond to , and utilize changing technologies . in particular , we believe that , as semiconductor geometries continue to become smaller , and fpd designs become larger or otherwise more advanced , we will be required to manufacture even more complex optically-enhanced reticles , including optical proximity correction and phase-shift photomasks . additionally , demand for photomasks has been , and could in the future be , adversely affected by changes in semiconductor and high performance electronics fabrication methods that affect the type or quantity of photomasks 19 used , such as changes in semiconductor demand that favor field-programmable gate arrays and other semiconductor designs that replace application-specific ics , or the use of certain chip stacking methodologies that lessen the emphasis on conventional lithography technology . furthermore , increased market acceptance of alternative methods of transferring circuit designs onto semiconductor wafers could reduce or eliminate the need for photomasks in the production of semiconductors . as of the end of fiscal year 2018 , one alternative method , direct-write lithography , has not been proven to be a commercially viable alternative to photomasks , as it is considered to be too slow for high volume semiconductor wafer production , and we have not experienced a significant loss of revenue as a result of this or other alternative semiconductor design methodologies . however , should direct-write lithography or any other alternative method of transferring ic designs to semiconductor wafers without the use of photomasks achieve market acceptance , and we do not anticipate , respond to , or utilize these or other changing technologies due to resource , technological or other constraints , our business and results of operations could be materially adversely affected . both our revenues and costs have been affected by the increased demand for high-end technology photomasks that require more advanced manufacturing capabilities , but generally command higher average selling prices ( ยaspsย ) . our capital expenditure payments aggregated approximately $ 235 million for the three fiscal years ended october 31 , 2018 , which has significantly contributed to our cost of goods sold . we intend to continue to make the required investments to support the technological demands of our customers that we believe will position the company for future growth . story_separator_special_tag the share repurchase program commenced on july 10 , 2018 , and was completed in october 2018. in the third quarters of fiscal years 2018 , 2017 , and 2016 , our majority owned ic facility in taiwan paid dividends of $ 8.2 million , $ 8.3 million , and $ 11.9 million , respectively , to its noncontrolling interest . in the first quarter of fiscal 2018 , we announced the successful closing of the china joint venture agreement with dai nippon printing co. , ltd. ( ยdnpย ) , which we had agreed to enter into and announced in the third quarter of fiscal 2017 ( see discussion below ) . under the agreement , our wholly-owned singapore subsidiary owns 50.01 % of the joint venture , which is named photronics dnp mask corporation xiamen ( pdmcx ) , and a subsidiary of dnp owns the remaining 49.99 % . the financial results of the joint venture are included in the photronics , inc. consolidated financial statements . see note 4 of the condensed consolidated financial statements for additional information on the joint venture . in the fourth quarter of fiscal 2017 , we announced that photronics uk , ltd. , a wholly-owned subsidiary of ours , signed an investment agreement with hefei state hi-tech industry development zone to establish a manufacturing facility in hefei , china . under the terms of the agreement , through our subsidiary , we will invest a minimum of $ 160 million , a portion of which may be funded with local borrowings , to build and operate a research and development and manufacturing facility for high-end and mainstream fpd photomasks . hefei state hi-tech industry development zone will provide certain investment incentives and support for this facility , which will have initial capability to produce up to g10.5+ large area masks and amoled products . construction began in late 2017 and production is anticipated to commence in the first half 2019. in the fourth quarter of 2016 , photronics singapore pte , ltd. , a wholly-owned subsidiary , signed an investment agreement with the administrative committee of xiamen torch hi-tech industrial development zone ( xiamen torch ) to establish an ic manufacturing facility in xiamen , china . under the terms of the agreement , we will build and operate an ic facility to engage in research and development , manufacture and sale of photomasks , in return for which xiamen torch will provide certain investment incentives and support . this expansion is also substantially supported by customer commitments for its output . as discussed above , in the first quarter of fiscal 2018 , we entered into a joint venture agreement with dnp , under which they hold a 49.99 % ownership interest in this investment . the total investment per the agreement is $ 160 million , of which approximately $ 62 million remained for photronics as of october 31 , 2018 , and will be funded over the next several years with cash and local borrowings . construction began in 2017 and production is anticipated to start in the first half of 2019. in the third quarter of fiscal 2016 , we sold our investment in mp mask to micron for $ 93.1 million and recorded a gain of $ 0.1 million on the sale . on that same date , a supply agreement commenced between photronics and micron , which provided that we would be the majority outsourced supplier of micron 's photomasks and related services . the supply agreement had a one year term and expired in may 2017. we have unlimited rights to use the technology under our prior technology license agreement . in the second quarter of fiscal 2016 , $ 57.5 million of our senior convertible notes matured . we repaid $ 50.1 million to noteholders , and issued approximately 0.7 million shares to noteholders that elected to convert their notes to common stock . the notes were exchanged at the rate of approximately 96 shares per $ 1,000 note principle , equivalent to a conversion rate of $ 10.37 per share . 21 story_separator_special_tag that , our 2019 growth will be dependent on underlying market demand and how effectively we ramp production in china . gross profit replace_table_token_9_th gross profit and gross margin decreased in q4 fy18 , compared with q3 fy18 , primarily due to increased materials and equipment maintenance costs incurred in the current quarter . gross profit and gross margin increased in q4 fy18 , compared with q4 fy17 , primarily as a result of the increased revenue in the current quarter , which exceeded increased materials , labor , and other overhead costs incurred in q4 fy18 . as we operate in a high fixed-cost environment increases or decreases in our revenues and capacity utilization will generally positively or negatively impact our gross margin . replace_table_token_10_th gross profit and gross margin increased on a full-year basis in fy18 , compared with fy17 , primarily as a result of the increased revenue in the current year , which exceeded increased materials , labor , and other overhead costs incurred in fy18 . gross profit and gross margin decreased in fy17 , compared with fy16 , primarily due to a decrease in overall revenue that resulted from lower asps and , to a lesser extent , a reduction in units sold . 24 selling , general and administrative expenses selling , general and administrative expenses increased by $ 1.0 million , or 8.0 % , to $ 13.5 million in q4 fy18 , from $ 12.5 million in q3 fy18 , primarily due to increased compensation and freight expenses . selling , general and administrative expenses increased in q4 fy18 by $ 3.3 million , or 32.6 % , to $ 13.5 million , from $ 10.2 million in q4 fy17 , primarily as a result of increased compensation , professional services , and freight expenses .
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results of operations the following tables present selected operating information expressed as a percentage of revenue : replace_table_token_3_th replace_table_token_4_th note : all the following tabular comparisons , unless otherwise indicated , are for the three months ended october 31 , 2018 ( q4 fy18 ) , july 29 , 2018 ( q3 fy18 ) and october 29 , 2017 ( q4 fy17 ) , and for the fiscal years ended october 31 , 2018 ( fy18 ) , october 29 , 2017 ( fy17 ) and october 30 , 2016 ( fy16 ) , in millions of dollars . revenue replace_table_token_5_th 22 in q1 fy18 , we changed the threshold for the definition of high-end ic , from 45 nanometer or smaller to 28 nanometer or smaller , to reflect the overall advancement of technology in the semiconductor industry . all comparisons to prior period results in this md & a reflect this modification . our definition of high-end fpd products remains as g8 and above and active matrix organic light-emitting diode ( amoled ) display screens . high-end photomasks typically have higher asps than mainstream products . our quarterly revenues can be affected by the seasonal purchasing tendencies of our customers . as a result , demand for our products is typically negatively impacted during the first , and sometimes the second , quarters of our fiscal year by the north american , european , and asian holiday periods , as some of our customers reduce their development and , consequently , their buying activities during those periods . the following tables compare revenue in q4 fy18 with revenue in q3 fy18 and q4 fy17 by geographic area : replace_table_token_6_th revenue increased 6.1 % in q4 fy18 compared with q3 fy18 , as a result of mainstream ic and high end fpd growth . ic mainstream increased 16.8 % from q3 fy18 , due to healthy foundry demand across asia . high end ic decreased 14.4 % , as soft demand for high-end logic offset growth in high-end memory .
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in our well site services segment , revenues are recognized based on a periodic ( usually daily ) rate or when the services are rendered . proceeds from customers for the cost of oilfield rental equipment that is damaged or lost downhole are reflected as gains or losses on the disposition of assets after considering the write-off of the remaining net book value of the equipment . for drilling services contracts based on footage drilled , we recognize revenues as footage is drilled . revenues exclude taxes assessed based on revenues such as sales or value added taxes . see note 4 , `` recent accounting pronouncements , `` for discussion with respect to the company 's adoption of new guidance on recognition of revenue from contracts with customers on january 1 , 2018. cost of goods sold includes all direct material and labor costs and those costs related to contract performance , such as indirect labor , supplies , tools and repairs . selling , general and administrative costs are charged to expense as incurred . income taxes the company follows the liability method of accounting for income taxes in accordance with current accounting standards regarding the accounting for income taxes . under this method , deferred income taxes are story_separator_special_tag management 's discussion and analysis of financial condition and results of operations contains โ forward-looking statements โ within the meaning of section 27a of the securities act and section 21e of the exchange act that are based on management 's current expectations , estimates and projections about our business operations . our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of numerous factors , including the known material factors set forth in โ part i , item 1a . risk factors. โ you should read the following discussion and analysis together with our consolidated financial statements and the notes to those statements included elsewhere in this annual report on form 10โk . macroeconomic environment we provide a broad range of products and services to the oil and gas industry through our offshore/manufactured products and well site services business segments . demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and gas industry , particularly our customers ' willingness to invest capital in the exploration for and development of crude oil and natural gas reserves . our customers ' capital spending programs are generally based on their cash flows and their outlook for near-term and long-term commodity prices , economic growth , commodity demand and estimates of resource production . as a result , demand for our products and services is largely sensitive to future expectations with respect to crude oil and natural gas prices . our consolidated results of operations reflect current industry trends and customer spending activities which are focused on growth in the u.s. shale play regions with weaker u.s. gulf of mexico and international activity . in addition , investments in deepwater markets globally have slowed significantly since the start of this prolonged industry downturn in 2014. a severe industry downturn started in the second half of 2014 and continued in 2017 , driven by global economic uncertainties and high levels of global oil production . as shown in the table that follows , significant downward crude oil price volatility began in late 2014 with intercontinental exchange brent ( โ brent โ ) crude oil declining from an average of $ 110 per barrel in the second quarter of 2014 to an average of $ 34 per barrel in the first quarter of 2016 ( a level last seen in 2004 ) . the sustained material decrease in crude oil prices relative to 2014 was primarily attributable to high levels of global crude oil inventories resulting from significant production growth in the u.s. shale plays , the strengthening of the u.s. dollar relative to other currencies , and increased production by opec . opec demonstrated , throughout 2015 and through november of 2016 an unwillingness to modify production levels , as it had done in previous years , in an effort to protect its market share . these production increases were partially offset by growth in global crude oil demand . the combination of these and other factors caused a global supply and demand imbalance for crude oil which resulted in materially lower crude oil prices . non-opec production , particularly in the united states , began to decline in 2015 due to substantially reduced investment in drilling and completion activity triggered by lower crude oil prices leading to some recovery in crude oil prices in 2016 and 2017 relative to the crude oil price lows experienced in early 2016. in late 2016 , opec agreed to production cuts ( subsequently extended through december 2018 ) which should , over time , if the cuts are adhered to , result in further reductions in global crude oil inventories and a more favorable commodity price environment . brent crude oil prices averaged $ 54 per barrel in 2017 , which was 24 % above the 2016 average of $ 44 per barrel , but is 45 % below the average in 2014. similarly , the average price of west texas intermediate ( โ wti โ ) was $ 51 per barrel in 2017 , up 17 % from the 2016 average of $ 43 per barrel , but was 45 % below the average in 2014. the year-over-year improvement in crude oil prices was driven by the belief that opec and russia , its key ally in the effort to stabilize the global crude oil market , would be successful in cutting their production . however , improvements in crude oil prices rapidly translated into increased drilling activity in u.s. shale play developments in areas such as the permian basin in 2017 , which is leading to higher domestic production . story_separator_special_tag revenues generated from sales of other products and services in 2017 decreased 13 % from 2016 due primarily to reduced levels of service activity and represented 28 % of the segment 's total revenues in 2017. our offshore/manufactured products segment revenues and operating income declined at a slower pace during 2015 and 2016 than our well site services segment given the high levels of backlog that existed at the beginning of 2015. bidding and quoting activity , along with orders from customers , for our offshore/manufactured products segment continued after 2014 , albeit at a much slower pace . reflecting the impact of customer ( both iocs and nocs ) delays and deferrals in approving major , capital intensive projects in light of the prolonged low commodity price environment , backlog in our offshore/manufactured products segment decreased from $ 599 million at june 30 , 2014 to $ 168 million at december 31 , 2017 , which is the lowest level reported since january 2006. the following table sets forth backlog for our offshore/manufactured products segment as of the dates indicated ( in millions ) . replace_table_token_8_th our well site services segment provides completion services and , to a lesser extent , land drilling services in the united states ( including the gulf of mexico ) , canada and the rest of the world . u.s. drilling and completion activity and , in turn , our well site services results , are particularly sensitive to near-term fluctuations in commodity prices given the call-out nature of our operations in the segment . while there has been notable improvement in 2017 , well site services continues to be significantly negatively affected by the material decline in crude oil prices since 2014. within this segment , our completion services business supplies equipment and service personnel utilized in the completion and initial production of new and recompleted wells . activity for the completion services business is dependent primarily upon the level and complexity of drilling , completion , and workover activity throughout north america . well complexity has increased with the continuing transition to multi-well pads and the drilling of longer lateral wells along with the increased number of frac stages completed in horizontal wells . similarly , demand for our drilling services operations is driven by activity in our primary land drilling markets of the permian basin in west texas , where we drill oil wells , and the u.s. rocky mountain area , where we drill both liquids-rich and natural gas wells . demand for our land drilling and completion services businesses is correlated to changes in the drilling rig count in north america , as well as changes in the total number of wells drilled , total footage drilled , and the number of drilled wells that are completed . the following table sets forth a summary of the average north american drilling rig count , as measured by baker hughes , for the periods indicated . replace_table_token_9_th the average north american rig count in 2017 increased 441 rigs , or 69 % , from the level reported in 2016 , in response to the increase in crude oil prices discussed above . over recent years , our industry experienced increased customer spending in crude oil and liquids-rich exploration and development in the north american shale plays utilizing horizontal drilling and completion techniques . according to rig count data published by baker hughes , the u.s. oil rig count peaked in october 2014 at 1,609 rigs but has declined materially since late 2014 due to much lower crude oil prices , totaling 747 rigs as of december 31 , 2017 ( with the u.s. oil rig count having troughed at 316 rigs in may 2016 , which was the lowest oil rig count during this current cyclical downturn ) . as of december 31 , 2017 , oil- - 34 - directed drilling accounted for 80 % of the total u.s. rig count โ with the balance natural gas related . the u.s. natural gas-related working rig count declined from approximately 810 rigs at the beginning of 2012 to 81 rigs in august of 2016 , a more than 29 year low . total u.s. rig count has increased 525 rigs , or 130 % , since troughing in may of 2016 , largely due to improved crude oil prices , decreased service costs and improved technologies applied in the shale play regions of the united states . exacerbating the steep declines in drilling activity experienced in 2015 and 2016 , many of our exploration and production customers deferred well completions . these deferred completions are referred to in the industry as drilled but uncompleted wells ( or โ ducs โ ) . given our well site services segment 's exposure to the level of completion activity , an increase in the number of ducs will have a short-term negative impact on our results of operations relative to the rig count trends but over the longer-term should have a positive impact on the segment 's results as the wells are completed . reduced demand for our products and services , coupled with a reduction in the prices we charge our customers for our services has adversely affected our results of operations , cash flows and financial position since the second half of 2014. if the current pricing environment for crude oil and natural gas does not improve , or declines further , our customers may be required to further reduce their capital expenditures , causing additional declines in the demand for , and prices of , our products and services , which would adversely affect our results of operations , cash flows and financial position . our customers have experienced a significant decline in their revenues and cash flows relative to the commodity price declines in 2015 , 2016 and into 2017 , with many experiencing a significant reduction in liquidity .
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consolidated results of operations prior to the acquisition of geodynamics , we managed and measured our business performance in two distinct operating segments : well site services and offshore/manufactured products . selected financial information by business segment for years ended december 31 , 2017 , 2016 and 2015 is summarized as follows ( dollars in thousands ) : replace_table_token_10_th replace_table_token_11_th ( 1 ) gross profit is computed by deducting product and service costs from revenues , and excludes depreciation expense . gross profit as a percentage of revenues is also referred to herein as gross margin . - 37 - year ended december 31 , 2017 compared to year ended december 31 , 2016 net loss for the year ended december 31 , 2017 was $ 84.9 million , or $ ( 1.69 ) per diluted share , which included $ 3.4 million ( $ 2.4 million after-tax , or $ 0.05 per diluted share ) of severance , downsizing and other charges and $ 29.2 million ( $ 0.58 per diluted share ) of additional non-cash income tax expense related to u.s. tax law changes and a decision to carryback net operating losses incurred in 2016 against taxable income reported in 2014. excluding these charges , the 2017 net loss would have been $ 53.3 million , or $ ( 1.06 ) per diluted share . these results compare to a net loss of $ 46.4 million , or $ ( 0.92 ) per diluted share , reported for the year ended december 31 , 2016. results for 2016 included $ 5.2 million ( $ 3.3 million after-tax , or $ 0.06 per diluted share ) of severance and other downsizing charges . excluding the charges , net loss would have been $ 43.1 million , or $ ( 0.86 ) per diluted share .
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the blackโscholes option pricing model requires the input of certain subjective assumptions , including ( i ) the calculation of expected term of the share-based payment , ( ii ) the riskโfree interest rate , ( iii ) the expected stock price volatility and ( iv ) the expected dividend yield . the company uses the simplified method as proscribed by sec staff accounting bulletin no . 107 to calculate the expected term for stock options granted to employees as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term . the company determines the riskโfree interest rate based on a treasury instrument whose term is consistent with the expected term of the stock options . because there story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors . we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this annual report on form 10-k , including those factors set forth in the section entitled โ cautionary note regarding forward-looking statements and industry data โ and in the section entitled โ risk factors โ in part i , item 1a . overview we are a clinical-stage immunotherapy company dedicated to transforming the treatment of cancer by developing therapies that enable the immune system to attack tumors and provide long-lasting benefits to patients . we have developed a suite of integrated technologies that comprise our translational science platform , enabling us to comprehensively interrogate the cellular and molecular composition of tumors . by focusing on specific cell types , both immune and non-immune , within tumors , we can prioritize targets and then identify related biomarkers designed to match the right therapy to the right patient . through this scientific understanding of the tumor microenvironment , or tme , our goal is to effectively and efficiently identify and develop new cancer immunotherapies designed to benefit patients with tumors across the spectrum from highly inflamed , or โ hot , โ to poorly inflamed , or โ cold , โ and especially those not well served by current therapies . our most advanced product candidate , vopratelimab ( formerly jtx-2011 ) , is a clinical-stage monoclonal antibody that binds to and activates the i nducible t cell co-s timulator , or icos , a protein on the surface of certain t cells commonly found in many solid tumors . vopratelimab was assessed in a phase 1/2 clinical trial that we refer to as iconic . in the initial phase 1/2 portion of iconic , vopratelimab was found to be safe and well-tolerated , both alone and in combination with nivolumab , an anti-pd-1 antibody . at the june 2018 annual meeting of the american society of clinical oncology , or asco , we reported response evaluation criteria in solid tumors , or recist , responses and other tumor reductions as determined by investigator assessment that were associated with an icos pharmacodynamic biomarker . we subsequently reported that these responses were durable , lasting six or more months and that all responders , as determined by investigator assessments , remained on study for more than one year . iconic also includes an on-going dose-escalation phase 1 portion to assess vopratelimab in combination with pembrolizumab , an anti-pd-1 antibody , and in combination with ipilimumab , an antibody that binds to ctla-4 on certain t cells . this phase 1 portion established the safety of vopratelimab in combination with each of ipilimumab and pembrolizumab . we plan to initiate additional phase 2 clinical studies , including one or more new dosing schedules and combination sequences , in 2019 and expect to report preliminary efficacy data from these additional clinical studies in 2020. these anticipated phase 2 clinical studies will evaluate vopratelimab in combination with ipilimumab , and , separately , using a predictive biomarker approach , will evaluate vopratelimab alone and or in combination with a pd-1 inhibitor . these additional clinical studies are designed to determine whether vopratelimab can offer a treatment alternative to patients who otherwise do not display an effective response to currently approved therapies , and or whether it can enhance the therapeutic benefit of currently approved therapies . our second product candidate , jtx-4014 , is a clinical-stage anti-pd-1 antibody that we are developing primarily for potential use in combination with future product candidates , as we believe that combination therapy has the potential to be a mainstay of cancer immunotherapy . in december 2018 , we commenced enrollment in a phase 1 clinical trial of jtx โ 4014 monotherapy and completed enrollment in the first cohort in the fourth quarter of 2018. this phase 1 clinical trial is designed to assess safety and to determine the recommended phase 2 dose . we expect to identify the recommended phase 2 dose in 2019. jtx-8064 , our third product candidate , is an antibody that binds to lilrb2 , which is a cell surface receptor expressed on macrophages . jtx-8064 is the first tumor-associated macrophage candidate to emerge from our translational science platform . we believe therapies targeting these innate immune cells may have the potential to benefit patients with tumors that are less likely to respond to existing t cell-focused approaches . we are currently conducting ind-enabling activities for jtx-8064 , with the goal of filing an investigational new drug application , or ind , and initiating a phase 1 clinical trial in 2019. beyond our product candidates , we are discovering and developing immunotherapies by leveraging our translational science platform to systematically and comprehensively interrogate cell types within the tme . story_separator_special_tag the initial research term of the collaboration is four years , which can be extended , at celgene 's option , annually for up to three additional years for additional consideration that ranges from $ 30.0 million to $ 45.0 million per year , for an aggregate of $ 120.0 million if the term is extended for an additional three years . as of december 31 , 2018 , we had not received any option exercise , research term extension , milestone or royalty payments under the celgene collaboration agreement . since inception , our operations have focused on organizing and staffing our company , business planning , raising capital , developing our translational science platform and conducting research , preclinical studies and clinical trials . we do not have any products approved for sale . we are subject to a number of risks comparable to those of other similar companies , including dependence on key individuals ; the need to develop commercially viable products ; competition from other companies , many of which are larger and better capitalized ; and the need to obtain adequate additional financing to fund the development of our products . we have funded our operations through december 31 , 2018 primarily through proceeds received from our ipo , the upfront payment received under the celgene collaboration agreement and private placements of our convertible preferred stock . on february 1 , 2017 , we closed our ipo of 7,319,750 shares of our common stock at a public offering price of $ 16.00 per share , including 954,750 shares of our common stock issued upon the full exercise by the underwriters of their option to purchase additional shares . the gross proceeds from the ipo were $ 117.1 million , and net proceeds were $ 106.4 million , after deducting underwriting discounts and commissions and other offering expenses paid by us . due to our significant research and development expenditures , we have generated substantial operating losses in each annual period since our inception . we have incurred an accumulated deficit of $ 163.9 million through december 31 , 2018 . we expect to incur substantial additional losses in the future as we expand our research and development activities . financial operations overview revenue for the year ended december 31 , 2018 , we recognized $ 65.2 million of collaboration revenue under the celgene collaboration agreement related to the $ 225.0 million upfront payment received in 2016. we had $ 97.9 million of deferred revenue as of december 31 , 2018 , which is classified as either current or net of current portion in our consolidated balance sheets based on the period over which the revenue is expected to be recognized . as of december 31 , 2018 , we had not received any option exercise , research term extension , milestone or royalty payments under the celgene collaboration agreement . in the future , we expect to continue to generate revenue from the celgene collaboration agreement and may generate revenue from product sales or other collaboration agreements , strategic alliances and licensing arrangements . we expect that our revenue will fluctuate from quarter-to-quarter and year-to-year based upon our pattern of performance under the celgene collaboration agreement and as a result of the timing and amount of license fees , milestones , reimbursement of costs incurred and other payments and product sales , to the extent any are successfully commercialized . if we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them , our ability to generate future revenue , and our results of operations and financial position , would be materially adversely affected . operating expenses research and development expenses research and development expenses represent costs incurred by us for the discovery , development and manufacture of vopratelimab , jtx-4014 , jtx-8064 and our potential future product candidates and include : external research and development expenses incurred under arrangements with third parties , including academic and non-profit institutions , contract research organizations , contract manufacturing organizations and consultants ; salaries and personnel-related costs , including non-cash stock-based compensation expense ; license fees to acquire in-process technology and other expenses , which include direct and allocated expenses for laboratory , facilities and other costs . we use our employee and infrastructure resources across multiple research and development programs directed toward developing our translational science platform and for identifying , testing and developing product 61 candidates . we manage certain activities such as contract research and manufacture of our product candidates and discovery programs through our third-party vendors . at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete the development of our product candidates . we are also unable to predict when , if ever , material net cash inflows will commence from sales of our product candidates . this is due to the numerous risks and uncertainties associated with developing such product candidates , including the uncertainty of : addition and retention of key research and development personnel ; establishing an appropriate safety profile with ind-enabling toxicology studies ; the cost to acquire or make therapies to study in combination with our immunotherapies ; successful enrollment in and completion of clinical trials ; establishing agreements with third-party contract manufacturing organizations for clinical supply for our clinical trials and commercial manufacturing , if our product candidates are approved ; receipt of marketing approvals from applicable regulatory authorities ; commercializing products , if and when approved , whether alone or in collaboration with others ; the cost to develop complementary diagnostics and or companion diagnostics as needed for each of our development programs ; the costs associated with the development of any additional product candidates we acquire through third-party collaborations or identify through our translational science platform ; the terms and timing of any collaboration , license or other arrangement , including the terms and timing of any milestone payments thereunder ; obtaining and maintaining patent and trade secret
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results of operations comparison of the years ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 : replace_table_token_2_th collaboration revenue collaboration revenue for the years ended december 31 , 2018 and 2017 was solely related to the recognition of the upfront payment we received under our celgene collaboration agreement that was executed in july 2016 . effective january 1 , 2018 , we adopted asc 606. under asc 606 , we have transitioned from recognizing revenue on a straight-line basis over the estimated performance period for each unit of accounting , which was a permitted method of revenue recognition under previous accounting guidance , to recognizing revenue based on our pattern of performance for each performance obligation . as we adopted asc 606 using the modified retrospective method , collaboration revenue for the year ended december 31 , 2017 continues to be presented under previous accounting guidance . 65 research and development expenses the following table summarizes our research and development expenses for years ended december 31 , 2018 and 2017 : replace_table_token_3_th research and development expenses increase d by $ 2.3 million from $ 67.8 million for the year ended december 31 , 2017 to $ 70.1 million for the year ended december 31 , 2018 . the increase in research and development expenses was primarily attributable to the following : $ 3.1 million of increased employee compensation costs , including $ 1.7 million of increased stock-based compensation expense ; and $ 3.0 million of increased external clinical and regulatory costs related to our ongoing vopratelimab phase 1/2 clinical trial , as well as the initiation of our jtx-4014 phase 1 clinical trial .
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the income approach involves the projection of cash flows a market participant would expect an asset or story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. the following discussion contains ยforward-looking statementsย that are based on management 's current expectations , estimates and projections about our business and operations , and involves risks and uncertainties . our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors , including those we discuss under ยrisk factors , ย ยcautionary note regarding forward-looking statementsย and elsewhere in this annual report on form 10-k. overview we are an independent exploration and production company focused on the application of modern drilling and completion techniques in oil and liquids-rich basins in the onshore united states . our operations are primarily focused on exploration and production activities in the mississippian lime and anadarko basin . as of december 31 , 2017 , our properties consisted of approximately 190,400 net acres of leasehold , with 843 gross productive wells , 71 % of which we operate , and in which we held an average working interest of approximately 86 % . as of december 31 , 2017 , our estimated net proved reserves were 108,947 mmboe , of which 52 % was oil or ngls and 59 % was proved developed . during the year ended december 31 , 2017 , our properties had aggregate net daily production of approximately 22,148 boe/d . as discussed in ยยnote 3. fresh start accountingย in the notes to the consolidated financial statements set forth in part iv , item 15 of this annual report on form 10-k , upon our emergence from the chapter 11 cases on october 21 , 2016 , we adopted fresh start accounting as required by us gaap . as a result of the application of fresh start accounting , as well as the effects of the implementation of the plan , our consolidated financial statements on or after october 21 , 2016 , are not comparable with our consolidated financial statements prior to that date . references to ยsuccessor periodย relate to the financial position and results of operations for the period october 21 , 2016 through december 31 , 2016 and references to ยpredecessor periodย refer to the financial position and results of operations of the company from january 1 , 2016 through october 20 , 2016. recent developments appointment of david j. sambrooks as president and chief executive officer on november 1 , 2017 , david j. sambrooks was appointed to the position of president and chief executive officer ( ยceoย ) , effective immediately upon the resignation of the former president and ceo , frederic brace . the board of directors of the company ( the ยboardย ) also approved an increase in the number of directors , from seven directors to eight directors , and mr. sambrooks was appointed to the board , effective concurrently with his appointment as president and ceo . emergence from chapter 11 bankruptcy on the petition date , we filed voluntary petitions for reorganization under chapter 11 of the bankruptcy code in the united states bankruptcy court . our chapter 11 cases were jointly administered under the case styled in re midstates petroleum company , inc. , et al. , case no . 16-32237 . on september 28 , 2016 , the bankruptcy court entered the confirmation order , which approved and confirmed the plan . on the effective date , we satisfied the conditions to effectiveness set forth in the confirmation order and in the plan , and the plan therefore became effective in accordance with its terms and we emerged from bankruptcy . further information is set forth in ยยnote 2. emergence from voluntary reorganization under chapter 11 proceedingsย in the notes to the consolidated financial statements set forth in part iv , item 15 of this annual report on form 10-k. 42 fresh start accounting upon our emergence on the effective date , we adopted fresh start accounting as required by us gaap . we qualified for fresh start accounting because ( i ) the holders of existing voting shares of the pre-emergence debtor-in-possession received less than 50 % of the voting shares of the post-emergence successor entity and ( ii ) the reorganization value of our assets immediately prior to confirmation was less than the post-petition liabilities and allowed claims . as discussed in ยยnote 3. fresh start accountingย in the notes to the consolidated financial statements set forth in part iv , item 15 of this annual report on form 10-k , we applied fresh start accounting as of october 21 , 2016. adopting fresh start accounting results in a new reporting entity for financial reporting purposes with no beginning retained earnings or deficit . the cancellation of all existing shares outstanding on the effective date and issuance of new shares in the reorganized company caused a related change of control under us gaap . as a result of the application of fresh start accounting , as well as the effects of the implementation of the plan , our consolidated financial statements on or after october 21 , 2016 , are not comparable with our consolidated financial statements prior to that date . stock listing our common stock was listed on the nyse on april 25 , 2012 through february 3 , 2016 under the symbol ยmpoย . on february 3 , 2016 , our stock was delisted by the nyse and began trading on the otc pink market under the symbol ยmpoyย through october 21 , 2016. on october 21 , 2016 , in connection with our emergence from chapter 11 , our existing common shares traded under the symbol mpoy were cancelled . story_separator_special_tag since we have elected not to apply hedge accounting to our derivatives , we reflect the unrealized and realized gains and losses in our current income statement periods based on the mark-to-market ( ยmtmย ) value at the end of each month . cash flows associated with derivative financial instruments are reflected in cash flows from operations in our consolidated statement of cash flows . we had open derivative contracts at december 31 , 2017 that extend through december 2019. we did not have any open commodity derivative contract positions at december 31 , 2016 or 2015. the following table sets forth the components of our realized gain on commodity derivative contracts , net in our consolidated statements of operations ( in thousands ) : replace_table_token_18_th cash settlements , as presented in the table above , represent realized gains/losses related to our derivative instruments . in addition to cash settlements , we also recognize fair value changes on our derivative instruments in each reporting period . the changes in fair value result from new positions and settlements that may occur during each reporting period , as well as the relationships between contract prices and the associated forward curves . other revenues year ended december 31 , 2017 for the year ended december 31 , 2017 , other revenues were $ 4.2 million . other revenue for the year ended december 31 , 2017 was primarily comprised of fees charged to outside working interest owners for salt water disposal as well as payments received from a customer for the extraction of iodine from our salt water . successor period for the successor period , other revenues were $ 1.0 million . other revenue for the successor period was primarily comprised of fees charged to outside working interest owners for salt water disposal . predecessor period for the predecessor period , other revenues were $ 4.8 million . other revenue for the predecessor period was primarily comprised of fees charged to outside working interest owners for salt water disposal . 47 year ended december 31 , 2015 for the year ended december 31 , 2015 , other revenues were $ 1.5 million . other revenue was primarily comprised of payments received from a third party for the extraction of iodine from our produced salt water . oil , ngls and natural gas production replace_table_token_19_th crude oil production year ended december 31 , 2017 for the year ended december 31 , 2017 , our oil volumes sold averaged 6,487 bbls/d , comprised of 5,108 bbls/d from our mississippian lime assets and 1,379 bbls/d from our anadarko basin assets . successor period for the successor period , our oil volumes sold averaged 7,556 bbls/d , comprised of 6,048 bbls/d from our mississippian lime assets and 1,508 bbls/d from our anadarko basin assets . predecessor period for the predecessor period , our oil volumes sold averaged 10,083 bbls/d , comprised of 8,156 bbls/d from our mississippian lime assets and 1,927 bbls/d from our anadarko basin assets . year ended december 31 , 2015 for the year ended december 31 , 2015 , our oil volumes sold averaged 13,134 bbls/d , comprised of 10,194 bbls/d from our mississippian lime assets , 2,680 bbls/d from our anadarko basin assets and 260 bbls/d from our gulf coast assets . 48 ngls production year ended december 31 , 2017 for the year ended december 31 , 2017 , our ngls volumes sold averaged 5,339 bbls/d , comprised of 4,273 bbls/d from our mississippian lime assets and 1,066 bbls/d from our anadarko basin assets . successor period for the successor period , our ngls volumes sold averaged 5,961 bbls/d , comprised of 4,843 bbls/d from our mississippian lime assets and 1,118 bbls/d from our anadarko basin assets . predecessor period for the predecessor period , our ngls volumes sold averaged 6,573 bbls/d , comprised of 5,326 bbls/d from our mississippian lime assets and 1,247 bbls/d from our anadarko basin assets . year ended december 31 , 2015 for the year ended december 31 , 2015 , our ngls volumes sold averaged 6,776 bbls/d , comprised of 5,307 bbls/d from our mississippian lime assets , 1,388 bbls/d from our anadarko basin assets and 81 bbls/d from our gulf coast assets . natural gas production year ended december 31 , 2017 for the year ended december 31 , 2017 , our natural gas volumes sold averaged 61,932 mcf/d , comprised of 52,797 mcf/d from our mississippian lime assets and 9,135 mcf/d from our anadarko basin assets . successor period for the successor period , our natural gas volumes sold averaged 68,719 mcf/d , comprised of 58,816 mcf/d from our mississippian lime assets and 9,903 mcf/d from our anadarko basin assets . predecessor period for the predecessor period , our natural gas volumes sold averaged 78,963 mcf/d , comprised of 68,107 mcf/d from our mississippian lime operations and 10,856 mcf/d from our anadarko basin assets . year ended december 31 , 2015 for the year ended december 31 , 2015 , our natural gas volumes sold averaged 77,817 mcf/d , comprised of 64,688 mcf/d from our mississippian lime assets , 12,921 mcf/d from our anadarko basin assets and 208 mcf/d from our gulf coast assets . 49 expenses replace_table_token_20_th lease operating and workover lease operating expenses represent costs incurred to bring oil and gas out of the ground and to the market , together with the daily costs incurred to maintain our producing properties . such costs also include natural gas treating expenses and the handling and disposal of produced water as well as maintenance and repair expenses related to our oil and gas properties . lease operating expenses include both a portion of costs that are fixed in nature , such as infrastructure costs and compressor rental costs , as well as variable costs resulting from additional wells and production , such as chemicals and electricity . as production increases , our average lease operating expense per barrel of oil equivalent is typically reduced because fixed costs do not increase proportionately with production .
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results of operations oil , ngls and natural gas revenue oil , ngls and natural gas our revenues are derived from the sale of oil and natural gas production , as well as the sale of ngls that are extracted from our high btu content natural gas . our oil and natural gas revenues do not include the effects of derivatives and may vary significantly from period to period as a result of changes in production volumes or commodity prices . prices for oil , ngls and natural gas fluctuate widely and affect : ยท the amount of our cash flows available for capital expenditures ; ยท our ability to borrow and raise additional capital ; ยท the quantity of oil , ngls and natural gas we can economically produce ; and ยท our revenues and profitability . average market prices for oil and ngls have historically experienced significant volatility . for a description of factors that may impact future commodity prices , please read ยrisk factorsยrisks related to the oil and natural gas industry and our businessย . beginning january 1 , 2018 , financial accounting standards board ( ยfasbย ) accounting standards update ( ยasuย ) 2014-09 becomes effective for us . see ยcritical accounting policies and estimatesย below as well as ยrecent accounting pronouncementsย in ยยnote 4. summary of significant accounting policiesย in the notes to the consolidated financial statements set forth in part iv , item 15 of this annual report on form 10-k , for year ended december 31 , 2017 for further discussion of anticipated updates to our revenues under fasb accounting standards codification ( ยascย ) 606 .
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since 2001 , there has been increased demand for energy generated from geothermal resources in the united states as costs for electricity generated from geothermal resources have become more competitive relative to fossil fuel generation . this has partly been due to increasing natural gas and oil prices during much of this period and , equally important , to legislative and regulatory requirements and incentives , such as state renewable portfolio standards and federal tax credits . the arra further encourages the use of geothermal energy through ptcs or itcs as well as cash grants ( which are discussed in more detail in ยgovernment grants and tax benefitsย below ) . in response , the geothermal industry in the united states has seen a wave of new entrants and , over the last several years , consolidation involving smaller developers . we see the increasing demand for energy generated from geothermal and other renewable resources in the united states and the further introduction of renewable portfolio standards as significant trends affecting our industry today and in the immediate future . our operations and the trends that from time to time impact our operations are subject to market cycles . although other trends , factors and uncertainties may impact our operations and financial condition , including many that we do not or can not foresee , we believe that our results of operations and financial condition for the foreseeable future will be affected by the following trends , factors and uncertainties : we expect to continue to generate the majority of our revenues from our electricity segment through the sale of electricity from our power plants . all of our current revenues from the sale of electricity are derived from payments under long-term ppas related to fully-contracted power plants . we also intend to continue to pursue opportunities , as they arise in our recovered energy business and in the solar pv sector . our primary focus continues to be our organic growth through exploration , development , construction of new projects and enhancements of existing power plants . we expect that this investment in organic growth will increase our total generating capacity , consolidated revenues and operating income attributable to our electricity segment from year to year . in addition , we routinely look at acquisition opportunities . the continued awareness of climate change may result in significant changes in the business and regulatory environments , which may create business opportunities for us . in 2011 , the first phase of the epa ยtailoring ruleย took effect . the tailoring rule sets thresholds addressing the applicability of the permitting requirements under the clean air act 's prevention of significant deterioration and title v programs to certain major sources of ghg emissions . federal legislation or additional federal regulations addressing climate change are possible . in addition , several states and regions are already addressing climate change . for example , california 's state climate change law , ab 32 , which was signed into law in september 2006 , regulates most sources of ghg emissions and aims to reduce ghg emissions to 1990 levels by 2020. on october 20 , 2011 the carb adopted cap-and-trade regulations to reduce california 's greenhouse gas emissions under ab 32. in addition to california , twenty-two other u.s. states have set ghg emissions targets or goals . regional initiatives , such as the western climate initiative ( which 99 includes california and four canadian provinces ) and the midwest ghg reduction accord ( which includes six u.s. states and one canadian province ) , are also being developed to reduce ghg emissions and develop trading systems for renewable energy credits . in the united states , approximately 40 states have adopted rps , renewable portfolio goals , or similar laws requiring or encouraging electric utilities in such states to generate or buy a certain percentage of their electricity from renewable energy sources or recovered heat sources . on april 12 , 2011 , governor jerry brown signed california senate bill x1-2 ( sbx1-2 ) which increased california 's rps to 33 % by december 31 , 2020 and instituted a tradable rec program . sbx1-2 is expected to foster a liquid tradable rec market and lead to more creative off-take arrangements . although we can not predict at this time whether the tradable rec program under sbx1-2 and its implementing regulations will have a significant impact on our operations or revenue , it may facilitate additional options when negotiating ppas and selling electricity from our projects . the cpuc recently authorized the utilities to procure 1,299 mw through the ram program , a procurement mechanism for renewable distributed generation projects greater than 3 mw and up to 20 mw , by holding four auctions over two years . we expect that the additional demand for renewable energy from utilities in california will outpace a possible reduction in general demand for energy ( if any ) due to the effect of economic conditions . we see increased demand in california after 2016 driven by the impact of the increase in california 's rps . this may create opportunities for us to replace some of our existing so # 4 ppas , expand existing power plants and develop new power plants . outside of the united states , we expect that a variety of governmental initiatives will create new opportunities for the development of new projects , as well as create additional markets for our products . these initiatives include the award of long-term contracts to independent power generators , the creation of competitive wholesale markets for selling and trading energy , capacity and related energy products and the adoption of programs designed to encourage ยcleanย renewable and sustainable energy sources . story_separator_special_tag as our power plants ( including their respective well fields ) age , they may require increased maintenance with a resulting decrease in their availability , potentially leading to the imposition of penalties if we are not able to meet the requirements under our ppas as a result of any decrease in availability . our foreign operations are subject to significant political , economic and financial risks , which vary by country . as of the date of this annual report , those risks include the partial privatization of the electricity sector in guatemala , labor unrest in nicaragua and the political uncertainty currently prevailing in some of the countries in which we operate . although we maintain political risk insurance for most of our foreign power plants to mitigate these risks , insurance does not provide complete coverage with respect to all such risks . the energy policy act of 2005 authorizes ferc to terminate , upon the request of a utility , the obligation of electric utilities to purchase the output of a qualifying facility if ferc finds that there is an accessible competitive market for energy and capacity from the qualifying facility . the legislation does not affect existing ppas . we do not expect this change in law to affect our u.s. power plants significantly , as all of our current ppas are long-term . ferc recently granted the california investor-owned utilities a waiver of the mandatory purchase obligations from qualifying facilities above 20 mw . if the utilities in the regions in which our domestic power plants operate were to be relieved of the mandatory purchase obligation , they would not be required to purchase energy from us upon termination of the existing ppa , which could have an adverse effect on our revenues . 101 revenues we generate our revenues from the sale of electricity from our geothermal and recovered energy-based power plants ; the design , manufacture and sale of equipment for electricity generation ; and the construction , installation and engineering of power plant equipment . revenues attributable to our electricity segment are derived from the sale of electricity from our power plants pursuant to long-term ppas . while approximately 61.8 % of our electricity revenues for the year ended december 31 , 2012 were derived from ppas with fixed price components , we have variable price ppas in california and hawaii . our california so # 4 ppas are subject to the impact of fluctuations in natural gas prices . the prices paid for electricity pursuant to the 25 mw ppa for the puna complex in hawaii are impacted by the price of oil . accordingly , our revenues from those power plants may fluctuate . as discussed in ยrecent developmentsย in item 1 ย ยbusinessย in the year ended december 31 , 2012 , we entered into swap contracts and put transactions in an attempt to reduce our exposure to fluctuations in the prices of natural gas and oil , under the california so # 4 ppas and under the 25 mw ppa for the puna complex , until december 31 , 2013. our electricity segment revenues are also subject to seasonal variations , as more fully described in ยseasonalityย below , and may also be affected by higher-than-average ambient temperature , which could cause a decrease in the generating capacity of our power plants , and by unplanned major maintenance activities related to our power plants . our ppas generally provide for the payment of energy payments alone , or energy and capacity payments . generally , capacity payments are payments calculated based on the amount of time that our power plants are available to generate electricity . some of our ppas provide for bonus payments in the event that we are able to exceed certain target capacity levels and the potential forfeiture of payments if we fail to meet certain minimum target capacity levels . energy payments , on the other hand , are payments calculated based on the amount of electrical energy delivered to the relevant power purchaser at a designated delivery point . the rates applicable to such payments are either fixed ( subject , in certain cases , to certain adjustments ) or are based on the relevant power purchaser 's avoided costs . our more recent ppas generally provide for energy payments alone with an obligation to compensate the off-taker for its incremental costs as a result of shortfalls in our supply . revenues attributable to our product segment fluctuate between periods , mainly based on our ability to receive customer orders and the status and timing of such orders . larger customer orders for our products are typically the result of our participating in , and winning , tenders or requests for proposals issued by potential customers in connection with projects they are developing . such projects often take a significant amount of time to design and develop and are often subject to various contingencies , such as the customer 's ability to raise the necessary financing for a project . consequently , we are generally unable to predict the timing of such orders for our products and may not be able to replace existing orders that we have completed with new ones . as a result , revenues from our product segment fluctuate ( sometimes , extensively ) from period to period . in both 2011 and 2012 , we experienced a significant increase in our product segment customer orders , which has increased our product segment backlog . we expect that our product segment revenues will remain robust until the end of 2013 as a result of these new orders and increased backlog , which is described in item 1 ย ยbusinessย . the following table sets forth a breakdown of our revenues for the years indicated : replace_table_token_8_th 102 geographical breakdown of revenues the following table sets forth the geographic breakdown of the revenues attributable to our electricity and product
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results of operations our historical operating results in dollars and as a percentage of total revenues are presented below . a comparison of the different years described below may be of limited utility due to our recent construction of new power plants and enhancement of acquired power plants and fluctuation in revenues from our product segment . replace_table_token_10_th 109 replace_table_token_11_th 110 comparison of the year ended december 31 , 2012 and the year ended december 31 , 2011 total revenues total revenues for the year ended december 31 , 2012 were $ 514.4 million , compared to $ 437.0 million for the year ended december 31 , 2011 , which represented a 17.7 % increase in total revenues . this increase was principally attributable to our product segment , in which revenues increased by 65.1 % over the same period in 2011 , principally due to a single order of $ 130.0 million referred to below , which we received in 2011. electricity segment revenues attributable to our electricity segment for the year ended december 31 , 2012 were $ 327.5 million , compared to $ 323.8 million for the year ended december 31 , 2011 , which represented a 1.1 % increase in such revenues . this increase was primarily due to : ( i ) $ 23.5 million in revenues from our tuscarora and mcginness hills power plants , which commenced commercial operations in january 2012 and july 2012 , respectively ; ( ii ) a $ 3.2 million net increase in revenues from other power plants ; and ( iii ) a net gain of $ 2.2 million on derivative contracts on oil and natural gas prices , which are described under ยrecent developmentsย in item 1 ย ยbusinessย .
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50 in accordance with the provisions of the guidance , we categorized our financial assets and liabilities which are valued on a recurring basis , based on the priority of the inputs to the valuation technique for the instruments , as follows : replace_table_token_20_th 6. prepaid expenses and other current assets : prepaid expenses and other current assets consisted of the following : replace_table_token_21_th 51 7. property and equipment , net : property and equipment , net , consisted of the following : replace_table_token_22_th total depreciation expense for fiscal 2019 , 2018 and 2017 was $ 88.0 million , $ 91.2 million and $ 96.2 million , respectively . depreciation expense in fiscal story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto . references herein to โ notes โ refer to the notes to our consolidated financial statements . each of the periods presented had fifty-two weeks , except for fiscal 2017 , which consisted of fifty-three weeks . executive overview we are a leading omnichannel specialty retailer of women 's private branded , sophisticated , casual-to-dressy apparel , intimates and complementary accessories , operating under the chico 's , white house black market ( โ whbm โ ) , soma and telltale brand names in the united states ( `` u.s. '' ) , puerto rico , the u.s. virgin islands and canada . we refer to our chico 's and whbm brands collectively as our `` apparel group '' and refer to our soma and telltale brands collectively as our `` intimates group . '' our distinct lifestyle brands serve the needs of fashion-savvy women 35 years and older . we earn revenue and generate cash through the sale of merchandise in our domestic and international retail stores , our various company-operated e-commerce websites , our call center ( which takes orders for all of our brands ) , through unaffiliated franchise partners and through third-party channels . we utilize an integrated , omnichannel approach to managing our business . we want our customers to experience our brands holistically and to view the various retail channels we operate as a single , integrated experience rather than as separate sales channels operating independently . this approach allows our customers to browse , purchase , return or exchange our merchandise through whatever sales channel and at whatever time is most convenient . as a result , we track total sales and comparable sales on a combined basis . select financial results the following table depicts select financial results for fiscal 2019 , 2018 and 2017 : replace_table_token_5_th loss per diluted share for fiscal 2019 was $ 0.11 compared to earnings per diluted share of $ 0.28 in fiscal 2018 . the change in loss per share reflects a decrease in net income . fiscal 2019 net loss includes the unfavorable impact of accelerated depreciation charges of approximately $ 8 million , after-tax , related to our retail fleet optimization plan and severance and other related net charges ( collectively , `` severance charges '' ) of approximately $ 2 million , after-tax , in connection with actions taken to reposition our organizational structure . fiscal 2018 net income includes the unfavorable impact of accelerated depreciation and impairment charges of approximately $ 8 million , after-tax , related to our retail fleet optimization plan , partially offset by the favorable tax benefit of approximately $ 5 million related to the tax cuts and jobs act of 2017 ( the `` tax act '' ) . 23 key initiatives fiscal 2019 key initiatives included : initiated new organizational structure and merchant leadership appointments that are designed to strengthen the organization , create clear lines of responsibility and accelerate sales driving priorities made significant progress on executing new fiscal 2019 operating priorities which include : ( i ) driving stronger sales through improved product and marketing ; ( ii ) optimizing the customer journey by simplifying , digitizing and extending the company 's unique and personalized service ; and ( iii ) transforming sourcing and supply chain operations to increase product speed to market and improve quality completed rollout of styleconnect tm , an enhanced platform that provides digitized clienteling tools to all stores implemented buy on-line , pick-up in-store ( bopis ) capability across all brands expanded focus on reducing china penetration to diversify county of origin mix and securing partnerships with key vendors to create a leaner , more efficient supply chain future outlook the company 's outlook included in our fourth quarter earnings release filed on form 8-k on february 27 , 2020 does not reflect the developing impact of the coronavirus ( covid-19 ) . in recent days , this outbreak has resulted in reduced customer traffic and the temporary reduction of operating hours for our stores as well as temporary store closures where government mandated . these recent developments are expected to result in lower sales and gross margin than provided in our previous outlook . key performance indicators in assessing the performance of our business , we consider a variety of key performance and financial measures to evaluate our business , develop financial forecasts and make strategic decisions . these key measures include comparable sales , gross margin as a percent of sales , diluted earnings per share and return on net assets ( `` rona '' ) . the following describes these measures . comparable sales comparable sales is an omnichannel measure of the amount of sales generated from products the company sells directly to the consumer relative to the amount of sales generated in the comparable prior-year period . comparable sales is defined as sales from stores open for the preceding twelve months , including stores that have been expanded , remodeled or relocated within the same general market and includes online and catalog sales , and beginning in the third quarter of fiscal 2019 , includes international sales . the comparable sales calculation excludes the negative impact of stores closed four or more days and sales attributable to the fifty-third week in fiscal 2017. story_separator_special_tag our ongoing capital requirements will continue to be primarily for enhancing and expanding our omnichannel capabilities , including expanded , relocated and remodeled stores ; information technology ; and supply chain . the following table summarizes cash flows for fiscal 2019 , 2018 and 2017 : replace_table_token_10_th ( 1 ) may not foot due to rounding . operating activities net cash provided by operating activities in fiscal 2019 was $ 33 million compared to $ 158 million for fiscal 2018 . this $ 125 million decrease primarily reflects lower fiscal 2019 net income , a decline in share-based compensation and investments in cloud computing arrangement ( `` cca '' ) service contracts and soma inventory to fund growth . net cash provided by operating activities in fiscal 2018 was $ 158 million compared to $ 167 million for fiscal 2017. this $ 9 million decrease primarily reflects a decline in fiscal 2018 net income and an increase in income tax receivables which was partially offset by the timing of vendor payments and payroll accruals , payments made in fiscal 2017 for outside services , the clearing of seasonal merchandise and the impact of lower incentive compensation payments . investing activities net cash used in investing activities for fiscal 2019 was $ 36 million compared to $ 56 million for fiscal 2018 , primarily reflecting a $ 20 million decrease in purchases of property and equipment as we continue to invest in cca service contracts . net cash used in investing activities for fiscal 2018 was $ 56 million compared to $ 58 million for fiscal 2017. the change in net cash used in investing activities reflects an $ 8 million net decrease in marketable securities activity as a result of the timing of securities purchases and sales , partially offset by an increase in purchases of property and equipment . 28 financing activities net cash used in financing activities for fiscal 2019 was $ 58 million compared to $ 138 million in fiscal 2018 , primarily reflecting an $ 81 million decrease in share repurchases . in fiscal 2019 , we paid four cash dividends at $ 0.0875 per share on our common stock , totaling $ 41 million , and received approximately $ 1 million in proceeds from issuing approximately 2 million shares related to employee stock ownership plans . net cash used in financing activities for fiscal 2018 was $ 138 million compared to $ 91 million in fiscal 2017. this $ 47 million increase in net cash used in financing activities primarily reflects a $ 54 million increase in share repurchases in fiscal 2018 compared to fiscal 2017 , partially offset by a decrease in payments on net borrowings under our credit agreement in fiscal 2018. in fiscal 2018 , we paid four cash dividends at $ 0.085 per share on our common stock , totaling $ 43 million , and received approximately $ 1 million in proceeds from issuing approximately 2 million shares related to employee stock ownership plans and stock option exercises . store and franchise activity during fiscal 2019 , we had 77 net store closures , consisting of 28 chico 's stores , 34 whbm stores and 15 soma stores . as part of our retail fleet optimization plan , we closed 94 underperforming stores since the announcement of our plan , with anticipated closures of approximately 60 to 70 stores in fiscal 2020. we also plan to invest in opening approximately 10 soma stores in fiscal 2020. we continuously evaluate the appropriate store base in light of economic conditions and our business strategy and may adjust the openings and closures as conditions require or as opportunities arise . as of february 1 , 2020 , the company 's franchise operations consisted of 70 international retail locations in mexico and 2 domestic airport locations . contractual obligations the following table summarizes our contractual obligations at february 1 , 2020 : replace_table_token_11_th ( 1 ) may not cross-foot due to rounding . as of february 1 , 2020 , our contractual obligations consisted of : 1 ) amounts outstanding under operating leases , 2 ) open purchase orders for inventory and other operating expenses , in the normal course of business , 3 ) contractual commitments for fiscal 2020 capital expenditures , 4 ) long-term debt obligations and 5 ) interest payments on long-term debt . until formal resolutions are reached between us and the relevant taxing authorities , we are unable to estimate a final determination related to our uncertain tax positions and therefore , we have excluded the uncertain tax positions , totaling approximately $ 1 million at february 1 , 2020 from the above table . credit facility on august 2 , 2018 , the company and certain of its domestic subsidiaries entered into a credit agreement ( the โ agreement โ ) as borrowers and guarantors , with wells fargo bank , national association , as agent , letter of credit issuer and swing line lender , and certain lenders party thereto . our obligations under the agreement are guaranteed by the subsidiary guarantors and secured by a lien on certain assets of the company and the subsidiary borrowers and guarantors , including inventory , accounts receivable , cash deposits , and certain insurance proceeds . the agreement provides for a five-year asset-based senior secured revolving loan and letter of credit facility of up to $ 200 million , maturing august 2 , 2023. in addition , during the term of the agreement , the company may increase the commitments under the agreement by up to an additional $ 100 million , subject to customary conditions , including obtaining the agreements from the lenders to provide such commitment increase .
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results of operations net sales the following table depicts net sales by chico 's , whbm and soma in dollars and as a percentage of total net sales for fiscal 2019 , 2018 and 2017 : replace_table_token_6_th ( 1 ) may not foot due to rounding . ( 2 ) includes telltale net sales , which is not a significant component of soma revenue . for fiscal 2019 , net sales were $ 2.0 billion compared to $ 2.1 billion in fiscal 2018 . this decrease of 4.4 % reflects a comparable sales decline of 3.4 % as well as the impact of 77 net store closures since fiscal 2018 . the comparable sales decline was driven by lower average dollar sale and a decrease in transaction count . for fiscal 2018 , net sales were $ 2.1 billion compared to $ 2.3 billion in fiscal 2017. this decrease of 6.6 % reflects a comparable sales decline of 4.9 % , the $ 29 million benefit of the fifty-third week in fiscal 2017 and the impact of a 2.9 % net decrease in selling square footage in 2018. the comparable sales decline was driven by a decrease in transaction count and lower average dollar sale . the following table depicts comparable sales percentages for chico 's , whbm and soma for fiscal 2019 , 2018 and 2017 : replace_table_token_7_th 25 ( 1 ) fiscal 2018 comparable sales represent sales for the fifty-two weeks ended february 2 , 2019 compared to sales for the fifty-two weeks ended february 3 , 2018 . ( 2 ) the fifty-third week of fiscal 2017 is excluded from the comparable sales calculation .
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technology , and the potential interruption of such systems or technology ; risks related to data security of privacy breaches ; and other risks detailed from time to time in our filings with the sec . our future financial performance could differ materially from the expectations of management contained herein . additionally , many of these risks and uncertainties are currently elevated by and may or will continue to be elevated by the covid-19 pandemic . it is not possible to predict or identify all such risks , but may become material in the future . we undertake no obligation to release revisions to these forward-looking statements after the date of this report . overview we are a full-service wealth management firm focused on providing financial advisory and related family office services to ultra-high net worth individuals and institutional investors . in addition to a wide range of investment capabilities , we offer a full suite of complementary and customized family office services for families seeking a comprehensive oversight of their financial affairs . during the twelve months ended december 31 , 2020 , our assets under management increased 10.8 % from $ 25.1 billion to $ 27.8 billion . on july 1 , 2019 , we acquired $ 1.7 billion of assets under management in connection with the acquisition of cortina asset management llc ( โ cortina โ and โ cortina acquisition โ ) . the business includes the management of funds of funds , and other investment funds , collectively referred to as the โ silvercrest funds โ . silvercrest l.p. has issued restricted stock units exercisable for 74,907 class b units which entitle the holders thereof to receive distributions from silvercrest l.p. to the same extent as if the underlying class b units were outstanding . net profits and net losses of silvercrest l.p. will be allocated , and distributions from silvercrest l.p. will be made , to its current partners pro rata in accordance with their respective partnership units ( and assuming the class b units underlying all restricted stock units are outstanding ) . the historical results of operations discussed in this management 's discussion and analysis of financial condition and results of operations include those of silvercrest l.p. and its subsidiaries . as the general partner of silvercrest l.p. , we control its business and affairs and , therefore , consolidate its financial position and results with ours . the interests of the limited partners ' collective 33.2 % partnership interest in silvercrest l.p. as of december 31 , 2020 are reflected in non-controlling interests in our consolidated financial statements . this item 7 generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this form 10-k can be found in โ management 's discussion and analysis of financial condition and results of operations โ in the company 's annual report on form 10-k for the fiscal year ended december 31 , 2019 filed with the sec on march 5 , 2020. covid-19 pandemic the emergence of the coronavirus ( covid-19 ) around the world , and particularly in the united states , presents significant risks to us , not all of which we are able to fully evaluate or foresee at the current time . while the covid-19 pandemic did not materially affect our financial results and business operations in the first fiscal quarter ended march 31 , 2020 , economic and health conditions in the united states and across most of the globe changed rapidly since the end of the first quarter and into the second fiscal quarter ended june 30 , 2020. demand for our services continues despite the current capital markets and overall economic environment . such current demand may not continue and or demand may decrease from historical levels depending on the duration and severity of the covid-19 pandemic , the length of time it takes for normal economic and operating conditions to resume , additional governmental actions that may be taken and or extensions of time for restrictions that have been imposed to date , and numerous other uncertainties . the covid-19 pandemic affected our operations in the second quarter ended june 30 , 2020 , in the third quarter ended september 30 , 2020 , in the fourth quarter ended december 31 , 2020 and may continue to do so indefinitely thereafter . all of these factors may have far reaching impacts on our business , operations , and financial results and conditions , directly and indirectly , 37 including without limitation impacts on the health of our management and employees , client behavior , and on the overall economy . the scope and nature of these impacts , most of which are beyond our control , continue to evolve , and the outcomes of these impacts are uncertain . our revenue is highly correlated to securities markets . as a result , we expect that our assets under management and revenue levels will be negatively impacted , on an incremental basis , by the effect of the covid-19 pandemic on securities markets . the decrease in assets under management for the three months ended march 31 , 2020 had an impact on our revenue for the second quarter ended june 30 , 2020 because most of our revenue is billed in advance based on the value of assets under management on the last day of the preceding calendar quarter . we continue to fully operate with our management and employees working remotely and we have had business continuity plans in place which we were able to seamlessly activate upon actions taken by various governmental authorities suggesting that businesses recommend that their employees work from home as a result of the pandemic . due to the above circumstances and as described generally in this form 10-k , management can not predict the full impact of the covid-19 pandemic on the company 's earnings and operations nor to economic conditions generally . story_separator_special_tag our basic annual fee schedule for management of clients ' assets in separately managed accounts is : ( i ) for managed equity or balanced portfolios , 1 % of the first $ 10 million and 0.60 % on the balance , ( ii ) for managed fixed income only portfolios , 0.40 % on the first $ 10 million and 0.30 % on the balance , ( iii ) for the municipal value strategy , 0.65 % , ( iv ) for cortina 's equity portfolios , 1 % on the first $ 25 million , 0.90 % on the next $ 50 million and 0.80 % on the balance and ( v ) for outsourced chief investment officer portfolios , 0.40 % on the first $ 50 million , 0.32 % on the next $ 50 million and 0.24 % on the balance . our fee for monitoring non-discretionary assets can range from 0.05 % to 0.01 % , but can also be incorporated into an agreed-upon fixed family office service fee . the majority of our client relationships pay a blended fee rate because they are invested in multiple strategies . 39 management fees earned on investment funds that we advise are calculated primarily based on the net assets of the funds . some funds calculate investment fees based on the net assets of the funds as of the last business day of each calendar quarter , whereas other funds calculate investment fees based on the value of net assets on the first business day of the month . depending on the investment fund , fees are paid either quarterly in advance or quarterly in arrears . for our private funds , the fees range from 0.25 % to 1.5 % annually . certain management fees earned on investment funds for which we perform risk management and due diligence services are based on flat fee agreements customized for each engagement . average annual management fee is calculated by dividing our actual revenue earned over a period by our average assets under management during the same period ( which is calculated by averaging quarter-end assets under management for the applicable period ) . our average management fee was 0.41 % , 0.46 % and 0.49 % for the years ended december 31 , 2020 , 2019 and 2018 , respectively . changes in our total average management fee rates are typically the result of changes in the mix of our assets under management and increased concentration in our equities strategies whose fee rates are higher than those of other investment strategies . advisory fees are also adjusted for any cash flows into or out of a portfolio , where the cash flow represents greater than 10 % of the previous quarter-end market value of the portfolio . these cash flow-related adjustments were insignificant for the years ended december 31 , 2020 , 2019 and 2018. silvercrest l.p. has authority to take fees directly from external custodian accounts of its separately managed accounts . our management and advisory fees may fluctuate based on a number of factors , including the following : changes in assets under management due to appreciation or depreciation of our investment portfolios , and the levels of the contribution and withdrawal of assets by new and existing clients ; allocation of assets under management among our investment strategies , which have different fee schedules ; allocation of assets under management between separately managed accounts and advised funds , for which we generally earn lower overall advisory fees ; and the level of our performance with respect to accounts and funds on which we are paid incentive fees . our family office services capabilities enable us to provide comprehensive and integrated services to our clients . our dedicated group of tax and financial planning professionals provide financial planning , tax planning and preparation , partnership accounting and fund administration , and consolidated wealth reporting , among other services . family office services income fluctuates based on both the number of clients for whom we perform these services and the level of agreed-upon fees , most of which are flat fees . therefore , non-discretionary assets under management , which are associated with family office services , do not typically serve as the basis for the amount of family office services revenue that is recognized . expenses our expenses consist primarily of compensation and benefits expenses , as well as general and administrative expense including rent , professional services fees , data-related costs and sub-advisory fees . these expenses may fluctuate due to a number of factors , including the following : variations in the level of total compensation expense due to , among other things , bonuses , awards of equity to our employees and partners of silvercrest l.p. , changes in our employee count and mix , and competitive factors ; and the level of management fees from funds that utilize sub-advisors will affect the amount of sub-advisory fees . compensation and benefits expense our largest expense is compensation and benefits , which includes the salaries , bonuses , equity-based compensation and related benefits and payroll costs attributable to our principals and employees . our compensation methodology is intended to meet the following objectives : ( i ) support our overall business strategy ; ( ii ) attract , retain and motivate top-tier professionals within the investment management industry ; and ( iii ) align our employees ' interests with those of our equity owners . we have experienced , and expect to continue to experience , a general rise in compensation and benefits expense commensurate with growth in headcount and with the need to maintain competitive compensation levels . 40 the components of our compensation and benefits expenses for the years ended december 31 , 20 20 , 201 9 and 201 8 are as follows : replace_table_token_6_th ( 1 ) for the years ended december 31 , 2020 , 2019 and 2018 , $ 27,467 , $ 27,229 and $ 27,197 of partner incentive payments were included in cash compensation and benefits expense , respectively .
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operating results revenue our revenues for the years ended december 31 , 2020 , 2019 and 2018 are set forth below : replace_table_token_7_th replace_table_token_8_th the growth in our assets under management from january 1 , 2018 to december 31 , 2020 is described below : replace_table_token_9_th ( 1 ) less than 5 % of assets under management generate performance fees . 42 replace_table_token_10_th 1 returns are based upon a time weighted rate of return of various fully discretionary equity portfolios with similar investment objectives , strategies and policies and other relevant criteria managed by silvercrest asset management group llc ( โ samg llc โ ) , a subsidiary of silvercrest . performance results are gross of fees and net of commission charges . an investor 's actual return will be reduced by the advisory fees and any other expenses it may incur in the management of the investment advisory account . samg llc 's standard advisory fees are described in part 2 of its form adv . actual fees and expenses will vary depending on a variety of factors , including the size of a particular account . returns greater than one year are shown as annualized compounded returns and include gains and accrued income and reinvestment of distributions . past performance is no guarantee of future results . this report contains no recommendations to buy or sell securities or a solicitation of an offer to buy or sell securities or investment services or adopt any investment position . this report is not intended to constitute investment advice and is based upon conditions in place during the period noted . market and economic views are subject to change without notice and may be untimely when presented here . readers are advised not to infer or assume that any securities , sectors or markets described were or will be profitable .
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โ we assume no obligation to update any of these forward-looking statements . please note that we effected an 8-for-1 common stock split on january 19 , 2012 , and all historical common stock and per share information has been changed to reflect the common stock split . executive summary from software products to core business applications , we are a leading global provider of expert consulting , development , testing , support and infrastructure services to many of the world 's leading organizations . as we evolve into a global , not just regional , leader in software and application outsourcing , we recognize that our history , our culture , our delivery model , and our people are at the core of what makes us excel in the industry . we deliver complex solutions to clients around the world utilizing our distributed delivery model , which now includes advanced capabilities . our delivery focus has not wavered since our inception over 20 years ago , even as our capabilities , tools , and practices have progressed over time . our delivery evolved to accommodate the needs of our customers across multiple continents and lines of business and to ensure consistent quality in every project deliverable . our global delivery model and centralized support functions , combined with the benefits of scale from the shared use of fixed-cost resources , such as computers and office space , enhance our productivity levels and enable us to better manage the efficiency of our global operations by maintaining adequate resource utilization levels and implementing company-wide cost-management programs . as a result , we have created a delivery base whereby our applications , tools , methodologies and infrastructure allow us to seamlessly deliver services and solutions from our delivery centers to global clients across all geographies , further strengthening our relationships with them . through increased specialization in focused verticals and a continued emphasis on strategic partnerships , we are leveraging our roots in software engineering to become a recognized brand in it services and software development . we are continuously venturing into new industries to expand our core industry client base in software and technology , banking and capital markets , business information and media , travel and hospitality . our clients depend on us to solve complex technical challenges and our teams are integral parts of engineering efforts that cross products and industries . overview of 2014 during the year ended december 31 , 2014 , total revenues were $ 730.0 million , an increase of approximately 31.5 % over $ 555.1 million reported for the same period a year ago . our performance remained strong , driving revenue growth in north america and europe both organically and through acquisitions . we remain committed to maintaining and improving a well-balanced portfolio of clients and seek to grow revenues from our existing clients by continually expanding the scope and size of our engagements , as well as by growing our key client base through business development efforts and strategic acquisitions . during 2014 , we made progress in this strategy and increased the reach of our offerings , both geographically and across industry verticals . during 2014 , our top five and top ten customers accounted for 32.8 % and 43.9 % of consolidated revenues , respectively . on march 5 , 2014 , we completed an acquisition of substantially all of the assets and assumed certain specific liabilities of u.s.-based healthcare technology consulting firm netsoft holdings llc and armenia-based ozsoft , llc ( collectively , โ netsoft โ ) . netsoft works with leading health plans in the u.s. on their medical management and claims systems , and specializes in working with leaders in pioneering fields such as accountable care organizations , tele-medicine , healthcare analytics , personalized medicine , health information exchanges , and online self-service capabilities . the netsoft acquisition added approximately 40 it professionals to our headcount . on april 30 , 2014 , we acquired all of the outstanding equity of joint technology development limited , a company organized under the laws of hong kong , including its wholly-owned subsidiaries jointech software ( shenzhen ) co. , ltd. , a company organized under the laws of china , and jointech software pte . ltd. , a company organized under the laws of singapore ( collectively , โ jointech โ ) . jointech provides strategic technology services in the investment banking , wealth and asset management industries . the acquisition of jointech added over 200 it professionals to our headcount and significantly extended our footprint in south-east asia . with this acquisition , we expect to create an integrated global platform focused on serving large multinational customers within the banking and financial services vertical , and extend our global value proposition in the region . 32 on june 6 , 2014 , we acquired substantially all of the assets and assumed certain specified liabilities of each of gga software services , llc , institute of theoretical chemistry , inc. , and gga 's russian affiliate ( collectively , โ gga โ ) . established in 1994 , gga develops scientific informatics applications , content databases , algorithms and models ; and delivers it support , maintenance , and quality assurance services to leading healthcare and life sciences companies . the acquisition added over 300 it professionals and over 120 scientists to our highly-experienced employee base and created a significant growth opportunity in the life sciences and healthcare industries . we also see tremendous potential in combining our traditionally recognized strengths with gga 's algorithm development , mathematical modeling , and sophisticated content database development capabilities . the capability to develop and operationalize platforms , combining tools , models and data , has broad applications across other strategic industries on which epam focuses , including the banking and financial services , business information and media , and retail and consumer verticals . on october 31 , 2014 , we acquired great fridays limited and its subsidiaries to expand our product and design service portfolio . story_separator_special_tag see our โ results of operations โ section below for a more detailed discussion and analysis of these charges . we have significant international operations , and we earn revenues and incur expenses in multiple currencies . when important to management 's analysis , operating results are compared in โ constant currency terms โ , a non-gaap financial 34 measure that excludes the effect of foreign currency exchange rate fluctuations . the effect of rate fluctuations is excluded by translating the current period 's revenues and expenses into u.s. dollars at the weighted average exchange rates of the prior period of comparison . see item 7a , โ quantitative and qualitative disclosures about market risk โ of this report for a discussion of our exposure to exchange rates . effects of inflation economies in cis countries such as belarus , russia , kazakhstan and ukraine have periodically experienced high rates of inflation . ukraine has been experiencing heightened political and economic turmoil with no improvement as of the date of this report . various news sources estimate that inflation has been increasing and the rate of increase has been accelerating throughout 2014. according to news reports , the peace talks continue and efforts to improve the government are in progress , however , the cost of the continuing crisis is severely impacting the ukrainian economy . the ukrainian currency has been weakened and the negative outlook in the ukrainian economy continues . the functional currency for financial reporting purposes in ukraine is us dollars . due to russia 's annexation of crimea , which was a part of ukraine , the united states and the european union have imposed and expanded sanctions targeting russian government and government-controlled interests and certain government officials . the expanded sanctions issued by the us department of treasury and the european union also restrict involvement in certain extensions of credit and financing activities for russian debtors and restrict certain business activities in sectors such as off-shore oil and defense . we believe these sanctions do not prevent us from providing our services to our customers . in february 2014 , the government of kazakhstan devalued the local currency , the tenge , by 19 % . the government kept inflation for 2014 within forecasted range of 6 % to 8 % with forecast of around 7 % for 2015 with a steady decrease towards 6 % later that year . however , political and economic instability in the region may contribute to the economic uncertainty in kazakhstan . belarus over the last several years has been experiencing hyperinflation . the measures currently used by the belarusian government to control this recent inflation include monetary policy and pricing instruments , including increasing interest rates and the use of anti-monopoly laws to prevent the increase in pricing of goods , as well as privatization and using foreign borrowings to replenish the budget and stabilize the local currency . inflation , government actions to combat inflation and public speculation about possible additional actions have also contributed to economic uncertainty in belarus . belarus may experience high levels of inflation in the future . for the year ended december 31 , 2014 , we had approximately $ 1.5 , or 0.2 % , of our revenues denominated in belarusian rubles . the functional currency for financial reporting purposes in belarus is us dollars . periods of higher inflation may slow economic growth in those countries . inflation also is likely to increase some of our costs and expenses , which we may not be able to pass on to our clients and , as a result , may reduce our profitability . inflationary pressures could also affect our ability to access financial markets and lead to counter-inflationary measures that may harm our financial condition , results of operations or adversely affect the market price of our securities . story_separator_special_tag income can also affect our overall effective income tax rate . our provision for income taxes also includes the impact of provisions established for uncertain income tax positions , as well as the related net interest . tax exposures can involve complex issues and may require an extended period to resolve . although we believe we have adequately reserved for our uncertain tax positions , we can not assure you that the final tax outcome of these matters will not be different from our current estimates . we adjust these reserves in light of changing facts and circumstances , such as the closing of a tax audit , statute of limitation lapse or the refinement of an estimate . to the extent that the final tax outcome of these matters differs from the amounts recorded , such differences will impact the provision for income taxes in the period in which such determination is made . our subsidiary in belarus is a member of the belarus hi-tech park , in which member technology companies are 100 % exempt from the current belarusian income tax rate of 18 % . the โ on high-technologies park โ decree , which created the belarus hi-tech park , is in effect for a period of 15 years from july 1 , 2006. our subsidiary in hungary benefits from a tax credit of 10 % of annual qualified salaries , taken over a four-year period , for up to 70 % of the total tax due for that period . we have been able to take the full 70 % credit for 2007 to 2012. the hungarian tax authorities repealed the tax credit beginning with 2012. credits earned in years prior to 2012 , however , were allowed through 2014. we have utilized up to the 70 % limit until 2014. our domestic income before provision for income taxes differs from the north america segment income before provision for income taxes because segment operating profit is a management reporting measure , which does not take into account most corporate expenses , as well as the majority of non-operating costs and stock compensation expenses .
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results of operations the following table sets forth a summary of our consolidated results of operations for the periods indicated . this information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report . the operating results in any period are not necessarily indicative of the results that may be expected for any future period . 35 replace_table_token_14_th ( 1 ) included $ 8,648 , $ 4,823 and $ 2,809 of stock-based compensation expense for the years ended december 31 , 2014 , 2013 and 2012 , respectively ; ( 2 ) included $ 15,972 , $ 8,327 and $ 4,017 of stock-based compensation expense for the years ended december 31 , 2014 , 2013 and 2012 , respectively . revenues our revenues are derived primarily from providing software development services to our clients . we discuss below the breakdown of our revenue by service offering , vertical , client location , contract type and client concentration . revenues consist of it services revenues and reimbursable expenses and other revenues , which primarily include travel and entertainment costs that are chargeable to clients . revenues by service offering software development includes software product development , custom application development services and enterprise application platforms services , and has historically represented , and we expect to continue to represent , the substantial majority of our business . the following table sets forth revenues by service offering by amount and as a percentage of our revenues for the periods indicated : replace_table_token_15_th revenues by vertical we analyze our revenue by separating our clients into four main industry sectors or verticals as detailed in the following table . also , we serve clients in other industries such as oil and gas , telecommunications , healthcare , life sciences , retail , insurance and several others , which are currently reported in aggregate under other verticals .
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future minimum lease payments under non-cancelable leases , with lease terms in excess of one year , as of january 1 , 2012 are as follows : replace_table_token_22_th f-15 big 5 sporting goods corporation notes to consolidated financial statements ( continued ) in february 2008 , the company entered into a lease for a parcel of land with an existing building adjacent to its corporate headquarters location . the lease term commenced in 2009 story_separator_special_tag throughout this section , the big 5 sporting goods corporation ( ยweย , ยourย , ยusย ) fiscal years ended january 1 , 2012 , january 2 , 2011 and january 3 , 2010 are referred to as fiscal 2011 , 2010 and 2009 , respectively . the following discussion and analysis of our financial condition and results of operations for fiscal 2011 , 2010 and 2009 includes information with respect to our plans and strategies for our business and should be read in conjunction with the consolidated financial statements and related notes , the risk factors and the cautionary statement regarding forward-looking information included elsewhere in this annual report on form 10-k. our fiscal year ends on the sunday nearest december 31. fiscal 2011 and 2010 each included 52 weeks , while fiscal 2009 included 53 weeks . overview we are a leading sporting goods retailer in the western united states , operating 406 stores in 12 states under the name ยbig 5 sporting goodsย at january 1 , 2012. we provide a full-line product offering in a traditional sporting goods store format that averages approximately 11,000 square feet . our product mix includes athletic shoes , apparel and accessories , as well as a broad selection of outdoor and athletic equipment for team sports , fitness , camping , hunting , fishing , tennis , golf , snowboarding and roller sports . we believe that over our 57-year history we have developed a reputation with the competitive and recreational sporting goods customer as a convenient neighborhood sporting goods retailer that consistently delivers value on quality merchandise . our stores carry a wide range of products at competitive prices from well-known brand name manufacturers , including adidas , coleman , easton , new balance , nike , reebok , spalding , under armour and wilson . we also offer brand name merchandise produced exclusively for us , private label merchandise and specials on quality items we purchase through opportunistic buys of vendor over-stock and close-out merchandise . we reinforce our value reputation through weekly print advertising in major and local newspapers , direct mailers and internet marketing designed to generate customer traffic , drive net sales and build brand awareness . we also maintain social media sites to enhance distribution capabilities for our promotional offers and to enable communication with our customers . throughout our history , we have emphasized controlled growth . we resumed our growth in fiscal 2010 and 2011 , after our growth in fiscal 2009 was slowed substantially in response to the economic recession . we opened 11 new stores and two relocations in fiscal 2011 , and closed three stores in fiscal 2011 as part of relocations that began in fiscal 2010. for fiscal 2012 , we expect to open approximately ten new stores and relocate approximately seven stores . of the seven stores expected to be relocated in fiscal 2012 , we anticipate closing approximately four stores this year and the remaining three stores in fiscal 2013. the following table summarizes our store count for the periods presented : replace_table_token_7_th ( 1 ) stores that are relocated are classified as new stores . sales from the prior location are treated as sales from a closed store and thus are excluded from same store sales calculations . ( 2 ) three stores closed in fiscal 2011 as part of relocations that began in fiscal 2010 . 24 story_separator_special_tag reporting periods for annual comparisons . same store sales comparisons for fiscal 2010 versus fiscal 2009 were made on a comparable 52-week basis , while same store sales comparisons for fiscal 2009 versus fiscal 2008 were made on a comparable 53-week basis . ( 8 ) net income for fiscal 2011 , 2010 and 2009 reflected the impact of the economic recession , which weakened consumer demand and negatively impacted our net sales . fiscal 2011 compared to fiscal 2010 net sales . net sales increased by $ 5.3 million , or 0.6 % , to $ 902.1 million for fiscal 2011 from $ 896.8 million for fiscal 2010. the change in net sales was primarily attributable to the following : added sales from new stores reflected the opening of 28 new stores since january 3 , 2010. the revenue from new store sales was partially offset by a reduction in same store and closed store sales . same store sales decreased 1.2 % for fiscal 2011 versus fiscal 2010. same store sales for a period reflect net sales from stores that operated throughout the period as well as the corresponding prior period ; e.g. , comparable yearly reporting periods for yearly comparisons . net sales for fiscal 2011 continued to be impacted by the economic recession , and we experienced decreased customer traffic into our retail stores when compared with fiscal 2010. net sales for fiscal 2010 reflected a net pre-tax charge of $ 0.8 million for a legal settlement accrual that was classified as a reduction of net sales . store count at the end of fiscal 2011 was 406 versus 398 at the end of fiscal 2010. we opened 11 new stores and two relocations in fiscal 2011 , and closed three stores in fiscal 2011 as part of relocations that began in fiscal 2010. for fiscal 2012 , we expect to open approximately ten new stores and relocate approximately seven stores . of the seven stores expected to be relocated in fiscal 2012 , we anticipate closing approximately four stores this year and the remaining three stores in fiscal 2013. gross profit . story_separator_special_tag distribution costs , including costs capitalized into inventory , decreased by $ 2.7 million , or 30 basis points , in fiscal 2010 compared to fiscal 2009. net sales increased by $ 1.3 million in fiscal 2010 compared to fiscal 2009. selling and administrative expense . selling and administrative expense increased by $ 3.4 million , or 1.3 % , to $ 263.5 million , or 29.4 % of net sales , in fiscal 2010 from $ 260.1 million , or 29.0 % of net sales , in fiscal 2009. the change in selling and administrative expense was primarily attributable to the following : store-related expense , excluding occupancy , increased by $ 4.2 million , or 44 basis points , due primarily to higher labor and operating costs to support the increase in store count , offset by lower depreciation . advertising expense for fiscal 2010 decreased by $ 0.9 million , or 11 basis points , due primarily to a reduction in the frequency and distribution of advertising circulars . 27 administrative expense for fiscal 2010 increased by $ 0.1 million , and remained unchanged as a percentage of net sales in comparison with fiscal 2009. administrative expense in fiscal 2010 and fiscal 2009 reflected net pre-tax charges for legal settlement accruals of $ 1.5 million and $ 1.0 million , respectively . interest expense . interest expense decreased by $ 0.4 million , or 14.5 % , to $ 2.1 million in fiscal 2010 from $ 2.5 million in fiscal 2009. the decrease in interest expense primarily reflected a reduction in average debt levels of approximately $ 23.6 million to $ 60.0 million in fiscal 2010 from $ 83.6 million in fiscal 2009 , combined with a reduction in average interest rates of approximately 10 basis points to 2.1 % during fiscal 2010 from 2.2 % in fiscal 2009. interest expense in fiscal 2010 reflected a one-time early termination fee and the write off of the remaining deferred debt issuance costs of $ 0.3 million associated with the termination of our prior credit agreement . income taxes . the provision for income taxes was $ 11.6 million for fiscal 2010 compared with $ 13.4 million for fiscal 2009. this decrease was primarily due to lower pre-tax income in fiscal 2010 compared to fiscal 2009. our effective tax rate was 36.0 % for fiscal 2010 compared with 38.1 % for fiscal 2009. our lower effective tax rate for fiscal 2010 compared to fiscal 2009 primarily reflected an increased benefit from income tax credits taken in fiscal 2010. liquidity and capital resources our principal liquidity requirements are for working capital , capital expenditures and cash dividends . we fund our liquidity requirements primarily through cash and cash equivalents on hand , cash flow from operations and borrowings from our revolving credit facility . we believe our cash and cash equivalents on hand , future funds from operations and borrowings from our revolving credit facility will be sufficient to fund our cash requirements for at least the next 12 months . there is no assurance , however , that we will be able to generate sufficient cash flows from operations or maintain our ability to borrow under our revolving credit facility . we ended fiscal 2011 with $ 4.9 million of cash and cash equivalents compared with $ 5.6 million in fiscal 2010. after reducing our long-term debt by $ 6.7 million , or 12.1 % , during fiscal 2010 , we increased our long-term debt by $ 15.2 million , or 31.4 % , during fiscal 2011 to $ 63.5 million from $ 48.3 million at the end of fiscal 2010. the following table summarizes our cash flows from operating , investing and financing activities for each of the past three fiscal years : replace_table_token_9_th the seasonality of our business historically provides greater cash flow from operations during the holiday and winter selling season , with fourth fiscal quarter net sales traditionally generating the strongest profits of our fiscal year . typically , we use operating cash flow and borrowings under our revolving credit facility to fund inventory increases in anticipation of the holidays and our inventory levels are at their highest in the months leading up to christmas . as holiday sales significantly reduce inventory levels , this reduction , combined with net income , historically provides us with strong cash flow from operations at the end of our fiscal year . for fiscal 2011 , we strategically increased merchandise inventory levels to add certain new products to stimulate sales and also purchased inventory earlier in the year to mitigate the impact of product cost inflation and potential delivery delays . reduced inventory purchases in the fourth quarter of fiscal 2011 resulted in lower accounts payable as a percentage of inventory . also , weaker than anticipated sales during fiscal 2011 , particularly in the fourth quarter , resulted in higher inventory levels and reduced operating cash flow for the year , contributing to higher debt balances year over year . for fiscal 2010 , we purchased larger quantities of inventory primarily in anticipation of improving business conditions and as a result of increased availability of certain products . the higher inventory levels combined 28 with lower than anticipated sales in the fourth quarter of fiscal 2010 resulted in reduced operating cash flow for the year as compared to the prior year . for fiscal 2009 , our improved earnings contributed to higher cash flow from operations compared to fiscal 2008. for fiscal 2009 we purchased lower quantities of inventory to reduce our overall inventory levels in anticipation of weaker consumer demand and also reduced our capital spending for new store openings in response to the economic recession . operating activities . net cash provided by operating activities for fiscal 2011 , 2010 and 2009 was $ 2.2 million , $ 29.9 million and $ 54.1 million , respectively .
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executive summary our operating results for fiscal 2011 , 2010 and 2009 reflected unfavorable macroeconomic conditions in our markets resulting primarily from the lingering effects of the economic recession and uncertainty in the financial sector . these conditions have led to an erosion of consumer confidence and , as long as this economic weakness continues , it is likely to continue to impact our operating results . net sales for fiscal 2011 increased 0.6 % to $ 902.1 million compared to fiscal 2010. the increase in net sales was primarily attributable to revenue from new stores , partially offset by decreased same store sales of 1.2 % . net income for fiscal 2011 decreased 43.2 % to $ 11.7 million , or $ 0.53 per diluted share , compared to $ 20.6 million , or $ 0.94 per diluted share , for fiscal 2010. the decrease was driven primarily by lower merchandise margins and higher selling and administrative expense , which included a pre-tax impairment charge of $ 2.1 million , partially offset by lower income tax expense . gross profit for fiscal 2011 represented 32.3 % of net sales , compared with 33.2 % in the prior year . merchandise margins were 74 basis points lower than last year , while store occupancy expense was higher , reflecting new store openings . selling and administrative expense for fiscal 2011 increased 3.4 % to $ 272.4 million , or 30.2 % of net sales , compared to $ 263.5 million , or 29.4 % of net sales , for fiscal 2010. the increase was primarily attributable to higher store-related expense , excluding occupancy , as a result of new store openings , combined with higher advertising expense .
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2 , 2015 was $ 2.3 million , $ 2.3 million and $ 1.3 million . amortization expense of intangible assets is recorded in selling , general and administrative expense on the consolidated statements of income . the future amortization expense of intangible assets will be $ 0.8 million in fiscal 2015 . 60 5. cash , cash story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this document . this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those discussed in ยitem 1a risk factors.ย see the cautionary note regarding forward-looking statements set forth at the beginning of part i of the annual report on form 10-k. 26 fiscal 2014ยa review of this past year teen retail in general began fiscal 2014 in a challenging sales environment , with many mall based teen retailers seeing significant sales and earnings declines over the past couple of years . as the year progressed some signs of a stronger retail landscape began to appear , culminating with a considerably stronger fourth quarter . coming into fiscal 2014 our sales performance continued to be lower than historical results and in the first quarter of the year we saw some margin erosion as we successfully cleaned up our inventory position following a tough holiday season in the prior fiscal year . comparable sales trends improved as the year progressed , particularly in the important fourth quarter , and for the year we achieved a comparable sales increase of 4.6 % . as a leading lifestyle retailer we continue to differentiate ourselves through our distinctive brand offering and diverse product selection , as well as the unique customer experience our sales associates provide . in addition , the investments and efforts we have made toward expanding our north america footprint , establishing a progressive omni-channel platform and international expansion are enhancing our sales results . in 2014 we continued to fund our growth initiatives with a focus on long-term returns . these investments included continued expansion of our stores in north america , technology enhancements , fortifying our commerce platform through further upgrades to our digital infrastructure , and the ongoing build out of our european operations . in north america we opened 50 stores made up of 43 in the u.s. and 7 in canada , and in europe we opened 6 stores bringing our total stores count to 603. additionally we made further progress across our omni-channel initiatives , enhancing our customers sales experience by serving them better whenever and wherever they want to interact with us . the following table shows net sales , operating profit and margin and diluted earnings per share for fiscal 2014 compared to fiscal 2013. the fiscal 2014 results include $ 8.7 million of charges associated with the acquisition of blue tomato made up of $ 6.4 million for future incentive payments related to the transaction and $ 2.3 million for the amortization of intangible assets . the fiscal 2013 results include a $ 2.7 million benefit for the correction of a prior year error related to our calculation to account for rent expense on a straight-line basis , a $ 1.3 million expense for a litigation settlement , and charges associated with the acquisition of blue tomato netting to a benefit of $ 0.1 million primarily related to a $ 2.6 million benefit for the reversal of the previously recorded expense associated with future incentive payments related to the transaction , offset by $ 2.3 million for the amortization of intangible assets . replace_table_token_6_th the increase in net sales was primarily driven by the net addition of 52 stores ( 56 new stores offset by four store closures ) and a 4.6 % comparable sales increase . the increase in comparable sales was driven by an increase in transactions and an increase in dollars per transaction . dollars per transaction increased primarily due to an increase in units per transaction and a slight increase in average unit retail . operating margin was down in fiscal 2014 compared to fiscal 2013 primarily as a result of the charges discussed above and a slight decrease in product margin for the year offset slightly by leveraging operating costs on a 12.0 % sales increase . fiscal 2015ยa look at the upcoming year we enter fiscal 2015 with some sales momentum , having achieved an 8.3 % comparable sales increase in fiscal fourth quarter 2014. while we are encouraged with the improved performance , there is not enough evidence to suggest this is the beginning of a sustained retail trend . as such we remain cautious on our expectations for fiscal 2015 although we do believe sales , including comparable sales , and earnings will increase for the year . our focus will be on continued execution of our proven strategies as well as investments centered on long-term quality growth . these investments will largely be focused on continued store growth , both domestic and international , and further enhancements across the business to support our omni-channel capabilities . in fiscal 2015 , excluding costs associated with the acquisition of blue tomato , we expect our cost structure will grow at a similar rate to fiscal 2014 . 27 long-term we aim to grow sales annually and grow operating profit at a faster rate than sales by focusing on our growth initiatives while managing our cost structure . our primary growth vehicles in both our domestic and international markets are : 1. initiatives that drive comparable sales gains ; 2. opening high return new stores ; 3. ecommerce penetration ; and 4. omni-channel initiatives . in fiscal 2015 , we are expecting total sales to increase driven in part by an increase in comparable sales , recognizing that our performance can be impacted by a variety of factors including external influences . story_separator_special_tag the key drivers of operating profit are comparable sales , gross profit , our ability to control selling , general and administrative expenses and our level of capital expenditures affecting depreciation expense . story_separator_special_tag points in fiscal 2013 to 26.0 % . the increase was primarily driven by a 60 basis points impact of the increase in ecommerce corporate costs due to the growth and investments in our ecommerce business as a percent of total sales , a 40 basis points impact due to the deleveraging of our store operating expenses , a 20 basis points impact due to the deleveraging of our corporate costs and a 20 basis points impact of a litigation settlement charge incurred in fiscal 2013. these increases were partially offset by a 70 basis points impact of the reversal of the previously recorded expense associated with the future incentive payments to be paid in conjunction with our acquisition of blue tomato , a 30 basis points benefit due to prior year costs related to transaction costs incurred in conjunction with our acquisition of blue tomato and a 20 basis point impact due to a decrease in incentive compensation . see note 3 , ยbusiness combination , ย in the notes to consolidated financial statements found in part iv item 15 of the form 10-k , for additional information related to our future incentive payments . net income net income for fiscal 2013 was $ 45.9 million , or $ 1.52 per diluted share , compared with net income of $ 42.2 million , or $ 1.35 per diluted share , for fiscal 2012. our effective income tax rate for fiscal 2013 was 36.1 % compared to 40.0 % for fiscal 2012. the decrease in the effective tax rate for fiscal 2013 compared to fiscal 2012 was primarily due to the impact of non-taxable acquisition related expenses incurred in fiscal 2012 , the release of valuation allowance related to net operating losses and other deferred tax assets of foreign subsidiaries and a reduction of state and local income taxes . 31 seasonality and quarterly results as is the case with many retailers of apparel and related merchandise , our business is subject to seasonal influences . as a result , we have historically experienced , and expect to continue to experience , seasonal and quarterly fluctuations in our net sales and operating results . our net sales and operating results are typically lower in the first and second quarters of our fiscal year , while the back-to-school and winter holiday periods in our third and fourth fiscal quarters historically have accounted for the largest percentage of our annual net sales . quarterly results of operations may also fluctuate significantly as a result of a variety of factors , including the timing of store openings and the relative proportion of our new stores to mature stores , fashion trends and changes in consumer preferences , calendar shifts of holiday or seasonal periods , changes in merchandise mix , timing of promotional events , general economic conditions , competition and weather conditions . the following table sets forth selected unaudited quarterly consolidated statements of income data . the unaudited quarterly information has been prepared on a basis consistent with the audited consolidated financial statements included elsewhere herein and includes all adjustments that we consider necessary for a fair presentation of the information shown . this information should be read in conjunction with our audited consolidated financial statements and the notes thereto . the operating results for any fiscal quarter are not indicative of the operating results for a full fiscal year or for any future period and there can be no assurance that any trend reflected in such results will continue in the future . replace_table_token_8_th ( 1 ) included in the results for the fourth quarter of fiscal 2014 is $ 6.4 million expense associated with the estimated future incentive payments to be paid in conjunction with our acquisition of blue tomato . ( 2 ) included in the results for the fourth quarter of fiscal 2013 are the following : a ) a benefit of $ 5.8 million , of which $ 2.6 million related to prior fiscal years , for the reversal of the previously recorded expense associated with the future incentive payments to be paid in conjunction with our acquisition of blue tomato and b ) a benefit of $ 3.3 million , of which $ 2.7 million related to prior fiscal years , representing the correction of an error related to our calculation to account for rent expense on a straight-line basis . 32 liquidity and capital resources our primary uses of cash are for operational expenditures , inventory purchases and capital investments , including new stores , store remodels , store relocations , store fixtures and ongoing infrastructure improvements . additionally , we may use cash for the repurchase of our common stock . historically , our main source of liquidity has been cash flows from operations . the significant components of our working capital are inventories and liquid assets such as cash , cash equivalents , current marketable securities and receivables , reduced by accounts payable and accrued expenses . our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or within several days of the related sale , while we typically have longer payment terms with our vendors . at january 31 , 2015 and february 1 , 2014 , cash , cash equivalents and current marketable securities were $ 154.6 million and $ 117.2 million .
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results of operations the following table presents selected items on the consolidated statements of income as a percent of net sales : replace_table_token_7_th 29 fiscal 2014 results compared with fiscal 2013 net sales net sales were $ 811.6 million for fiscal 2014 compared to $ 724.3 million for fiscal 2013 , an increase of $ 87.2 million or 12.0 % . the increase reflected the net addition of 52 stores ( made up of 50 new stores in north america and six new stores in europe offset by four store closures in north america ) and a $ 33.2 million increase due to comparable sales for fiscal 2014. by region , north america sales increased $ 71.5 million or 10.6 % and european sales increased $ 15.7 million or 32.4 % during fiscal 2014 compared to fiscal 2013. the 4.6 % increase in comparable sales was primarily driven by an increase in comparable transactions and dollars per transaction . dollars per transaction increased due to an increase in units per transaction and an increase in average unit retail . comparable sales increases in hardgoods , accessories , junior 's apparel , and men 's apparel were partially offset by a comparable sales decrease in footwear . for information as to how we define comparable sales , see ยgeneralย above . gross profit gross profit was $ 287.1 million for fiscal 2014 compared to $ 261.8 million for fiscal 2013 , an increase of $ 25.3 million , or 9.7 % . as a percentage of net sales , gross profit decreased 70 basis points in fiscal 2014 to 35.4 % .
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as a result of these provisions to issue shares of class a common stock , and upon consummation of the business combination , the company story_separator_special_tag โ to โ legacy quantumscape โ , โ the company โ , โ we โ , โ us โ and โ our โ refer to the business and operations of legacy quantumscape and its consolidated subsidiaries prior to the business combination and to quantumscape corporation and its consolidated subsidiaries , following the closing of the business combination . overview we are developing next generation battery technology for electric vehicles ( โ evs โ ) and other applications . we believe that our technology will enable a new category of battery that meets the requirements for broader market adoption . the lithium-metal solid-state battery technology that we are developing is being designed to offer greater energy density , longer life , faster charging , and greater safety when compared to today 's conventional lithium-ion batteries . we are a development stage company with no revenue to date , have incurred a net loss of approximately $ 1,099.9 million for the year ended december 31 , 2020 and an accumulated deficit of approximately $ 1,395.8 million from our inception through december 31 , 2020. a significant portion of the net loss incurred during the year ended december 31 , 2020 is associated with the non-cash fair value adjustment of the legacy quantumscape preferred stock tranche liabilities of $ 999.9 million . key trends , opportunities and uncertainties we are pre-revenue company ; we believe that our performance and future success depend on several factors that present significant opportunities for us but also pose significant risks and challenges , including those discussed below and in the section titled โ risk factors โ appearing elsewhere in this report . 32 product development we are developing our battery technology with the goal of enabling commercial production in 2024. we have validated capabilities of our solid-state separator and battery technology in single-layer solid-state cells . we are now working to develop multi-layer cells , to continue improving yield and performance and to optimize all components of the cell . we have described our research and development programs to make further improvements to our battery technology , including improvements to battery performance and cost under the โ research and development โ section in item 1 above . major remaining development activities include , but are not limited to : multi-layering . to date , we have only produced single-layer solid-state cells at the commercially required size ( 70x85mm ) and four-layer cells at a smaller size ( 30x30mm ) . in order to produce commercially-viable solid-state battery cells , we must produce battery cells which may require from several dozen to over one hundred layers , depending on our customers ' requirements . we will need to overcome the developmental challenges to stack these layers and implement the appropriate cell design for our solid-state battery cell . continued improvement in the solid-state separator . we are working to improve the reliability and performance of our solid-state separator , including decreasing the thickness . integration of advanced cathode materials . we benefit from industry cathode chemistry improvements and or cost reduction . our solid-state separator platform is being designed to enable some of the most promising next-generation cathode technologies , including high voltage or high capacity cathode active materials . our team of over 275 scientists , engineers , technicians , and other staff is highly motivated and committed to solving these challenges ahead . however , any delays in the completion of these tasks will require additional cash use and delay market entry . as we grow our team , size of engineering pilot line , and materials consumption , the rate of cash utilization as a function of time will also increase significantly . process development our architecture depends on our proprietary solid-state ceramic separator which we will manufacture ourselves . though our separator 's design is unique , its manufacturing relies on well-established , high-volume production processes currently deployed globally in other industries at large scale . the solid-state separator is being designed to enable our โ anode-free ' architecture . as manufactured , the cell has no anode ; the lithium-metal anode is formed during the first charge of the cell ; 100 % of the lithium that forms the anode comes from the cathode material we purchase . eliminating the anode bill of materials and associated manufacturing costs found in conventional lithium-ion cells could result in a meaningful cost of goods sold advantage for us . in addition , our solid-state battery cell is being designed to reduce the time and capital-intensity of the formation process step as compared to conventional lithium-ion manufacturing . we are focused on both the continued expansion of the throughput and capability of our san jose engineering line and qs-0 as well as the planning and execution of our initial pilot facility for our first commercial manufacturing facility . continued expansion of the throughput and capability of our san jose engineering line and qs-0 serves two purposes . first , the engineering line and qs-0 provides a sufficient quantity of solid-state separators and cells for internal development and for customer sampling . and second , our san jose engineering line provides the basis for continued manufacturing process development and helps inform tool selection and specifications for equipment for our pilot facility . delays in the successful buildout of our san jose engineering line may impact both our development and the pilot facility timelines . capturing our forecasted cost advantage at scale as compared to conventional lithium-ion cells will require our team to continue process development to achieve rates of throughput , use of electricity and consumables , yield , and rate of automation demonstrated of mature battery , battery material , and ceramic manufacturing processes . notably , heat treatment of ceramic parts is a process step in ceramic manufacturing critical to both quality and product cost . story_separator_special_tag research and development expense to date , our research and development expenses have consisted primarily of personnel-related expenses for scientists , experienced engineers and technicians as well as costs associated with the expansion and ramp up of our engineering facility in san jose , california , including the material and supplies to support the product development and process engineering efforts . as we ramp up our engineering operations to complete the development of our solid-state , lithium-metal batteries and required process engineering to meet automotive cost targets , we anticipate that research and development expenses will increase significantly for the foreseeable future as we expand our hiring of scientists , engineers , and technicians and continue to invest in additional plant and equipment for product development ( e.g . multi-layer cell stacking , packaging engineering ) , building prototypes , and testing of battery cells as our team works to meet the full set of automotive product requirements . 34 general and administrative expense general and administrative expenses consist mainly of personnel-related expenses for our executive , sales and marketing and other administrative functions and expenses for director and officer insurance and outside professional services , including legal , accounting and other advisory services . we are rapidly expanding our personnel headcount , in anticipation of planning for and supporting the ramping up of commercial manufacturing operations and being a public company . accordingly , we expect our general and administrative expenses to increase significantly in the near term and for the foreseeable future . upon commencement of commercial operations , we also expect general and administrative expenses to include customer and sales support and advertising costs . other income ( expense ) our other income ( expense ) consists of interest income from marketable securities , sublease income , and interest expense related to fair value adjustments for our convertible preferred stock warrants , and other expense related to fair value adjustment for the convertible preferred stock tranche liabilities . a portion of the convertible preferred stock tranche liabilities were settled upon the issuance of the shares of series f preferred stock concurrent with the business combination , and the remaining commitment to issues shares of class a common stock pursuant to the series f stock purchase agreements and the convertible preferred stock warrants became equity classified upon the consummation of the business combination . accordingly , the company does not expect to incur incremental fair value adjustments related to the convertible preferred stock tranche liabilities and convertible preferred stock warrants in future periods . income tax expense / benefit our income tax provision consists of an estimate for u.s. federal and state income taxes based on enacted rates , as adjusted for allowable credits , deductions , uncertain tax positions , changes in deferred tax assets and liabilities , and changes in the tax law . we maintain a valuation allowance against the full value of our u.s. and state net deferred tax assets because we believe the recoverability of the tax assets is not more likely than not . story_separator_special_tag products , commence commercial operations and expand our business will depend on many factors , including our working capital needs , the availability of equity or debt financing and , over time , our ability to generate cash flows from operations . prior to the business combination , we financed our operations primarily from the sales of redeemable convertible preferred stock . in connection with the business combination , we received net cash proceeds of approximately $ 676.9 million . additionally , after the business combination , we received proceeds from the series f preferred stock agreements described above under โ other expense โ . we believe that our cash on hand will be sufficient to meet our working capital and capital expenditure requirements for a period of at least twelve months from the date of this filing , and also sufficient to fund our operations until we initially commence production of the pilot line solid-state battery through the first commercial sales , assuming quantumscape is able to do so as currently contemplated . we may , however , need additional cash resources due to changed business conditions or other developments , including unanticipated delays in negotiations with oems and tier-one automotive suppliers or other suppliers , supply chain challenges , disruptions due to the covid-19 pandemic , competitive pressures , and regulatory developments , among other developments . to the extent that our current resources are insufficient to satisfy our cash requirements , we may need to seek additional equity or debt financing . if the financing is not available , or if the terms of financing are less desirable than we expect , we may be forced to decrease our level of investment in product development or scale back our operations , which could have an adverse impact on our business and financial prospects . 36 cash flows the following table provides a summary of our cash flow data for the periods indicated ( amounts in thousands ) : replace_table_token_2_th cash used in operating activities our cash flows used in operating activities to date have been primarily comprised of payroll , material and supplies , facilities expense , and professional service related to research and development and general and administrative activities . as we continue to ramp up hiring for technical headcounts to accelerate our engineering efforts ahead of starting the pilot line operations , we expect our cash used in operating activities to increase significantly before we start to generate any material cash flows from our business .
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results of operations comparison of the year ended december 31 , 2020 to the year ended december 31 , 2019 the following table sets forth our historical operating results for the periods indicated ( amounts in thousands ) : replace_table_token_1_th research and development the increase in research and development expense primarily resulted from the $ 7.2 million increase in personnel cost due to the growth in research and development headcount to support technology development , an increase of $ 2.2 million in material supplies to support the increase of research and development cell builds in our commercial form factor , an increase of $ 1.9 million related to depreciation and amortization and a $ 2.5 million increase in facility , professional fees and outside services related to the growth in research and development . these costs were partially offset by a decrease in travel related expenditures . additionally , non-cash stock-based compensation expense increased by $ 5.8 million from $ 4.1 million for the year ended december 31 , 2019 to $ 9.9 million for the year ended december 31 , 2020 due to the effect of refresh option grants in june 2019 and retention restricted stock unit ( โ rsu โ ) grants to employees in 2020 . 35 general and administrative the increase in general and administrative expenses is due in part to the increase of $ 4.4 million for stock-based compensation in the year ended december 31 , 2020 for employees and director refresh grants in december 2019 and rsu grants to employees in 2020. additionally , personnel costs increased by $ 0.8 million due to the headcount increase to support business growth and director and officer insurance expenses increased by $ 0.7 million . interest expense interest expense primarily represents the non-cash fair value adjustment of the warrants to purchase shares of our series a preferred stock and our series c preferred stock .
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our business is to maximize production and cash flow from our offshore properties in the shallow waters of the gulf of mexico ( โ gom โ ) and onshore texas and wyoming properties and to use that cash flow to explore , develop , exploit , produce and acquire crude oil and natural gas properties in the onshore texas and rocky mountain regions of the united states . 53 on october 1 , 2013 , we completed a merger with crimson exploration inc. ( โ crimson โ ) ( the โ merger โ ) . we have historically focused our operations in the gom , but the merger gave us access to high rate of return onshore prospects in known , prolific producing areas as well as long-life resource plays . in 2015 , prior to the decline in crude oil and natural gas prices , our drilling activity focused primarily on the woodbine oil and liquids-rich play in madison and grimes counties , texas ( our southeast texas region ) , in the cretaceous sands in fayette and gonzales counties , texas ( our south texas region ) and wyoming where we were targeting the mowry shale and the muddy sandstone formations . beginning in the second half of 2015 , we reduced our drilling program in response to the challenging commodity price environment . as a result , until the latter half of 2016 , our only drilling activity was in weston county , wyoming , where we completed our third well targeting the muddy sandstone formation . during the third quarter of 2016 , we acquired a 12,100 operated gross acre position ( 5,000 net ) in the southern delaware basin in pecos county , texas , ( the โ acquisition โ ) and as of december 31 , 2017 , had increased our acreage in the southern delaware basin to 16,500 gross acres ( 6,800 net ) . since the acquisition , we have begun production from seven wells in the southern delaware basin and are waiting on completion of an eighth well . we currently expect that the southern delaware basin position will continue to be the primary focus of our drilling program for 2018. additionally , we have ( i ) a 37 % equity investment in exaro energy iii llc ( โ exaro โ ) , which is primarily focused on the development of proved natural gas reserves in the jonah field in wyoming ; ( ii ) operated properties producing from various conventional formations in various counties along the texas gulf coast ; and ( iii ) operated producing properties in the haynesville shale , mid bossier and james lime formations in east texas . until their sale in december 2016 , we also had operated producing properties in the denver julesburg basin ( โ dj basin โ ) in weld and adams counties in colorado . our production for the year ended december 31 , 2017 was approximately 20.1 bcfe ( or 55.1 mmcfe/d ) and was 68 % offshore and 32 % onshore . our production for the three months ended december 31 , 2017 was approximately 4.8 bcfe ( or 51.8 mmcfe/d ) and was 66 % offshore and 34 % onshore . as of december 31 , 2017 , our proved reserves were approximately 40 % offshore and 60 % onshore and were 65 % proved developed , which were approximately 61 % offshore and 39 % onshore . revenues and profitability our revenues , profitability and future growth depend substantially on our ability to find , develop and acquire natural gas and oil reserves that are economically recoverable , as well as prevailing prices for natural gas and oil . reserve replacement generally , producing properties offshore in the gulf of mexico have high initial production rates , followed by steep declines . likewise , initial production rates on new wells in the onshore resource plays start out at a relatively high rate with a decline curve which results in 60 % to 70 % of the ultimate recovery of present value occurring in the first eighteen months of the well 's life . we must locate and develop , or acquire , new natural gas and oil reserves to replace those being depleted by production . substantial capital expenditures are required to find , develop and or acquire natural gas and oil reserves . a prolonged period of depressed commodity prices could have a significant impact on the value and volumetric quantities of our proved reserve portfolio , assuming no other changes in our development plans . the merger with crimson allowed the company to add significant proved developed and undeveloped reserves and provided the company with access to several onshore resource plays which have substantial reserve growth potential , including in oil and liquids rich plays that position us to move to a more balanced oil/gas profile . use of estimates the preparation of our financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting periods . actual results could differ from those estimates . significant estimates with regard to these financial statements include estimates of remaining proved natural gas and oil reserves , the timing and costs of our future drilling , development and abandonment activities , and income taxes . see โ item 1a . risk factors โ for a more detailed discussion of a number of other factors that affect our business , financial condition and results of operations . 54 story_separator_special_tag 31 , 2016 , compared to the prior year , primarily due to the decrease in revenues for the same period . story_separator_special_tag net gain on derivatives , and a $ 1.3 million gain related to the sale of our investment in a small private service company . other income was partially offset by interest expense of $ 4.1 million . other expense for the year ended december 31 , 2016 was approximately $ 5.8 million , which is primarily related to interest expense of $ 3.8 million and loss on derivatives of $ 1.6 million . other expense for the year ended december 31 , 2015 was approximately $ 0.7 million , which is primarily related to $ 5.6 million of costs incurred in pursuit of an unsuccessful acquisition in the fourth quarter and interest expense of $ 3.2 million , partially offset by $ 6.1 million in proceeds related to favorable outcomes in two lawsuits and gain on derivatives of $ 2.3 million . capital resources and liquidity our primary cash requirements are for capital expenditures , working capital , operating expenses , acquisitions and principal and interest payments on indebtedness . our primary sources of liquidity are cash generated by operations , net of the realized effect of our hedging agreements , and amounts available to be drawn under our credit facility . 60 the table below summarizes certain measures of liquidity and capital expenditures , as well as our sources of capital from internal and external sources , for the periods indicated , in thousands . replace_table_token_28_th cash flow from operating activities , including changes in working capital , provided approximately $ 34.7 million in cash for the year ended december 31 , 2017 compared to $ 32.0 million for the year ended december 31 , 2016. the changes in working capital were approximately $ 5.1 million during 2017 , compared to $ 7.8 million during 2016. cash flow from operating activities , excluding changes in working capital , provided approximately $ 29.6 million in cash for the year ended december 31 , 2017 compared to $ 24.2 million for the year ended december 31 , 2016. this increase in cash provided by operating activities was primarily attributable to higher revenues associated with higher prices , partially offset by lower production . cash flow from operating activities , including changes in working capital , provided approximately $ 32.0 million in cash for the year ended december 31 , 2016 compared to $ 25.0 million for the year ended december 31 , 2015. the changes in working capital were approximately $ 7.8 million during 2016 , compared to a deficit in 2015 of approximately $ 27.2 million . cash flow from operating activities , excluding changes in working capital , provided approximately $ 24.2 million in cash for the year ended december 31 , 2016 compared to $ 52.2 million for the year ended december 31 , 2015. this decrease in cash provided by operating activities was primarily attributable to lower revenues associated with lower prices and lower production resulting from our reduced drilling activity in 2016 due to the low commodity price environment . for the year ended december 31 , 2017 , we incurred $ 58.4 million in capital costs , primarily related to drilling and or completing wells in the southern delaware basin and acquiring or extending unproved leases . of this amount , approximately $ 66.6 million was paid during the year , partially offset by $ 1.1 million primarily related to the sale of our assets in the north bob west area and our operated assets in the escobas area , both located in southeast texas , resulting in net cash used in investing activities of approximately $ 65.5 million for the year ended december 31 , 2017. for the year ended december 31 , 2016 , we incurred $ 39.0 million in capital costs , including $ 20.0 million for the acquisition of our southern delaware basin acreage . of this amount , approximately $ 24.9 million was paid during the year , partially offset by $ 5.1 million received for the sale of our colorado properties , resulting in net cash used in investing activities of approximately $ 19.8 million for the year ended december 31 , 2016. for the year ended december 31 , 2015 , we incurred $ 55.6 million in capital costs . of this amount , approximately $ 77.8 million was paid during the year , partially offset by approximately $ 1.0 million in distributions from rex as a result the dissolution of that entity , resulting in net cash used in in investing activities of approximately $ 76.8 million for the year ended december 31 , 2015. cash provided by financing activities was approximately $ 30.8 million for the year ended december 31 , 2017 compared to $ 12.2 million used in financing activities in 2016. the 2017 activity was primarily related to net borrowings under our rbc credit facility ( defined below ) . the 2016 activity included net repayments of outstandings under our rbc credit facility . cash used in financing activities was approximately $ 12.2 million for the year ended december 31 , 2016 compared to $ 51.9 million provided by financing activities in 2015. included in 2016 activity was $ 50.4 million in proceeds from our equity offering to fund the acquisition and early development of our southern delaware basin acreage and approximately $ 61.1 million in net repayments of outstandings under our rbc credit facility ( defined below ) . 2015 activity included net borrowings under our rbc credit facility to reduce the working capital obligations at december 31 , 2015. credit facility in october 2013 , the company entered into a four-year $ 500 million revolving credit facility with royal bank of canada and other lenders ( the โ rbc credit facility โ ) . in october 2016 , the rbc credit facility was amended to , 61 among other things , extend the maturity to october 1 , 2019. the borrowing base under the facility is redetermined each november and may . effective november 6 , 2017 , the borrowing base under the rbc credit facility was redetermined at $ 115 million .
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results of operations the table below sets forth our average net daily production data in mmcfe/d from our fields for each of the periods indicated : replace_table_token_24_th ( 1 ) includes a 26 day shut in for compressor repair during the three months ended march 31 , 2017 ( 2 ) includes a decreased production rate of 0.8 mmcfe/d due to temporary pipeline limitations during the three months ended june 30 , 2017 . ( 3 ) south timbalier 17 ceased production in august 2017 . ( 4 ) includes woodbine production from madison and grimes counties and conventional production in others . ( 5 ) includes eagle ford and buda production from karnes , zavala and dimmit counties , and conventional production in others . ( 6 ) includes onshore wells primarily in colorado , east texas , and wyoming during 2016 and onshore wells primarily in east texas and wyoming during 2017 . 55 year ended december 31 , 2017 compared to year ended december 31 , 2016 ; and year ended december 31 , 2016 compared to year ended december 31 , 2015 the table below sets forth revenue , production data , average sales prices and average production costs associated with our sales of natural gas , oil and natural gas liquids ( `` ngls '' ) from continuing operations for the years ended december 31 , 2017 , 2016 and 2015. oil , condensate and ngls are compared with natural gas in terms of cubic feet of natural gas equivalents . one barrel of oil , condensate or ngl is the energy equivalent of six mcf of natural gas . reported operating expenses include production taxes , such as ad valorem and severance . replace_table_token_25_th 56 replace_table_token_26_th 57 natural gas , oil and ngl sales and production all of our revenues are from the sale of our natural gas , crude oil and natural gas liquids production .
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organization main street capital corporation ( `` mscc '' ) was formed in march 2007 for the purpose of ( i ) acquiring 100 % of the equity interests of main street mezzanine fund , lp ( `` msmf '' ) and its general partner , main street mezzanine management , llc ( `` msmf gp '' ) , ( ii ) acquiring 100 % of the equity interests of main street capital partners , llc ( the `` internal investment manager '' ) , ( iii ) raising capital in an initial public offering , which was completed in october 2007 ( the `` ipo '' ) , and ( iv ) thereafter operating as an internally managed business development company ( `` bdc '' ) under the investment company act of 1940 , as amended ( the `` 1940 act '' ) . msmf is licensed as a small business investment company ( `` sbic '' ) by the united states small business administration ( `` sba '' ) and the internal investment manager acts as msmf 's manager and investment adviser . because the internal investment manager , which employs all of the executive officers and other employees of mscc , is wholly owned by us , we do not pay any external investment advisory fees , but instead we incur the operating costs associated with employing investment and portfolio management professionals through the internal investment manager . the ipo and related transactions discussed above were consummated in october 2007 and are collectively termed the `` formation transactions . '' during january 2010 , mscc acquired ( the `` exchange offer '' ) approximately 88 % of the total dollar value of the limited partner interests in main street capital ii , lp ( `` msc ii '' and , together with msmf , the `` funds '' ) and 100 % of the membership interests in the general partner of msc ii , main street capital ii gp , llc ( `` msc ii gp '' ) . msc ii is an investment fund that operates as an sbic and commenced operations in january 2006. during the first quarter of 2012 , mscc acquired all of the remaining minority ownership in the total dollar value of the msc ii limited partnership interests ( the `` final msc ii exchange '' ) . the exchange offer and related transactions , including the acquisition of msc ii gp interests and the final msc ii exchange , are collectively termed the `` exchange offer transactions . '' msc adviser i , llc ( the `` external investment manager '' and , together with the internal investment manager , the `` investment managers '' ) was formed in november 2013 as a wholly owned subsidiary of mscc to provide investment management advisory and other services to parties other than mscc and its subsidiaries ( `` external parties '' ) and to receive fee income for such services . mscc has been granted no-action relief by the securities and exchange commission to allow the external investment manager to register as a registered investment adviser ( `` ria '' ) under investment advisers act of 1940 , as amended ( the `` advisers act '' ) , to provide investment management services to external parties . the external investment manager is accounted for as a portfolio investment of mscc , since the external investment manager conducts all of its investment management activities for parties outside of mscc and its consolidated subsidiaries . mscc has elected to be treated for federal income tax purposes as a regulated investment company ( `` ric '' ) under subchapter m of the internal revenue code of 1986 , as amended ( the `` code '' ) . as a result , mscc generally will not pay corporate-level federal income taxes on any net ordinary income or capital gains that it distributes to its stockholders as dividends . mscc has direct and indirect wholly owned subsidiaries that have elected to be taxable entities ( the `` taxable subsidiaries '' ) . the primary purpose of these entities is to hold certain investments that generate 54 `` pass through '' income for tax purposes . the investment managers are both also direct wholly owned subsidiaries that have elected to be taxable entities . the taxable subsidiaries and the investment managers are each taxed at their normal corporate tax rates based on their taxable income . unless otherwise noted or the context otherwise indicates , the terms `` we , '' `` us , '' `` our '' and `` main street '' refer to mscc and its consolidated subsidiaries , which include the funds , the taxable subsidiaries and , beginning april 1 , 2013 , the internal investment manager . overview we are a principal investment firm primarily focused on providing customized debt and equity financing to lower middle market ( `` lmm '' ) companies and debt capital to middle market ( `` middle market '' ) companies . our portfolio investments are typically made to support management buyouts , recapitalizations , growth financings , refinancings and acquisitions of companies that operate in diverse industry sectors . we seek to partner with entrepreneurs , business owners and management teams and generally provide `` one stop '' financing alternatives within our lmm portfolio . we invest primarily in secured debt investments , equity investments , warrants and other securities of lmm companies based in the united states and in secured debt investments of middle market companies generally headquartered in the united states . our principal investment objective is to maximize our portfolio 's total return by generating current income from our debt investments and capital appreciation from our equity and equity related investments , including warrants , convertible securities and other rights to acquire equity securities in a portfolio company . our lmm companies generally have annual revenues between $ 10 million and $ 150 million , and our lmm portfolio investments generally range in size from $ 5 million to $ 25 million . story_separator_special_tag the weighted average ebitda for the 92 middle market portfolio company investments was approximately $ 79.0 million as of december 31 , 2013. as of december 31 , 2013 , substantially all of our middle market portfolio investments were in the form of debt investments and approximately 92 % of such debt investments at cost were secured by first priority liens on portfolio company assets . the weighted average annual effective yield on our middle market portfolio debt investments was approximately 7.8 % as of december 31 , 2013. as of december 31 , 2012 , we had middle market portfolio investments in 79 companies , collectively totaling approximately $ 352.0 million in fair value with a total cost basis of approximately $ 348.1 million . the weighted average ebitda for the 79 middle market portfolio company investments was approximately $ 93.5 million as of december 31 , 2012. as of december 31 , 2012 , substantially all of our middle market portfolio investments were in the form of debt investments and approximately 91 % of such debt investments at cost were secured by first priority liens on portfolio company assets . the weighted average annual effective yield on our middle market portfolio debt investments was approximately 8.0 % as of december 31 , 2012. the weighted average annual yields were computed using the effective interest rates for all debt investments at december 31 , 2013 and 2012 , including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt investments . our private loan portfolio investments primarily consist of investments in interest-bearing debt securities in companies that are consistent with the size of the companies included in our lmm portfolio or our middle market portfolio . our private loan portfolio debt investments are generally secured by either a first or second 56 priority lien on the assets of the portfolio company and typically have a term of between three and seven years . as of december 31 , 2013 , we had private loan portfolio investments in 15 companies , collectively totaling approximately $ 111.5 million in fair value with a total cost basis of approximately $ 111.3 million . the weighted average ebitda for the 15 private loan portfolio company investments was approximately $ 18.4 million as of december 31 , 2013. as of december 31 , 2013 , 95 % of our private loan portfolio investments were in the form of debt investments and 98 % of such debt investments at cost were secured by first priority liens on portfolio company assets . the weighted average annual effective yield on our private loan portfolio debt investments was approximately 11.3 % as of december 31 , 2013. as of december 31 , 2012 , we had private loan portfolio investments in 9 companies , collectively totaling approximately $ 65.5 million in fair value with a total cost basis of approximately $ 64.9 million . the weighted average ebitda for the 9 private loan portfolio company investments was approximately $ 45.6 million as of december 31 , 2012. as of december 31 , 2012 , approximately 99 % of our private loan portfolio investments were in the form of debt investments and all such debt investments at cost were secured by first priority liens on portfolio company assets . the weighted average annual effective yield on our private loan portfolio debt investments was approximately 14.8 % as of december 31 , 2012. the weighted average annual yields were computed using the effective interest rates for all debt investments at december 31 , 2013 and 2012 , including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt investments . as of december 31 , 2013 , we had other portfolio investments in six companies collectively totaling approximately $ 42.8 million in fair value and approximately $ 40.1 million in cost basis and which comprised 3.3 % of our investment portfolio at fair value as of december 31 , 2013. as of december 31 , 2012 , we had other portfolio investments in three companies , collectively totaling approximately $ 24.1 million in fair value and approximately $ 23.6 million in cost basis and which comprised 2.6 % of our investment portfolio at fair value as of december 31 , 2012. as discussed further above , we hold an investment in the external investment manager , a wholly owned subsidiary that is treated as a portfolio investment . as of december 31 , 2013 , we had no cost basis in this investment and the investment had a fair value of $ 1.1 million , which comprised 0.1 % of our investment portfolio . during 2013 , we began categorizing certain of our portfolio investments that were previously categorized as lmm portfolio investments or middle market portfolio investments as private loan portfolio investments to provide a separate classification based upon the nature in which such investments are originated . during the year ended december 31 , 2013 , there were ten portfolio company investment transfers from the lmm and middle market portfolio investment categories to the private loan portfolio investment category totaling $ 69.6 million in fair value and $ 69.0 million in cost as of the date of transfer . our portfolio investments are generally made through mscc and the funds . mscc and the funds share the same investment strategies and criteria , although they are subject to different regulatory regimes . an investor 's return in mscc will depend , in part , on the funds ' investment returns as msmf and msc ii are both wholly owned subsidiaries of mscc . the level of new portfolio investment activity will fluctuate from period to period based upon our view of the current economic fundamentals , our ability to identify new investment opportunities that meet our investment criteria , and our ability to consummate the identified opportunities . the level of new investment activity , and associated interest and fee income , will directly impact future investment income .
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discussion and analysis of results of operations comparison of years ended december 31 , 2013 and 2012 replace_table_token_16_th replace_table_token_17_th ( a ) distributable net investment income and distributable net realized income are net investment income and net realized income , respectively , as determined in accordance with u.s. gaap , excluding the impact of share-based compensation expense which is non-cash in nature . we believe presenting distributable net investment income and distributable net realized income , and related per share amounts , is useful and appropriate supplemental disclosure of information for analyzing our financial performance since share-based compensation does not require settlement in cash . however , distributable net investment income and distributable net realized income are non-u.s. gaap measures and should not be considered as a replacement to net investment income , net realized income , and other earnings measures presented in accordance with u.s. gaap . instead , distributable net investment income and distributable net realized income should be reviewed only in connection with such u.s. gaap measures in analyzing our financial performance . a reconciliation of net investment income and net realized income in accordance with 69 u.s. gaap to distributable net investment income and distributable net realized income is presented in the table above .
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this discussion contains forward-looking statements that are based on the beliefs , assumptions , and information currently available to our management , and 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 . these risks , uncertainties , and other factors include , among others , those described in greater detail elsewhere in this annual report , particularly in item 1a , โ risk factors โ . overview we are a leading next-generation , evidence-based , personalized healthcare company focused on enabling our clients to fundamentally change the diagnosis , treatment and pharmacoeconomics of cancer and other critical illnesses . we believe a molecular-driven , systems-based approach to making clinical treatment decisions based on large-scale , real time biometric and phenotypical data will become the standard of care initially for patients with cancer and , ultimately , other critical illnesses . we derive revenue from selling gps cancer ( our genomic proteomic spectrometry cancer test , a unique , comprehensive molecular test and decision support solution that measures the proteins present in the patient 's tumor tissue , combined with whole genomic and transcriptomic sequencing of tumor & normal samples ) , to which we obtained exclusive access from an affiliate , and nantos and nantos apps to healthcare providers and payors , self-insured employers and biopharmaceutical companies . nantos and nantos apps include proprietary methods and algorithms for enabling healthcare providers to make better treatment decisions to improve patient outcomes and lower the cost of care , and allow healthcare payors to ensure that their dependents receive high quality care in a cost-effective manner . we believe that as healthcare providers and payors migrate to value-based reimbursement models and implement advances in precision medicine , our offerings position us at the forefront of multiple significant market opportunities . we market nanthealth solutions ( which was originally introduced to the market as clinics ) as a comprehensive integrated solution that includes gps cancer , nantos and the nantos apps . we also market our gps cancer , nantos , individual nantos apps and suites of nantos apps as stand-alone solutions . to accelerate our commercial growth and enhance our competitive advantage , we continue to : introduce new marketing , education and engagement efforts and foster relationships across the oncology community to drive adoption of gps cancer ; pursue reimbursement of gps cancer from regional and national third-party payors and government payors and self-insured employers ; publish scientific and medical advances ; strengthen our commercial organization to increase our nanthealth solutions client base and to broaden usage of our solutions by existing clients who currently use only nantos , specific nantos apps or suites of nantos apps ; and develop new features and functionality for nanthealth solutions to address the needs of current and future healthcare provider and payor , self-insured employer and biopharmaceutical company clients . since our inception , we have devoted substantially all of our resources to the development and commercialization of nanthealth solutions , including nantos and the nantos apps , as well as the commercial launch of our gps cancer business . to complement our internal growth and expertise , we have made several strategic acquisitions of companies , products and technologies . we have incurred significant losses since our inception , and as of december 31 , 2016 our accumulated deficit was approximately $ 475.3 million . we expect to continue to incur operating losses over the near term as we drive adoption of gps cancer , expand our commercial operations , and invest further in nanthealth solutions . - 98 - we plan to ( i ) continue investing in our infrastructure , including but not limited to solution development , sales and marketing , implementation and support , ( ii ) continue efforts to make infrastructure investments within an overall context of maintaining reasonable expense discipline , ( iii ) add new clients through maintaining and expanding sales , marketing and solution development activities , ( iv ) expand our relationships with existing clients through delivery of add-on and complementary solutions and services and ( v ) continue our commitment of service in support of our client satisfaction programs . we believe that our growing client base using our nantos and nantos apps on a daily basis is a strategic asset , and we intend to expand sales of nanthealth solutions offerings towards this client base in order to leverage this strategic asset . recent developments on june 7 , 2016 , we completed our ipo , whereby we sold 6,500,000 shares of our common stock at a public offering price of $ 14.00 per share . additionally , on june 9 , 2016 , the underwriters partially exercised their overallotment option to purchase an additional 400,000 shares of our common stock at $ 14.00 per share . we received a total of $ 83.6 million in net proceeds from our ipo , after deducting underwriting discounts and commissions and offering costs of $ 13.0 million . the offering was registered under the securities act of 1933 , as amended , on a registration statement on form s-1 ( registration no . 333-211196 ) , as amended . in december 2016 , we issued convertible notes to a related party and others for net proceeds of $ 9.9 million and $ 92.8 million , respectively , after deducting underwriting discounts and commissions and other offering costs of $ 4.2 million . please see note 12 of the notes to consolidated and combined financial statements included in item 8 of this annual report on form 10-k for further discussion of these convertible notes . story_separator_special_tag our systems infrastructure and platforms support the delivery of both personalized comprehensive sequencing and molecular analysis and the implementation of value-based care models across the healthcare continuum . we generate revenue from the following sources : - 101 - software , middleware and hardware - software , middleware and hardware revenue is generated from the sale of nantos and nantos apps software on either a perpetual or term license basis , and the sale of our hardware . the software is installed on the client 's site or the client 's designated vendor 's site and is not hosted by us or by a vendor contracted by us . we also generate revenue from the resale of third-party software and hardware to our clients . our software and hardware solutions sold include components of our nantos , including fusionfx , cos , deviceconx and hbox . software-as-a-service - software-as-a-service , or saas , revenue is generated from our clients ' access to and usage of our hosted software solutions on a subscription basis for a specified contract term , which is typically annually . in our saas arrangements , the client can not take possession of the software during the term of the contract and generally only has the right to access and use the software and receive any software upgrades published during the subscription period . solutions sold under a saas model include our eviti platform solutions , nantos and nantos apps . saas revenue may include hosting of our software solutions on behalf of the client . maintenance - maintenance revenue includes ongoing post-contract client support , or pcs , or maintenance during the paid pcs term . additionally , pcs includes ongoing development of software updates and upgrades provided to the client on a when and if available basis . we sell nantos , including deviceconx and fusionfx , with maintenance contracts . sequencing and molecular analysis - sequencing and molecular analysis revenue is generated by the process of performing sequencing and analysis of whole genome dna , rna and proteomic results , including gps cancer . we recognize revenue upon the delivery of the analysis and reporting of the results to the client or on a cash basis when it can not conclude that the fees are fixed and determinable and collectability is reasonably assured . other services - other services revenue includes revenue from professional services we provide that are generally complementary to our software solutions and may or may not be required for the solution to function as desired by the client . when associated with software , there services are generally provided in the form of training and implementation services during the software license period and do not include pcs . other services revenue also includes revenue related to nursing and therapy services provided to patients in a home care setting and any other services not included in the preceding revenue sources . we have established vsoe for pcs on certain of our software solutions . we have not yet established vsoe of fair value for any element other than pcs for a portion of our arrangements . in situations where vsoe of fair value exists for pcs but not a delivered element , the residual method is used to allocate revenue to the undelivered element equal to our vsoe value with the remainder allocated to the delivered elements . in situations where our services are essential to the functionality of our software and vsoe of fair value for pcs does not exist , we defer revenue and costs until we have delivered all elements of the arrangement and amortize revenue and costs over the initial pcs period . for our contracts with multiple elements , we defer revenue until only one undelivered element remains and then recognize the revenue following the pattern of delivery of the final undelivered element . the timing and pattern of this revenue recognition can cause variations in revenue from period-to-period . cost of revenue cost of revenue consists primarily of personnel-related costs for associates providing services to our clients and supporting our revenue-generating platform infrastructure , including salaries , benefits and bonuses . additional expenses include consultant costs , direct reimbursable travel expenses and other direct engagement costs associated with the design , development , sale and installation of our solutions , including system support and maintenance services . our cost of revenue associated with each of our revenue sources is as follows : โช software , middleware and hardware - software and hardware cost of revenue includes third-party software and hardware costs directly associated with our solutions . โช software-as-a-service - saas cost of revenue includes personnel-related , amortization of deferred implementation costs and other direct costs associated with the delivery and hosting of nantos and nantos apps , including eviti , our cancer-decision support solution , and navinet on a subscription basis . โช maintenance - maintenance cost of revenue includes personnel-related and other direct costs associated with the ongoing support or maintenance we provide for our clients . โช sequencing and molecular analysis - sequencing and molecular analysis cost of revenue includes internal costs associated with these services and amounts due to nantomics under our reseller agreement for the sequencing and analysis of whole genome , dna , rna and proteomic results . - 102 - โช other services - other services cost of revenue includes personnel-related costs , amortization of deferred implementation costs and other direct costs associated with software training and implementation services provided to our clients as well as direct expenses relating to our nursing and therapy services provided to patients in a home care setting . cost of revenue also includes amortization of our developed technologies used to generate revenue . we plan to continue to expand our capacity to support our growth , which will result in higher cost of revenue in absolute dollars . we expect cost of revenue to decrease as a percentage of revenue over time as we expand nanthealth solutions and realize economies of scale .
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results of operations the following table sets forth our consolidated and combined statements of operations data for each of the periods indicated : replace_table_token_8_th - 105 - ( 1 ) the net income ( loss ) per share and weighted-average shares outstanding have been computed to give effect to the llc conversion that occurred june 1 , 2016 prior to our initial public offering . in conjunction with the llc conversion , ( a ) all of our outstanding units automatically converted into shares of common stock , based on the relative rights of our pre-ipo equityholders as set forth in the limited liability company agreement and ( b ) we adopted and filed a certificate of incorporation with the secretary of state of the state of delaware and adopted bylaws . we filed an amended certificate of incorporation to effect a 1-for-5.5 reverse stock split of our common stock on june 1 , 2016 . ( 2 ) the net income ( loss ) per share for the common stock for the years ended december 31 , 2016 and 2015 reflects $ 4,958 and $ 16,042 in accretion value allocated to the redeemable common stock , respectively . the redeemable common stock contained a put right , which expired unexercised on june 20 , 2016. as a result of and as of that date , the shares were no longer redeemable and were included in common stock .
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a discussion of the year ended december 31 , 2019 compared to the year ended december 31 , 2018 has been reported previously under โ management 's discussion and analysis of financial condition and results of operations โ in our final prospectus for our public offering of common stock dated as of january 13 , 2021 and filed with the sec pursuant to rule 424 ( b ) ( 4 ) . overview lemonade is rebuilding insurance from the ground up on a digital substrate and an innovative business model . by leveraging technology , data , artificial intelligence , contemporary design , and behavioral economics , we believe we are making insurance more delightful , more affordable , more precise , and more socially impactful . to that end , we have built a vertically-integrated company with wholly-owned insurance carriers in the united states and europe , and the full technology stack to power them . a two minute chat with our bot , ai maya , is all it takes to get covered with renters or homeowners insurance , and we expect to offer a similar experience for other insurance products over time . claims are filed by chatting to another bot , ai jim , who pays claims in as little as three seconds . this breezy experience belies the extraordinary technology that enables it : a state-of-the-art platform that spans marketing to underwriting , customer care to claims processing , finance to regulation . our architecture melds artificial intelligence with the human kind , and learns from the prodigious data it generates to become ever better at delighting customers and quantifying risk . in addition to digitizing insurance end-to-end , we also reimagined the underlying business model to minimize volatility while maximizing trust and social impact . in a departure from the traditional insurance model , where profits can literally depend on the weather , we typically retain a fixed fee , currently 25 % of premiums , and our gross margin are expected to change little in good years and in bad . at lemonade , excess claims are generally offloaded to reinsurers , while excess premiums are usually donated to nonprofits selected by our customers as part of our annual `` giveback '' . these two ballasts , reinsurance and giveback , reduce volatility , while creating an aligned , trustful , and values-rich relationship with our customers . see โ business - our business model โ and โ business - our product offerings - giveback feature โ lemonade 's cocktail of delightful experience , aligned values , and great prices enjoys broad appeal , while over indexing on younger and first time buyers of insurance . as these customers progress through predictable lifecycle events , their insurance needs normally grow to encompass more and higher-value products : renters regularly acquire more property and frequently upgrade to successively larger homes ; home buying often coincides with a growing household and a corresponding need for life or pet insurance , and so forth . these progressions can trigger orders-of-magnitude jumps in insurance premiums . the result is a business with highly-recurring and naturally-growing revenue streams ; a level of automation that we believe delights consumers while collapsing costs ; and an architecture that generates and employs data to price and underwrite risk with ever-greater precision to the benefit of our company , our customers and their chosen nonprofits . since our launch in late 2016 , our gross written premium ( `` gwp '' ) grew from $ 9 million in 2017 , to $ 47 million in 2018 , to $ 116 million in 2019 , and to $ 214 million for the year ended december 31 , 2020. our net losses per dollar of gwp dropped from over $ 3 in 2017 to under $ 1 in 2020. our revenue was $ 2 million , $ 23 million , $ 67 million , and $ 94 million in 2017 , 2018 , 2019 and 2020 , respectively , and our net losses were $ 28 million , $ 53 million , $ 109 million and $ 122 million , respectively . see `` management 's discussion and analysis of financial condition and results of operations - key operating and financial metrics . '' 77 in parallel to this growth of top line and increasing efficiencies , our gross loss ratio declined steadily from 79 % in 2019 to 71 % for the year ended december 31 , 2020. see `` management 's discussion and analysis of financial condition and results of operations โ key operating and financial metrics . '' initial public offering and follow-on offering on july 7 , 2020 , we completed our initial public offering of common stock , or ipo , which resulted in the issuance and sale of 12,650,000 shares of common stock at the ipo price of $ 29.00 , including the exercise of the underwriters ' option to purchase additional shares , and generated net proceeds of $ 335.6 million after deducting underwriting discounts and other offering costs . on january 14 , 2021 , we completed a follow-on offering of common stock , which resulted in the issuance and sale of 3,300,000 shares of common stock by us and 1,524,314 shares of common stock by certain selling shareholders , and generated net proceeds to us of $ 525.2 million after deducting underwriting discounts and other offering costs . on february 1 , 2021 , the underwriters exercised their option to purchase additional shares , which resulted in the issuance and sale of an additional 718,647 shares of common stock by us , and generated additional net proceeds of $ 114.6 million after deducting underwriting discounts . key factors and trends affecting our operating results our financial condition and results of operations have been , and will continue to be , affected by a number of factors , including the following : seasonality seasonal patterns can impact both our rate of customer acquisition and the incurrence of claims and losses . story_separator_special_tag many homeowners may be exposed to a large number of service providers who have more direct and personal access to them . similarly , there may be a perception that a higher priced policy from a traditional insurer may be of higher quality given their size and longevity . to expand into new geographies , we face risks of not being able to obtain necessary licensing or other regulatory approvals in such states or countries . as we expand operations outside the united states , we also face varying cultural norms and customs , additional regulatory , legal and compliance standards and requirements , and additional required investments in both regulatory approvals and marketing channels . a key risk associated with introducing new products is that we may not develop a deep enough understanding of the new markets and associated business challenges , and thus may incur substantial investments of time and resources and fail to penetrate these markets successfully . for more information on challenges we face , see the section titled โ risk factors โ risks relating to our business. โ as we continue to expand our business domestically and internationally , a number of relevant economic and industry-wide factors present challenges and risks . the intense competition in the segments of the insurance industry in which we operate presents risks that we may not be able to differentiate ourselves through product coverage , reputation , financial strength and pricing . the cyclical nature of the insurance business also affects our operating results , and industry-wide negative conditions such as a decline in policies sold , an increase in the frequency of claims or an increase in the frequency of false or overstated claims may impact our business . additionally , many u.s. states are increasingly adopting more stringent cybersecurity and data privacy regulations , 79 which may present challenges for our company and the industry as it continues to expand digital operations . global economic conditions may also impact our operations , including fluctuations in foreign currency exchange rates due to normal market volatility , or due to significant external events such as brexit , the trade war with china and other countries , and the covid-19 pandemic . reinsurance we obtain reinsurance to help manage our exposure to property and casualty insurance risks . although our reinsurance counterparties are liable to us according to the terms of the reinsurance policies , we remain primarily liable to our policyholders as the direct insurers on all risks reinsured , see `` risk factors - risks relating to our business โ and โ risks relating to our industry. โ as a result , reinsurance does not eliminate the obligation of our insurance subsidiary to pay all claims , and we are subject to the risk that one or more of our reinsurers will be unable or unwilling to honor its obligations , that the reinsurers will not pay in a timely fashion , or that our losses are so large that they exceed the limits inherent in our reinsurance contracts , each of which could have a material effect on our results of operations and financial condition . furthermore , reinsurance may be unavailable at current levels and prices , which may limit our ability to write new business . we have proportional reinsurance covering 75 % of our business . under the proportional reinsurance contracts , which cover all of our products and geographies , we transfer , or โ cede , โ 75 % of our premium to our reinsurers ( โ proportional reinsurance contracts โ ) . in exchange , these reinsurers pay us a ceding commission of 25 % for every dollar ceded , in addition to funding all of the corresponding claims , or 75 % of all our claims . this arrangement mirrors our fixed fee , and hence shields our gross profit margin , from the volatility of claims , while boosting our capital efficiency dramatically . we have opted to manage the remaining 25 % of our business with alternative forms of reinsurance . we have achieved this through the non-proportional reinsurance contracts ( โ non-proportional reinsurance contracts โ ) . roughly three quarters of the proportional reinsurance contracts run for a three-year term , expiring june 30 , 2023 , while the remainder has a one-year term , expiring june 30 , 2021 . our non-proportional reinsurance contracts are likewise effective as of july 1 , 2020 , and have a one-year term . if we are unable to renegotiate , at the same or more favorable terms , the proportional reinsurance contracts or the non-proportional reinsurance contracts when each expires , such changes could have an adverse impact on our business model . components of our results of operations revenue gross written premium gross written premium is the amount received , or to be received , for insurance policies written by us during a specific period of time without reduction for premiums ceded to reinsurance . the volume of our gross written premium in any given period is generally influenced by new business submissions , binding of new business submissions into policies , renewals of existing policies , and average size and premium rate of bound policies . ceded written premium ceded written premium is the amount of gross written premium ceded to reinsurers . we enter into reinsurance contracts to limit our exposure to potential losses as well as to provide additional capacity for growth . ceded written premium is earned over the reinsurance contract period in proportion to the period of risk covered . the volume of our ceded written premium is impacted by the level of our gross written premium and any decision we make to increase or decrease limits , retention levels and co-participation . our ceded written premium can also be impacted significantly in certain periods due to changes in reinsurance agreements .
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results of operations the following table presents our results of operations for the periods indicated : replace_table_token_4_th comparison of the years ended december 31 , 2020 and 2019 net earned premium net earned premium increased $ 13.5 million , or 21 % , to $ 77.3 million for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 primarily due to the earning of increased gross written premium , partially offset by the earning of increased ceded written premium under our proportional reinsurance contracts as discussed in detail above under โ reinsurance. โ replace_table_token_5_th gross written premium increased $ 98.6 million , or 85 % , to $ 214.4 million for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. the increase was primarily due to a 56 % increase in net added customers year over year driven by the success of our digital advertising campaigns . we also continued to expand our geographic footprint and product offerings . since december 31 , 2019 , we began writing policies in 10 additional u.s. states , launched a pet health insurance product in the u.s. , and further expanded internationally into the netherlands and france . we also saw a 20 % increase in premiums per customer year over year due to the continued shift in the mix of underlying products toward higher value policies . 86 ceded written premium increased $ 160.5 million , or 1,433 % , to $ 171.7 million for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. on july 1 , 2020 , we entered into proportional reinsurance contracts where we cede 75 % of our written premium to our reinsurers and cover all of our products and geographies .
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in estimating future taxable income , we develop assumptions , including the amount of pretax operating income , the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies . these assumptions require significant judgment . during 2017 , after evaluating all available evidence , we recorded a valuation allowance on all net deferred tax assets . 35 for the year ended december 30 , 2017 , we recognized a total income tax benefit of $ 2.2 million on a pretax book loss of $ 6.2 million compared to an income tax benefit of $ 1.2 million on $ 3.4 million of pretax book income for the year ended december 31 , 2016. as a result of permanent difference add-backs to taxable income related to meals & entertainment , fines and penalties , and stock compensation , there is a decrease to the tax benefit in the amount of $ 14,176 which caused a decrease in the effective tax rate of 0.23 % . return to accrual adjustments created additional tax benefit of ( $ 81,202 ) increasing the effective tax rate by 1.32 % , deferred tax true-ups partially related to returns filed during 2016 created additional tax expense of $ 926 and decreased the effective tax rate by 0.02 % , the reversal of a deferred tax asset related to expired stock options in 2017 offset by a reversal of deferred tax liability related to forfeited restricted stock ( from irc ยง83 ( b ) elections ) created an additional tax expense of $ 344,228 and decreased the effective tax rate by 5.58 % , state tax payable true-ups created a tax benefit of ( $ 12,164 ) and increased the effective tax rate by 0.20 % , foreign payable true-ups created an additional tax benefit of ( $ 48,739 ) and increased the effective tax rate by .79 % . an estimated research and development credit in the amount of ( $ 67,804 ) increased the effective tax rate by 1.10 % . an increase of $ 8,261,315 in the valuation allowance decreased the effective tax rate by -133.88 % , state income tax ( net of federal ) increased the tax benefit in the amount of ( $ 90,365 ) increased the effective tax rate by 1.46 % due to expected state losses , offset by the texas margins tax , and tax expense of $ 3,926,666 was generated by the decrease in the federal tax rate from 35 % to 21 % and story_separator_special_tag the following discussion is qualified in its entirety by , and should be read in conjunction with , our consolidated financial statements and notes thereto , included elsewhere in this annual report on form 10-k. story_separator_special_tag $ 2.0 million , or 5.8 % , to $ 33.1 million for the year ended december 30 , 2017 , as compared to $ 35.2 million for the comparable period in 2016 and revenues from the epcm segment decreased $ 1.4 million , or 5.9 % , to $ 22.6 million for the year ended december 30 , 2017 as compared to $ 24.0 million for the comparable period in 2016. our 2017 revenue for the epcm segment continued to be negatively impacted by the sustained reduction in oil and gas prices and the resulting drop in our clients ' activities in the upstream , midstream and downstream sectors of the energy industry . the reduction in revenue in the automation segment is primarily due to the wind-down of the cpc project that was completed during 2017. revenues from the cpc project were $ 4.6 million in 2017 as compared to $ 8.3 million in 2016. gross profit โ gross profit for the year ended december 30 , 2017 was $ 6.4 million , a decrease of $ 3.7 million , or 36.3 % , from $ 10.1 million for the comparable prior year period . gross profit margin was 11.5 % for the year ended december 30 , 2017 , a decrease from the 17.1 % gross profit margin for the year ended december 31 , 2016. gross profit in the automation segment decreased $ 2.3 million , or 30.0 % , to $ 5.3 million for a gross profit margin of 16.1 % for the year ended december 30 , 2017 as compared to $ 7.6 million with a gross profit margin of 21.6 % for the year ended december 31 , 2016. gross profit generated by the cpc project was $ 1.5 million in 2017 , or 32.6 % of cpc project revenues , and was $ 5.1 million in 2016 , or 61.4 % of cpc project revenues ; this decline was caused primarily by the cpc project wind down . gross profit in our epcm segment decreased $ 1.4 million , or 55.7 % , to $ 1.1 million for a gross profit margin of 4.9 % for the year ended december 30 , 2017 as compared to $ 2.5 million for a gross profit margin of 10.4 % for the year ended december 31 , 2016. the decline in the epcm segment 's 2017 gross profit margin is primarily due to specific project reversals . we continue to monitor labor utilization for both the epcm and the automation segments with the goal of improving gross profit margins while remaining positioned for a potential rebound and growth in future periods . selling , general and administrative โ overall , our sg & a expenses decreased by $ 0.8 million for the year ended december 30 , 2017 as compared to the year ended december 31 , 2016 despite several one-time , nonrecurring costs . during 2017 , management engaged a strategy consulting firm to assess the company 's strengths and market trends in connection with management updating the company 's long term business growth strategy which resulted in nonrecurring costs of $ 0.2 million . story_separator_special_tag in addition , the company recorded a bad debt expense of $ 0.4 million and incurred $ 0.1 million in legal costs associated with the collection of the bad debt . we continue to look for ways to streamline our processes and delay expenditures while we continue to invest in our business development activities . tax benefit โ our effective tax rates for the years ended december 30 , 2017 and december 31 , 2016 were ( 163.5 ) % and 30.5 % , respectively . our effective tax rate for 2017 differs from the federal statutory income tax rate primarily due to valuation allowances related to deferred tax assets , the effect of the federal tax rate change , return to accrual adjustments and true-ups of deferred tax assets and liabilities and foreign taxes payable , estimated research and development credits , and nondeductible expenses . our effective tax rate for 2016 differs from the federal statutory income tax rate primarily due to return to accrual adjustments and true-ups of deferred tax assets and liabilities and foreign taxes payable , estimated research and development credits , and nondeductible expenses . liquidity and capital resources overview we define liquidity as our ability to pay liabilities as they become due , fund business operations and meet monetary contractual obligations . our primary sources of liquidity are cash on hand and internally generated funds . we had cash and restricted cash of $ 9.6 million and $ 15.7 million at december 30 , 2017 and december 31 , 2016 , respectively . our working capital as of december 30 , 2017 was $ 16.8 million as compared to $ 22.2 million as of december 31 , 2016. we believe our current cash on hand , internally generated funds and our other working capital is sufficient to fund our current operations and expected growth in 2018. cash and the availability of cash could be materially restricted if ( 1 ) outstanding invoices billed are not collected or are not collected in a timely manner , ( 2 ) circumstances prevent the timely internal processing of invoices , ( 3 ) we lose one or more of our major customers , or ( 4 ) we are unable to win new projects that we can perform on a profitable basis . cash flows from operating activities operating activities used approximately $ 5.1 million in net cash during the year ended december 30 , 2017 , compared with net cash provided of $ 9.6 million during the comparable period in 2016. the primary drivers of the increase in our cash used by operations for the year ended december 30 , 2017 were a $ 16.2 million net loss , a $ 1.4 million decrease in the collection of accounts receivable , a $ 2.9 million reduction in net costs incurred in excess of billings for uncompleted contracts and a $ 2.5 million increase in cash provided by other working capital items partially offset by an increase of $ 10.2 million of deferred income taxes and other non-cash items . 17 cash flows from investing activities investing activities used cash of $ 0.7 million during the year ended december 30 , 2017 and provided $ 0.1 million of cash for the comparable period in 2016. the primary driver of the increase in our cash used by investing activities was an increase in capital expenditures of $ 0.6 million . these capital expenditures were primarily related to the equipment used to outfit our fabrication facility , which expenditures are not expected to be repeated in the near future . capital expenditures are generally related to replacement computer hardware and software used by our employees in performing their work activities for our clients . cash flows from financing activities financing activities used cash of $ 0.3 million during the year ended december 30 , 2017 and $ 1.7 million during the year ended december 31 , 2016. the primary reason for the decrease in net cash used in financing activities was the suspension of repurchases of our common stock under our stock repurchase program . stock repurchase program - on april 21 , 2015 , the company announced that our board of directors had authorized the repurchase of up to $ 2.0 million of our common stock from time to time through open market or privately negotiated transactions , based on prevailing market conditions . we were not obligated to repurchase any dollar amount or specific number of shares of common stock under the repurchase program , which may be suspended or discontinued at any time . during the year ended december 26 , 2015 , we purchased and retired 53,744 shares at a cost of $ 0.1 million under this program , during the year ended december 31 , 2016 , we purchased and retired 1,074,150 shares at a cost of $ 1.3 million under this program and during the year ended december 30 , 2017 , we purchased and retired 63,156 shares at a cost of $ 0.1 million . we suspended repurchases under this program on may 16 , 2017. accounts receivables we typically sell our products and services on short-term credit and seek to minimize our credit risk by performing credit checks and conducting our own collection efforts . our trade accounts receivable decreased $ 1.4 million , or 12.8 % , to $ 9.1 million as of december 30 , 2017 compared to $ 10.5 million as of december 31 , 2016. bad debt expense was $ 0.4 million and $ 0.1 million for the years ended december 30 , 2017 and december 31 , 2016 , respectively . our allowance for uncollectible accounts increased $ 0.3 million to $ 0.7 million as of december 30 , 2017 and increased as a percentage of trade accounts receivable to 7.6 % from 4.0 % for 2017 from 2016. we continue to manage this portion of our business very carefully . risk management in performing
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results of operations our revenue is comprised of services revenue and the sale of integrated engineered systems . we generally recognize service revenue as soon as the services are performed . the majority of our engineering services have historically been provided through time-and-material contracts whereas a majority of our integrated engineered systems revenues are earned on fixed-price contracts . during 2017 , we worked on 483 projects ranging in size from a few hundred dollars to $ 15 million , excluding the caspian pipeline consortium project in russia and kazakhstan ( โ cpc project โ ) . the average size of the projects we worked on during 2017 was $ 330 thousand and we recorded an average revenue of $ 115 thousand per project . during 2016 , we worked on 830 projects ranging in size from $ 1 thousand to $ 17 million , excluding our cpc project and recorded an average revenue of $ 71 thousand per project . the cpc project was completed in 2017. in the course of providing our services , we routinely provide materials and equipment and may provide construction or construction management services on a subcontractor basis . generally , these materials , equipment and subcontractor costs are passed through to our clients and reimbursed , along with handling fees , which in total are at margins lower than those of our services business . in accordance with industry practice and generally accepted accounting principles , all such costs and fees are included in revenue . the use of subcontractor services can change significantly from project to project ; therefore , changes in revenue and gross profit , sg & a expense and operating income as a percent of revenue may not be indicative of our core business trends .
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our principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world . business travel-related services are offered through a non-consolidated joint venture , american express global business travel ( gbt jv ) . prior to july 1 , 2014 , these business travel operations were wholly owned . we compete in the global payments industry with charge , credit and debit card networks , issuers and acquirers , as well as evolving and growing alternative payment providers . as the payments industry continues to evolve , we face increasing competition from non-traditional players that leverage new technologies and customers ' existing accounts and relationships to create payment or other fee-based solutions . our products and services are sold globally to diverse customer groups , including consumers , small businesses , mid-sized companies and large corporations . these products and services are sold through various channels , including direct mail , online applications , in-house and third-party sales forces and direct response advertising . the following types of revenue are generated from our various products and services : discount revenue , our largest revenue source , which represents fees generally charged to merchants when card members use their cards to purchase goods and services at merchants on our network ; net card fees , which represent revenue earned from annual card membership fees ; travel commissions and fees , which are earned by charging a transaction or management fee to both customers and suppliers for travel-related transactions ( business travel commissions and fees included through june 30 , 2014 ) ; other commissions and fees , which are earned on foreign exchange conversions , card-related fees , such as late fees and assessments , loyalty coalition-related fees and other service fees ; other revenue , which represents revenues arising from contracts with partners of our global network services ( gns ) business ( including commissions and signing fees ) , insurance premiums earned from card member travel and other insurance programs , prepaid card-related revenues , revenues related to the gbt jv transition services agreement , earnings from equity method investments ( including the gbt jv after june 30 , 2014 ) and other miscellaneous revenue and fees ; and interest on loans , which principally represents interest income earned on outstanding balances . financial highlights for 2015 , we reported net income of $ 5.2 billion and diluted earnings per share of $ 5.05. this compared to $ 5.9 billion of net income and $ 5.56 diluted earnings per share for 2014 , and $ 5.4 billion of net income and $ 4.88 diluted earnings per share for 2013 . 2015 results included : a $ 419 million ( $ 335 million after-tax ) charge in the fourth quarter , related to enterprise growth ( eg ) , that was driven primarily by the impairment of goodwill and technology , plus some restructuring costs . 51 2014 results included : a $ 719 million ( $ 453 million after-tax ) gain on the sale of our investment in concur technologies ( concur ) in the fourth quarter ; a $ 626 million ( $ 409 million after-tax ) gain as a result of the business travel joint venture transaction in the second quarter ; $ 420 million ( $ 277 million after-tax ) of net charges for costs related to reengineering initiatives , including $ 313 million ( $ 206 million after-tax ) and $ 133 million ( $ 90 million after-tax ) of restructuring charges in the fourth and second quarter , respectively ; and a $ 109 million ( $ 68 million after-tax ) charge related to the renewal of our partnership with delta air lines ( delta ) in the fourth quarter . 2013 results included : a $ 66 million ( $ 41 million after-tax ) charge related to a proposed merchant litigation settlement in the fourth quarter . in addition , effective december 1 , 2015 , we transferred the card member loans and receivables related to our cobrand partnerships with costco wholesale corporation ( costco ) in the united states and jetblue airways corporation ( jetblue ) ( the hfs portfolios ) to card member loans and receivables held for sale ( hfs ) on the consolidated balance sheets . refer to note 2 to the ยconsolidated financial statementsย for additional information . non-gaap measures we prepare our consolidated financial statements in accordance with accounting principles generally accepted in the united states of america ( gaap ) . however , certain information included within this report constitutes non-gaap financial measures . our calculations of non-gaap financial measures may differ from the calculations of similarly titled measures by other companies . business environment our performance in 2015 reflected both the strength of our business and the headwinds we have been managing throughout the year . results for the year benefited from healthy loan growth , strong card acquisitions , excellent credit performance , disciplined operating expense control and the benefits of our strong capital position . our results were also challenged by several factors . first , the cumulative impact from the initial increased costs associated with early renewals of certain of our cobrand relationships and the end of our relationship with costco in canada negatively impacted our results . second , the u.s. dollar continued to strengthen as the year progressed . third , our decision to increase spending on growth initiatives for the year , consistent with the elevated levels of 2014 , further pressured our 2015 earnings . fourth , the economic , regulatory , and competitive environments all became even more challenging as the year progressed . the combination of these factors resulted in billings and revenue growth rates that were fairly steady throughout the year . billings did grow in 2015 , although growth rates decelerated modestly during the second half of the year . story_separator_special_tag interest expense decreased $ 84 million or 5 percent in 2015 compared to 2014 , and $ 251 million or 13 percent in 2014 compared to 2013. the decrease in both years was primarily driven by a lower cost of funds on debt and customer deposits , partially offset by increases in average customer deposit balances . 1 the foreign currency adjusted information assumes a constant exchange rate between the periods being compared for purposes of currency translation into u.s. dollars ( e.g. , assumes the foreign exchange rates used to determine results for the current year apply to the corresponding year period against which such results are being compared ) . certain amounts included in the calculations of foreign currency-adjusted revenues and expenses , which constitute non-gaap measures , are subject to management allocations . we believe the presentation of information on a foreign currency adjusted basis is helpful to investors by making it easier to compare our performance in one period to that of another period without the variability caused by fluctuations in currency exchange rates . 55 table 3 : provisions for losses summary replace_table_token_7_th ( a ) effective december 1 , 2015 , provisions for losses does not reflect provisions related to the hfs portfolios . provisions for losses charge card provision for losses decreased $ 55 million or 7 percent in 2015 compared to 2014 , and increased $ 144 million or 22 percent in 2014 compared to 2013. the decrease in the current year primarily reflects a reserve release versus a reserve build in 2014 , partially offset by higher write-offs . the increase in the prior year was primarily due to a slower reserve rate improvement in 2014 versus 2013 , higher corporate card write-offs and the effects of changes in other loss reserve assumptions resulting in a reserve build versus a reserve release in 2013. card member loans provision for losses increased $ 52 million or 5 percent in 2015 compared to 2014 , and $ 23 million or 2 percent in 2014 compared to 2013. the increase in the current year primarily reflects a reserve build versus a reserve release in 2014. the reserve build in the current year was due to a small increase in delinquency rates combined with an increase in loan balances , partially offset by lower write-offs and the impact related to transferring the hfs portfolios to card member loans and receivables hfs , as related credit costs are reported in other expenses through a valuation allowance adjustment beginning in december 2015. the increase in the prior year was driven by higher average card member loans , a slower improvement in the reserve rate and the effects of changes in other loss reserve assumptions resulting in a lower reserve release compared to 2013 , partially offset by the benefit of lower net write-offs due to improved credit performance . other provision for losses decreased $ 53 million or 46 percent in 2015 compared to 2014 and increased $ 45 million or 65 percent in 2014 compared to 2013. the decrease in the current year and increase in the prior year were due , in part , to a merchant-related charge in the fourth quarter of 2014. table 4 : expenses summary replace_table_token_8_th ( a ) effective december 1 , 2015 , other , net includes the valuation allowance adjustment associated with the hfs portfolios . expenses marketing and promotion expenses decreased $ 107 million or 3 percent ( although they increased 1 percent on an fx-adjusted basis ) in 2015 compared to 2014 and increased $ 277 million or 9 percent in 2014 compared to 2013 . 2 both periods reflect elevated levels of spending on growth initiatives . card member rewards expenses increased $ 65 million or 1 percent in 2015 compared to 2014 , and $ 474 million or 7 percent in 2014 compared to 2013. the current year increase was primarily driven by higher cobrand rewards expense of $ 199 million , driven by rate impacts as a result of cobrand partnership renewal costs , partially offset by a decrease in membership rewards expense of $ 134 million . the latter was primarily driven by slower growth in the ultimate redemption rate ( urr ) and a decline in the weighted average cost ( wac ) per point assumption , including 2 refer to footnote 1 on page 55 for details regarding foreign currency adjusted information . 56 the impact of the $ 109 million charge in the fourth quarter of 2014 related to the delta partnership renewal , partially offset by increased expenses related to new points earned , driven by higher spending volumes . the prior year increase was primarily due to higher membership rewards expense of $ 263 million , driven by a $ 266 million increase related to new points earned , in line with higher spending volumes , and a higher wac per point assumption , including the impact of the previously mentioned charge related to the delta partnership renewal ; these increases were offset by slower average growth in the urr . cobrand rewards expense increased $ 211 million in 2014 compared to 2013 , primarily driven by higher spending volumes . the membership rewards urr for current program participants was 95 percent ( rounded down ) at december 31 , 2015 , compared to 95 percent ( rounded up ) at december 31 , 2014 and 94 percent ( rounded down ) at december 31 , 2013. card member services and other expenses increased $ 196 million or 24 percent in 2015 compared to 2014 and increased $ 55 million or 7 percent in 2014 compared to 2013. the increase in the current year was primarily due to higher costs related to certain previously renewed cobrand partnership agreements .
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consolidated results of operations as a result of the gbt jv transaction , we deconsolidated the global business travel net assets , effective june 30 , 2014 , resulting in a lack of comparability between the periods presented . as mentioned previously , effective december 1 , 2015 , we transferred the card member loans and receivables related to the hfs portfolios ( included in the uscs segment ) , to card member loans and receivables hfs on the consolidated balance sheets . the primary impacts beyond the hfs classification on the consolidated balance sheets are to provisions for losses and credit metrics , which no longer reflect amounts related to these loans and receivables , as credit costs are reported in other expenses through a valuation allowance adjustment . other , non-credit related metrics ( i.e. , billed business , cards-in-force , net interest yield ) , continue to reflect amounts related to the hfs portfolios . refer to note 2 to the ยconsolidated financial statementsย for additional information . the relative strengthening of the u.s. dollar over the periods of comparison has had an impact on our results of operations . where meaningful in describing our performance , foreign currency-adjusted amounts , which exclude the impact of changes in the foreign exchange ( fx ) rates , have been provided . table 1 : summary of financial performance replace_table_token_5_th ( a ) earnings per common share ย diluted was reduced by the impact of ( i ) earnings allocated to participating share awards and other items of $ 38 million , $ 46 million and $ 47 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively , and ( ii ) dividends on preferred shares of $ 62 million for the year ended december 31 , 2015 , and nil for both the years ended december 31 , 2014 and 2013 .
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the partnership 's investments in local limited partnerships as shown in the balance sheets at march 31 , 2018 and 2017 is approximately $ 3,946,000 and $ 3,218,000 , respectively , less than the partnership 's equity at the preceding december 31 as shown in the local limited partnerships ' combined financial statements presented below . this difference is primarily due to acquisition , selection and other costs related to the acquisition of the investments which have been capitalized in the partnership 's investment account and capital contributions payable to the local limited partnerships which were netted against partner capital in the local limited partnerships ' financial statements . at march 31 , 2018 and 2017 , the investment accounts in certain local limited partnerships have reached a zero balance . consequently , a portion of the partnerships ' estimate of its share of losses for the years ended march 31 , 2018 , 2017 and 2016 , amounting to approximately $ 12,000 , $ 52,000 , and $ 38,000 , respectively , have not been recognized . as of march 31 , 2018 , the aggregate share of net losses from the remaining local limited partnerships not recognized by the partnership amounted to $ 12,000 . the partnership reviews its investments in local limited partnership for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value of such investments may not be recoverable . recoverability is measured by a comparison of the carrying amount of the investment to the sum of the total amount of the remaining low income housing tax credits allocated to the partnership and any estimated residual value of the investment . for the years ended march 31 , 2018 , 2017 and 2016 , impairment loss related to investments in local limited partnerships was $ 652,206 , $ 668,766 , and $ 991,757 , respectively . 43 wnc housing tax credit fund vi , l.p. , series 13 ( a california limited partnership ) notes to financial statements - continued for the years ended march 31 , 2018 , 2017 and 2016 note 2 - investments in local limited partnerships , continued the partnership also evaluates its intangibles for impairment in connection with its investments in local limited partnerships . impairment on the intangibles is measured by comparing the partnership 's total investment balance after impairment of investments in local limited partnerships to the sum of the total of the remaining low income housing tax credits allocated to the partnership and any estimated residual value of the investments . during the years ended march 31 , 2018 , 2017 and 2016 , an impairment loss of $ 0 , $ 34,206 , and $ 60,703 , respectively , was recorded against related intangibles . the following is a summary of the equity method activity of the investments in local limited partnerships for the periods presented : replace_table_token_12_th replace_table_token_13_th 44 wnc housing tax credit fund vi , l.p. , series 13 ( a california limited partnership ) notes to financial statements - continued for the years ended march 31 , 2018 , 2017 and 2016 note 2 - investments in local limited partnerships , continued the financial information from the individual financial statements of the local limited partnerships includes rental and interest subsidies . rental subsidies are included in total revenues and interest subsidies are generally netted against interest expense . approximate combined condensed financial information from the individual financial statements of the local limited partnerships as of december 31 and for the years then ended is as follows : combined condensed balance sheets replace_table_token_14_th combined condensed statements of operations replace_table_token_15_th 45 wnc housing tax credit fund vi , l.p. , series 13 ( a california limited partnership ) notes to financial statements - continued for the years ended march 31 , 2018 , 2017 and 2016 note 2 - investments in local limited partnerships , continued certain local limited partnerships have incurred operating losses and or have working capital deficiencies . in the event these local limited partnerships continue to incur significant operating losses , additional capital contributions by the partnership and or the local general partner may be required to sustain the operations of such local limited partnerships . if additional capital contributions are not made when they are required , the partnership 's investment in certain local limited partnerships could be impaired , and the loss and recapture of the related low income housing tax credits could occur . troubled housing complex davenport started construction in october 2006 and was scheduled to be completed in june 2008. construction was delayed due to story_separator_special_tag forward looking statements with the exception of the discussion regarding historical information , this โ management 's discussion and analysis of financial condition and results of operations โ and other discussions elsewhere in this form 10-k contain forward looking statements . such statements are based on current expectations subject to uncertainties and other factors which may involve known and unknown risks that could cause actual results of operations to differ materially from those projected or implied . further , certain forward-looking statements are based upon assumptions about future events which may not prove to be accurate . risks and uncertainties inherent in forward looking statements include , but are not limited to , the partnership 's future cash flows and ability to obtain sufficient financing , level of operating expenses , conditions in the low income housing tax credits property market and the economy in general , changes in law , rules and regulations , and legal proceedings . historical results are not necessarily indicative of the operating results for any future period . story_separator_special_tag 22 income taxes the partnership has elected to be treated as a pass-through entity for income tax purposes and , as such , is not subject to income taxes . rather , all items of taxable income , deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns . the partnership 's federal tax status as a pass-through entity is based on its legal status as a partnership . accordingly , the partnership is not required to take any tax positions in order to qualify as a pass-through entity . the partnership is required to file and does file tax returns with the internal revenue service and other taxing authorities . accordingly , these financial statements do not reflect a provision for income taxes and the partnership has no other tax positions which must be considered for disclosure . income tax returns filed by the partnership are subject to examination by the internal revenue service for a period of three years . while no income tax returns are currently being examined by the internal revenue service , tax years since 2014 remain open . impact of recent accounting pronouncements in january 2014 , the fasb issued an amendment to the accounting and disclosure requirements for investments in qualified affordable housing projects . the amendments provide guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit . the amendments permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met . under the proportional amortization method , an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received , and recognizes the net investment performance in the income statement as a component of income tax expense ( benefit ) . the amendments are effective for interim and annual periods beginning after december 15 , 2014 and should be applied retrospectively to all periods presented . early adoption was permitted . the adoption of this update did not materially affect the partnership 's financial statements . in february 2015 , the fasb issued asu no . 2015-02 , โ consolidation ( topic 810 ) : amendments to the consolidation analysis โ . in addition , in october 2016 , the fasb issued asu no . 2016-17 , โ consolidation ( topic 810 ) : interests held through related parties that are under common control โ , to provide further clarification guidance to asu no . 2015-02. this will improve certain areas of consolidation guidance for reporting organizations that are required to evaluate whether to consolidate certain legal entities such as limited partnerships , limited liability corporations and securitization structures . asu 2015-02 and asu 2016-17 simplifies and improves gaap by : eliminating the presumption that a general partner should consolidate a limited partnership , eliminating the indefinite deferral of fasb statement no . 167 , thereby reducing the number of variable interest entity ( vie ) consolidation models from four to two ( including the limited partnership consolidation model ) and clarifying when fees paid to a decision maker should be a factor to include in the consolidation of vies . asu 2015-02 is effective for periods beginning after december 15 , 2015. asu 2016-17 is effective for periods beginning after december 15 , 2016. the adoption of these updates did not materially affect the partnership 's financial statements . certain risks and uncertainties see item 1a for a discussion of risks regarding the partnership . to date , certain local limited partnerships have incurred significant operating losses and have working capital deficiencies . in the event these local limited partnerships continue to incur significant operating losses , additional capital contributions by the partnership and or the local general partners may be required to sustain the operations of such local limited partnerships . if additional capital contributions are not made when they are required , the partnership 's investment in certain of such local limited partnerships could be lost , and the loss and recapture of the related low income housing tax credits could occur . anticipated future and existing cash resources of the partnership are not sufficient to pay existing liabilities of the partnership . however , substantially all of the existing liabilities of the partnership are payable to the general partner and or its affiliates . though the amounts payable to the general partner and or its affiliates are contractually currently payable , the partnership anticipates that the general partner and or its affiliates will not require the payment of these contractual obligations until capital reserves are in excess of the aggregate of then existing contractual obligations and then anticipated future foreseeable obligations of the partnership . the partnership would be adversely affected should the general partner and or its affiliates demand current payment of the existing contractual obligations and or suspend services for this or any other reason . 23 financial condition the partnership 's assets at march 31 , 2018 consisted of $ 305,000 in cash and cash equivalents and investments in local limited partnerships of $ 1,406,000 ( see โ method of accounting for investments in local limited partnerships ) . liabilities at march 31 , 2018 consisted of $ 245,000 of payables due to local limited partnerships and $ 1,487,000 of accrued fees and expenses due to general partner and affiliates ( see โ future contractual cash obligations โ below ) .
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results of operations year ended march 31 , 2018 compared to year ended march 31 , 2017 the partnership 's net loss for the year ended march 31 , 2018 was $ 855,000 , reflecting a decrease of $ 337,000 from the net loss for the year ended march 31 , 2017 of $ 1,192,000. the decrease in net loss is partially due to a $ 110,000 increase in other income for the year ended march 31 , 2018. the partnership received $ 51,000 of state tax refund resulting from tax overpayment , and $ 59,000 from the release of a lien account related to the disposition of a local limited partnership . gain on sale of local limited partnerships increased by $ 37,000 for the year ended march 31 , 2018. the gain and loss on sale of local limited partnerships will vary from period to period depending on the values and sale prices of the housing complexes that have been identified for disposition and the closing dates of such transactions . additionally , impairment loss decreased by $ 51,000 for the year ended march 31 , 2018. impairment loss varies from year to year depending on the operations of the local limited partnerships and the amount of low income housing tax credits that are allocated each year to the partnership . there was a decrease in accounting and legal fees of $ 89,000 for the year ended march 31 , 2018 compared to the year ended march 31 , 2017 due to timing of services and payments . asset management fees decreased by $ 2,000 during the year ended march 31 , 2018. the fees are calculated based on the value of invested assets , which decreased due to the sales of local limited partnerships .
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10.66 second amendment to restructuring support agreement , dated as of october 23 , 2020 , by and among preit associates , l.p. , preit-rubin , inc. , pennsylvania real estate investment trust , and the financial institutions party thereto and their assignees , filed story_separator_special_tag the following analysis of our consolidated financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this report . overview preit , a pennsylvania business trust founded in 1960 and one of the first equity real estate investment trusts ( โ reits โ ) in the united states , has a primary investment focus on retail shopping malls located in the eastern half of the united states , primarily in the mid-atlantic region . we currently own interests in 26 retail properties , of which 25 are operating properties and one is a development property . the 25 operating properties include 20 shopping malls and five other retail properties , have a total of 19.8 million square feet and are located in nine states . we and partnerships in which we hold an interest own 15.4 million square feet at these properties ( excluding space owned by anchors or third parties ) . there are 18 operating retail properties in our portfolio that we consolidate for financial reporting purposes . these consolidated properties have a total of 14.9 million square feet , of which we own 11.8 million square feet . the seven operating retail properties that are owned by unconsolidated partnerships with third parties have a total of 4.9 million square feet of which 3.6 million square feet are owned by such partnerships . when we refer to โ same store โ properties , we are referring to properties that have been owned for the full periods presented and exclude properties acquired , disposed of , under redevelopment or designated as a non-core property during the periods presented . core properties include all operating retail properties except for exton square mall and fashion district philadelphia . valley view mall was previously designated as a non-core property . as discussed further in notes 2 and 4 to our consolidated financial statements , a foreclosure sale judgment was ordered by the court after the property operations were assumed by a receiver on behalf of the lender under the mortgage loan secured by valley view mall and we no longer operate the property . โ core malls โ also excludes these properties as well as power centers and gloucester premium outlets . we have one property in our portfolio that is classified as under development ; however , we do not currently have any activity occurring at this property . fashion district philadelphia opened on september 19 , 2019. fashion district philadelphia is an aggregation of properties spanning three blocks in downtown philadelphia that were formerly known as gallery i , gallery ii and 907 market street . joining century 21 ( which has since closed in 2020 ) and burlington in 2019 were multiple dining and entertainment venues including market eats , a multi offering food court , city winery , amc theatres , and round 1 bowling & amusement . in addition , nike factory store , ulta , and h & m have opened philadelphia flagship stores at the property since its opening in september 2019. we are a fully integrated , self-managed and self-administered reit that has elected to be treated as a reit for federal income tax purposes . in general , we are required each year to distribute to our shareholders at least 90 % of our net taxable income and to meet certain other requirements in order to maintain the favorable tax treatment associated with qualifying as a reit . our primary business is owning and operating retail shopping malls , which we do primarily through our operating partnership , preit associates , l.p. ( โ preit associates โ or the โ operating partnership โ ) . we provide management , leasing and real estate development services through preit services , llc ( โ preit services โ ) , which generally develops and manages properties that we consolidate for financial reporting purposes , and preit-rubin , inc. ( โ pri โ ) , which generally develops and manages properties that we do not consolidate for financial reporting purposes , including properties owned by partnerships in which we own an interest , and properties that are owned by third parties in which we do not have an interest . pri is a taxable reit subsidiary , as defined by federal tax laws , which means that it is able to offer additional services to tenants without jeopardizing our continuing qualification as a reit under federal tax law . our revenue consists primarily of fixed rental income , additional rent in the form of expense reimbursements , and percentage rent ( rent that is based on a percentage of our tenants ' sales or a percentage of sales in excess of thresholds that are specified in the leases ) derived from our income producing properties . we also receive income from our real estate partnership investments and from the management and leasing services pri provides . the covid-19 global pandemic that began in 2020 has adversely impacted and continues to impact our business , financial condition , liquidity and operating results , as well as our tenants ' businesses . the prolonged and increased spread of covid-19 has also led to unprecedented global economic disruption and volatility in financial markets . some of our tenants ' financial health and business viability have been adversely impacted and their creditworthiness has deteriorated . we anticipate that our future business , financial condition , liquidity and results of operations , including in 2021 and potentially in future periods , will continue to be materially impacted by the covid-19 pandemic . story_separator_special_tag we hold our investments in seven of the 25 operating retail properties and the one development property in our portfolio through unconsolidated partnerships with third parties in which we own a 25 % to 50 % interest . acquisitions and dispositions see note 2 to our consolidated financial statements for a description of our dispositions and acquisitions in 2020 and 2019. current economic conditions and our near term capital needs conditions in the economy have caused fluctuations and variations in business and consumer confidence , retail sales , and consumer spending on retail goods . further , traditional mall tenants , including department store anchors and smaller format retail tenants face significant challenges resulting from changing consumer expectations , the convenience of e-commerce shopping , competition from fast fashion retailers , the expansion of outlet centers , and declining mall traffic , among other factors . in recent years , there has been an increased level of tenant bankruptcies and store closings by tenants who have been significantly impacted by these factors . all of these factors have been exacerbated by the impact of the covid-19 pandemic in 2020 . 44 the table below sets forth information related to our tenants in bankruptcy for our consolidated and unconsolidated properties ( excluding tenants in bankruptcy at sold properties ) : replace_table_token_5_th ( 1 ) total represents unique tenants and includes both tenant-owned and landlord-owned stores . ( 2 ) gross leasable area ( โ gla โ ) in square feet . ( 3 ) includes our share of tenant gross rent from partnership properties based on preit 's ownership percentage in the respective equity method investments as of december 31 , 2020. anchor replacements in recent years , through property dispositions , proactive store recaptures , lease terminations and other activities , we have made efforts to reduce our risks associated with certain department store concentrations . during 2019 , we re-opened or introduced additional tenants to former anchor positions at woodland mall in grand rapids , michigan , valley mall in hagerstown , maryland and plymouth meeting mall , in plymouth meeting , pennsylvania . dick 's sporting goods at valley mall opened in the first quarter of 2020. at plymouth meeting mall , we opened michael 's in the first quarter of 2020. in 2017 , we purchased the macy 's location at moorestown mall in moorestown , new jersey and opened homesense , sierra trading and michael 's between 2018 and the first quarter of 2020. construction was completed in the first quarter of 2020 giving way to the opening of burlington in place of a former sears at dartmouth mall in dartmouth , massachusetts . we expect to continue to move forward with several outparcels at dartmouth mall resulting from the sears recapture and to work with large format prospects for space adjacent to burlington , but have experienced delays due to the impact of the covid-19 pandemic . during 2019 , an anchor tenant , sears , closed at exton square mall in exton , pennsylvania . in january 2020 , the lord & taylor store at moorestown mall in moorestown , new jersey closed and we are working with several retail and entertainment prospects to fill the space . sears closed its stores at moorestown mall in moorestown , new jersey and jacksonville mall in jacksonville , north carolina in april 2020. sears continues to be financially obligated pursuant to the leases at these locations . in may 2020 , j.c. penney filed for bankruptcy and announced the closure of its stores at the mall at prince georges in hyattsville , maryland , and magnolia mall in florence , south carolina . in response to anchor store closings and other trends in the retail space , we have been changing the mix of tenants at our properties . we have been reducing the percentage of traditional mall tenants and increasing the share of space dedicated to dining , entertainment , fast fashion , off price , and large format box tenants . this initiative has slowed down due to the impacts of the covid-19 pandemic . some of these changes may result in the redevelopment of all or a portion of our properties . see โ โ capital improvements , redevelopment and development projects. โ to fund the capital necessary to replace anchors and to maintain a reasonable level of leverage , we expect to use a variety of means available to us , subject to and in accordance with the terms of our credit agreements . these steps might include ( i ) making additional borrowings under our credit agreements ( assuming availability and continued compliance with the financial covenants thereunder ) , ( ii ) obtaining construction loans on specific projects , ( iii ) selling properties or interests in properties with values in excess of their mortgage loans ( if applicable ) and applying the excess proceeds to fund capital expenditures or for debt reduction , or ( iv ) obtaining capital from joint ventures or other partnerships or arrangements involving our contribution of assets with institutional investors , private equity investors or other reits . capital improvements , redevelopment and development projects we might engage in various types of capital improvement projects at our operating properties . such projects vary in cost and complexity , and can include building out new or existing space for individual tenants , upgrading common areas or exterior areas such as parking lots , or redeveloping the entire property , among other projects . project costs are accumulated in โ construction in progress โ on our consolidated balance sheet until the asset is placed into service , and amounted to $ 46.3 million as of december 31 , 2020 .
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results of operations overview our net loss increased by $ 253.7 million to a net loss of $ 266.7 million for the year ended december 31 , 2020 from a net loss of $ 13.0 million for the year ended december 31 , 2019. the change in our 2020 results of operations was primarily due to ( a ) a loss on remeasurement of fdp 's assets and an other than temporary impairment on our investment in fdp totaling $ 148.5 million ; ( b ) a decrease in real estate revenue of $ 74.0 million due to the covid-19 related closure of our properties for the majority of the second quarter , as well as rent concession requests from tenants for rent abatements ; ( c ) a decrease in equity partnership income of $ 13.8 million due to covid-19 related closures and rent concessions at our equity investees ' properties ; ( d ) an increase in interest expense of $ 20.4 million driven by higher interest rates on our credit agreements and higher overall debt balances ; and ( e ) a non-recurring gain on debt extinguishment recognized for the year ended december 31 , 2019 of $ 24.9 million , which had a favorable impact on the prior year period ; partially offset by : ( a ) a decrease in property operating expenses of $ 9.7 million related to ongoing impacts of covid-19 since the second quarter of 2020 ; ( b ) a non-recurring gain on derecognition of property , which provided a benefit of $ 8.1 million in the current year period ; and ( c ) a non-recurring gain on sales of real estate , which provided a benefit of $ 11.4 million in the current year period . occupancy the tables below set forth certain occupancy statistics for our retail properties in total and our core malls as of december 31 , 2020 and 2019 : replace_table_token_6_th ( 1 ) occupancy for all periods presented includes all tenants irrespective of the term of their agreement .
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the pressurized vessel segment produces and services pressurized tanks . the modular building segment produces modular buildings for animal containment and various laboratory uses . the tools segment manufactures steel cutting tools and inserts . the accounting policies applied to determine the segment information are the same as those described in the summary of significant accounting policies . management evaluates the performance of each segment based on profit or loss from operations before income taxes . 38 approximate financial information with respect to the reportable segments is as follows . replace_table_token_25_th replace_table_token_26_th ( 17 ) subsequent events management evaluated all other activity of the company and concluded that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes to the condensed consolidated financial statements . 39 item 9. changes in and disagreements with accountants on accounting and financial disclosure . none . item 9a . controls and procedures . evaluation of disclosure controls and procedures the person serving as our principal executive officer and principal financial officer has evaluated the effectiveness of our disclosure controls and procedures , as defined in rule 13a-15 ( e ) or rule 15d-15 ( e ) , as of the end of the period subject to this report . based on this evaluation , the person serving as our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective and provide reasonable assurance that information required to be disclosed by us in the periodic and current reports that we file or submit under the exchange act is recorded , processed , summarized and reported within the periods specified by the securities and exchange commission 's rules and forms . management 's report on internal control over financial reporting our management is responsible for establishing and maintaining adequate internal control over financial reporting , as such term is defined in exchange act rules 13a-15 ( f ) and 15d-15 ( f ) . internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles . under the supervision and with the participation of management , including the person serving as our principal executive officer and principal financial officer , we conducted an evaluation of the effectiveness of our internal controls over financial reporting based on the framework in internal control โ integrated framework issued by the committee of sponsoring organizations of the treadway commission ( โ coso โ ) of 1992. based on this evaluation , management has concluded that our internal control over financial reporting was effective as of november 30 , 2013. this annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting . management 's report was not subject to attestation by the company 's registered public accounting firm pursuant to rules of the securities and exchange commission that permit us to provide only management 's report in this annual report . limitations on controls our management , including the person serving as our principal executive officer and principal financial officer , does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud . a control system , no matter how well designed and operated , can provide only reasonable , not absolute , assurance that the control system 's objectives will be met . internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures . in addition , the design of any system of controls is based in part on certain assumptions about the likelihood of future events , and controls may become inadequate if conditions change . there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions . changes to internal control over financial reporting there were no changes in our internal controls over financial reporting that occurred during story_separator_special_tag this report contains forward-looking statements that involve significant risks and uncertainties . the following discussion , which focuses on our results of operations , contains forward-looking information and statements . actual events or results may differ materially from those indicated or anticipated , as discussed in the section entitled โ forward looking statements. โ the following discussion of our financial condition and results of operations should also be read in conjunction with our financial statements and notes to financial statements contained in item 8 of this report . 12 financial position we believe that our consolidated balance sheet indicates a strong financial position . during fiscal year 2013 , we increased our current liabilities by 20.2 % , and decreased long-term liabilities by 12.1 % for a total increase of approximately $ 208,000. we accessed $ 3,350,000 on our line of credit primarily to acquire the assets of ohio metal working products company in canton , ohio ( see below ) . we also decreased net term debt by $ 985,000. total current assets decreased by approximately 2.4 % , or $ 483,000. we expect our access to capital will continue to provide future cash for equipment investments , acquisitions , or debt pay down . we believe our working capital is strong as we move into 2014 , because we currently have $ 3,800,000 available on our line of credit as of november 30 , 2013. we also expect to obtain permanent financing in connection with the purchase of ohio metal working products company as discussed under the heading โ liquidity and capital resources. story_separator_special_tag the written agreement with the customer specifies that the goods will be delivered on a schedule to be determined by the customer , with a final specified delivery date , and that we will segregate the goods from our inventory , such that they are not available to fill other orders . this agreement also specifies that the buyer is required to purchase all goods manufactured under this agreement . title of the goods will pass to the buyer when the goods are complete and ready for shipment , per the customer agreement . at the transfer of title , all risks of ownership have passed to the buyer , and the buyer agrees to maintain insurance on the manufactured items that have not yet been shipped . we have operated using bill and hold agreements with certain customers for many years , with consistent satisfactory results for both buyer and seller . the credit terms on this agreement are consistent with the credit terms on all other sales . all risks of loss are shouldered by the buyer , and there are no exceptions to the buyer 's commitment to accept and pay for these manufactured goods . revenues recognized at the completion of production in 2013 and 2012 were approximately $ 788,000 and $ 937,000 , respectively . our modular buildings segment is in the construction industry , and , as such , accounts for long-term contracts on the percentage-of-completion method . revenue and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion . contract losses are recognized when current estimates of total contract revenue and contract cost indicate a loss . estimated contract costs include any and all costs appropriately allocable to the contract . the provision for these contract losses will be the excess of estimated contract costs over estimated contract revenues . costs and profit in excess of amounts billed are classified as current assets and billings in excess of cost and profit are classified as current liabilities . story_separator_special_tag line-height : 1.25 ; text-indent : 18pt ; margin : 0pt '' > tools . on september 30 , 2013 , the company acquired the assets of ohio metal working products company . for financial reporting purposes , a new segment called tools was created . total sales revenue from the new brand , ohio metal working products/art's-way , inc. , starting at our purchase date of september 30 , 2013 to november 30 , 2013 was $ 651,000. gross margin for that period was 28.1 % . 15 trends and uncertainties we are subject to a number of trends and uncertainties that may affect our short-term or long-term liquidity , sales revenues and operations . similar to other farm equipment manufacturers , we are affected by items unique to the farm industry , including fluctuations in farm income resulting from the change in commodity prices , crop damage caused by weather and insects , government farm programs , interest rate fluctuations , and other unpredictable variables . other uncertainties include our oem customers and the decisions they make regarding their current supply chain structure , inventory levels , and overall business conditions . management believes that our business is dependent on the farming industry for the bulk of our sales revenues . as such , our business tends to reap the benefits of increases in farm net income , as farmers tend to purchase equipment in lucrative times and forgo purchases in less profitable years . direct government payments are declining and costs of agricultural production are increasing ; therefore , we anticipate that further increases in the value of production will benefit our business , while any future decreases in the value of production will decrease farm net income and may harm our financial results . as with other farm equipment manufacturers , we depend on our network of dealers to influence customers ' decisions , and dealer influence is often more persuasive than a manufacturer 's reputation or the price of the product . seasonality sales of our agricultural products are seasonal ; however , we have tried to decrease this impact of seasonality through the development of beet harvesting machinery coupled with private labeled products , as the peak periods for these different products occur at different times . we believe that our pressurized vessel sales are not seasonal . our modular building sales are somewhat seasonal , and we believe that this is due to the budgeting and funding cycles of the universities that commonly purchase our modular buildings . we believe that this cycle can be offset by building backlogs of inventory and by increasing sales to other public and private sectors . liquidity and capital resources a main source of funds during fiscal 2013 was proceeds from the sale of the land near armstrong , iowa which totaled $ 836,000 for the fiscal year ended november 30 , 2013. accounts receivable , including allowance for doubtful accounts , increased by $ 222,000 and inventory decreased by $ 770,000 , exclusive of acquisitions . accounts payable and accrued liabilities decreased by $ 2,082,000 primarily as the result of income tax payments and advance payments received in fiscal 2012 on the modular building segment 's job for stanford university . art's-way used $ 842,000 of cash to update facilities and equipment . we have an $ 8,000,000 revolving line of credit with us bank , pursuant to which we had borrowed $ 3,350,000 as of november 30 , 2013 to acquire the ohio metal working products company . we expect to obtain permanent financing for the acquisition in the future . in addition , we have five term loans from us bank , which had outstanding principal balances of $ 2,115,000 , $ 708,000 , $ 1,693,000 , $ 956,000 , and $ 1,085,000 as of november 30 , 2013. we also have a loan relating to
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results of operations fiscal year ended november 30 , 2013 compared to fiscal year ended november 30 , 2012 our consolidated net sales totaled $ 34,227,000 for the fiscal year ended november 30 , 2013 , which represents a 6.1 % decrease from our consolidated net sales of $ 36,457,000 in 2012. our consolidated gross profit decreased from 27.5 % of net sales in 2012 to 24.4 % of net sales in 2013 or from $ 10,032,000 to $ 8,366,000 , respectively . our consolidated expenses increased by 14.8 % , from $ 5,704,000 in 2012 to $ 6,549,000 in 2013. because the majority of our corporate general and administrative expenses are borne by our agricultural products segment , that segment represented $ 5,275,000 of our total consolidated operating expenses , while our pressurized vessels segment represented $ 360,000 , our modular buildings segment represented $ 769,000 , and our tools segment represented $ 145,000 of the total . our consolidated operating income for the 2013 fiscal year was $ 1,817,000 , which represents a 58.0 % decrease from our consolidated operating income of $ 4,328,000 for the 2012 fiscal year . the decrease is primarily the result of the 2012 completion of a major project in our modular buildings segment as described below . our agricultural products segment provided operating income of $ 1,234,000 , our modular buildings segment provided operating income of $ 672,000 , and our tools segment provided operating income of $ 38,000 in 2013. our pressurized vessels segment had an operating loss of $ ( 127,000 ) . 14 consolidated net income for the 2013 fiscal year was $ 1,551,000 , compared to $ 2,665,000 in the 2012 fiscal year , a decrease of $ 1,114,000 , or 41.8 % . this decrease is primarily a result of the decrease in net sales and operating income in the modular buildings segment , as discussed below . our effective tax rates for the years ending november 30 , 2013 and 2012 were 29.7 % and 33.2
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in 2013 and 2012 , we 69 heron therapeutics , inc. notes to financial statements december 31 , 2013 , 2012 and 2011 granted options to certain employees outside of our approved stock option plan . the options to purchase our common stock are granted with an exercise price which equals fair market value of the underlying common stock on the grant dates and expire no later than ten years from the date of grant . the options are exercisable in accordance with vesting schedules that generally provide for them to be fully vested and exercisable four years after the date of grant . any shares that are issuable upon exercise of options granted that expire or become unexercisable for any reason without having been exercised in full are available for future grant and issuance under the same stock option plan . as discussed in note 2 , we record stock-based compensation expense based on the fair value of stock options and purchase rights issued to employees in conjunction with our stock option plans or the purchase plan on the grant date or purchase date . we also record compensation expense for warrants and stock options issued to non-employees and restricted stock awards to employees and directors . the fair value of each employee and director grant of options to purchase common stock and purchase rights under the purchase plan is estimated on the date of the grant using the black-scholes option-pricing model assuming no dividends and the following weighted-average assumptions : replace_table_token_17_th the expected term is based on historical data . the expected term for the purchase plan is based on the weighted-average purchase period of the purchase plan . the risk-free interest rate is based on the u.s. treasury rate over the expected term of the award . the expected volatility is based on our historical stock prices , and the estimated forfeiture rate of the options is based on historical data . the black-scholes option valuation model requires the input of highly subjective assumptions , including the expected life of the award and stock price volatility . the assumptions listed above represent management 's best estimates , but these estimates involve inherent uncertainties and the application of management judgment . as a result , if other assumptions had been used , our recorded stock-based compensation expense could have been materially different . 70 heron therapeutics , inc. notes to financial statements december 31 , 2013 , 2012 and 2011 stock-based compensation expense recorded for awards granted under the stock option plans and the purchase plan , net of estimated forfeitures , was as follows ( in thousands , except per share amounts ) : replace_table_token_18_th we recorded additional stock-based compensation expense in 2013 and 2012 as a result of accelerated vesting of stock options in connection with the resignation of our former chief executive officer and two directors , respectively . no tax benefit was recognized related to stock-based compensation expense since we have incurred operating losses and we have established a full valuation allowance to offset all the potential tax benefits associated with our deferred tax assets . 71 heron therapeutics , inc. notes to financial statements december 31 , 2013 , 2012 and 2011 the following table summarizes option activity for the years ended december 31 , 2013 , 2012 and 2011 : replace_table_token_19_th as of december 31 , 2013 , there was approximately $ 39.1 million of total unrecognized compensation expense related to unvested stock options . this expense is expected to be recognized over a weighted-average period of story_separator_special_tag this annual report on form 10-k contains ยforward-looking statementsย as defined by the private securities litigation reform act of 1995. these forward-looking statements involve risks and uncertainties , including uncertainties associated with : the progress of our research , development and clinical programs ; estimates of the timing of our resubmission of our nda ; the timing of regulatory approval and commercial introduction of sustol and future product candidates ; the timing of market introduction of sustol and future product candidates ; our ability to market , commercialize and achieve market acceptance for sustol and other future product candidates ; our ability to establish collaborations for our technology , sustol and other future product candidates ; our ability to develop other drug candidates utilizing our biochronomer polymer-based drug delivery platform ; our estimates for future performance ; our estimates regarding our capital requirements and our needs for and ability to obtain additional financing ; our ability to protect or enforce our intellectual property rights ; volatility in the trading price of our common stock ; and other risks and uncertainties identified in our filings with the securities and exchange commission . we caution investors that forward-looking statements reflect our analysis only on their stated date . we do not intend to update them except as required by law . unless otherwise noted , all information in this item 7 regarding share amounts of our common stock , prices per share of our common stock and loss per share has been adjusted to reflect the application of the one-for-twenty reverse stock split of our common stock that we effected on january 13 , 2014 ( reverse stock split ) ( see note 15 to the financial statements included in item 8 of this annual report on form 10-k ) , on a retroactive basis . overview we are a specialty pharmaceutical company developing products using our proprietary biochronomerย polymer-based drug delivery platform . this drug delivery platform is designed to improve the therapeutic profile of injectable pharmaceuticals by converting them from products that must be injected once or twice per day to products that need to be injected only once every one or two weeks . story_separator_special_tag this process involves us estimating our current tax exposure under the most recent tax laws and assessing temporary differences resulting from differing treatment of items for tax and financial statement purposes . we assess the likelihood that we will be able to recover our deferred tax assets . we consider all available evidence , both positive and negative , including our historical levels of income and losses , expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance . if we do not consider it more likely than not that we will recover our deferred tax assets , we will record a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable . at december 31 , 2013 , we believed that the amount of our deferred income taxes would not be ultimately recovered . accordingly , we recorded a full valuation allowance for deferred tax assets . additionally , we believe that our deferred tax assets may have been limited in accordance with a provision of the internal revenue code of 1986 , whereby net operating loss and tax credit carryforwards available for use in a given period are limited upon the occurrence of certain events , including a significant change in ownership interests . as a result , our deferred tax assets and related valuation allowance were reduced for the estimated impact of the net operating losses and credits that may expire unused ( see note 12 to the financial statements included in item 8 of this annual report on form 10-k ) . should there be a change in our ability to recover our deferred tax assets , we would recognize a benefit to our tax provision in the period in which we determine that it is more likely than not that we will recover our deferred tax assets . stock-based compensation we account for share-based payment arrangements in accordance with asc 718 , compensation ย stock compensation and asc 505-50 , equity ย equity based payments to non-employees , which requires the recognition of compensation expense , using a fair-value based method , for all costs related to share-based payments including stock options , restricted 47 stock awards and stock issued under the employee stock purchase plan . these standards require companies to estimate the fair value of share-based payment awards on the date of the grant using an option-pricing model ( see note 8 to the financial statements included in item 8 of this annual report on form 10-k ) . results of operations for the years ended december 31 , 2013 , 2012 and 2011 the following sets forth the statement of operations data and percentage changes as compared to the prior years ( dollar amounts are presented in thousands ) : replace_table_token_7_th revenue contract revenue decreased in 2012 by $ 0.6 million , or 100 % , compared to 2011 , as no revenue was earned in 2012. our contract revenue for 2011 was derived from an agreement with merial limited ( merial ) that we entered into in september 2009 for a long-acting pain management product for companion animals . in may 2011 , we received notice of termination from merial . research and development research and development expense in 2013 increased by $ 17.6 million , or 116 % , compared to 2012. compared to 2012 , headcount-related costs , including stock compensation expense , and project spending for sustol , including validating our manufacturing processes and increasing the scale of production , were higher in 2013 as we worked to address the issues raised by the fda in the 2013 complete response letter . research and development expense for the year 2014 is expected to be higher , as compared to 2013 , as we conduct clinical studies on sustol and continue work on new product development and manufacturing development . research and development expense in 2012 increased by $ 7.0 million , or 85 % , compared to 2011. compared to 2011 , headcount-related costs , including stock compensation expense , and project spending for sustol were higher in 2012 as we worked to address the issues raised by the fda in the complete response letter received in 2010. the scope and magnitude of future research and development expense is difficult to predict given the number of studies that will need to be conducted for any of our potential products . in general , biopharmaceutical development involves a series of steps , beginning with identification of a product candidate and includes proof-of-concept in animals and phase 1 , 2 and 3 48 clinical studies in humans . each step of this process is typically more expensive than the previous one , so success in development results in increasing expenditures . we are exploring the potential use of our biochronomer polymer with other drugs and intend to pursue the clinical development or one or more other drug candidates based on our proprietary delivery platform . the major components of research and development expenses were as follows ( in thousands ) : replace_table_token_8_th internal research and development costs consist of employee salaries and benefits , including stock compensation expense , laboratory supplies , depreciation and allocation of overhead . external development costs include expenditures on polymer development and manufacturing , which are performed on our behalf by third parties . story_separator_special_tag commercial launch of sustol , if approved ; the degree of commercial success of sustol ; the number and characteristics of product development programs we pursue and the pace of each program including the timing of clinical trials to expand our pipeline of sustained-release products ; the scope , rate of progress , results and costs of preclinical testing and clinical trials , including our planned phase 3 clinical trial of sustol in the delayed hec indication ; the time , cost and outcome involved in seeking other regulatory
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general and administrative general and administrative expenses increased in 2013 by $ 13.0 million , or 150 % , compared to 2012. the increase in 2013 was primarily due to headcount-related costs , including stock compensation expense , consulting costs , professional fees , market research and pre-commercialization activities . general and administrative expense for the year 2014 is expected to be higher as compared to 2013 , due to increased costs to support anticipated commercialization activities . general and administrative expenses increased in 2012 by $ 5.2 million , or 147 % , compared to 2011. the increase in 2012 was primarily due to headcount-related costs , including stock compensation expense , consulting costs and professional fees related to the nda resubmission and pre-commercialization activities . general and administrative expenses consist primarily of salaries and related expenses , professional fees , directors ' fees , investor relations costs , pre-commercialization costs , insurance expense and related overhead cost allocation . interest expense , net interest expense , net of $ 0.8 million and $ 0.6 million for the years ended december 31 , 2013 and 2012 consists primarily of interest expense and amortization of debt discount related to the convertible note financings . interest expense , net of $ 0.4 million for the fiscal year 2011 also included debt issuance costs related to the convertible note financing . discontinued operations on july 25 , 2000 , we completed the sale of certain technology rights for our cosmeceutical and toiletry business to rp scherer corporation ( rp scherer ) , a subsidiary of cardinal health , inc. under the terms of the agreement , we guaranteed a minimum 49 gross profit percentage on rp scherer 's combined sales of products to ortho dermatologics ( ortho ) and dermik laboratories , inc. ( dermik ) ( gross profit guaranty ) , both of which were acquired by valeant pharmaceuticals in july 2011. the gross profit guaranty expense totaled $ 944,000 for the first seven guaranty years .
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factors that could cause or contribute to those differences include , but are not limited to , those identified below and those discussed above in the section entitled ยrisk factors.ย we caution readers not to place undue reliance on any forward-looking statements made by us , which speak only as of the date they are made . we disclaim any obligation , except as specifically required by law and the rules of the securities and exchange commission , or sec , to publicly update or revise any such statements to reflect any change in our expectations or in events , conditions or circumstances on which any such statements may be based , or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements . overview we are a biopharmaceutical company dedicated to significantly improving the health and well-being of patients affected by type 2 diabetes , prader-willi syndrome , or pws , and potentially other metabolically related disorders . we are focused on developing novel therapeutics that treat the underlying biological mechanisms through the methionine aminopeptidase 2 , or metap2 , pathway . we have pioneered the study of metap2 inhibitors in both common and rare forms of obesity . our lead product candidate is zgn-1061 , a novel fumagillin-class metap2 inhibitor administered by subcutaneous injection , which is currently being profiled for its utility in the treatment of type 2 diabetes and other related metabolic disorders . we have completed a phase 1 clinical trial of zgn-1061 in the netherlands , which was comprised of a single ascending dose , or sad , portion and a multiple ascending dose , or mad , portion . this clinical trial evaluated zgn-1061 for safety , tolerability and pharmacokinetics while also gaining an early indication of efficacy over four weeks of treatment . we reported positive top line results from this clinical trial in may 2017 and presented the full data package at the american diabetes association 's 77th annual scientific sessions in june 2017. in this phase 1 assessment zgn-1061 demonstrated rapid drug absorption and clearance in line with criteria established in advance for the molecule , and had a favorable tolerability profile with no safety signals identified , including no evidence of pro-thrombotic effects . the data show that zgn-1061 treatment causes improvements across multiple metabolic measures consistent with metap2 inhibition , and patients in the clinical trial experienced mean weight loss of up to approximately one pound per week . in the third quarter of 2017 , we advanced zgn-1061 into a phase 2 clinical trial in both australia and new zealand , in patients with type 2 diabetes who are obese and are failing to respond adequately to current therapies . in march 2018 , we reported results of an interim analysis of this clinical trial . we expect to report full results of the core part of this clinical trial mid-year 2018 , and the results of the entire trial , including the additional arm recently added to the trial , early in 2019. in january 2018 , we announced advancement of our highly optimized metap2 development candidate zgn-1258 , and in the first quarter of 2018 , initiated investigational new drug , or ind , application enabling nonclinical efforts for evaluation in the treatment of people affected by pws . we anticipate filing an ind application with the u.s. food and drug administration , or fda , and beginning phase 1 clinical development by the end of 2018. zgn-1061 was discovered by our researchers as part of a multi-year campaign to identify novel compounds that avoided limiting nonclinical safety concerns observed with our first-generation compound . the compound has similar potency , and range of desired pharmacological activities in animal models as other metap2 inhibitors , including beloranib . zgn-1061 displays broadly improved safety margins in nonclinical studies , supporting the value of the compound as a more highly optimized drug product candidate . zgn-1061 acts through potent inhibition of metap2 , an enzyme that modulates the activity of key cellular processes that control metabolism . metap2 inhibitors work , at least in part , by directing metap2 binding to 66 cellular stress and growth factor mediators , thereby reducing the tone of signals that drive lipid synthesis by the liver and fat storage throughout the body . in this manner , metap2 inhibition serves the purpose of re-establishing balance to the ways the body stores and metabolizes fat and glucose . metap2 inhibitors reduce the production of new fatty acid molecules by the liver and help convert stored fats into useful energy , while stimulating use of glucose and fats as an energy source . in the setting of type 2 diabetes , these processes lead to improvement of glycemic control . zgn-1258 was also discovered by our researchers as part of a multi-year campaign to identify novel compounds that avoided limiting nonclinical safety concerns observed with our first-generation compound . the compound has similar potency , and range of desired pharmacological activities in animal models as other metap2 inhibitors , including beloranib . zgn-1258 displays broadly improved safety margins in nonclinical studies , supporting the value of the compound as a more highly optimized drug product candidate . zgn-1258 acts through potent inhibition of metap2 . like other metap2 inhibitors , zgn-1258 modulates the activity of key cellular processes that control metabolism and impact lipid synthesis and storage throughout the body and leads to increase use of stored fats as an energy source . zgn-1258 displays enhanced uptake into the brain and displays greater potency and activity in animal models of hyperphagic behaviors relative to other compounds including zgn-1061 . these differences support the use of zgn-1258 in higher need indications such as pws , in which brain activity is likely to be more important for therapeutic effect . treatment of obese and hyperphagic animals with zgn-1258 leads to reduction in both pathologic food intake and rapid body weight loss , making it of interest in the treatment of severe forms of human obesity . story_separator_special_tag we can not determine with certainty the duration and completion costs of the current or future clinical trials of our product candidates or if , when , or to what extent we will generate revenue from the commercialization and sale of any of our product candidates that obtain regulatory approval . we may never succeed in achieving regulatory approval for any of our product candidates . the duration , costs , and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : the scope , rate of progress , and expense of clinical trials and other research and development activities ; clinical trial results ; uncertainties in clinical trial enrollment rate or design ; significant and changing government regulation ; the timing and receipt of any regulatory approvals ; and the fda 's or other regulatory authority 's influence on clinical trial design . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda , or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . general and administrative expenses general and administrative expenses consist primarily of personnel costs , consisting of salaries , related benefits and stock-based compensation , of our executive , finance , business and corporate development and other administrative functions . general and administrative expenses also include travel expenses , allocated facility-related costs not otherwise included in research and development expenses , insurance expenses , and professional fees for auditing , tax and legal services , including legal expenses to pursue patent protection of our intellectual property . we expect that general and administrative expenses will remain relatively consistent during 2018 as compared to 2017. other income ( expense ) interest income . interest income consists of interest earned on our cash equivalents and marketable securities . our interest income has not been significant due to low interest earned on invested balances . we anticipate that our interest income will decrease as we continue to incur operating losses . interest expense . interest expense during the years ended december 31 , 2017 and 2016 , relates to outstanding borrowings under the 2014 credit facility , consisting of the stated interest of 8.1 % per year due on outstanding borrowings , a final payment of 6 % of amounts drawn down that was recorded as interest expense over the term through the maturity date using the effective-interest method , the amortization of deferred financing costs , the accretion of debt discounts relating to the 2014 credit facility . interest expense in 2018 will relate to the term loan of $ 20.0 million , which closed on december 29 , 2017. it bears a variable interest at an annual rate of 1.25 % above the prime rate , as well as a final payment equal to 8.0 % of the term loan is being recorded as interest expense over the term through the maturity date using the effective-interest method . 69 foreign currency gains ( losses ) , net . foreign currency transaction gains ( losses ) , net consists of the realized and unrealized gains and losses from foreign currency-denominated cash balances , vendor payables and tax-related receivables from the australian government . we currently do not engage in hedging activities related to our foreign currency-denominated receivables and payables ; as such , we can not predict the impact of future foreign currency transaction gains and losses on our operating results . see ยยquantitative and qualitative disclosures about market risk.ย income taxes since our inception in 2005 , we have not recorded any u.s. federal or state income tax benefits for the net losses we have incurred in each year or our earned tax credits , due to our uncertainty of realizing a benefit from those items . as of december 31 , 2017 , we had net operating loss carryforwards for federal and state income tax purposes of $ 54.0 million and $ 39.6 million , respectively , which begin to expire in 2026 and 2030 , respectively . as of december 31 , 2017 , we also had available tax credit carryforwards for federal and state income tax purposes of $ 14.8 million and $ 2.4 million , respectively , which begin to expire in 2026 and 2021 , respectively . on december 22 , 2017 , the tax cuts and jobs act , or the tcja , was signed into united states law . the tcja includes a number of changes to existing tax law , including , among other things , a permanent reduction in the federal corporate income tax rate from a top marginal rate of 34 % down to a flat rate of 21 % , effective as of january 1 , 2018 , as well as limitation of the deduction for net operating losses to 80 % of annual taxable income and elimination of net operating loss carrybacks , in each case , for losses arising in taxable years beginning after december 31 , 2017 ( though any such net operating losses may be carried forward indefinitely ) . the tax rate change resulted in a reduction in the gross amount of our deferred tax assets recorded as of december 31 , 2017 with an offsetting reduction in the related valuation allowance , resulting in no income tax expense or benefit being recognized as of the enactment date of the tcja . in accordance with guidance in sec staff accounting bulletin no .
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results of operations comparison of years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 : replace_table_token_6_th 73 replace_table_token_7_th research and development expenses research and development expenses for the year ended december 31 , 2017 increased $ 0.9 million compared to the year ended december 31 , 2016. the increase was primarily due to an increase of $ 10.4 million related to our zgn-1061 program , as well as an increase in discovery and screening expenses of $ 5.9 million , partially offset by decreased costs of $ 12.9 million in our beloranib program and a decrease of $ 1.6 million associated with our unallocated expenses . costs associated with our zgn-1061 program increased period over period by $ 10.4 million . in the third quarter of 2016 we initiated a phase 1 clinical trial for zgn-1061 which completed recruiting and dosing patients in the first quarter of 2017. the overall increase is primarily due to additional nonclinical studies as well as drug product and drug substance activities as we commenced our phase 2 clinical trial in the third quarter of 2017 in both australia and new zealand , for which we enrolled 137 patients in a 12 week clinical trial . the expenses during the 2016 period were for startup costs for a phase 1 clinical trial of zgn-1061 in the netherlands , which was comprised of 39 patients in a single ascending dose , or sad , portion and 29 patients in a multiple ascending dose , or mad , portion .
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our actual results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors and risks including the impact of the weakness in the u.s. and international economies on our business , our inability to manage our future growth effectively or profitably , fluctuations in our revenue and quarterly results , our license renewal rate , the impact of competition and our ability to ma intain margins or market share , the limited market for our common stock , the ability to maintain our listing on the nasdaq capital market , the volatility of the market price of our common stock , the ability to raise capital , the performance of our products , our ability to respond to rapidly evolving technology and customer requirements , our ability to protect our proprietary technology , the security of our software , our dependence on our management team and key personnel , our ability to hire and retain future key personnel , or our ability to maintain an effective system of internal controls . these and other risks are more fully described herein and in our other filings with the securities and exchange commission . this section should be read in combination with the accompanying audited consolidated financial statements and related notes prepared in accordance with united states generally accepted accounting principles . overview bridgeline digital , the digital engagement company , enables its customers to maximize the performance of their mission critical websites , intranets , and online stores . bridgeline 's iappsยฎ platform deeply integrates web content management , ecommerce , emarketing , social media management , and web analytics to help marketers deliver online experiences that attract , engage and convert their customers across all digital channels . bridgeline 's iapps platform combined with its digital services assists customers in maximizing on-line revenue , improving customer service and loyalty , enhancing employee knowledge , and reducing operational costs . the iappsds ( โ distributed subscription โ ) product is a platform that empowers franchise and large dealer networks with state-of-the-art web engagement management while providing superior oversight of corporate branding . iappsds deeply integrates content management , ecommerce , emarketing and web analytics and is a self-service web platform that is offered to each authorized franchise or dealer for a monthly subscription fee . our iappsdsr platform , released in 2015 , targets the growing multi-unit organizations with 10-500 locations providing them with powerful web engagement tools while maintaining corporate brand control and consistency . the iapps platform is delivered through a cloud-based saas ( โ software as a service โ ) multi-tenant business model , whose flexible architecture provides customers with state of the art deployment providing maintenance , daily technical operation and support ; or via a traditional perpetual licensing business model , in which the iapps software resides on a dedicated server in either the customer 's facility or bridgeline 's co-managed hosting facility . the iapps platform is an award-winning application recognized around the globe . our teams of microsoft goldยฉ certified developers have won over 100 industry related awards . in 2016 , cio review selected iapps as one of the 20 most promising digital marketing solution providers . this followed accolades from the siia ( software and information industry association ) which recognized iapps content manager with the 2015 siia codie award for best web content management platform . also in 2015 , econtent magazine named iapps digital engagement platform to its trendsetting products list . the list of 75 products and platforms was compiled by econtent 's editorial staff , and selections were based on each offering 's uniqueness and importance to digital publishing , media , and marketing . we were also recognized in 2015 as a strong performer by forrester research , inc in its independence report , โ the forrester wave : through-channel marketing automation platforms , q3 2015. โ in recent years , our iapps content manager and iapps commerce products were selected as finalists for the 2014 , 2013 , and 2012 codie awards for best content management solution and best electronic commerce solution , globally . in 2014 and 2013 , bridgeline digital won twenty-five horizon interactive awards for outstanding development of web applications and websites . also in 2013 , the web marketing association sponsored internet advertising competition honored bridgeline digital with three awards for iapps customer websites and b2b magazine selected bridgeline digital as one of the top interactive technology companies in the united states . kmworld magazine editors selected bridgeline digital as one of the 100 companies that matter in knowledge management and also selected iapps as a trend setting product in 2013 . 19 bridgeline digital was incorporated under the laws of the state of delaware on august 28 , 2000. locations the company 's corporate office is located in burlington , massachusetts . the company maintains regional field offices serving the following geographical locations : boston , ma ; chicago , il ; denver , co ; san luis obispo , ca ; and tampa , fl . the company has one wholly-owned subsidiary , bridgeline digital pvt . ltd. located in bangalore , india . sales and marketing bridgeline employs a direct sales force and each sale takes on average 2-6 months to complete . each franchise/multi-unit organization sale takes on average one year to complete . our direct sales force focuses its efforts selling to medium-sized and large companies . these companies are generally categorized in the following vertical markets : ( i ) financial services ; ( ii ) franchises/multi-unit organizations ; ( iii ) retail brand names ; ( iv ) health services and life sciences ; ( v ) technology ( software and hardware ) ; ( vi ) credit unions and regional banks and ( vii ) associations and foundations . we have five sales geographic locations in the united states . we have business development professionals dedicated to identifying and establishing strategic alliances for iapps and iappsds . story_separator_special_tag loss from operations the loss from operations was ( $ 3.5 ) million for fiscal 2016 compared to a loss from operations of ( $ 16.1 ) million for fiscal 2015. the decrease in iapps related digital engagement services revenue in fiscal 2016 was partially offset by the reduction in cost of revenue and operating expenses . provision for income taxes we recorded a net benefit for income tax expense of $ 47 thousand for fiscal 2016 compared to a net benefit for income tax of $ 226 thousand for fiscal 2015. the benefit in 2015 was primarily attributable to the elimination of a naked tax credit related to deductible goodwill from previous acquisitions that was eliminated upon recording a $ 10.5 million goodwill impairment charge . income tax expense represents the estimated liability for federal , state and foreign income taxes owed by the company , including the alternative minimum tax . the company has net operating loss carryforwards and other deferred tax benefits that are available to offset future taxable income . a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized . accordingly , the company has established a full valuation allowance against its net deferred tax assets at september 30 , 2016 and 2015. the federal net operating loss ( nol ) carryforward of approximately $ 26.0 million as of september 30 , 2016 expires on various dates through 2036. internal revenue code section 382 places a limitation on the amount of taxable income which can be offset by nol carryforwards after a change in control of a loss corporation . generally , after a change in control , a loss corporation can not deduct nol carryforwards in excess of the section 382 limitation . due to these โ change of ownership โ provisions , utilization of nol carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods . the company has not performed a section 382 analysis . however , if performed , section 382 may be found to limit potential future utilization of our nol carryforwards . 25 adjusted ebitda we also measure our performance based on a non-gaap ( โ generally accepted accounting principles โ ) measurement of earnings before interest , taxes , depreciation , and amortization and before inducement of debt charges , stock-based compensation expense , impairment of goodwill and intangible assets , and restructuring charges ( โ adjusted ebitda โ ) . we believe this non-gaap financial measure of adjusted ebitda is useful to management and investors in evaluating our operating performance for the periods presented and provides a tool for evaluating our ongoing operations . adjusted ebitda , however , is not a measure of operating performance under gaap and should not be considered as an alternative or substitute for gaap profitability measures such as ( i ) income from operations and net income , or ( ii ) cash flows from operating , investing and financing activities , both as determined in accordance with gaap . adjusted ebitda as an operating performance measure has material limitations since it excludes the financial statement impact of income taxes , net interest expense , loss on inducement of debt , amortization of intangibles , depreciation , goodwill impairment , restructuring charges , other amortization and stock-based compensation , and therefore does not represent an accurate measure of profitability . as a result , adjusted ebitda should be evaluated in conjunction with net income for a complete analysis of our profitability , as net income includes the financial statement impact of these items and is the most directly comparable gaap operating performance measure to adjusted ebitda . our definition of adjusted ebitda may also differ from and therefore may not be comparable with similarly titled measures used by other companies , thereby limiting its usefulness as a comparative measure . because of the limitations that adjusted ebitda has as an analytical tool , investors should not consider it in isolation , or as a substitute for analysis of our operating results as reported under gaap . the following table reconciles net loss ( which is the most directly comparable gaap operating performance measure ) to ebitda , and ebitda to adjusted ebitda : replace_table_token_4_th adjusted ebitda was ( $ 785 ) thousand for fiscal 2016 compared with ( $ 2.6 ) million for fiscal 2015. this was primarily due to the improvement in gross margin along with our focus on reducing our expenses . 26 liquidity and capital resources cash flows operating activities cash used in operating activities was $ 2.7 million for fiscal 2016 , compared to cash used in operating activities of $ 2.8 million for fiscal 2015. although the net loss was reduced in fiscal 2016 , we used funds to pay down accounts payable . investing activities cash used in investing activities was $ 165 thousand for fiscal 2016 compared with $ 187 thousand for fiscal 2015. the decrease was primarily due to less purchases of capital equipment and software in fiscal 2016 than fiscal 2015. financing activities cash provided by financing activities was $ 3.2 million for fiscal 2016 compared with $ 2.1 million for fiscal 2015. the increase was due to proceeds from the sale of common stock of $ 3.7 million and $ 1 million in term notes from a shareholder offset by payments made on bank term loans , our bank line of credit and contingent acquisition payments . at september 30 , 2016 , we had an outstanding balance under our credit line with heritage bank of $ 2.1 million . capital resources and liquidity outlook in june 2016 , the company entered into a new loan and security agreement with heritage bank of commerce ( โ loan agreement โ ) .
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cio review selected iapps as one of the 20 most promising digital marketing solution providers . 21 replace_table_token_3_th 22 revenue total revenue for the fiscal year ended september 30 , 2016 decreased $ 3.3 million , or 17 % , to $ 15.9 million from $ 19.2 million in fiscal 2015. our revenue is derived from three sources : ( i ) digital engagement services ; ( ii ) subscription and perpetual licenses ; and ( iii ) managed service hosting . digital engagement services digital engagement services revenue is comprised of iapps digital engagement services and other digital engagement services generated from non-iapps related engagements . total revenue from digital engagement services decreased $ 3.4 million , or 28 % to $ 8.5 million in fiscal 2016 from $ 11.9 million in fiscal 2015. the decrease in digital engagement services revenue for fiscal 2016 compared to the prior period is due primarily to a decrease in larger value iapps engagements . digital engagement services revenue as a percentage of total revenue decreased to 54 % in fiscal 2016 from 62 % in fiscal 2015. the decrease is attributable to the decrease in the number of iapps license related engagements and lower margin iappsds engagements . the company has also been focused on selling iapps engagements that have a smaller services component which results in a shorter sales cycle and a shorter implementation cycle . this has strategically decreased the percentage of service revenue compared to total revenue and increased the percentage of license revenue to total revenue .
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all forward-looking statements reflect the present expectation of future events of our management as of the date of this annual report on form 10-k and are subject to a number of important factors , risks , uncertainties and assumptions that could cause actual results to differ materially from those described in 19 any forward-looking statements . these factors , risks , assumptions and uncertainties include , but are not limited to , general economic conditions including downturns in the business cycle ; the creditworthiness of our customers and their ability to pay for services ; competitive initiatives and pricing pressures , including in connection with fuel surcharge ; the company 's need for capital and uncertainty of the current credit markets ; the possibility of defaults under the company 's debt agreements ( including violation of financial covenants ) ; possible issuance of equity which would dilute stock ownership ; integration risks ; the effect of litigation including class action lawsuits ; cost and availability of qualified drivers , fuel , purchased transportation , real property , revenue equipment and other assets ; governmental regulations , including but not limited to hours of service , engine emissions , the compliance , safety , accountability ( csa ) initiative , compliance with legislation requiring companies to evaluate their internal control over financial reporting , changes in interpretation of accounting principles and homeland security ; dependence on key employees ; inclement weather ; labor relations , including the adverse impact should a portion of the company 's workforce become unionized ; effectiveness of company-specific performance improvement initiatives ; terrorism risks ; self-insurance claims and other expense volatility ; increased costs as a result of recently-enacted healthcare reform legislation and other financial , operational and legal risks and uncertainties detailed from time to time in the company 's sec filings . these factors and risks are described in part ii , item 1a . ยrisk factorsย of this annual report on form 10-k. as a result of these and other factors , no assurance can be given as to our future results and achievements . accordingly , a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances and those future events or circumstances may not occur . you should not place undue reliance on the forward-looking statements , which speak only as of the date of this form 10-k. we are under no obligation , and we expressly disclaim any obligation , to update or alter any forward-looking statements , whether as a result of new information , future events or otherwise . executive overview the company 's business is highly correlated to non-service sectors of the general economy . the company 's strategy is to improve profitability by increasing yield while also increasing volumes to build density in existing geography . the company 's business is labor intensive , capital intensive and service sensitive . the company looks for opportunities to improve cost effectiveness , safety and asset utilization ( primarily tractors and trailers ) . the pricing initiatives that were implemented in 2010 and continued since then have had a positive impact on yield and profitability . the company continues to execute targeted sales and marketing programs along with initiatives to align costs with volumes and improve customer satisfaction . technology continues to be an important investment that is facilitating operational efficiencies and improving company image . the company 's operating revenue increased by 3.7 percent in 2013 over 2012. the increase resulted primarily from improved yield from pricing actions . consolidated operating income was $ 74.4 million for 2013 compared to consolidated operating income of $ 58.7 million in 2012. the 2013 operating income increase resulted primarily from improved yield from pricing and business mix actions along with savings in expenses realized from company initiatives . the company generated $ 101.3 million in cash provided by operating activities in 2013 versus $ 100.7 million in 2012. the company used $ 122.0 million of net cash in investing activities during 2013 compared to $ 90.4 million during 2012. on november 30 , 2011 , the company entered into a fourth amended and restated credit agreement with its banking group . the november 2011 amendment provides for a libor rate margin from 200 basis points to 300 basis points , base rate margin from zero to 75 basis points , letter of credit fees from 212.5 basis points to 312.5 basis points and unused portion fees from 25 basis points to 35 basis points . the facility increases the revolving credit facility to $ 150 million in availability , subject to a borrowing base and extends the term to november 2016. on june 28 , 2013 , the company entered into a first amendment to fourth amended and restated credit agreement with its banking group and a third amendment to amended and restated master 20 shelf agreement with its long-term note holders . the june 2013 amendment increases the revolving credit facility to $ 200 million expiring in june 2018. the facility also has an accordion feature that allows for an additional $ 40 million availability , subject to lender approval . the facility provides for a libor rate margin range from 125 basis points to 250 basis points , base rate margins from minus 12.5 to plus 50 basis points , letter of credit fee range from 137.5 basis points to 262.5 basis points and an unused portion fee from 20 basis points to 32.5 basis points in each case based on the company 's leverage ratio . the company 's cash provided by financing activities during 2013 was $ 20.5 million compared to cash used in financing activities during 2012 of $ 11.2 million . story_separator_special_tag while improved through 2012 and 2013 , there remains uncertainty as to the timing and strength of economic recovery . we are continuing initiatives to increase yield , to reduce costs and improve productivity . we focus on providing top quality service and improving safety performance . if significant competitors were to cease operations and their capacity leave the market , current industry excess capacity conditions would likely improve . however , there can be no assurance that any industry consolidation will indeed happen or if such consolidation occurs that it will materially improve the excess industry capacity . the company continues to pursue revenue and cost initiatives to improve profitability . planned revenue initiatives include , but are not limited to , building density in our current geography , targeted marketing initiatives to grow revenue in more profitable segments , as well as pricing and yield management . on july 1 , 2013 , saia implemented a 5.9 percent general rate increase impacting customers comprising approximately 30 percent of saia 's operating revenue . the extent of success of these revenue initiatives is impacted by what proves to be the underlying economic trends , competitor initiatives and other factors discussed under ยforward-looking statementsย and part ii , item 1a . ยrisk factors.ย in 2009 , the company implemented certain cost reduction measures including : the suspension of the company 's 401 ( k ) match ; effective reduction in compensation equal to ten percent of salary for the company 's leadership team and a five percent wage and salary reduction for hourly , linehaul and salaried employees in operations , maintenance and administration ; and a ten percent reduction in the annual retainer and meeting fees paid to the non-employee members of the company 's board of directors . despite these necessary reductions , the company 's compensation philosophy remained committed to a market-based program . based on the continued improvement in the company 's operating results and the company 's desire to attract and retain employees needed for the company to continue to deliver best-in-class service to customers , management began taking steps in april 2011 to reinstate some or all of certain compensation programs and amounts subject to the 2009 reductions . one half of the 401 ( k ) match suspension was reinstated effective april 1 , 2011. the company reinstated the other half of the 401 ( k ) match december 1 , 2013. the company implemented a two and one-half percent wage and salary increase for hourly , linehaul and salaried employees in operations , maintenance , administration and management effective december 1 , 2011. effective july 1 , 2012 , the company implemented a salary and wage increase for all its employees of approximately three percent and increased board of directors compensation to market levels . effective july 1 , 2013 , the company implemented an approximately three percent salary and wage increase for all of its employees . the impact of the july 2013 compensation increase is expected to be approximately $ 13 million annually . the company anticipates the impact of the july 2013 compensation increase to be partially offset by further productivity and efficiency gains . if the company builds market share , there are numerous operating leverage cost benefits . conversely , should the economy soften from present levels , the company plans to attempt to match resources and capacity to shifting volume levels to lessen unfavorable operating leverage . the success of cost improvement initiatives is also impacted by the cost and availability of drivers and purchased transportation , fuel , insurance claims , regulatory changes , successful implementation of profit improvement initiatives and other factors discussed under ยforward-looking statementsย and part ii , item 1a . ยrisk factors.ย see ยforward-looking statementsย and part ii , item 1a . ยrisk factorsย for a more complete discussion of potential risks and uncertainties that could materially affect our future performance . new accounting pronouncements there were no new accounting pronouncements issued or effective during 2013 which have had or are expected to have a material impact on the consolidated financial statements . 25 financial condition the company 's liquidity needs arise primarily from capital investment in new equipment , land and structures , information technology and letters of credit required under insurance programs , as well as funding working capital requirements . the company is party to a revolving credit agreement ( the restated credit agreement ) with a group of banks to fund capital investments , letters of credit and working capital needs . the facility provides up to $ 200 million in availability , subject to a borrowing base and expires in june 2018. the company is also a party to a long-term note agreement ( the restated master shelf agreement ) . the company has pledged certain real estate and facilities , tractors and trailers , accounts receivable and other assets to secure indebtedness under both agreements . restated credit agreement the restated credit agreement is a revolving credit facility for up to $ 200 million expiring in june 2018. the restated credit agreement also has an accordion feature that allows for an additional $ 40 million availability , subject to lender approval . the restated credit agreement provides for a libor rate margin range from 125 basis points to 250 basis points , base rate margins from minus 12.5 to plus 50 basis points , letter of credit fee range from 137.5 basis points to 262.5 basis points and an unused portion fee from 20 basis points to 32.5 basis points in each case based on the company 's leverage ratio . under the restated credit agreement , the company must maintain certain financial covenants including a minimum fixed charge coverage ratio , a maximum leverage ratio and a minimum tangible net worth , among others . the restated credit agreement also provides for a pledge by the company of certain land and structures , certain tractors , trailers and other personal property and accounts receivable , as defined in the restated credit agreement .
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results of operations saia , inc. and subsidiaries selected results of continuing operations and operating statistics for the years ended december 31 , 2013 , 2012 and 2011 ( in thousands , except ratios and revenue per hundredweight ) replace_table_token_4_th continuing operations year ended december 31 , 2013 as compared to year ended december 31 , 2012 revenue and volume consolidated revenue increased 3.7 percent to $ 1.14 billion as a result of increased yield due to measured pricing and mix management actions . improvements in the economic environment that were evident during 2011 and parts of 2012 and 2013 permitted the company to implement measured pricing actions to improve yield . saia 's ltl revenue per hundredweight ( a measure of yield ) increased 3.7 percent to $ 14.33 per hundredweight for 2013 primarily as a result of increased rates . saia 's ltl tonnage decreased 0.3 percent to 3.7 million tons and ltl shipments decreased 0.5 percent to 6.3 million shipments . approximately 70 percent of saia 's operating revenue is subject to specific customer price adjustment negotiations that occur throughout the year . the remaining 30 percent of operating revenue is subject to a general rate increase which is typically taken once a year . on july 1 , 2013 , saia implemented a 5.9 percent general rate increase for customers comprising this 30 percent of operating revenue . on july 9 , 2012 , saia implemented a 6.9 percent general rate increase for customers comprising this 30 percent of operating revenue . competitive factors , customer turnover and mix changes , among other things , impact the extent to which customer rate increases are retained over time . operating revenue includes fuel surcharge revenue from the company 's fuel surcharge program . that program is designed to reduce the company 's exposure to fluctuations in fuel prices by adjusting total freight charges to account for changes in the price of fuel .
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atmi 's sales for the year ended story_separator_special_tag the following discussion and analysis of the company 's consolidated financial condition and results of operations should be read along with the consolidated financial statements and the accompanying notes to the consolidated financial information included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve numerous risks and uncertainties , including , but not limited to , those described in the โ cautionary statements โ sections of this item 7 below . the company 's actual results may differ materially from those contained in any forward-looking statements . you should review the item 1a โ risk factors โ 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 . cautionary statements this annual report on form 10-k and the documents incorporated by reference in this annual report on form 10-k contain โ forward-looking statements โ within the meaning of the private securities litigation reform act of 1995. the information in this management 's discussion and analysis of financial condition and results of operations , except for the historical information , contains forward-looking statements . these forward-looking statements reflect the company 's current views with respect to future events and financial performance . the words โ believe , โ โ expect , โ โ anticipate , โ โ intend , โ โ estimate , โ โ forecast , โ โ project , โ โ may , โ โ will , โ โ would , โ โ could , โ โ should โ and similar expressions are intended to identify these โ forward-looking statements. โ you should read statements that contain these words carefully because they discuss future expectations , contain projections of future results of operations or of financial position or state other โ forward-looking โ information . all forecasts and projections in this report are โ forward-looking statements , โ and are based on management 's current expectations of the company 's near-term results , based on current information available pertaining to the company . the important factors listed below , as well as any cautionary language elsewhere in this annual report on form 10-k , provide examples of risks , uncertainties and events that may cause our actual results to differ materially from the expectations described in these forward-looking statements . the risks which could cause actual results to differ from those contained in such โ forward looking statements โ include , without limitation , the risks described under item 1a of this annual report on form 10-k for the year ended december 31 , 2016 under the headings โ risks relating to our business and industry , โ โ risks related to our indebtedness , โ โ manufacturing risks , โ โ international risks โ and โ risks related to owning our common stock โ as well as in the company 's quarterly reports on form 10-q and current reports on form 8-k as filed with the securities and exchange commission . any forward-looking statements in this annual report on form 10-k are not guarantees of future performance , and actual results , developments and business decisions may differ from those envisaged by such forward-looking statements , possibly materially . we disclaim any duty to update any forward-looking statements . overview this overview is not a complete discussion of the company 's financial condition , changes in financial condition and results of operations ; it is intended merely to facilitate an understanding of the most salient aspects of its financial condition and operating performance and to provide a context for the detailed discussion and analysis that follows , and must be read in its entirety in order to fully understand the company 's financial condition and results of operations . the company is a leading global developer , manufacturer and supplier of microfiltration control products , specialty chemicals and advanced materials handling solutions for manufacturing processes in the semiconductor and other high-technology industries . entegris seeks to leverage its unique breadth of capabilities to create value for its customers by developing mission-critical solutions to maximize manufacturing yields and enable higher device performance . our technology portfolio includes approximately 20,000 standard and customized products and solutions to achieve the highest levels of purity and performance that are essential to the manufacture of semiconductors , flat panel displays , light emitting diodes , or leds , high-purity chemicals , solar cells , gas lasers , optical and magnetic storage devices , and critical components for aerospace , glass manufacturing and biomedical applications . the majority of our products are consumed at various times throughout the manufacturing process , with demand driven in part by the level of semiconductor and other manufacturing activity . the company 's customers consist primarily of semiconductor manufacturers , semiconductor equipment and materials suppliers as well as thin film transistor-liquid crystal display ( tft-lcd ) and hard disk manufacturers , which are served through direct sales efforts , as well as sales and distribution relationships , in the united states , asia , europe and the middle east . our business is organized and operated in three operating segments which align with the key elements of the advanced semiconductor manufacturing ecosystem . the specialty chemicals and engineered materials ( scem ) segment provides high-performance and high-purity process chemistries , gases , and materials and safe and efficient delivery systems to support semiconductor and other advanced manufacturing processes . the advanced materials handling ( amh ) segment develops solutions to monitor , protect , transport , and deliver critical liquid chemistries and substrates for a broad set of applications in the semiconductor industry and other high-technology industries . the microcontamination control ( mc ) segment offers solutions to purify critical liquid chemistries and gases used in semiconductor manufacturing processes and other high-technology industries . story_separator_special_tag the preparation of these consolidated financial statements requires the company to make estimates , assumptions and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . at each balance sheet date , management evaluates its estimates , including , but not limited to , those related to inventories , long-lived assets ( property , plant and equipment , goodwill and identified intangibles ) , income taxes and business combinations . the company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances . if management made different judgments or utilized different estimates , this could result in material differences in the amount and timing of the company 's results of operations for any period . in addition , actual results could be different from the company 's current estimates , possibly resulting in increased future charges to earnings . the critical accounting policies affected most significantly by estimates , assumptions and judgments used in the preparation of the company 's consolidated financial statements are discussed below . inventory valuation the company uses certain estimates and judgments to properly value its inventory . the company 's inventories are recorded at the lower of cost or net realizable value . the company evaluates its ending inventories for obsolescence and excess quantities each quarter . this evaluation includes analysis of inventory levels , historical write-off trends , expected product lives , and historical and projected sales levels by product . inventories that are considered obsolete are written off or a full allowance is recorded . in addition , allowances are established for inventory quantities in excess of forecasted demand . inventory allowances were $ 13.8 million and $ 13.2 million at december 31 , 2016 and 2015 , respectively . the company 's inventories include materials and products subject to technological obsolescence , which are sold in highly competitive industries . if future demand or market conditions are less favorable than current conditions or the company 's projected outlook for sales , inventory write-downs or additional allowances may be required and would be reflected in cost of sales in the period in which the revision is made . impairment of long-lived assets as of december 31 , 2016 , the company had $ 321.6 million of net property , plant and equipment and $ 217.5 million of net intangible assets . the company routinely considers whether indicators of impairment of the value of its long-lived assets , particularly its manufacturing equipment , and its intangible assets , are present . a long-lived asset ( asset group ) shall be tested for recoverability whenever events or changes in circumstances ( triggering events ) indicate that its carrying amount may not be recoverable . the following are examples of such events or changes in circumstances : a. a significant decrease in the market price of a long-lived asset ( asset group ) ; b. a significant adverse change in the extent or manner in which a long-lived asset ( asset group ) is being used or in its physical condition ; c. a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset ( asset group ) , including an adverse action or assessment by a regulator ; d. an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset ( asset group ) ; e. a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset ( asset group ) ; and f. a current expectation that , more likely than not , a long-lived asset ( asset group ) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life . if such indicators are present , it is determined whether the sum of the estimated undiscounted cash flows attributable to the asset group in question is less than its carrying value . if less , an impairment loss is recognized based on the excess of the carrying amount of the assets in the group over its respective fair value . fair value is determined by discounting estimated future cash flows , appraisals or other methods deemed appropriate . if the asset groups determined to be impaired are to be held and used , the company recognizes an impairment charge to the extent the fair value attributable to the asset group is less than the assets ' carrying value . the fair value of the assets then becomes the assets ' new carrying value , which is depreciated or amortized over the remaining estimated useful life of the assets . the company 's long-lived assets are grouped with other assets and liabilities at the lowest level ( asset groups ) for which the identifiable cash flows are largely independent of the cash flows of other assets and liabilities . as described above , the evaluation of the recoverability of long-lived assets requires the company to make significant estimates and assumptions . these estimates and assumptions primarily include , but are not limited to , the identification of the asset group at the lowest 30 level of independent cash flows , the primary asset of the group and long-range forecasts of revenue and costs , reflecting management 's assessment of general economic and industry conditions , operating income , depreciation and amortization and working capital requirements . due to the inherent uncertainty involved in making estimates , actual results could differ from those estimates . in addition , changes in the underlying assumptions would have a significant impact on the conclusion that an asset group 's carrying value is recoverable , or the determination of any impairment charge if it was determined that the asset values were indeed impaired .
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results of operations year ended december 31 , 2015 compared to year ended december 31 , 2014 the following table sets forth the results of operations and the relationship between various components of operations , stated as a percent of net sales , for the years ended december 31 , 2015 and 2014. the company 's historical financial data was derived from its consolidated financial statements and related notes included elsewhere in this annual report . replace_table_token_8_th net sales for the year ended december 31 , 2015 , net sales were $ 1,081.1 million , up $ 119.1 million , or 12 % , from sales for the year ended december 31 , 2014. an analysis of the factors underlying the increase in net sales is presented in the following table : ( in thousands ) net sales in 2014 $ 962,069 organic growth associated with volume and pricing 31,375 decrease associated with effect of foreign currency translation ( 32,665 ) incremental sales associated with acquisition of atmi , inc 120,342 net sales in 2015 $ 1,081,121 the inclusion of incremental atmi sales is the key factor underlying the increase . partly offsetting this is an unfavorable foreign currency translation effects of $ 32.7 million related to the year-over-year weakening of most international currencies versus the u.s. dollar , most notably the japanese yen , taiwanese dollar , korean won and euro . exclusive of those factors , the company 's sales grew 3 % in 2015 when compared to 2014 , reflecting an increase in overall demand from the company 's semiconductor industry customers , particularly an increase in the sale of specialty materials products . the company believes the overall sales increase was primarily volume driven and that the effect of selling price erosion was nominal . overall demand from the semiconductor industry reflected the following factors : slightly improved demand from device makers , as wafer starts and semiconductor unit production increased ; higher industry fab utilization rates ; and increased capital spending levels .
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business overview and environment tessco technologies incorporated ( tessco , we , or the company ) architects and delivers innovative product and value chain solutions to support wireless systems . although we sell products to customers in over 100 countries , approximately 98 % of our sales are to customers in the united states . we have operations and office facilities in hunt valley , maryland , reno , nevada and san antonio , texas . beginning in the second quarter of fiscal year 2012 , the company modified the structure of its internal organization . the company now evaluates its business and customer base in two segments โ commercial and retail . the commercial segment includes : ( 1 ) public carriers , contractors , and program managers that are generally responsible for building and maintaining the infrastructure system and provide airtime service to individual subscribers ; ( 2 ) private system operators and governments including commercial entities such as major utilities and transportation companies , federal agencies and state and local governments that run wireless networks for their own use ; and ( 3 ) commercial dealers and resellers that sell , install and or service cellular telephone , wireless networking , broadband and two-way radio communications equipment primarily for the enterprise market . the retail segment includes : ( 1 ) retailers , dealer agents and tier 2 and 3 carriers ; and ( 2 ) tier 1 carriers ( including our largest customer , at & t ) . we offer a wide range of products that are classified into four business categories : base station infrastructure ; network systems ; installation , test and maintenance ; and mobile devices and accessories . base infrastructure products are used to build , repair and upgrade wireless telecommunications . sales of traditional base station infrastructure products , such as base station radios , cable and transmission lines and antennas are in part dependent on capital spending in the wireless communications industry . network systems products are used to build and upgrade computing and internet networks . we have also been growing our offering of wireless broadband , network equipment , security and surveillance products , which are not as dependent on the overall capital spending of the industry . installation , test and maintenance products are used to install , tune , and maintain wireless communications equipment . this category is made up of sophisticated analysis equipment and various frequency- , voltage- and power-measuring devices , replacement parts and components as well as an assortment of tools , hardware and supplies required by service technicians . mobile devices and accessory products include cellular phone and data device accessories . our customers generally have the ability to purchase any of our product categories , but base station infrastructure , network systems and installation , test and maintenance products are primarily sold into our commercial segment , while mobile device and accessories products are primarily sold into our retail segment . our largest customer relationship , at & t , a tier 1 cellular carrier purchasing phone accessories , accounted for approximately 36 % of our total revenues during fiscal year 2012. in april 2012 , we were notified by at & t that they intend to transition their retail store supply chain business away from tessco beginning in the second quarter of our fiscal 2013 and for this business to be fully terminated at some point during our third quarter of fiscal 2013 , resulting in a significant reduction in revenues and a lesser relative impact on overall profits . during and after the transition , tessco expects to continue to supply product to this customer 's other programs and supply proprietary ventev ยฎ products to at & t retail stores . sales of products purchased from our largest vendor , otter products , llc ( otter ) generated approximately 17 % of our total revenues . much of this concentration , however , is attributable to our mobile device accessory sales to at & t , which are expected to be fully transitioned from tessco to a third party logistics provider in the third quarter of our fiscal 2013. the terms of our current business relationship with otter are set to expire in march 2013 and as such , we have been engaged in discussions with them regarding revised terms of our relationship . between now and march 2013 we plan to continue our aggressive marketing and selling of otter products as a key part of our multi-brand offering and also plan to continue our dialogue with otter related to future business terms . the wireless communications distribution industry is competitive and fragmented , and is comprised of several national distributors . in addition , many manufacturers sell direct . barriers to entry for distributors are relatively low , particularly in the mobile devices and accessory market , and the risk of new competitors entering the market is high . consolidation of larger wireless carriers has and will most likely continue to impact our current and potential customer base . in addition , the agreements or arrangements with our customers or vendors looking to us for product and supply chain solutions are typically of limited duration and are terminable by either party upon several months ' or otherwise short notice . our ability to maintain these relationships is subject to competitive pressures and challenges . we believe , however , that our strength in service , the breadth and depth of our product offering , our information technology system , our large customer base and our purchasing relationships with approximately 390 manufacturers provide us with a significant competitive advantage over new entrants to the market . story_separator_special_tag total selling , general and administrative expenses increased by 8.3 % during fiscal year 2011 as compared to fiscal year 2010. total selling , general and administrative expenses as a percentage of revenues decreased from 20.7 % in fiscal year 2010 to 19.4 % in fiscal year 2011 , due to the increase of revenues as discussed above , partially offset by the increases in expenses discussed below . the largest factors contributing to the increase in total selling , general and administrative expenses during fiscal year 2011 were increased compensation , freight out and marketing and sales promotion expenses , which partially offset declines in our pay for performance bonus accruals . -26- compensation expenses primarily related to business generation activities increased from fiscal year 2010 to fiscal year 2011. compensation costs also included $ 400,000 of severance expense associated with certain job consolidations that occurred in the fourth quarter of fiscal 2011. total compensation costs , including benefits , increased by approximately $ 6.7 million , or 12.3 % , from fiscal year 2010 to fiscal year 2011. freight expenses in fiscal year 2011 increased approximately $ 2.6 million , or 21.3 % , over the prior year , primarily due to higher sales and increased orders shipped . marketing and sales promotion expenses increased approximately $ 602,700 , or 6.6 % , over the prior year , primarily due to increased market development funds expensed in relation to our at & t and other retailer arrangements , partially offset by decreased expenses related to our hard copy catalog , the wireless guide ยฎ . pay for performance bonus expense ( including both cash and equity plans ) decreased by $ 2.4 million for fiscal 2011 as compared to fiscal 2010. because our bonus programs are generally performance-based , the decrease in bonus accruals is due to lower results during fiscal year 2011 as compared to pre-defined targets . we continually evaluate the credit worthiness of our existing customer receivable portfolio and provide an appropriate reserve based on this evaluation . we also evaluate the credit worthiness of prospective and current customers and make decisions regarding extension of credit terms to such customers based on this evaluation . accordingly , we recorded a provision for bad debts of $ 1,050,500 and $ 743,500 for fiscal year 2011 and fiscal year 2010 , respectively . during fiscal year 2010 , we experienced lower bad debt expense in part due to recoveries of amounts previously reserved or written off . interest , net . net interest expense increased from $ 318,300 in fiscal year 2010 to $ 420,600 in fiscal year 2011 , primarily due to increased average borrowings on our revolving credit facility . during both fiscal 2011 and 2010 , we maintained a receive variable/pay fixed interest rate swap on our existing term loan , thus fixing the interest rate on this loan at 6.38 % . interest expense on our other debt instruments had only minor variances from year-to-year in total . income taxes , net income and diluted earnings per share . the effective tax rates in fiscal year 2011 and 2010 were 35.6 % and 38.0 % , respectively . the decrease in the effective tax rate for fiscal year 2011 was primarily attributable to a one-time reduction in our uncertain tax position reserve as a result of a lapse in the applicable statute of limitations . absent this one-time adjustment , the tax rate for fiscal year 2011 would be approximately the same as fiscal year 2010. as a result of the factors discussed above , net income and diluted earnings per share for fiscal year 2011 increased 9.6 % and 6.7 % , respectively , compared with fiscal year 2010. commercial segment . revenues in our commercial segment totaled $ 312.7 million in fiscal year 2011 , compared to $ 266.8 million in the prior year , a 17.2 % increase . gross profit totaled $ 80.8 million , a 16.8 % increase as compared to the prior year . within this segment , the commercial dealers and resellers market grew revenues by 24.0 % and gross profits by 22.4 % . the public carrier , contractor and program manager market grew revenues by 36.4 % and gross profits by 32.2 % . the private system operator and government market revenue was flat as compared to fiscal 2010 , while gross profits increased 3.4 % . our direct expenses in this segment totaled $ 47.1 million , a 22.1 % increase compared to the fiscal year 2010 , due to an increase in compensation and freight costs . therefore , total segment net profit contribution was $ 33.7 million , a 10.2 % increase over the prior year . retail segment . revenues in our retail segment totaled $ 292.5 million in fiscal year 2011 , representing a 14.6 % increase from the prior year . gross profit totaled $ 52.4 million , a 3.1 % decrease . the revenue increase was a result of a 39.9 % increase in sales in our retailer , dealer agent and tier 2/3 carrier market , and to a lesser extent to a 3.3 % increase in sales to our tier 1 carrier market . gross profits increased in our retailer , dealer agent and tier 2/3 carrier market by 16.9 % , resulting in a decreased gross profit margin due to pricing pressures and increased inventory write-offs . gross profit in our tier 1 carrier market declined by 3.1 % as our large tier 1 carrier customer applied significant pricing pressure during fiscal year 2011. our direct expenses in this segment totaled $ 31.5 million in fiscal year 2011 , a 13 % increase over the prior year period , a result of higher compensation , marketing and freight costs . therefore , total segment net profit contribution was $ 21.0 million for fiscal year 2011 , a 20.3 % decrease over the prior year period .
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results of operations the following tables summarize the results of our operations for fiscal years 2012 , 2011 and 2010 : replace_table_token_4_th ( 1 ) all earnings per share numbers prior to march 27 , 2011 have been retroactively restated for all periods presented to reflect the may 26 , 2010 stock dividend in order to effect a 3-for-2 stock split . -24- fiscal year 2012 compared to fiscal year 2011 revenues . revenues for fiscal year 2012 increased 21.2 % as compared to fiscal year 2011 , due to a 38.5 % increase in retail segment revenues and a 5.0 % increase in commercial segment revenues . the retail sales growth was largely a result of a 57.4 % increase in sales to our tier 1 carrier customers , primarily at & t , which had expanded their relationship with us during the third quarter of fiscal 2012 , but also due to a 7.1 % increase in sales to our non-tier 1 customers . as noted above , at & t has subsequently informed us of their intent to transition this business beginning in our second quarter of fiscal year 2013. the increase in commercial segment revenues was due to a significant increase in our private and government system operators market , a smaller increase in our commercial dealers and resellers market , and was partially offset by a decline in sales to our public carrier , contractor and program manager market . during fiscal year 2012 , sales of our proprietary products increased 4.2 % , as compared to the prior year . however , due to the significant increase in overall sales , and the fact that proprietary product sales represented only a small percentage of the increased at & t sales on a dollar basis , proprietary product sales decreased to 8.6 % of total sales compared to 10.0 % of total sales in the prior year .
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the non-gaap financial measures should be viewed as a supplement to , and not a substitute for , financial measures presented in accordance with gaap . non-gaap measures as presented herein may not be comparable to similarly titled measures used by other companies . the following combined management 's discussion and analysis of financial condition and results of operations is separately filed by duke energy corporation ( collectively with its subsidiaries , duke energy ) and its subsidiaries duke energy carolinas , llc ( duke energy carolinas ) , progress energy , inc. ( progress energy ) , duke energy progress , llc ( formerly duke energy progress , inc. ) ( duke energy progress ) , duke energy florida , llc ( formerly duke energy florida , inc. ) ( duke energy florida ) , duke energy ohio , inc. ( duke energy ohio ) and duke energy indiana , llc ( formerly duke energy indiana , inc. ) ( duke energy indiana ) ( collectively referred to as the subsidiary registrants ) . however , none of the registrants makes any representation as to information related solely to duke energy or the subsidiary registrants of duke energy other than itself . duke energy duke energy is an energy company headquartered in charlotte , north carolina . duke energy operates in the u.s. primarily through its wholly owned subsidiaries , duke energy carolinas , duke energy progress , duke energy florida , duke energy ohio , and duke energy indiana , as well as in latin america . when discussing duke energy 's consolidated financial information , it necessarily includes the results of the subsidiary registrants , which , along with duke energy , are collectively referred to as the duke energy registrants . management 's discussion and analysis should be read in conjunction with the consolidated financial statements and notes for the years ended december 31 , 2015 , 2014 and 2013 . executive overview acquisition of piedmont natural gas on october 24 , 2015 , duke energy entered into an agreement and plan of merger ( merger agreement ) with piedmont natural gas company , inc. , ( piedmont ) a north carolina corporation . under the terms of the merger agreement , duke energy will acquire piedmont for approximately $ 4.9 billion in cash . upon closing , piedmont will become a wholly owned subsidiary of duke energy . pursuant to the merger agreement , upon the closing of the merger , each share of piedmont common stock issued and outstanding immediately prior to the closing will be converted automatically into the right to receive $ 60 in cash per share . in addition , duke energy will assume piedmont 's existing debt , which was approximately $ 1.9 billion at october 31 , 2015 , the end of piedmont 's most recent fiscal year . duke energy expects to finance the transaction with a combination of debt , between $ 500 million and $ 750 million of newly issued equity and other cash sources . in connection with the merger agreement with piedmont , duke energy entered into a $ 4.9 billion senior unsecured bridge financing facility ( bridge facility ) with barclays capital , inc. ( barclays ) . the bridge facility , if drawn upon , may be used to ( i ) fund the cash consideration for the transaction and ( ii ) pay certain fees and expenses in connection with the transaction . in november 2015 , barclays syndicated its commitment under the bridge facility to a broader group of lenders . duke energy intends to finance the transaction with proceeds raised through the issuance of debt , equity and other sources as noted above and , therefore , does not expect to draw upon the bridge facility . the federal trade commission ( ftc ) has granted early termination of the 30-day waiting period under the federal hart-scott-rodino antitrust improvements act of 1976. on january 22 , 2016 , shareholders of piedmont natural gas approved the company 's acquisition by duke energy . on january 15 , 2016 , duke energy filed for approval of the transaction and associated financing requests with the ncuc . on january 29 , 2016 , the ncuc approved the financing requests . on january 15 , 2016 , duke energy and piedmont filed a joint request with the tennessee regulatory authority for approval of a change in control of piedmont that will result from duke energy 's acquisition of piedmont . in that request , duke energy and piedmont requested that the authority approve the change in control on or before april 30 , 2016. subject to receipt of required regulatory approvals and meeting closing conditions , duke energy and piedmont target a closing by the end of 2016. on december 11 , 2015 , duke energy kentucky filed a declaratory request with the kpsc seeking a finding that the transaction does not constitute a change in control of duke energy kentucky requiring kpsc approval . duke energy also presented the transaction for information before the pscsc on january 13 , 2016. the merger agreement contains certain termination rights for both duke energy and piedmont , and provides that , upon termination of the merger agreement under specified circumstances , duke energy would be required to pay a termination fee of $ 250 million to piedmont and piedmont would be required to pay duke energy a termination fee of $ 125 million . see note 4 to the consolidated financial statements , regulatory matters , '' for additional information regarding duke energy and piedmont 's joint investment in atlantic coast pipeline , llc . 36 part ii midwest generation exit duke energy , through indirect subsidiaries , completed the sale of the nonregulated midwest generation business and duke energy retail sales llc ( collectively , the disposal group ) to a subsidiary of dynegy on april 2 , 2015 , for approximately $ 2.8 billion in cash . story_separator_special_tag at each site , excavation has commenced , with coal ash moving off-site for use in structural fill or to lined landfills . deliver merger benefits . duke energy continues to focus on realizing benefits of the merger with progress energy . duke energy is on track to achieve the $ 687 million of guaranteed savings for customers in the carolinas over five years . after three and a half years , duke energy carolinas and duke energy progress have generated approximately 90 percent of the guaranteed fuel and joint dispatch savings . grow the dividend . in 2015 , duke energy increased the growth rate of the dividend to an annual rate of approximately 4 percent . duke energy objectives โ 2016 and beyond duke energy will continue to deliver exceptional value to our customers , be an integral part of the communities in which we do business , and provide attractive returns to our investors . duke energy is committed to lead the way to cleaner , smarter energy solutions that customers value through a strategy focused on : transformation of the customer experience to meet the changing customer expectations through enhanced convenience , control and choice in energy supply and usage . modernization of the power grid to improve reliability and flexibility in support of increased distributed energy sources . generation of cleaner energy through an increased amount of natural gas , renewables generation and the continued safe and reliable operation of nuclear plants . operational excellence through engagement with employees and being one of the best safety performers in the industry . stakeholder engagement to ensure the regulatory rules in the states in which we operate benefit all customers . primary objectives toward the implementation of this strategy include : complete the acquisition of piedmont . as discussed above , duke energy will continue to pursue the remaining required regulatory approvals to achieve completion of the piedmont acquisition in 2016. this acquisition will establish a broader gas infrastructure platform within duke energy . duke energy expects to finance the acquisition through a combination of debt , newly issued equity and other cash sources . potential sale of the latin american generation business . on february 18 , 2016 , duke energy announced it had initiated a process to divest the international energy business segment , excluding the equity investment in nmc . the process remains in a preliminary stage and there have been no binding or non-binding offers requested or submitted . there is no specific timeline for execution of a potential transaction . the sale is expected to be dilutive to duke energy but would improve duke energy 's risk profile and enhance its ability to generate more consistent earnings and cash flows over time . proceeds from a successful sale would be used to fund the operations and growth of its domestic business . growth initiatives . duke energy will continue to pursue regulatory , state and federal approval of the growth projects announced in 2015 and in earlier periods . these projects will support long-term adjusted earnings growth and support duke energy 's ability to continue providing its customers affordable , reliable energy from an increasingly diverse generation portfolio . growth in the regulated utilities business is expected to be supported by retail and wholesale load growth and significant investments . duke energy expects to invest between $ 4 billion and $ 5 billion annually in the regulated utilities business growth projects . many of these projects will be recovered through riders such as transmission and distribution expenditures in indiana and ohio , as well as energy efficiency riders in the carolinas . the commercial portfolio renewables business is a significant component of the duke energy growth strategy . renewable projects enable duke energy to respond to customer interest in clean energy resources while increasing diversity in the generation portfolio . the portfolio of wind and solar is expected to continue growing as between $ 1 billion and $ 2 billion of capital is expected to be deployed over the next three years . additionally , investments in the atlantic coast pipeline add approximately $ 1 billion of capital spending through 2017 . 38 part ii duke energy announced new growth initiatives in 2015 , which include : duke energy progress proposed an approximate $ 1 billion investment in the western carolinas modernization project . the project will retire and replace the existing coal units with two natural gas combined cycle 280 mw fired generation projects , a utility scale solar power plant and aggressive energy efficiency and demand-side management adoption in the region . commercial portfolio acquired a 7.5 percent ownership interest in sabal trail transmission , llc pipeline for a total estimated investment of approximately $ 225 million upon completion of the project . cost management . duke energy has a demonstrated track record of driving efficiencies and productivity into the business . duke energy committed to efficiencies following the merger with progress energy and is on track to meet those commitments . additionally , there is potential for more productivity and efficiency gains leading to a target of 2016 operations and maintenance costs at or below 2015 levels . continue the coal ash management strategy . duke energy will continue the company 's compliance strategy with the coal ash act and rcra . duke energy will update ash management plans to comply with the appropriate regulations and expand excavation and other compliance work at additional sites once plans and permits are approved . results of operations in this section , duke energy provides analysis and discussion of earnings and factors affecting earnings on both a gaap and non-gaap basis . management evaluates financial performance in part based on the non-gaap financial measures , adjusted earnings and adjusted diluted eps .
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results of operations replace_table_token_28_th 54 part ii the following table shows the percent changes in gwh sales and average number of customers for duke energy florida . the below percentages for retail customer classes represent billed sales only . wholesale power sales include both billed and unbilled sales . total sales includes billed and unbilled retail sales , and wholesale sales to incorporated municipalities and to public and private utilities and power marketers . amounts are not weather normalized . replace_table_token_29_th year ended december 31 , 2015 as compared to 2014 operating revenues . the variance was driven primarily by : a $ 56 million increase in fuel and capacity revenues driven by increased usage . fuel revenues represent sales to retail and wholesale customers ; a $ 37 million increase due to retail sales growth ; a $ 34 million increase driven by favorable weather conditions . weather was also favorable to normal in 2015 ; and an $ 18 million increase in wholesale power revenues primarily driven by increased capacity rates on contracts . partially offset by : a $ 147 million decrease in rider revenues primarily due to a decrease in the nuclear cost recovery clause as a result of suspending levy recovery , a decrease in energy conservation cost recovery clause and environmental cost recovery clause revenues due to lower recovery rates . operating expenses .
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this loan receivable represents contract consideration related to the construction of the facility , which was substantially completed in 2015 , and will be collected over the 25-year term of the plant 's ppa . see note 20 โ revenue included in item 8.โ financial statements and supplementary data of this form 10-k for further information . cash sources and uses the primary sources of cash for the company in the year ended december 31 , 2019 were debt financings , cash flows from operating activities , and sales of short-term investments . the primary uses of cash in the year ended december 31 , 2019 were repayments of debt , capital expenditures , and purchases of short-term investments . the primary sources of cash for the company in the year ended december 31 , 2018 were debt financings , cash flows from operating activities , proceeds from the sales of business interests , and sales of short-term investments . the primary uses of cash in the year ended december 31 , 2018 were repayments of debt , capital expenditures , and purchases of short-term investments . the primary sources of cash for the company in the year ended december 31 , 2017 were debt financings , sales of short-term investments , and cash flows from operating activities . the primary uses of cash in the year ended december 31 , 2017 were repayments of debt , purchases of short-term investments , and capital expenditures . 101 | 2019 annual report a summary of cash-based activities are as follows ( in millions ) : replace_table_token_20_th consolidated cash flows the following table reflects the changes in operating , investing , and financing cash flows for the comparative twelve month periods ( in millions ) : replace_table_token_21_th operating activities fiscal year 2019 versus 2018 net cash provided by operating activities increased $ 123 million for the year ended december 31 , 2019 , compared to december 31 , 2018 . 102 | 2019 annual report operating cash flows ( in millions ) ( 1 ) the change in adjusted net income is defined as the variance in net income , net of the total adjustments to net income as shown on the consolidated statements of cash flows in item 8.โ financial statements and supplementary data of this form 10-k. ( 2 ) the change in working capital is defined as the variance in total c hanges in operating assets and liabilities as shown on the consolidated statements of cash flows in item 8.โ financial statements and supplementary data of this form 10-k. amounts included in the chart above include the results of discontinued operations , where applicable . adjusted net income decreased $ 24 million primarily due to lower margins at our south america and mcac sbus . these impacts were partially offset by the current year gains on insurance recoveries associated with the lightning incident at the andres facility in 2018 and the changuinola tunnel leak , and higher margins at our us and utilities sbu . working capital requirements decreased $ 147 million , primarily due to higher collections of overdue receivables from distribution companies in the dominican republic , higher collections of insurance receivables at andres , and lower supplier payments and vat recoveries at gener . these impacts were partially offset by a decrease in income tax liabilities at argentina as a result of lower operating margin and income tax rates , and higher supplier payments and prior year collections at puerto rico . fiscal year 2018 versus 2017 net cash provided by operating activities decreased $ 161 million for the year ended december 31 , 2018 , compared to december 31 , 2017 . operating cash flows ( in millions ) ( 1 ) the change in adjusted net income is defined as the variance in net income , net of the total adjustments to net income as shown on the consolidated statements of cash flows in item 8.โ financial statements and supplementary data of this form 10-k. ( 2 ) the change in working capital is defined as the variance in total c hanges in operating assets and liabilities as shown on the consolidated statements of cash flows in item 8.โ financial statements and supplementary data of this form 10-k. amounts included in the chart above include the results of discontinued operations , where applicable . 103 | 2019 annual report adjusted net income decreased $ 40 million primarily due to lower margins at our eurasia sbu and a 2017 favorable impact at uruguaiana as a result of a legal settlement . these impacts were partially offset by higher margins in 2018 at our south america , mcac and us and utilities sbus . working capital requirements increased $ 121 million , primarily due to higher insurance receivables at andres , deconsolidation of eletropaulo , lower collections at los mina and itabo , and the timing of payments on coal purchases at gener . these impacts were partially offset by the collections on the construction performance obligation from the offtaker at vietnam , higher cammesa collections at alicura , and the timing of payments on coal purchases at puerto rico . investing activities fiscal year 2019 versus 2018 net cash used in investing activities increased $ 2.2 billion for the year ended december 31 , 2019 compared to december 31 , 2018 . investing cash flows ( in millions ) proceeds from dispositions decreased $ 1.8 billion , primarily due to the sales of masinloc , electrica santiago , ctng , eletropaulo , and the dpl peaker assets in 2018 ; partially offset by the sale of a portion of our interest in a portfolio of spower 's operating assets and the sale of the kilroot and ballylumford plants in the united kingdom in 2019. contributions and loans to equity affiliates increased $ 179 million , primarily due to project funding requirements at spower . capital expenditures increased $ 284 million , discussed further below . story_separator_special_tag in addition , these amounts do not include : ( 1 ) regulatory liabilities ( see note 10 โ regulatory assets and liabilities ) , ( 2 ) contingencies ( see note 13 โ contingencies ) , ( 3 ) pension and other postretirement employee benefit liabilities ( see note 15 โ benefit plans ) , ( 4 ) derivatives and incentive compensation ( see note 6 โ derivative instruments and hedging activities ) or ( 5 ) any taxes ( see note 23 โ income taxes ) except for uncertain tax obligations , as the company is not able to reasonably estimate the timing of future payments . see the indicated notes to the consolidated financial statements included in item 8 of this form 10-k for additional information on the items excluded . ( 4 ) for further information see the note referenced below in item 8.โ financial statements and supplementary data of this form 10-k. 109 | 2019 annual report the following table presents our parent company 's contingent contractual obligations as of december 31 , 2019 : replace_table_token_24_th _ ( 1 ) excludes normal and customary representations and warranties in agreements for the sale of assets ( including ownership in associated legal entities ) where the associated risk is considered to be nominal . we have a diverse portfolio of performance-related contingent contractual obligations . these obligations are designed to cover potential risks and only require payment if certain targets are not met or certain contingencies occur . the risks associated with these obligations include change of control , construction cost overruns , subsidiary default , political risk , tax indemnities , spot market power prices , sponsor support and liquidated damages under power sales agreements for projects in development , in operation and under construction . in addition , we have an asset sale program through which we may have customary indemnity obligations under certain assets sale agreements . while we do not expect that we will be required to fund any material amounts under these contingent contractual obligations beyond 2019 , many of the events which would give rise to such obligations are beyond our control . we can provide no assurance that we will be able to fund our obligations under these contingent contractual obligations if we are required to make substantial payments thereunder . critical accounting policies and estimates the consolidated financial statements of aes are prepared in conformity with u.s. gaap , which requires the use of estimates , judgments , and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented . aes ' significant accounting policies are described in note 1 โ general and summary of significant accounting policies to the consolidated financial statements included in item 8 of this form 10-k. an accounting estimate is considered critical if the estimate requires management to make assumptions about matters that were highly uncertain at the time the estimate was made , different estimates reasonably could have been used , or the impact of the estimates and assumptions on financial condition or operating performance is material . management believes that the accounting estimates employed are appropriate and the resulting balances are reasonable ; however , actual results could materially differ from the original estimates , requiring adjustments to these balances in future periods . management has discussed these critical accounting policies with the audit committee , as appropriate . listed below are the company 's most significant critical accounting estimates and assumptions used in the preparation of the consolidated financial statements . income taxes โ we are subject to income taxes in both the u.s. and numerous foreign jurisdictions . our worldwide income tax provision requires significant judgment and is based on calculations and assumptions that are subject to examination by the internal revenue service and other taxing authorities . certain of the company 's subsidiaries are under examination by relevant taxing authorities for various tax years . the company regularly assesses the potential outcome of these examinations in each tax jurisdiction when determining the adequacy of the provision for income taxes . accounting guidance for uncertainty in income taxes prescribes a more likely than not recognition threshold . tax reserves have been established , which the company believes to be adequate in relation to the potential for additional assessments . once established , reserves are adjusted only when there is more information available or when an event occurs necessitating a change to the reserves . while the company believes that the amounts of the tax estimates are reasonable , it is possible that the ultimate outcome of current or future examinations may be materially different than the reserve amounts . because we have a wide range of statutory tax rates in the multiple jurisdictions in which we operate , any changes in our geographical earnings mix could materially impact our effective tax rate . furthermore , our tax position could be adversely impacted by changes in tax laws , tax treaties or tax regulations , or the interpretation or enforcement thereof and such changes may be more likely or become more likely in view of recent economic trends in certain of the jurisdictions in which we operate . 110 | 2019 annual report in accordance with sab 118 , the company made reasonable estimates of the impacts of u.s. tax reform on its 2017 financial results , and recorded adjustments to those estimates in 2018 as analysis was completed . as of december 31 , 2018 , our analysis of the one-time impacts of the tcja was complete under sab 118. however , in the first quarter of 2019 , the u.s. treasury department issued final regulations on the one-time transition tax which included changes from the proposed regulations issued in 2018. in addition , no taxes have been recorded on undistributed earnings for certain of our non-u.s. subsidiaries to the extent such earnings are considered to be indefinitely reinvested in the operations of those subsidiaries .
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fiscal year 2018 versus 2017 net cash used in investing activities decreased $ 2.1 billion for the year ended december 31 , 2018 compared to december 31 , 2017 . investing cash flows ( in millions ) proceeds from dispositions increased by $ 1.9 billion , primarily due to the sales of masinloc , electrica santiago , eletropaulo , ctng and the dpl peaker assets in 2018 , partially offset by the sale of the kazakhstan chps in 2017 and transaction costs incurred for the beckjord sale . payments for the acquisitions of business interests decreased by $ 543 million , primarily due to the acquisitions of spower and alto sertรฃo ii in 2017. cash resulting from net purchases of short-term investments decreased by $ 339 million , primarily due to the sale of eletropaulo . 105 | 2019 annual report capital expenditures decreased $ 56 million , discussed further below . capital expenditures ( in millions ) growth expenditures increased $ 114 million , primarily due to higher spending for the southland re-powering project ; partially offset by lower spending resulting from the completion of the colon project and the completion of the combined cycle project at los mina . maintenance expenditures decreased $ 129 million , primarily due to the deconsolidation of eletropaulo in q4 2017. environmental expenditures decreased $ 41 million , primarily at ipalco due to lower spending for npdes compliance . financing activities fiscal year 2019 versus 2018 net cash used in financing activities decreased $ 1.6 billion for the year ended december 31 , 2019 compared to december 31 , 2018 . financing cash flows ( in millions ) see note 11 โ debt in item 8.โ financial statements and supplementary data of this form 10-k for more information regarding significant debt transactions .
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american is also obligated , in certain circumstances ( including certain specified termination events under the amended participation agreement , certain cross defaults and cross acceleration events , and if any advance purchase miles remain at the end of the term ) to repurchase for cash all of story_separator_special_tag results of operations forward-looking information the discussions under business , risk factors , properties and legal proceedings , and the following discussions under โ management 's discussion and analysis of financial condition and results of operations โ and โ quantitative and qualitative disclosures about market risk โ contain various forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended , which represent the company 's expectations or beliefs concerning future events . when used in this document and in documents incorporated herein by reference , the words `` expects , '' `` plans , '' `` anticipates , '' โ indicates , โ โ believes , โ โ forecast , โ โ guidance , โ โ outlook , โ โ may , โ โ will , โ โ should , โ โ seeks , โ โ targets โ and similar expressions are intended to identify forward-looking statements . similarly , statements that describe the company 's objectives , plans or goals are forward-looking statements . forward-looking statements include , without limitation , the company 's expectations concerning operations and financial conditions , including changes in capacity , revenues , and costs ; future financing plans and needs ; the amounts of its unencumbered assets and other sources of liquidity ; fleet plans ; overall economic and industry conditions ; plans and objectives for future operations ; regulatory approvals and actions , including the company 's application for ati with other one world alliance members ; and the impact on the company of its results of operations in recent years and the sufficiency of its financial resources to absorb that impact . other forward-looking statements include statements which do not relate solely to historical facts , such as , without limitation , statements which discuss the possible future effects of current known trends or uncertainties , or which indicate that the future effects of known trends or uncertainties can not be predicted , guaranteed or assured . all forward-looking statements in this report are based upon information available to the company on the date of this report . the company undertakes no obligation to publicly update or revise any forward-looking statement , whether as a result of new information , future events , or otherwise . guidance given in this report regarding capacity , fuel consumption , fuel prices , fuel hedging , and unit costs , and statements regarding expectations of regulatory approval of the company 's application for ati with other one world members are forward-looking statements . forward-looking statements are subject to a number of factors that could cause the company 's actual results to differ materially from the company 's expectations . the risk factors listed in item 1a , in addition to other possible factors not listed , could cause the company 's actual results to differ materially from historical results and from those expressed in forward-looking statements . overview in late 2009 , the company unveiled a new business plan โ flightplan 2020 , which is an evolution of the turnaround plan that guided the company through the last decade . flightplan 2020 is a strategic framework developed to secure the company 's future by focusing on what will be required to succeed in the airline business over the next decade . it establishes the company 's priorities and a clear path to better position the company to meet the challenges of the coming years . this plan for achieving sustained profitability has five tenets : ( i ) invest wisely , ( ii ) earn customer loyalty , ( iii ) strengthen and defend our global network , ( iv ) be a good place for good people and ( v ) fly profitably . all strategic actions by the company going forward will be designed to realize the goals of flightplan 2020. demand for air travel in 2009 was very weak , driven by the continuing severe downturn in the global economy . in reaction to the challenge , throughout the year the company implemented strategic measures designed to help it manage through these near-term challenges while seeking to position itself for long-term success . in response to the rapidly deteriorating economy , in the first half of 2009 , the company announced additional capacity cuts , beyond its substantial 2008 capacity reductions , as it attempted to create a more sustainable supply-demand balance . the company reduced consolidated seating capacity by approximately 7.3 percent for the full year 2009 versus 2008. the reduction consisted of an approximately 8.5 percent reduction in consolidated domestic capacity and approximately 5.1 percent reduction in consolidated international capacity compared to the year ending december 31 , 2008. no assurance can be given that any capacity reductions or other steps the company may take will be adequate to offset the effects of reduced demand . the company continued to work to implement and maintain several other initiatives , including introducing plans to focus its network by reallocating capacity to primary markets in dallas/fort worth , chicago , miami , new york and los angeles , initiating new plans to enhance its fleet to better serve customers , maintaining the range of service charges introduced in 2008 to generate additional revenue , executing its fleet renewal and replacement plan , implementing initiatives to improve dependability and on-time performance , and securing a total of $ 4.3 billion in cash through financing transactions in 2009 , which substantially bolstered the company 's liquidity position . story_separator_special_tag in 2009 , the company experienced very weak demand for air travel driven by the continuing severe downturn in the global economy . in addition , as a result of reduced demand , there has been substantial fare discounting across the industry , which has resulted in decreased passenger yield . mainline passenger revenue decreased by $ 3.2 billion to $ 15.0 billion for the year ended december 31 , 2009 compared to 2008. mainline passenger unit revenues decreased 11.1 percent in 2009 due to an 11.2 percent decrease in passenger yield compared to 2008 and partially offset by a load factor increase of approximately 0.1 points . passenger yield remains low and well below the company 's peak yield set in the year 2000 , despite cumulative inflation of approximately 26 percent over the same time frame . the company believes this is the result of a fragmented industry with numerous competitors and excess capacity , increased low cost carrier competition , increased price competition due to the internet , and other factors . since deregulation in 1978 , the company 's passenger yield has increased 64 percent , while the consumer price index ( cpi ) , as measured by the u.s. department of labor bureau of labor statistics , has grown by over 220 percent . the company believes increases in passenger yield will continue to significantly lag cpi indefinitely . the decrease in total passenger revenue was partially offset by significantly lower year-over-year fuel prices ; the company paid an average of $ 2.01 per gallon in 2009 compared to an average of $ 3.03 per gallon in 2008 , including effects of hedging . although fuel prices have abated considerably from the record high prices recorded in july 2008 , they have steadily increased since the first quarter of 2009 and remain high and extremely volatile by historical standards . however , the company 's unit costs excluding fuel and special charges were greater for the year ended december 31 , 2009 than for the same period in 2008. factors driving the increase include increased defined benefit pension expenses ( due to the stock market decline in 2008 ) , higher airport rent and landing fees and cost pressures associated with the company 's capacity reductions announced in 2008 and 2009 and dependability initiatives . the 2009 operating results were also negatively impacted by a net amount of $ 107 million in special items , restructuring charges and a non-cash tax item . special items of $ 184 million include the impairment of certain route and slot authorities , primarily in latin america , and losses on certain sale leaseback transactions . restructuring charges for 2009 were $ 171 million and related to announced capacity reductions initiated in 2008 , including the grounding of the airbus a300 fleet and the impairment of certain embraer rj-135 aircraft . also included in 2009 results is a $ 248 million non-cash tax benefit resulting from the allocation of the tax expense to other comprehensive income items recognized during 2009. the restructuring charges , the non-cash tax item and the route impairment are described in notes 2 , 8 and 11 , respectively , to the consolidated financial statements . the company 's ability to become profitable and its ability to continue to fund its obligations on an ongoing basis will depend on a number of factors , many of which are largely beyond the company 's control . certain risk factors that affect the company 's business and financial results are discussed in the risk factors listed in item 1a . in addition , most of the company 's largest domestic competitors and several smaller carriers have filed for bankruptcy in the last several years and have used this process to significantly reduce contractual labor and other costs . in order to remain competitive and to improve its financial condition , the company must continue to take steps to generate additional revenues and to reduce its costs . although the company has a number of initiatives underway to address its cost and revenue challenges , some of these initiatives involve changes to the company 's business which it may be unable to implement . it has become increasingly difficult to identify and implement significant revenue enhancement and cost savings initiatives . the adequacy and ultimate success of the company 's initiatives to generate additional revenues and reduce costs can not be assured . moreover , whether the company 's initiatives will be adequate or successful depends in large measure on factors beyond its control , notably the overall industry environment , including passenger demand , yield and industry capacity growth , and fuel prices . it will be very difficult for the company to continue to fund its obligations on an ongoing basis , and to return to profitability , if the overall industry revenue environment does not improve substantially or if fuel prices were to increase and persist for an extended period at high levels . liquidity and capital resources cash , short-term investments and restricted assets at december 31 , 2009 , the company had $ 4.4 billion in unrestricted cash and short-term investments and $ 460 million in restricted cash and short-term investments , both at fair value , versus $ 3.1 billion in unrestricted cash and short-term investments and $ 459 million in restricted cash and short-term investments in 2008. significant indebtedness and future financing indebtedness is a significant risk to the company as discussed in the risk factors listed in item 1a . during 2006 , 2007 , 2008 and 2009 , the company raised an aggregate of approximately $ 6.9 billion in financing to fund operating losses , capital commitments ( mainly for aircraft and ground properties ) , debt maturities , employee pension obligations and to bolster its liquidity .
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results of operations the company recorded a net loss of $ 1.5 billion in 2009 compared to a net loss of $ 2.1 billion in 2008. the company 's 2009 loss is primarily attributable to a significant decrease in passenger revenue due to lower traffic and passenger yield . the 2009 results were also negatively impacted by a net amount of $ 107 million in special items , restructuring charges and a non-cash tax item . special items of $ 184 million include the impairment of certain route and slot authorities , primarily in latin america , and losses on certain sale leaseback transactions . restructuring charges for 2009 were $ 171 million and related to announced capacity reductions , including the grounding of the airbus a300 fleet and the impairment of certain embraer rj-135 aircraft . also included in 2009 results is a $ 248 million non-cash tax benefit resulting from the allocation of the tax expense to other comprehensive income items recognized during 2009. the restructuring charges , the non-cash tax item and the route impairment are described in note 2 , 8 and 11 , respectively , to the consolidated financial statements . the company recorded a net loss of $ 2.1 billion in 2008 compared to net earnings of $ 456 million in 2007. the company 's 2008 results include an impairment charge of $ 1.1 billion to write the mcdonnell douglas md-80 and embraer rj-135 fleets and certain related long-lived assets down to their estimated fair values , a $ 71 million accrual for employee severance cost and a $ 33 million expense related to the grounding of leased airbus a300 aircraft prior to lease expiration , all in connection with announced capacity reductions and included in special charges in the consolidated statements of operations .
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and its subsidiaries ( together the `` company '' ) . md & a is provided as a supplement toโand should be read in conjunction withโour consolidated financial statements and the accompanying notes . overview we are primarily a hotel franchisor with franchise agreements representing 6,514 hotels open and 775 hotels under construction , awaiting conversion or approved for development as of december 31 , 2016 , with 516,122 rooms and 62,547 rooms , respectively , in 50 states , the district of columbia and more than 40 countries and territories outside the united states . our brand names include comfort inn , comfort suites , quality , clarion , ascend hotel collection , sleep inn , econo lodge , rodeway inn , mainstay suites , suburban extended stay hotel and cambria hotels & suites ( collectively , the `` choice brands '' ) . the company 's domestic franchising operations are conducted through direct franchising relationships while its international franchise operations are conducted through a combination of direct franchising and master franchising relationships . master franchising relationships are governed by master franchising agreements which generally provide the master franchisee with the right to use our brands and sub-license the use of our brands in a specific geographic region , usually for a fee . our business strategy is to conduct direct franchising in those international markets where both franchising is an accepted business model and we believe our brands can achieve significant scale . we elect to enter into master franchise agreements in those markets where direct franchising is currently not a prevalent or viable business model . when entering into master franchising relationships , we strive to select partners that have professional hotel and asset management capabilities together with the financial capacity to invest in building the choice brands in their respective markets . master franchising relationships typically provide lower revenues to the company as the master franchisees are responsible for managing certain necessary services ( such as training , quality assurance , reservations and marketing ) to support the franchised hotels in the master franchise area and therefore retain a larger percentage of the hotel franchise fees to cover their expenses . in certain circumstances , the company has and may continue to make equity investments in our master franchisees . as a result of master franchise relationships and international market conditions , our revenues are primarily concentrated in the united states . therefore , our description of the franchise system is primarily focused on the domestic operations . our company generates revenues , income and cash flows primarily from initial , relicensing and continuing royalty fees attributable to our franchise agreements . revenues are also generated from qualified vendor arrangements and other sources . 39 the hotel industry is seasonal in nature . for most hotels , demand is lower in november through february than during the remainder of the year . our principal source of revenues is franchise fees based on the gross room revenues of our franchised properties . the company 's franchise fee revenues reflect the industry 's seasonality and historically have been lower in the first and fourth quarters than in the second and third quarters . with a focus on hotel franchising instead of ownership , we benefit from the economies of scale inherent in the franchising business . the fee and cost structure of our business provides opportunities to improve operating results by increasing the number of franchised hotel rooms and effective royalty rates of our franchise contracts resulting in increased initial and relicensing fee revenue ; ongoing royalty fees and procurement services revenues . in addition , our operating results can also be improved through our company-wide efforts related to improving property level performance . the company currently estimates , based on its current domestic portfolio of hotels under franchise , that a 1 % change in revenue per available room ( `` revpar '' ) or rooms under franchise would increase or decrease royalty revenues by approximately $ 3.0 million and a 1 basis point change in the company 's effective royalty rate would increase or decrease domestic royalties by approximately $ 0.7 million . in addition to these revenues , we also collect marketing and reservation system fees to support centralized marketing and reservation activities for the franchise system . the principal factors that affect the company 's franchising results are : the number and relative mix of franchised hotel rooms in the various hotel lodging price categories ; growth in the number of hotel rooms under franchise ; occupancy and room rates achieved by the hotels under franchise ; the effective royalty rate achieved ; the level of franchise sales and relicensing activity ; and our ability to manage costs . the number of rooms at franchised properties and occupancy and room rates at those properties significantly affect the company 's results because our fees are based upon room revenues or the number of rooms at franchised hotels . the key industry standard for measuring hotel-operating performance is revpar , which is calculated by multiplying the percentage of occupied rooms by the average daily room rate realized . our variable overhead costs associated with franchise system growth of our established brands have historically been less than incremental royalty fees generated from new franchises . accordingly , continued growth of our franchise business should enable us to realize benefits from the operating leverage in place and improve operating results . we are required by our franchise agreements to use the marketing and reservation system fees we collect for system-wide marketing and reservation activities . these expenditures , which include advertising costs and costs to maintain our central reservations and property management systems , help to enhance awareness and increase consumer preference for our brands and deliver guests to our franchisees . greater awareness and preference promotes long-term growth in business delivery to our franchisees and increases the desirability of our brands to hotel owners and developers , which ultimately increases franchise fees earned by the company . story_separator_special_tag since inception , the company has made significant investments in product development and sales efforts to expand its customer base . as a result , the division has incurred costs in excess of revenues in each year of its existence . for the year ended december 31 , 2016 the division had an operating loss of $ 17.9 million . at this time , the company believes that its operations of the skytouch division beginning in 2017 will not require the same pace of investment as compared to past periods , and as a result , the company expects that revenues generated by the skytouch division will approximate its selling , general and administrative expenses for the year ended december 31 , 2017. in august 2015 , the company completed the acquisition of a company that provides software as a service solution for vacation rental management companies . this business provides central reservations systems , property management systems and integrated software applications including point-of-sale . the transaction has been accounted for using the acquisition method of accounting and accordingly , assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date . the results of this business have been consolidated with the company since august 2015. notwithstanding investments in skytouch and other alternative growth strategies , the company expects to continue to return value to its shareholders over time through a combination of share repurchases and dividends . we believe these investments and strategic priorities , when properly implemented , will enhance our profitability , maximize our financial returns and continue to generate value for our shareholders . the ultimate measure of our success will be reflected in the items below . results of operation : royalty fees , operating income , net income and diluted earnings per share ( `` eps '' ) represent key measurements of these value drivers . these measurements are primarily driven by the operations of our franchise system and therefore our analysis of the company 's operations is primarily focused on the size , performance and potential growth of the franchise system as well as our variable overhead costs . since our hotel franchising activities represent more than 99 % of total revenues , our discussion of our results from operations primarily relate to our franchising activities . refer to md & a heading `` operations review '' for additional analysis of our results . 41 liquidity and capital resources : historically , the company has generated significant cash flows from operations . since our business has not historically required significant reinvestment of capital , we typically utilize cash in ways that management believes provide the greatest returns to our shareholders which include share repurchases and dividends . however , we may determine to utilize cash for acquisitions and other investments in the future . we believe the company 's cash flow from operations and available financing capacity is sufficient to meet the expected future operating , investing and financing needs of the business . refer to md & a heading `` liquidity and capital resources '' for additional analysis . inflation : inflation has been moderate in recent years and has not had a significant impact on our business . non-gaap financial statement measurements the company utilizes certain measures which do not conform to generally accepted accounting principles accepted in the united states ( `` gaap '' ) when analyzing and discussing its results with the investment community . this information should not be considered as an alternative to any measure of performance as promulgated under gaap . the company 's calculation of these measurements may be different from the calculations used by other companies and therefore comparability may be limited . we have included a reconciliation of these measures to the comparable gaap measurement below as well as our reasons for reporting these non-gaap measures . hotel franchising revenues : the company utilizes franchising revenues , which exclude revenues from marketing and reservation system activities , the skytouch technology division , an operation that provides software as a service solutions to vacation rental management companies , and revenue generated from the ownership of an office building that is leased to a third-party , rather than total revenues when analyzing the performance of the business . marketing and reservation activities are excluded from franchising revenues since the company is contractually required by its franchise agreements to use the fees collected for marketing and reservation activities ; as such , no income or loss to the company is generated . cumulative marketing and reservation system fees not expended are recorded as a liability in the company 's financial statements and are carried over to the next fiscal year and expended in accordance with the franchise agreements . cumulative marketing and reservation expenditures incurred in excess of fees collected for marketing and reservation activities are deferred and recorded as an asset in the company 's financial statements and recovered in future periods . skytouch is a division of the company that develops and markets cloud-based technology products , including inventory management , pricing and connectivity to third party channels , to hoteliers not under franchise agreements with the company . skytouch and our vacation rental technology solutions provider operations are excluded from hotel franchising revenues since those operations do not reflect the company 's core hotel franchising business but represent adjacent , complimentary lines of business . this non-gaap measure is a commonly used measure of performance in our industry and facilitates comparisons between the company and its competitors . calculation of hotel franchising revenues replace_table_token_15_th 42 operations review comparison of 2016 and 2015 operating results summarized financial results for the years ended december 31 , 2016 and 2015 are as follows : replace_table_token_16_th results of operations the company recorded income before income taxes of $ 200.0 million for the year ended december 31 , 2016 , a $ 16.0 million or 9 % increase from the same period of the prior year .
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results of operations the company recorded income from continuing operations before income taxes of $ 184.0 million for the year ended december 31 , 2015 , a $ 10.2 million or 6 % increase from the same period of the prior year . the increase in income from continuing operations before income taxes primarily reflects a $ 10.8 million increase in operating income partially offset by a $ 1.2 million increase in other ( gains ) losses , an increase in interest expense of $ 1.3 million and a $ 0.2 million increase in equity loss of affiliates . operating income increased $ 10.8 million as the company 's revenues excluding marketing and reservations , increased by $ 25.8 million or 7 % but were partially offset by a $ 12.8 million or 11 % increase in sg & a expenses . the key drivers of these fluctuations are described in more detail below . hotel franchising revenues : hotel franchising revenues were $ 366.7 million for the year ended december 31 , 2015 compared to $ 344.8 million for the year ended december 31 , 2014 , a 6 % increase . the increase in hotel franchising revenues is primarily due to a $ 14 million or 5 % increase in royalty revenues , a $ 5.2 million increase in initial franchise and relicensing fees , and a $ 3.3 million or 14 % increase in procurement services fees . 49 royalty fees domestic royalty fees for the year ended december 31 , 2015 increased $ 18.3 million to $ 281.3 million from $ 263.0 million in 2014 , an increase of 7 % . the increase in domestic royalties is attributable to a 6.5 % increase in domestic revpar , a 0.4 % increase in the number of domestic franchised hotel rooms and an increase in the effective royalty rate .
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the overall shape of the recovery has been flatter than many predicted due , in large part , to continuing mortgage constraints , employment insecurity and lack of wage growth , which further impact consumer confidence and a potential customer 's ability to purchase and finance a new home . additionally , while historic bad weather in our texas markets delayed home deliveries and contributed to margin pressures in the latter part of our fiscal 2015 , we do not believe that these factors will impact our performance in the long run . overview of results for our fiscal 2015 after returning to profitability during our last fiscal year , our fiscal 2015 represented a meaningful step forward in achieving our โ 2b-10 โ goals ( refer to discussion below ) , with growth in both revenue and adjusted ebitda arising from higher community count , additional closings and an increase in average sales prices . this was accomplished while maintaining our operating margins , as the benefit from improving leverage and higher prices offset the impact from rising costs . looking ahead to fiscal 2016 and beyond , we expect significant ebitda growth , as we benefit from more closings , further increases in average sales prices and additional fixed cost leverage . at the same time , we expect to take steps in fiscal 2016 to reduce our leverage , reflecting our view that doing so in an improving market will create long-term shareholder value . the company reported full year net income of $ 344.1 million for fiscal 2015 , which included several significant , non-recurring items : the release of a substantial portion of our valuation allowance on our deferred tax assets of $ 335.2 million ; unexpected warranty costs related to florida stucco issues of $ 26.3 million , offset by anticipated insurance recoveries of $ 12.7 million , for a net impact of $ 13.6 million ; and a litigation settlement in discontinued operations of $ 3.7 million . the substantial release of our valuation allowance on our deferred tax assets represents a current-year benefit from income taxes that was recorded during the fourth quarter . for additional discussion of this release , refer to note 13 of notes to the consolidated financial statements in this form 10-k. the warranty costs related to florida stucco issues ( the florida stucco issues ) relate to faulty stucco installation in several communities that we have been remediating since the latter half of our fiscal 2014. however , starting in the second quarter of our fiscal 2015 , the cost of a substantial majority of these repairs is now the responsibility of our insurer , since we passed our self-retention limits on several policy years . for a further discussion of this matter , refer to note 9 of notes to the consolidated financial statements in this form 10-k. for the year ended september 30 , 2015 , excluding the impact of these charges , homebuilding gross margin before impairments and abandonments and interest amortized to cost of sales would have been 21.5 % and adjusted ebitda would have been $ 144.1 million . reaching โ 2b-10 โ in november 2013 , we introduced a multi-year โ 2b-10 โ plan , which provided a roadmap of revenue and margin metrics to achieve $ 2 billion in revenue with a 10 % adjusted ebitda margin . taken together , reaching โ 2b-10 โ would result in adjusted ebitda of at least $ 200 million . in november 2015 , we have refined the specific metrics we expect will lead us to our โ 2b-10 โ objectives by providing ranges to each metric instead of point estimates . since we rolled out our โ 2b-10 โ plan , we have consistently noted that there are a number of paths to achieving our underlying goal of $ 200 million of ebitda . additionally , during the second quarter of our fiscal 2015 , we made the decision that we would not continue to reinvest in new homebuilding assets in our new jersey division , which had a modest impact on the timing of the achievement of our โ 2b-10 โ objectives . nonetheless , we continue our commitment to reaching these objectives as soon as possible . we expect to reach these objectives by making improvements on five key metrics : ( 1 ) sales per community per month ( or our absorption rate ) ; ( 2 ) active community count ; ( 3 ) average selling prices ( asp ) ; ( 4 ) homebuilding gross margins and ( 5 ) cost leverage as measured by selling , general and administrative costs ( sg & a ) as a percentage of total revenue . during fiscal 2015 , we continued to make progress on several of these metrics , most notably by growing revenue to $ 1.6 billion , up 11.2 % year-over-year , and increasing our community count to 166 as of september 30 , 2015 , which is up from 155 as of the end of the prior fiscal year . adjusted ebitda was $ 126.8 million compared to $ 128.3 million in the prior year , a slight decline 24 of 1.1 % , and adjusted ebitda margin was 7.8 % compared to 8.8 % in the prior fiscal year , a decline of 100 basis points . however , excluding the one-time items noted above ( related to the florida stucco issues and litigation settlement in discontinued operations ) , adjusted ebitda would have increased 8.1 % year-over-year , after also adjusting fiscal 2014 for the florida stucco issues and the water intrusion issue in new jersey ( refer to item 6 , selected financial data , in this form 10-k for a reconciliation of adjusted ebitda ) . these improvements were due to the intense focus we have placed on the operational drivers of this plan , and in part , to stronger home pricing conditions . our progress on each metric is discussed in more detail below . story_separator_special_tag the decline in our margin , after considering impairments and abandonments , interest , and unexpected warranty costs , is due to ( 1 ) higher overall lot costs , as land in certain markets continues to rise in value ; ( 2 ) the structure of our land deals , as finished lot purchases or the use of land bankers tend to result in lower gross margins ; ( 3 ) higher labor costs and ( 4 ) geographic mix of closings . our overall homebuilding gross profit increased to $ 260.7 million for the fiscal year ended september 30 , 2014 from $ 212.1 million in the prior year . the increase was primarily due to the $ 130.7 million increase in homebuilding revenues , including a 12.6 % 28 increase in asp , partially offset by a $ 5.7 million increase in impairments and abandonments and $ 4.9 million of unexpected warranty costs recorded in the fourth quarter of fiscal 2014. the $ 4.9 million of unexpected warranty costs related to the florida stucco issues and water intrusion issues in a single community in new jersey ( refer to note 9 of notes to the consolidated financial statements in this form 10-k ) . total homebuilding gross profit and gross margin excluding inventory impairments and abandonments and interest amortized to cost of sales are not gaap financial measures . these measures should not be considered alternatives to homebuilding gross profit determined in accordance with gaap as an indicator of operating performance . the magnitude and volatility of non-cash inventory impairment and abandonment charges for the company , and for other homebuilders , have been significant and , as such , have made financial analysis of our industry more difficult . homebuilding metrics excluding these charges , and other similar presentations by analysts and other companies , are frequently used to assist investors in understanding and comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies ' respective level of impairments and levels of debt . management believes these non-gaap measures enable holders of our securities to better understand the cash implications of our operating performance and our ability to service our debt obligations as they currently exist and as additional indebtedness is incurred in the future . these measures are also useful internally , helping management compare operating results and as a measure of the level of cash which may be available for discretionary spending . in a given period , our reported gross profits are generated from both communities previously impaired and communities not previously impaired . in addition , as indicated above , certain gross profit amounts arise from recoveries of prior period costs , including warranty items , that are not directly tied to communities generating revenue in the period . home closings from communities previously impaired would , in most instances , generate very low or negative gross margins prior to the impact of the previously recognized impairment . gross margins for each home closing are higher for a particular community after an impairment because the carrying value of the underlying land was previously reduced to the present value of future cash flows as a result of the impairment , leading to lower cost of sales at the home closing . this improvement in gross margin resulting from one or more prior impairments is frequently referred to in the aggregate as the โ impairment turn โ or โ flow-back โ of impairments within the reporting period . the amount of this impairment turn may exceed the gross margin for an individual impaired asset if the gross margin for that asset prior to the impairment would have been negative . the extent to which this impairment turn is greater than the reported gross margin for the individual asset is related to the specific historical cost basis of that individual asset . the asset valuations which result from our impairment calculations are based on discounted cash flow analyses and are not derived by simply applying prospective gross margins to individual communities . as such , impaired communities may have gross margins that are somewhat higher or lower than the gross margin for unimpaired communities . the mix of home closings in any particular quarter varies to such an extent that comparisons between previously impaired and never impaired communities would not be a reliable way to ascertain profitability trends or to assess the accuracy of previous valuation estimates . in addition , since any amount of impairment turn is tied to individual lots in specific communities , it will vary considerably from period to period . as a result of these factors , we review the impairment turn impact on gross margins on a trailing 12-month basis rather than a quarterly basis as a way of considering whether our impairment calculations are resulting in gross margins for impaired communities that are comparable to our unimpaired communities . for fiscal 2015 , our homebuilding gross margin was 17.0 % and excluding interest and inventory impairments and abandonments , it was 20.6 % . for the same period , homebuilding gross margins were as follows in those communities that have previously been impaired , which represented 6.9 % of total closings during fiscal 2015 : homebuilding gross margin from previously impaired communities : pre-impairment turn gross margin ( 4.0 ) % impact of interest amortized to cos related to these communities 5.5 % pre-impairment turn gross margin , excluding interest amortization 1.5 % impact of impairment turns 14.2 % gross margin ( post impairment turns ) , excluding interest amortization 15.7 % for a further discussion of our impairment policies and communities impaired during the current and prior two fiscal years , refer to notes 2 and 5 of the notes to consolidated financial statements in this form 10-k. 29 land sales and other revenues and gross profit land sales relate to land and lots sold that did not fit within our homebuilding programs and strategic plans in certain markets .
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results of continuing operations the following table summarizes certain key income statement metrics for the periods presented : replace_table_token_9_th ( a ) in addition to other items , our homebuilding gross margins in the current and prior fiscal year were impacted by unexpected warranty costs related to the florida stucco issues and one community in new jersey . refer to further discussion of these items below in section titled โ homebuilding gross profit and gross margin. โ ( b ) calculated as tax benefit for the period divided by income ( loss ) from continuing operations . due to the effects of changes in our valuation allowance on our deferred tax assets and changes in our unrecognized tax benefits , our effective tax rates are not meaningful metrics , as our income tax provisions and benefits are currently not directly correlated to the amount of pretax income or loss for the associated periods . homebuilding operations data the following table summarizes new orders , net and cancellation rates by reportable segment for the periods presented : replace_table_token_10_th sales per active community per month of 2.8 for the year ended september 30 , 2015 was even with the same metric for the year ended september 30 , 2014 . however , during the current fiscal year , we opened 66 communities and closed out of 52 , leading to an active community count of 166 as of september 30 , 2015 , compared to 155 as of september 30 , 2014 . this growth in community count resulted in the 12.8 % year-over-year increase in net new orders shown above . the fiscal 2015 increase in new orders , net in 26 our west segment was driven by substantial year-over-year increases in texas and california , offset by a decline in las vegas .
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โ overview we are a leader in the research , development and commercialization of organic light emitting diode , or oled , technologies and materials for use in displays for wearables , mobile phones , televisions , tablets , portable media devices , laptop computers , personal computers , and automotive interiors , as well as solid-state lighting applications . since 1994 , we have been exclusively engaged , and expect to continue to be primarily engaged , in funding and performing research and development activities relating to oled technologies and materials , and commercializing these technologies and materials . we derive our revenue from the following : sales of oled materials for evaluation , development and commercial manufacturing ; intellectual property and technology licensing ; and technology development and support , including government contract work and support provided to third parties for commercialization of their oled products . material sales relate to our sale of oled materials for incorporation into our customers ' commercial oled products or for their oled development and evaluation activities . material sales are recognized at the time of shipment or at time of delivery , and passage of title , depending upon the contractual agreement between the parties . we receive license and royalty payments under certain commercial , development and technology evaluation agreements , some of which are non-refundable advances . these payments may include royalty and license fees made pursuant to license agreements and also license fees included as part of certain commercial supply agreements . for arrangements with extended payment terms , where the fee is not fixed or determinable , we recognize revenue when the payment is due and payable . royalty revenue and license fees included as part of commercial supply agreements are recognized when earned and the amount is fixed and determinable . currently , our most significant commercial license agreement , which runs through the end of 2017 , is with sdc and covers the manufacture and sale of specified oled display products . under this agreement , we are being paid a license fee , payable in semi-annual installments over the agreement term of 6.4 years . the installments , which are due in the second and fourth quarter of each year , increase on an annual basis over the term of the agreement . the agreement conveys to sdc the non-exclusive right to use certain of our intellectual property assets for a limited period of time that is less than the estimated life of the assets . ratable recognition of revenue is impacted by the agreement 's extended increasing payment terms in light of our limited history with similar agreements . as a result , revenue is recognized at the lesser of the proportional performance approach ( ratable ) and the amount of due and payable fees from sdc . given the increasing contractual payment schedule , license fees under the agreement are recognized as revenue when they become due and payable , which is currently scheduled to be in the second and fourth quarter of each year . at the same time we entered into the current patent license agreement with sdc , we also entered into a new supplemental material purchase agreement with sdc . under the current supplemental material purchase agreement , sdc agrees to purchase from us a minimum dollar amount of phosphorescent emitter materials for use in the manufacture of licensed products . this minimum purchase commitment is subject to sdc 's requirements for phosphorescent emitter materials and our ability to meet these requirements over the term of the supplemental agreement . the minimum purchase amounts increase on an annual basis over the term of the supplemental agreement . these amounts were determined through negotiation based on a number of factors , including , without limitation , estimates of sdc 's oled business growth as a percentage of published oled market forecasts and sdc 's projected minimum usage of red and green phosphorescent emitter materials over the term of the agreement . in 2015 , we entered into an oled patent license agreement and an oled commercial supply agreement with lg display co. , ltd. ( lg display ) , which were effective as of january 1 , 2015 and superseded the existing 2007 commercial supply agreement between the parties . the new agreements have a term that is set to expire by the end of 2022. the patent license agreement provides lg display a non-exclusive , royalty bearing portfolio license to make and sell oled displays under the company 's patent portfolio . the patent license calls for license fees , prepaid royalties and running royalties on licensed products . the agreements include customary provisions relating to warranties , indemnities , confidentiality , assignability and business terms . the agreements provide for certain other minimum obligations relating to the volume of materials sales anticipated over the life of the agreements as well 31 as minimum royalty revenue to be generated under the patent license agreement . the company expects to generate revenue under these agreements that are predominantly tied to lg display 's sales of oled licensed products . the oled commercial supply agreement provides for the sales of materials for use by lg display , which may include phosphorescent dopants and host materials . technology development and support revenue is revenue earned from government contracts , development and technology evaluation agreements and commercialization assistance fees , which includes reimbursements by government entities for all or a portion of the research and development costs we incur in relation to our government contracts . revenues are recognized proportionally as research and development costs are incurred , or as defined milestones are achieved . story_separator_special_tag notwithstanding the fact that the company builds and ships the inventory , the customer does not purchase the consigned inventory until the inventory is drawn or pulled by the customer to be used in the manufacture of the customer 's product . though the consigned inventory may be at the customer 's physical location , it remains inventory owned by the company until the inventory is drawn or pulled , which is the time at which the sale takes place . valuation of stock-based compensation we recognize in the statement of income the grant-date fair value of equity-based compensation issued to employees and directors ( see notes 2 and 12 of the notes to consolidated financial statements ) . we also record an expense for equity-based compensation grants to non-employees , in exchange for goods or services based on the fair value of the award , which is remeasured over the vesting period of such awards . the performance unit awards we grant are subject to either a performance-based or market-based vesting requirement . for performance-based vesting , the grant-date fair value of the award , based on fair value of the company 's common stock , is recognized over the service period , based on an assessment of the likelihood that the applicable performance goals will be achieved , and compensation expense is periodically adjusted based on actual and expected performance . compensation expense for performance unit awards with market-based vesting is calculated based on the estimated fair value as of the grant date utilizing a monte carlo simulation model and is recognized over the service period on a straight-line basis . accounting for income taxes we are subject to income taxes in both the u.s. and foreign jurisdictions . significant judgments and estimates are required in evaluating our tax positions for future realization and determining our provision for income taxes . our income tax expense , deferred tax assets and liabilities , and reserves for unrecognized tax benefits reflect management 's best assessment of estimated future taxes to be paid . our income tax expense during the year ended december 31 , 2015 primarily related to federal taxes on our u.s. income and foreign withholding taxes . the foreign taxes were primarily related to foreign taxes withheld on royalty and license fees paid to the u.s. operating entity . sdc has been required to withhold tax upon payment of royalty and license fees to the u.s. operating entity at a rate of 16.5 % . in assessing the realizability of deferred tax assets , we consider whether it is more likely than not that some portion or all of our deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent on our ability to generate future taxable income to obtain benefit from the reversal of temporary differences , net operating loss carryforwards and tax credits . as part of our assessment we consider the scheduled reversal of deferred tax liabilities , projected future taxable income , and tax planning strategies . during the year ended december 31 , 2015 , based on previous earnings history , a current evaluation of expected future taxable income and other evidence , we determined to retain the valuation allowance that relates to udc ireland , u.s. foreign tax credits and new jersey research and development credits . actual results could differ from our assessments if adequate taxable income is generated in future periods . to the extent we establish a new valuation allowance or change a previously established valuation allowance in a future period , income tax expense will be impacted . in addition , our ability to use our federal net operating loss carryforwards could be subject to limitation because of certain ownership changes . net deferred tax assets totaled $ 27.3 million , representing , 4.9 % of total assets , as of december 31 , 2015 . 33 retirement plan we have recorded a significant retirement plan benefit liability that is developed from actuarial valuations . the determination of our retirement plan benefit liability requires key assumptions regarding discount rates , as well as rates of compensation increases , retirement dates and life expectancies used to determine the present value of future benefit payments . we determine these assumptions in consultation with , and after input from , our actuaries and considering our experience and expectations for the future . actual results for a given period will often differ from assumed amounts because of economic and other factors . the discount rate reflects the estimated rate at which the benefit liabilities could be settled at the end of the year . the discount rate is determined by selecting a single rate that produces a result equivalent to discounting expected benefit payments from the plan using the citigroup above-median pension discount curve ( the curve ) . based upon this analysis using the curve , we used a discount rate to measure our retirement plan benefit liability of 3.78 % at december 31 , 2015 . a change of 25 basis points in the discount rate would increase or decrease the expense on an annual basis by approximately $ 35,000. story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > and 2014 ( amounts in thousands ) : replace_table_token_13_th cost of commercial material sales for the year ended december 31 , 2015 increased by $ 21.7 million compared to the year ended december 31 , 2014 . the increase in the cost of our commercial material sales was primarily due to an inventory write-down of $ 33.0 million , offset to some extent by a decrease in commercial material sales . during the second quarter of 2015 , the company experienced a faster-than-anticipated decline in host material sales and based on the most recent sales forecasts , we determined that there were likely to be significantly lower sales of our existing host material . as such , a write-down in net realizable value of our inventory was performed in the second quarter .
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results of operations year ended december 31 , 2015 compared to year ended december 31 , 2014 we had operating income of $ 32.3 million for the year ended december 31 , 2015 , compared to operating income of $ 58.6 million for the year ended december 31 , 2014 . the decrease in operating income was due to the following : an increase in operating expenses of $ 26.4 million , which includes a $ 21.7 million increase in the cost of material sales due to a $ 33.0 million write-down of inventory . without the write-down of inventory , operating income would have been $ 65.3 million , an increase of $ 6.7 million . see the discussion of non-gaap measures in item 6 ( selected financial data ) of this report . selling , general and administrative expenses increased by $ 0.9 million and research and development expenses increased by $ 3.5 million , all of which are described below . we had net income of $ 14.7 million ( or $ 0.31 per basic and diluted share ) for the year ended december 31 , 2015 , compared to net income of $ 41.9 million ( or $ 0.90 per basic and diluted share ) for the year ended december 31 , 2014 . the decrease in net income was primarily due to : a decrease in operating income of $ 26.3 million , which in turn was mainly due to the $ 33.0 million write-down of inventory ; and an increase in income tax expense of $ 0.9 million .
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we are one of the two major manufacturers of 100+ seat airplanes for the worldwide commercial airline industry and one of the largest defense contractors in the u.s. while our principal operations are in the u.s. , we conduct operations in many countries and rely on an extensive network of international partners , key suppliers and subcontractors . our strategy is centered on successful execution in healthy core businesses โ commercial airplanes and defense , space & security ( bds ) โ supplemented and supported by boeing capital ( bcc ) . taken together , these core businesses have historically generated substantial earnings and cash flow that permit us to invest in new products and services . we focus on producing the products and providing the services that the market demands and we price our products and services to provide a fair return for our shareholders while continuing to find new ways to improve efficiency and quality . commercial airplanes is committed to being the leader in commercial aviation by offering airplanes and services that deliver superior design , efficiency and value to customers around the world . bds integrates its resources in defense , intelligence , communications , security , space and services to deliver capability-driven solutions to its customers at reduced costs . our bds strategy is to leverage our core businesses to capture key next-generation programs while expanding our presence in adjacent and international markets , underscored by an intense focus on growth and productivity . our strategy also benefits us as the cyclicality of commercial and defense markets sometimes offset . bcc facilitates , arranges , structures and provides selective financing solutions for our boeing customers . in november 2016 , we announced plans for the formation of boeing global services ( bgs ) , which will bring together certain commercial aviation services businesses currently included in the commercial airplanes segment and certain bds businesses ( primarily those currently included in the global services & support ( gs & s ) segment ) . we expect bgs to be operational during the second half of 2017 . 18 consolidated results of operations the following table summarizes key indicators of consolidated results of operations : replace_table_token_4_th ( 1 ) these measures exclude certain components of pension and other postretirement benefit expense . see page 42 - 43 for important information about these non-gaap measures and reconciliations to the most comparable gaap measures . revenues the following table summarizes revenues : replace_table_token_5_th revenues in 2016 decreased by $ 1,543 million or 2 % compared with 2015 . commercial airplanes revenues decreased by $ 979 million or 1 % primarily due to lower deliveries . bds revenues for 2016 decreased by $ 890 million compared with the same period in 2015 due to lower revenues in boeing military aircraft ( bma ) and network & space systems ( n & ss ) , partially offset by higher revenues in gs & s . revenues in 2015 increased by $ 5,352 million or 6 % compared with 2014. commercial airplanes revenues increased by $ 6,058 million or 10 % due to higher new airplane deliveries and mix . bds revenues decreased by $ 493 million or 2 % primarily due to lower revenues in the gs & s and n & ss segments . the changes in unallocated items , eliminations and other in 2016 , 2015 and 2014 primarily reflect the timing of eliminations for intercompany aircraft deliveries . 19 earnings from operations the following table summarizes earnings from operations : replace_table_token_6_th earnings from operations in 2016 decreased by $ 1,609 million compared with 2015 due to lower earnings at commercial airplanes , partially offset by the change in unallocated pension and postretirement income/ ( expense ) . commercial airplanes earnings in 2016 decreased by $ 2,027 million primarily due to the reclassification of $ 1,235 million of 787 flight test aircraft costs to research and development and higher reach-forward losses on the 747 and kc-46a tanker programs . the reclassification of flight test aircraft costs was recorded in second quarter as a result of our determination that two 787 flight test aircraft were no longer commercially saleable . the change in the unallocated pension and postretirement income/ ( expense ) in 2016 was primarily driven by lower service costs and lower amortization of actuarial losses . earnings from operations in 2015 decreased by $ 30 million compared with 2014 primarily reflecting a fourth quarter charge of $ 885 million related to the 747 program at commercial airplanes and higher charges of $ 410 million related to the usaf kc-46a tanker recorded by commercial airplanes and our bma segment , partially offset by lower unallocated pension and other postretirement benefit expense of $ 1,089 million . the 2015 unallocated expense is lower than 2014 , primarily due to the lower amortization of pension costs capitalized as inventory in prior years as well as lower settlements and curtailments . during 2016 , 2015 and 2014 , we recorded reach-forward losses on the kc-46a tanker program . in 2016 , we recorded charges of $ 1,128 million , of which $ 772 million was recorded at commercial airplanes and $ 356 million at our bma segment . during 2015 , we recorded charges of $ 835 million : $ 513 million at commercial airplanes and $ 322 million at our bma segment . during 2014 , we recorded charges of $ 425 million : $ 238 million at commercial airplanes and $ 187 million at our bma segment . during 2016 and 2015 we recorded reach-forward losses on the 747 program of $ 1,258 million and $ 885 million . core operating earnings for 2016 decreased by $ 2,277 million compared with 2015 primarily due to the reclassification of costs related to the 787 flight test aircraft and higher charges on the 747 and kc-46a tanker programs described above . core operating earnings in 2015 decreased by $ 1,119 million compared with 2014 primarily due to the 2015 747 charge and higher kc-46a tanker charges . story_separator_special_tag backlog our backlog at december 31 was as follows : replace_table_token_13_th 23 contractual backlog of unfilled orders excludes purchase options , announced orders for which definitive contracts have not been executed , and unobligated u.s. and non-u.s. government contract funding . the decrease in contractual backlog during 2016 and 2015 was primarily due to deliveries in excess of net orders . unobligated backlog includes u.s. and non-u.s. government definitive contracts for which funding has not been authorized . the increase in unobligated backlog in 2016 was primarily due to contract awards , partially offset by reclassifications to contractual backlog related to bds contracts . the decrease in unobligated backlog in 2015 was primarily due to reclassifications to contractual backlog related to incremental funding for bds contracts , partially offset by contract awards . additional considerations kc-46a tanker in 2011 , we were awarded a contract from the u.s. air force ( usaf ) to design , develop , manufacture and deliver four next generation aerial refueling tankers . the kc-46a tanker is a derivative of our 767 commercial aircraft . this engineering , manufacturing and development ( emd ) contract is a fixed-price incentive fee contract valued at $ 4.9 billion and involves highly complex designs and systems integration . the emd contract is currently in the certification and flight testing phases . in 2015 , we began work on low rate initial production ( lrip ) aircraft for the usaf . during the third quarter of 2016 , following our achievement of key flight testing milestones , the usaf authorized two lrip lots for 7 and 12 aircraft valued at $ 2.8 billion . on january 27 , 2017 , the usaf authorized an additional lrip lot for 15 aircraft valued at $ 2.1 billion . through 2015 , we recorded reach-forward losses of $ 1,260 million related to the emd contract and lrip aircraft . during 2016 we recorded reach-forward losses of $ 1,128 million . in the first quarter of 2016 , we recorded charges of $ 243 million which were primarily driven by higher than anticipated certification and test rework and the change incorporation impact to emd and lrip aircraft . in the second quarter of 2016 , technical complexities and schedule delays resulted in charges of $ 573 million . the charges were driven by costs associated with certification delays and higher costs associated with the overall revised schedule , as well as a boom axial load issue that required a hardware solution , and production concurrency between late-stage development testing and the initial production aircraft . charges of $ 312 million in the fourth quarter were primarily driven by greater than anticipated effort required to incorporate previously identified changes into lrip aircraft currently in production , along with associated manufacturing and schedule disruptions . the need for this additional work was identified as aircraft were being prepared for certification and testing . as with any development program , this program remains subject to additional reach-forward losses if we experience further technical or quality issues , schedule delays or increased costs . the first tanker delivery is expected to occur in late 2017 with 18 fully operational aircraft to be delivered in early 2018. the contract contains production options for both lrip aircraft and full rate production aircraft . if all options under the contract are exercised , we expect to deliver 179 aircraft for a total expected contract value of approximately $ 30 billion . russia/ukraine we continue to monitor political unrest involving russia and ukraine , where we and some of our suppliers source titanium products and or have operations . a number of our commercial customers also have operations in russia and ukraine . to date , we have not experienced any significant disruptions to production or deliveries . should suppliers or customers experience disruption , our production and or deliveries could be materially impacted . export-import bank of the united states many of our non-u.s. customers finance purchases through the export-import bank of the united states . following the expiration of the bank 's charter on june 30 , 2015 , the bank 's charter was reauthorized in december 2015. the bank is now authorized through september 30 , 2019. however , until the u.s. senate confirms members sufficient to reconstitute a quorum of the bank 's board of directors , the bank will not be able to approve any transaction totaling more than 24 $ 10 million . as a result , we may fund additional commitments and or enter into new financing arrangements with customers . certain of our non-u.s. customers also may seek to delay purchases if they can not obtain financing at reasonable costs , and there may be further impacts with respect to future sales campaigns involving non-u.s. customers . we continue to work with our customers to mitigate risks associated with the lack of a quorum of the bank 's board of directors and assist with alternative third party financing sources . segment results of operations and financial condition commercial airplanes business environment and trends airline industry environment passenger traffic growth is estimated at approximately 6 % in 2016. while growth was strong across all major world regions , there continues to be significant variation between regions and airline business models . airlines operating in the middle east and asia pacific regions as well as low-cost-carriers globally are currently leading passenger growth . air cargo traffic growth is estimated at approximately 3 % in 2016. the sluggish air cargo market recovery has resulted in reduced orders and demand for new freighter aircraft and freighter conversions . airline financial performance also plays a role in the demand for new capacity . airlines continue to focus on increasing revenue through alliances , partnerships , new marketing initiatives , and effective leveraging of ancillary services and related revenues . airlines are also relentlessly focusing on reducing costs by renewing fleets to leverage more efficient airplanes and in 2016 benefited significantly from lower fuel costs .
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results of operations replace_table_token_20_th revenues bma revenues in 2016 decreased by $ 909 million compared with 2015 primarily due to lower revenues of $ 973 million related to fewer c-17 deliveries and timing and mix of deliveries on the ch-47 chinook and f/a-18 programs . bma revenues in 2015 increased by $ 14 million compared with 2014 primarily due to higher revenues of $ 1,131 million from a cumulative catch-up adjustment recorded in the third quarter of 2015 on the f-15 program due to completion of contract negotiations , higher milestone revenue on the usaf kc-46a tanker program , and higher deliveries and mix on the ch-47 chinook program . the increase was partially offset by fewer deliveries and mix on the f/a-18 , apache and v-22 programs . earnings from operations bma earnings from operations in 2016 decreased by $ 80 million compared with 2015 primarily due to lower volume and mix on the ch-47 chinook , and c-17 , partially offset by higher volume and mix on the apache and p-8 programs . bma recorded charges of $ 356 million in 2016 compared with $ 322 million in 2015 related to the usaf kc-46a tanker contract . net unfavorable cumulative contract catch-up adjustments were $ 253 million higher in 2016 than in 2015 primarily driven by the absence of favorable 33 f-15 program adjustments recorded in 2015 and higher usaf kc-46a tanker charges recorded in 2016. bma earnings from operations in 2015 increased by $ 17 million compared with 2014 primarily due to c-17 charges in 2014 , higher ch-47 chinook deliveries in 2015 and higher earnings on the f-15 program , primarily due to a cumulative catch-up adjustment recorded in the third quarter of 2015. these increases were partially offset by higher charges of $ 135 million on the usaf kc-46a tanker contract and lower earnings on proprietary programs .
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the โ income taxes โ topic of the financial accounting standards board 's ( โ fasb โ ) accounting standards codification addresses the accounting for uncertainty in income taxes recognized in an enterprise 's financial statements . the story_separator_special_tag executive overview general following the recession that commenced in 2008 , the lodging industry has experienced improvement in fundamentals , which continued through 2013. room rates , measured by the adr , which typically lag occupancy growth in the early stage of a recovery , have shown upward growth . we believe improvements in the economy will continue to positively impact the lodging industry and hotel operating results for several years to come , and we will continue to seek ways to benefit from the cyclical nature of the hotel industry . we believe that in the prior cycle , hotel values and cash flows , for the most part , peaked in 2007 , and we believe the hotel industry may exceed these cash flows and values during the next cyclical peak . as of december 31 , 2014 , we owned 85 hotel properties directly , and two hotel properties through majority-owned investments in consolidated entities , which represents 17,205 total rooms , or 17,178 net rooms excluding those attributable to our joint venture partners . currently , all of our hotel properties are located in the united states . in march 2011 , we acquired 96 hotel condominium units at worldquest resort in orlando , florida for $ 12.0 million . also in march 2011 , with an investment of $ 150.0 million , we converted our interest in a joint venture that held a mezzanine loan into a 71.74 % common equity interest and a $ 25.0 million preferred equity interest in a new joint venture ( the โ pim highland jv โ ) that holds 28 high quality full-service and select-service hotel properties with 8,084 total rooms , or 5,800 net rooms excluding those attributable to our joint venture partner . on june 17 , 2013 , we announced that our board of directors had approved a plan to spin-off an 80 % ownership interest in an 8-hotel portfolio , totaling 3,146 rooms ( 2,912 net rooms excluding those attributable to our partners ) , to holders of our common stock in the form of a taxable special distribution . the distribution was comprised of common stock in ashford prime , a newly formed company into which we contributed the portfolio interests . the distribution was made on november 19 , 2013 , on a pro rata basis to holders of our common stock as of november 8 , 2013 , with each of our stockholders receiving one share of ashford prime common stock for every five shares of our common stock held by such stockholder as of the close of business on november 8 , 2013. on february 27 , 2014 , we announced that our board of directors had approved a plan to spin-off our asset management business into a separate publicly traded company in the form of a taxable special distribution . the spin-off was completed on november 12 , 2014 , with a pro-rata taxable distribution of ashford inc. 's common stock to our stockholders of record as of november 11 , 2014. the distribution was comprised of one share of ashford inc. common stock for every 87 shares of our common stock held by our stockholders . in addition for each common unit of our operating partnership the holder received a common unit of the operating limited liability company subsidiary of ashford inc. each holder of common units of the operating limited liability company of ashford inc. could exchange up to 99 % of those units for shares of ashford inc. stock at the rate of one share of ashford inc. common stock for every 55 common units . the distribution was made on november 12 , 2014. following the spin-off , we continue to hold approximately 598,000 shares of ashford inc. common stock for the benefit of our common stockholders , which represents an approximate 30.1 % ownership interest in ashford inc. in connection with the spin-off we entered into a 20-year advisory agreement with ashford inc. at december 31 , 2014 , we also wholly owned one mezzanine loan with a net carrying value of $ 3.6 million . 47 based on our primary business objectives and forecasted operating conditions , our current key priorities and financial strategies include , among other things : acquisition of hotel properties ; disposition of non-core hotel properties ; investing in securities ; pursuing capital market activities to enhance long-term stockholder value ; preserving capital , enhancing liquidity , and continuing current cost saving measures ; implementing selective capital improvements designed to increase profitability ; implementing effective asset management strategies to minimize operating costs and increase revenues ; financing or refinancing hotels on competitive terms ; utilizing hedges and derivatives to mitigate risks ; and making other investments or divestitures that our board of directors deems appropriate . our current investment strategies focus on the full-service and select-service hotels in the upscale and upper-upscale segments within the lodging industry that have revpar generally less than twice the national average . our board of directors has , subject to the closing of the ashford hospitality select , inc. transaction , modified our investment strategies to focus on full-service hotels in the upscale and upper-upscale segments in domestic and international markets that have revpar generally less than twice the national average . we believe that as supply , demand , and capital market cycles change , we will be able to shift our investment strategies to take advantage of new lodging-related investment opportunities as they may develop . our board of directors may change our investment strategies at any time without stockholder approval or notice . story_separator_special_tag the spin-off was completed on november 12 , 2014 , with a pro-rata taxable distribution of ashford inc. 's common stock to our stockholders of record as of november 11 , 2014. the distribution was comprised of one share of ashford inc. common stock for every 87 shares of our common stock held by our stockholders . in addition for each common unit of our operating partnership the holder received a common unit of the operating limited liability company subsidiary of ashford inc. each holder of common units of the operating limited liability company of ashford inc. could exchange up to 99 % of those units for shares of ashford inc. stock at the rate of one share of ashford inc. common stock for every 55 common units . the distribution was made on november 12 , 2014. following the spin-off , we continue to hold approximately 598,000 shares of ashford inc. common stock for the benefit of our common stockholders , which represents an approximate 30.1 % ownership interest in ashford inc. in connection with the spin-off we entered into a 20-year advisory agreement with ashford inc. acquisition of remaining interest in pim highland jv - we executed a letter agreement ( the โ agreement โ ) dated december 14 , 2014 , with prisa iii investments , llc , a delaware limited liability company ( โ seller โ ) . the agreement was approved by the investment committee of prudential real estate investors , the investment manager of seller , and fully executed and delivered to us on december 15 , 2014. pursuant to the agreement , we agreed to purchase and seller agrees to sell ( the โ transaction โ ) all of seller 's right , title and interest in and to its approximately 28.26 % interest in pim highland jv . prior to the consummation of the transaction , we own approximately 71.74 % of pim highland jv and seller owns approximately 28.26 % of pim highland jv . after the consummation of the transaction , we will own 100 % of pim highland jv . refinanced two mortgage loans - $ 356.3 million - on january 2 , 2015 , we refinanced two mortgage loans totaling $ 356.3 million . the refinance included the $ 211.0 million goldman sachs floater loan due november 2015 and the $ 145.3 million merrill lynch 1 loan due july 2015. the new loans total $ 478 million in four loan pools . the new loans continue to be secured by the same hotel properties . acquisition of lakeway resort & spa - on january 12 , 2015 , we announced that a definitive agreement had been signed to acquire the 168-room lakeway resort & spa in austin , texas for total consideration of $ 33.5 million . the acquisition was completed february 6 , 2015. acquisition of memphis marriott east hotel - on january 20 , 2015 , we announced that a definitive agreement had been signed to acquire the 232-room memphis marriott east hotel in memphis , tennessee for total consideration of $ 43.5 million . common stock offering - on january 29 , 2015 , we commenced a follow-on public offering of 9.5 million shares of common stock . the offering priced on january 30 , 2015 , at $ 10.65 per share for gross proceeds of $ 101.2 million . we granted the underwriters a 30-day option to purchase up to an additional 1.425 million shares of common stock . on february 10 , 2015 , the underwriters partially exercised their option and purchased an additional 1.029 million shares of our common stock at a price of $ 10.65 per share . 49 formation of ashford hospitality select , inc. - on january 29 , 2015 , we announced that our board of directors had approved the formation of ashford hospitality select , inc. ( โ ashford select โ ) , a new privately-held company dedicated to investing primarily in existing premium branded , upscale and upper-midscale , select-service hotels , including extended stay hotels , in the united states . upon launch , expected in the first quarter of 2015 , we intend to contribute to ashford select 16 of our existing select-service hotels , comprised of 2,560 total guestrooms . on february 18 , 2015 , ashford trust op entered into four agreements for the contribution or sale of the portfolio of 16 select-service hotels to ashford select and its subsidiaries , including its operating partnership ashford hospitality select limited partnership ( โ ashford select op โ ) , for aggregate consideration of approximately $ 321.0 million , which will be payable through the assumption of approximately $ 232.5 million of aggregate property level debt , the payment of approximately $ 66.4 million in cash and the issuance of approximately $ 22.1 million in equity interests of ashford select . additionally , the aggregate consideration may be increased by up to $ 10.0 million ( payable 75 % in cash and 25 % in equity interests in ashford select ) , based on the performance of the entire 16-hotel portfolio . we also expect to grant ashford select a right of first offer to acquire any select-service hotels we decide to sell in the future , subject to any prior rights of the managers of the hotels or other third parties . ashford select intends to qualify as a reit for federal income tax purposes . the following table summarizes the operating results of the 16-hotel portfolio included in our results of operations ( in thousands ) : replace_table_token_8_th the cash flows from operations generated by the16-hotel portfolio were approximately $ 14.6 million , $ 11.6 million and $ 12.9 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . the absence of the cash flows from these 16 hotel properties could have a significant impact on our liquidity . liquidity and capital resources our cash position from operations is affected primarily by macro industry movements in occupancy and rate as well as our ability to control costs .
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results of operations marriott international , inc. ( โ marriott โ ) manages 26 of our properties as of december 31 , 2014 . there were eight additional hotel properties managed by marriott until may 31 , 2013 and six properties managed by marriott were included in the ashford prime spin-off . for these 40 marriott-managed hotels , the 2012 fiscal year reflects twelve weeks of operations in each of the first three quarters of the year and sixteen weeks for the fourth quarter of the year . beginning in 2013 , the fiscal quarters end on march 31 st , june 30 th , september 30 th and december 31 st . for marriott-managed hotels , the fourth quarters of 2014 , 2013 and 2012 ended december 31 , 2014 , december 31 , 2013 and december 28 , 2012 , respectively . prior results have not been adjusted . revpar is a commonly used measure within the hotel industry to evaluate hotel operations . revpar is defined as the product of the adr charged and the average daily occupancy achieved . revpar does not include revenues from food and beverage or parking , telephone , or other guest services generated by the property . although revpar does not include these ancillary revenues , it is generally considered the leading indicator of core revenues for many hotels . we also use revpar to compare the results of our hotels between periods and to analyze results of our comparable hotels ( comparable hotels represent hotels we have owned for the entire year ) . revpar improvements attributable to increases in occupancy are generally accompanied by increases in most categories of variable operating costs . revpar improvements attributable to increases in adr are generally accompanied by increases in limited categories of operating costs , such as management fees and franchise fees .
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the $ 3.1 million excess proceeds were recorded as interest and other income in 2020. accrued and other liabilities accrued and other liabilities consist primarily of rents prepaid by our tenants , trade payables , property tax accruals , accrued payroll , accrued tenant reinsurance losses , lease liabilities , and contingent loss accruals when probable and estimable . we believe the fair value of our accrued and other liabilities approximates book value , due primarily to the short period until repayment . we disclose the nature of significant unaccrued losses that are reasonably possible of occurring and , if estimable , a range of exposure . cash equivalents , restricted cash , marketable securities and other financial instruments cash equivalents represent highly liquid financial instruments such as money market funds with daily liquidity or short-term story_separator_special_tag management 's discussion and analysis of financial condition and results of operations ( โ md & a โ ) should be read in conjunction with our financial statements and notes thereto . critical accounting policies our md & a discusses our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( โ gaap โ ) , and are affected by our judgments , assumptions and estimates . the notes to our december 31 , 2020 financial statements , primarily note 2 , summarize our significant accounting policies . we believe the following are our critical accounting policies , because they have a material impact on the portrayal of our financial condition and results , and they require us to make judgments and estimates about matters that are inherently uncertain . income tax expense : we have elected to be treated as a reit , as defined in the code . for each taxable year in which we qualify for taxation as a reit , we will not be subject to u.s. federal corporate income tax on our โ reit taxable income โ ( generally , taxable income subject to specified adjustments , including a deduction for dividends paid and excluding our net capital gain ) that is distributed to our shareholders . we believe we have met these reit requirements for all periods presented herein . accordingly , we have recorded no u.s. federal corporate income tax expense related to our reit taxable income . our evaluation that we have met the reit requirements could be incorrect , because compliance with the tax rules requires factual determinations , and circumstances we have not identified could result in noncompliance with the tax requirements in current or prior years . for any taxable year that we fail to qualify as a reit and for which applicable statutory relief provisions did not apply , we would be taxed at the regular corporate rates on all of our taxable income for at least that year and the ensuing four years , we could be subject to penalties and interest , and our net income would be materially different from the amounts estimated in our financial statements . 24 in addition , certain of our consolidated corporate subsidiaries have elected to be treated as trss for u.s. federal corporate income tax purposes , which are taxable as regular corporations and subject to certain limitations on intercompany transactions . if tax authorities determine that amounts paid by our trss to us are not reasonable compared to similar arrangements among unrelated parties , we could be subject to a 100 % penalty tax on the excess payments . such a penalty tax could have a material adverse impact on our net income . impairment of long-lived assets : the analysis of impairment of our long-lived assets involves identification of indicators of impairment , projections of future operating cash flows , and estimates of fair values , all of which require significant judgment and subjectivity . others could come to materially different conclusions . in addition , we may not have identified all current facts and circumstances that may affect impairment . any unidentified impairment loss , or change in conclusions , could have a material adverse impact on our net income . accrual for uncertain and contingent liabilities : we accrue for certain contingent and other liabilities that have significant uncertain elements , such as property taxes , workers compensation claims , tenant reinsurance claims , as well as other legal claims and disputes involving customers , employees , governmental agencies and other third parties . we estimate such liabilities based upon many factors such as assumptions of past and future trends and our evaluation of likely outcomes . however , the estimates of known liabilities could be incorrect or we may not be aware of all such liabilities , in which case our accrued liabilities and net income could be misstated . allocating purchase price for acquired real estate facilities : we estimate the fair values of land and buildings for purposes of allocating the aggregate purchase price of acquired properties . the related estimation processes involve significant judgment . we estimate the fair value of acquired buildings by determining the current cost to build new purpose-built self-storage facilities in the same location , and adjusting those costs for the actual age , quality , condition , amenities , and configuration of the buildings acquired . we estimate the fair value of acquired land by considering the most directly comparable recently transacted land sales ( โ land comps โ ) and adjusting the transacted values for differentials to the acquired land such as location quality , parcel size , and date of sale , in order to derive the estimated value of the underlying acquired land . these adjustments to the land comps require significant judgment , particularly when there is a low volume of land comps or the available land comps lack similarity to the acquired property in proximity , date of sale , or location quality . story_separator_special_tag 26 story_separator_special_tag 108 % ; margin-bottom : 0 ; margin-left : 0 ; margin-right : 0 ; margin-top : 0 ; '' > activities presented on our statements of cash flows . in addition , other reits may compute these measures differently , so comparisons among reits may not be helpful . for the year ended december 31 , 2020 , ffo was $ 9.75 per diluted common share , as compared to $ 10.58 and $ 10.45 per diluted common share for the years ended december 31 , 2019 and 2018 , respectively , representing a decrease in 2020 of 7.8 % , or $ 0.83 per diluted common share , as compared to 2019. the following tables reconcile diluted earnings per share to ffo per share and set forth the computation of ffo per share : replace_table_token_1_th we also present โ core ffo per share , โ a non-gaap measure that represents ffo per share excluding the impact of ( i ) foreign currency exchange gains and losses , ( ii ) eitf d-42 charges related to the redemption of preferred securities , and ( iii ) certain other significant non-cash and or nonrecurring income or expense items such as loss contingency accruals , casualties , transactional due diligence , and advisory costs . we review core ffo per share to evaluate our ongoing operating performance and we believe it is used by investors and reit analysts in a similar manner . however , core ffo per share is not a substitute for net income per share . because other reits may not compute core ffo per share in the same manner as we do , may not use the same terminology or may not present such a measure , core ffo per share may not be comparable among reits . 28 the following table reconciles ffo per share to core ffo per share : replace_table_token_2_th analysis of net income by reportable segment the following discussion and analysis is presented and organized in accordance with note 11 to our december 31 , 2020 financial statements , โ segment information. โ accordingly , refer to the table presented in note 11 in order to reconcile such amounts to our total net income and for further information on our reportable segments . self-storage operations our self-storage operations are analyzed in four groups : ( i ) the 2,221 facilities that we have owned and operated on a stabilized basis since january 1 , 2018 ( the โ same store facilities โ ) , ( ii ) 131 facilities we acquired after december 31 , 2017 ( the โ acquired facilities โ ) , ( iii ) 148 facilities that have been newly developed or expanded , or that had commenced expansion by december 31 , 2020 ( the โ newly developed and expanded facilities โ ) and ( iv ) 48 other facilities , which are otherwise not stabilized with respect to occupancies or rental rates since january 1 , 2018 ( the โ other non-same store facilities โ ) . see note 11 to our december 31 , 2020 financial statements โ segment information , โ for a reconciliation of the amounts in the tables below to our total net income . 29 replace_table_token_3_th 30 ( a ) we revised our prior period financial statements to correct the presentation of share-based compensation expense between general and administrative expense and self-storage cost of operations . as a result , we revised our statements of income for the years ended december 31 , 2019 and 2018 with an increase in self-storage cost of operations of $ 9.8 million and $ 14.0 million , respectively , and a corresponding decrease to general and administrative expenses . this immaterial correction had no impact on our total expenses or net income . the correction also had no impact on our balance sheet , statements of comprehensive income , statements of equity , or cash flows as of and for the year ended december 31 , 2019 and 2018 . ( b ) net operating income or โ noi โ is a non-gaap financial measure that excludes the impact of depreciation and amortization expense , which is based upon historical real estate costs and assumes that building values diminish ratably over time , while we believe that real estate values fluctuate due to market conditions . we utilize noi in determining current property values , evaluating property performance , and in evaluating property operating trends . direct net operating income ( a subtotal within noi ) is also a non-gaap financial measure that excludes the impact of supervisory payroll , centralized management costs and stock based compensation in addition to depreciation and amortization expense . we utilize direct net operating income in evaluating property performance and in evaluating property operating trends as compared to our competitors . we believe that investors and analysts utilize noi and direct net operating income in a similar manner . these measures are not a substitute for net income , operating cash flow , or other related financial measures , in evaluating our operating results . see note 11 to our december 31 , 2020 financial statements for a reconciliation of noi to our total net income for all periods presented . net operating income from our self-storage operations decreased 0.4 % in 2020 and increased 1.8 % in 2019 , as compared to the previous year . the decrease in 2020 is due primarily to a reduction in same store net operating income due to the impact of the covid pandemic , partially offset by the acquisition and development of new facilities and the fill-up of unstabilized facilities . same store facilities the same store facilities consist of facilities that have been owned and operated on a stabilized level of occupancy , revenues and cost of operations since january 1 , 2018. the composition of our same store facilities allows us to more effectively evaluate the ongoing performance of our self-storage portfolio in 2018 , 2019 , and 2020 and exclude the impact of fill-up of unstabilized facilities , which can significantly affect operating trends .
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results of operations operating results for 2020 and 2019 in 2020 , net income allocable to our common shareholders was $ 1,098.3 million or $ 6.29 per diluted common share , compared to $ 1,272.8 million or $ 7.29 per diluted common share in 2019 representing a decrease of $ 174.4 million or $ 1.00 per diluted common share . the decrease is due primarily to ( i ) a $ 105.8 million decrease due to the impact of foreign currency exchange gains and losses associated with our euro denominated debt , ( ii ) a $ 40.3 million increase in depreciation and amortization expense , ( iii ) a $ 21.1 million increase in general and administrative expense , ( iv ) a $ 15.6 million decrease due to the impact of allocations to preferred shareholders with respect to redemption of preferred shares , and ( v ) a $ 8.0 million decrease in self-storage net operating income . the $ 8.0 million decrease in self-storage net operating income is a result of a $ 41.7 million decrease in our same store facilities ( as defined below ) , offset partially by a $ 33.7 million increase in our non-same store facilities ( as defined below ) . revenues for the same store facilities decreased 1.0 % or $ 23.7 million in 2020 as compared to 2019 , due primarily to reduced late charges and administrative fees . cost of operations for the same store facilities increased by 2.7 % or $ 18.1 million in 2020 as compared to 2019 , due primarily to a 22.5 % ( $ 11.0 million ) increase in marketing expenses , a 3.1 % ( $ 7.4 million ) increase in property tax expense , and a 2.5 % ( $ 3.1 million ) increase in on-site property manager payroll expense .
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if the fair value of a reporting unit is less than its carrying amount , an impairment charge for the amount by which the carrying amount exceeds the reporting story_separator_special_tag the following discussion of financial condition as of december 31 , 2018 and 2017 and results of operations for each of the years in the two-year period ended december 31 , 2018 should be read in conjunction with our consolidated financial statements and related notes thereto , included in part ii item 8 of this report . average balances , including balances used in calculating certain financial ratios , are generally comprised of average daily balances . all share and per share data have been adjusted to reflect the stock split effective november 27 , 2018. forward-looking statements the disclosures set forth in this item are qualified by important factors detailed in part i captioned forward-looking statements and item 1a captioned risk factors of this report and other cautionary statements set forth elsewhere in the report . critical accounting policies and estimates critical accounting policies are those that are both very important to the portrayal of our financial condition and results of operations and require management 's most difficult , subjective , or complex judgments , often because of the need to make estimates about the effect of matters that are inherently uncertain and imprecise . management has determined the following four accounting policies to be critical : allowance for loan losses : for information regarding our alll methodology , the related provision for loan losses , risks related to asset quality and lending activity , see item 1a - risk factors , the allowance for loan losses section in item 7 - management 's discussion and analysis of financial condition and results of operations , and note 1 - summary of significant accounting policies and note 3 - loans and allowance for loan losses in item 8 - financial statements and supplementary data of this form 10โk . other-than-temporary impairment of investment securities : for information regarding our investment securities , investment activity , and related risks , see item 1a - risk factors , note 1 - summary of significant accounting policies and note 2 - investment securities in item 8 - financial statements and supplementary data of this form 10-k. accounting for income taxes : for information on our tax assets and liabilities , and related provision for income taxes , see note 1 - summary of significant accounting policies and note 11 - income taxes in item 8 - financial statements and supplementary data of this form 10-k. fair value measurements : for information on our use of fair value measurements and our related valuation methodologies , see note 1 - summary of significant accounting policies and note 9 - fair value of assets and liabilities in item 8 - financial statements and supplementary data of this form 10-k. page-23 story_separator_special_tag style= '' font-family : arial ; font-size:7pt ; '' > year ended year ended december 31 , 2018 december 31 , 2017 interest interest average income/ yield/ average income/ yield/ ( dollars in thousands ; unaudited ) balance expense rate balance expense rate assets interest-bearing due from banks 1 $ 78,185 $ 1,461 1.84 % $ 80,351 $ 995 1.22 % investment securities 2 , 3 566,883 14,512 2.56 % 419,873 9,732 2.32 % loans 1 , 3 , 4 1,704,390 80,406 4.65 % 1,511,503 68,562 4.47 % total interest-earning assets 1 2,349,458 96,379 4.05 % 2,011,727 79,289 3.89 % cash and non-interest-bearing due from banks 41,595 42,511 bank premises and equipment , net 8,021 8,411 interest receivable and other assets , net 86,709 63,301 total assets $ 2,485,783 $ 2,125,950 liabilities and stockholders ' equity interest-bearing transaction accounts $ 143,706 $ 226 0.16 % $ 105,544 $ 108 0.10 % savings accounts 178,907 72 0.04 % 167,190 66 0.04 % money market accounts 612,372 1,355 0.22 % 542,592 555 0.10 % time accounts , including cdars 137,339 542 0.39 % 146,069 576 0.39 % fhlb and overnight borrowings 1 105 2 2.03 % 1 โ 1.75 % subordinated debentures 1 5,025 1,339 26.29 % 5,664 439 7.65 % total interest-bearing liabilities 1,077,454 3,536 0.33 % 967,060 1,744 0.18 % demand accounts 1,085,870 899,289 interest payable and other liabilities 18,514 13,506 stockholders ' equity 303,945 246,095 total liabilities & stockholders ' equity $ 2,485,783 $ 2,125,950 tax-equivalent net interest income/margin 1 $ 92,843 3.90 % $ 77,545 3.80 % reported net interest income/margin 1 $ 91,544 3.84 % $ 74,852 3.67 % tax-equivalent net interest rate spread 3.72 % 3.71 % 1 interest income/expense is divided by actual number of days in the period times 360 days to correspond to stated interest rate terms , where applicable . 2 yields on available-for-sale securities are calculated based on amortized cost balances rather than fair value , as changes in fair value are reflected as a component of stockholders ' equity . investment security interest is earned on 30/360 day basis monthly . 3 yields and interest income on tax-exempt securities and loans are presented on a taxable-equivalent basis using the federal statutory rate of 21 % in 2018 and 35 % in 2017 . 4 average balances on loans outstanding include non-performing loans . the amortized portion of net loan origination fees is included in interest income on loans , representing an adjustment to the yield . page-25 table 2 analysis of changes in net interest income the following table presents the effects of changes in average balances ( volume ) or changes in average rates on tax- equivalent net interest income for the years indicated . volume variances are equal to the increase or decrease in average balances multiplied by prior period rates . rate variances are equal to the increase or decrease in rates multiplied by prior period average balances . mix variances are attributable to the change in yields or rates multiplied by the change in average balances . story_separator_special_tag replace_table_token_4_th page-27 2018 compared to 2017 non-interest income totaled $ 10.1 million and $ 8.3 million in 2018 and 2017 , respectively . the increase compared to the prior year primarily relates to a $ 180 thousand federal home loan bank special dividend , a $ 442 thousand increase in deposit network income ( included in other income ) and a $ 956 thousand pre-tax gain on the sale of 6,500 shares of visa inc. class b restricted common stock , partially offset by $ 79 thousand in net losses from the sale of available-for-sale investment securities . the bank sold less than half of its visa inc. position to realize recent appreciation in market prices and hedge against market volatility . currently , we do not intend to sell our remaining shares of visa inc. class b stock , but will consider future sales depending on the resolution of the related visa litigation ( as discussed in note 12 to the consolidated financial statements in item 8 of this report ) and equity market volatility . non-interest expense the table below details the components of non-interest expense . replace_table_token_5_th 2018 compared to 2017 in 2018 , non-interest expense increased by $ 4.5 million to $ 58.3 million . the increase primarily relates to $ 3.4 million in higher salaries and benefits due to additional personnel ( including former bank of napa employees ) , annual merit increases , higher employee insurance and stock based compensation awards reaching retirement eligibility . we expect salaries and benefits to increase in 2019 as we fill certain commercial banking positions . the number of average fte employees totaled 289 in 2018 and 269 in 2017 . the increase in non-interest expense also relates to $ 1.0 million in consulting expenses related to core processing contract negotiations , higher core deposit intangible amortization and acquisition-related rent . these increases were partially offset by decreases in acquisition-related legal , professional and data processing expenses . going forward , we expect certain data processing costs to decrease as a result of the contract negotiations . however , these cost savings will be partially offset during the first two quarters of 2019 with additional expenses associated with the implementation of a new mobile banking platform . in addition , for the bank of napa acquisition , we do not expect to incur any additional acquisition-related expenses in 2019. provision for income taxes the provision for income taxes totaled $ 10.8 million at an effective tax rate of 24.9 % in 2018 , compared to $ 12.9 million at an effective tax rate of 44.6 % in 2017 . the decrease in both the provision for income taxes and the effective tax rate from the prior year reflects the reduction in the federal corporate income tax rate from 35 % to 21 % related to the enactment of the tax cuts and jobs act of 2017 that was signed into law on december 22 , 2017 and became effective january 1 , 2018. the 2017 provision for income taxes included a $ 3.0 million write-down of net deferred tax assets which accounted for 10.5 percentage points of the 2017 effective tax rate of 44.6 % . in addition , certain acquisition- page-28 related expenses incurred in 2017 were not deductible for tax purposes and added 0.8 percentage points to the 2017 effective tax rate . the resulting reduction in the federal statutory rate was partially offset by the effect of the higher level of pre-tax income in 2018 and elimination or reductions to the deductibility of certain meals , entertainment , parking and transportation expenses due to the tax cuts and jobs act of 2017. income tax provisions reflect accruals for taxes at the applicable rates for federal income tax and california franchise tax based upon reported pre-tax income , and adjusted for the effects of all permanent differences between income for tax and financial reporting purposes ( such as earnings on tax exempt loans and municipal securities , boli , and low-income housing tax credits ) as well as transactions with discrete tax effects ( such as the exercise of non-qualified stock options , the disqualifying dispositions of incentive stock options and vesting of restricted stock awards ) . additional fluctuations in the effective rate from period to period are due to the relationship of net permanent differences to income before tax . the tax cuts and jobs act of 2017 includes numerous uncertainties , which will likely require the issuance of new regulations or other interpretive guidance for clarification . although we believe our assumptions , judgments and estimates are reasonable , changes in tax laws and their interpretation could significantly affect the amounts provided for income taxes in our consolidated financial statements . going forward , certain provisions of the tax cuts and jobs act of 2017 may have an unfavorable impact on our tax expenses , including but not limited to 1 ) the elimination of the exception for performance-based executive compensation resulting in our inability to deduct executive compensation exceeding $ 1.0 million , and 2 ) clarification of the definition of a covered employee for excessive employee compensation purposes . we file a consolidated return in the u.s. federal tax jurisdiction and a combined return in the state of california tax jurisdiction . there were no ongoing federal or state income tax examinations at the issuance of this report . at december 31 , 2018 and 2017 , neither the bank nor bancorp had accruals for interest or penalties related to unrecognized tax benefits . financial condition our assets increased $ 52.7 million from december 31 , 2017 to december 31 , 2018 . deposits increased by $ 26.1 million and loan growth for 2018 was $ 84.9 million . investment securities we maintain an investment securities portfolio to provide liquidity and to generate earnings on funds that have not been loaned to customers .
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executive summary annual earnings were $ 32.6 million in 2018 compared to $ 16.0 million in 2017 . diluted earnings were $ 2.33 per share for the year ended december 31 , 2018 , compared to $ 1.27 per share in the same period of 2017 . the following are highlights of operating and financial performance for the year ended december 31 , 2018 : in 2018 , we expanded our footprint in the east bay and strengthened our team in sonoma county . we added key people to open a new commercial banking office in walnut creek and enhanced our presence in our santa rosa market . the bank achieved loan growth of $ 84.9 million , or 5.1 % in 2018 , to $ 1,763.9 million at december 31 , 2018 , from $ 1,679.0 million at december 31 , 2017 . strong credit quality remains a cornerstone of the bank 's consistent performance . non-accrual loans represented 0.04 % of the bank 's loan portfolio as of december 31 , 2018 . there was no provision for loan losses recorded in 2018 due to continuing high credit quality . deposits grew by $ 26.1 million to $ 2,174.8 million at december 31 , 2018 , compared to $ 2,148.7 million at december 31 , 2017 . non-interest bearing deposits grew by $ 51.9 million in 2018 and made up 49 % of total deposits at year-end . for the full year 2018 , cost of total deposits remained low at 0.10 % despite the higher interest rate environment , compared to 0.07 % in 2017. net interest income totaled $ 91.5 million and $ 74.9 million in 2018 and 2017 , respectively . the increase of $ 16.6 million in 2018 was primarily due to a $ 337.7 million increase in average earning assets . additionally , higher yields on loans , investment securities and interest-bearing cash positively impacted interest income .
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the total obligation recorded for the lease as of december 31 , 2014 and 2013 was $ 6.8 million and $ 8.0 million , respectively . depreciation expense related to the capital lease was $ 0.4 million , $ 0.4 million and $ 0.4 million for the years ending december 31 , 2014 , 2013 and 2012 , respectively . accumulated depreciation for the capital lease as of december 31 , 2014 and 2013 was $ 1.6 million and $ 1.2 million , respectively . note 6 โ goodwill and intangible assets definite lived intangible assets replace_table_token_26_th in the table above , gross carrying amounts and accumulated amortization may differ from prior periods due to foreign exchange rate fluctuations . amortization expense was approximately $ 6.1 million , $ 6.0 million and $ 4.4 million in 2014 , 2013 and 2012 , respectively . the estimated annual future amortization expense is $ 5.3 million , $ 4.9 million , $ 4.5 million , $ 3.9 million and $ 3.4 million in 2015 , 2016 , 2017 , 2018 and 2019 , respectively . story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with the selected financial data and our consolidated financial statements and the related notes that appear elsewhere in this form 10-k. in the following discussion and analysis , we sometimes provide financial information that was not prepared in accordance with u.s. generally accepted accounting principles ( gaap ) . management believes that this non-gaap information provides meaningful supplemental information regarding the company 's performance by excluding certain expenses that are generally non-recurring or otherwise may not be indicative of the core business operating results . in general , the company believes that the additional non-gaap financial information provided herein is useful to management and investors in assessing the company 's historical performance and for planning , forecasting and analyzing future periods . however , non-gaap information has limitations as an analytical tool and should not be considered in isolation from , or solely as an alternative to , financial information prepared in accordance with gaap . any time we provide non-gaap information in the following narrative we identify it as such and in close proximity provide the most directly comparable gaap financial measure , as well as the information necessary to reconcile the two measures . forward looking statements certain statements in this form 10-k may constitute โ forward-looking statements โ within the meaning of the private securities litigation reform act of 1995. such forward-looking statements are based on management 's expectations , estimates , projections and assumptions . words such as โ expects , โ โ anticipates , โ โ intends , โ โ believes , โ โ estimates , โ โ should , โ โ target , โ โ may , โ โ project , โ โ guidance , โ and variations of such words and similar expressions are intended to identify such forward-looking statements . such forward-looking statements involve known and unknown risks , uncertainties , and other factors that may cause our actual results or performance to be materially different from any future results or performance expressed or implied by such forward-looking statements . such factors include , but are not limited to , changing business , economic , and political conditions both in the united states and in foreign countries , particularly in light of the uncertain outlook for global economic growth , particularly in several of our key markets ; increasing competition ; any difficulties in integrating acquired businesses into our operations and the possibility that anticipated benefits of acquisitions and divestitures may not materialize as expected ; delays or problems in completing planned operational enhancements to various facilities ; our achieving less than anticipated benefits and or incurring greater than anticipated costs relating to streamlining initiatives or that such initiatives may be delayed or not fully implemented due to operational , legal or other challenges ; changes in product mix ; the possibility that changes in technology or market requirements will reduce the demand for our products ; the possibility of significant declines in our backlog ; the possibility of breaches of our information technology infrastructure ; the development and marketing of new products and manufacturing processes and the inherent risks associated with such efforts and the ability to identify and enter new markets ; the outcome of current and future litigation ; our ability to retain key personnel ; our ability to adequately protect our proprietary rights ; the possibility of adverse effects resulting from the expiration of issued patents ; the possibility that we may be required to recognize impairment charges against goodwill , non-amortizable assets and other investments in the future ; the possibility of increasing levels of excess and obsolete inventory ; increases in our employee benefit costs could reduce our profitability ; the possibility of work stoppages , union and work council campaigns , labor disputes and adverse effects related to changes in labor laws ; the accuracy of our analysis of our potential asbestos-related exposure and insurance coverage ; the fact that our stock price has historically been volatile and may not be indicative of future prices ; changes in the availability and cost and quality of raw materials , labor , transportation and utilities ; changes in environmental and other governmental regulation which could increase expenses and affect operating results ; our ability to accurately predict reserve levels ; our ability to obtain favorable credit terms with our customers and collect accounts receivable ; our ability to service our debt ; certain covenants in our debt documents could adversely restrict our financial and operating flexibility ; fluctuations in foreign currency exchange rates ; and changes in tax rates and exposure which may increase our tax liabilities . such factors also apply to our joint ventures . we make no commitment to update any forward-looking statement or to disclose any facts , events , or circumstances after the date hereof that may affect the accuracy of any forward-looking statements , unless required by law . story_separator_special_tag restructuring and impairment charges restructuring and impairment charges were $ 5.4 million in 2014 as compared to $ 10.4 million in 2013. in 2014 , these charges were comprised primarily of the following : ( i ) $ 5.2 million related to the settlement of certain long term pension obligations and ( ii ) $ 0.2 million related to an impairment charge on an investment in solicore , inc. in 2013 , these charges were comprised primarily of the following : ( i ) $ 4.6 million related to the impairment charge on the investment in solicore , inc. , ( ii ) $ 4.2 million of severance and related charges as a result of additional streamlining initiatives as well as changes to the executive management team , and ( iii ) a $ 1.5 million curtailment charge related to the freezing of the defined benefit pension plans . equity income in unconsolidated joint ventures equity income in unconsolidated joint ventures was $ 4.1 million in 2014 , a decrease of 4.7 % from $ 4.3 million in 2013. the decline was primarily due to the depreciation of the japanese yen against the u.s. dollar of approximately 8.6 % year over year . other income ( expense ) , net other income ( expense ) , net was expense of $ 1.2 million in 2014 and 2013. although the ending balance was the same year over year , there were changes in the activity . our 2014 results included unfavorable commodity hedging transactions offset by lower commission payments to the joint ventures . our 2013 results included approximately $ 0.7 million of unfavorable mark to market adjustments related to copper hedging contracts and approximately $ 0.3 million related to unfavorable foreign currency transaction adjustments . interest income ( expense ) , net interest income ( expense ) , net , declined by 17.1 % to $ 2.9 million of expense in 2014 from $ 3.5 million of expense in 2013. the decline is due primarily to lower interest expense on our debt facility , as we have paid down principal from $ 98.0 million at the beginning of 2013 to $ 60.0 million at the end of 2014. income tax expense ( benefit ) our effective tax rate was 34.2 % in 2014 and 23.0 % in 2013. in 2014 , our tax rate was adversely impacted by distribution of current year earnings from one of our foreign subsidiaries as well as acquisition costs . in both 2014 and 2013 , our tax rate was favorably impacted by the tax benefit associated with the lapse of statute in accordance with applicable accounting guidance and foreign source income subject to tax at lower rates than income generated in the u.s. in 2013 , the rate was favorably impacted by the tax benefit related to the lapse of statute in accordance with applicable accounting guidance , and foreign source income subject to tax at lower rates than income generated in the u.s. we currently have a $ 0.7 million net operating loss in one of our chinese entities that will expire in 2018. we have a $ 0.1 million net operating loss carryforward in japan , which will expire in 2023. we also have state net operating loss carryforwards ranging from $ 0.1 million to $ 16.2 million in various state taxing jurisdictions , which will begin to expire in 2015. we have approximately 31 $ 7.0 million of credit carryforwards in arizona , which will expire in 2015. we believe that it is more likely than not that the benefit from the china and state net operating loss carryforwards as well as our state credit carryforwards will not be realized . in recognition of this risk , we have provided a valuation allowance of $ 7.7 million relating to these carryforwards . if or when recognized , the tax benefits related to any reversal of the valuation allowance on deferred tax assets as of december 31 , 2014 , will be accounted for as follows : approximately $ 6.8 million will be recognized as a reduction of income tax expense and $ 0.9 million will be recorded as an increase in equity . backlog the backlog of firm orders was $ 80.2 million at december 31 , 2014 , as compared to $ 50.5 million at december 31 , 2013 . the increase at the end of 2014 was primarily related to the power electronics solutions and printed circuit materials operating segments , which experienced an increase in backlog of $ 8.3 million and $ 18.9 million , respectively , at december 31 , 2014 as compared to december 31 , 2013 . 2013 vs. 2012 net sales net sales in 2013 were $ 537.5 million , a 7.8 % increase from $ 498.8 million of sales in 2012. the increase in net sales in 2013 was primarily related to the significantly improved performance of the power electronics solutions operating segment , which experienced a 19.7 % increase in net sales from $ 134.3 million in 2012 to $ 160.7 million in 2013 , and the printed circuit materials operating segment , which achieved a 14.2 % increase in net sales from $ 161.9 million in 2012 to $ 184.9 million in 2013. these increases were partially offset by a 6.3 % decline in net sales in the high performance foams operating segment from $ 179.4 million in 2012 to $ 168.1 million in 2013. see โ segment sales and operations โ below for further discussion on segment performance . gross margin gross margin increased by approximately 310 basis points from 31.8 % in 2012 to 34.9 % in 2013. our 2013 results included approximately $ 0.9 million or 20 basis points of special charges related to relocation costs associated with the move of certain manufacturing operations from the power electronics solutions manufacturing facility in eschenbach , germany to a lower cost facility in hungary .
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2014 executive summary in 2014 , rogers saw strong demand in our megatrend markets : internet connectivity , mass transit and clean technology . more than 60 % of our sales are in these categories , reinforcing our belief that we are focused on the right markets that have strong , sustainable global demand . rogers ' core management team is seeing the results of all the work that has gone into realigning the corporation both internally and externally to better service our customers and markets . we are continuing to work to improve the corporation and have launched significant projects targeted at improving our infrastructure , particularly our information systems and manufacturing planning capabilities . we are also looking for new ways to grow , both organically through a combination of new product launches , new market applications , and geographic expansion , as well as externally through targeted acquisitions and technology initiatives . we believe that the recent actions taken to transform rogers will provide a solid base for us to achieve our strategic goals and to increase value for our shareholders . from a results perspective , we achieved net sales of $ 610.9 million in 2014 , an increase of 13.7 % from $ 537.5 million in 2013. this increase in 2014 was driven across all of our core businesses with net sales growth in the printed circuit materials ( pcm ) operating segment of 30.2 % from $ 184.9 million in 2013 to $ 240.9 million in 2014 , net sales in the power electronics solutions ( pes ) operating segment increasing 6.9 % from $ 160.7 million in 2013 to $ 171.8 million in 2014 , and net sales in high performance foams ( hpf ) increasing 3.3 % from $ 168.1 million in 2013 to $ 173.7 million in 2014. at pcm , these increases were driven by growth in global telecommunications infrastructure capacity in wireless ( 3g & 4g ) base stations and antenna systems , as well as
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interest is payable quarterly on march 1 , june 1 , september 1 and december 1 story_separator_special_tag the following discussion and analysis of the financial condition and results of operations of the company should be read in conjunction with our โ selected consolidated financial data โ and our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. overview the company was founded in 1977 to develop and manufacture burn-in and test equipment for the semiconductor industry . since its inception , the company has sold more than 2,500 systems to semiconductor manufacturers , semiconductor contract assemblers and burn-in and test service companies worldwide . the company 's principal products currently are the abts advanced burn-in and test system , the fox full wafer contact parallel test and burn-in system , waferpak contactors , the diepak carrier and test fixtures . the company 's net sales consist primarily of sales of systems , waferpak contactors , test fixtures , die carriers , upgrades and spare parts and revenues from service contracts and engineering development charges . the company 's selling arrangements may include contractual customer acceptance provisions , which are mostly deemed perfunctory or inconsequential , and installation of the product occurs after shipment and transfer of title . critical accounting policies and estimates the company 's discussion and analysis of its financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires the company to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , the company evaluates its estimates , including those related to customer programs and incentives , product returns , bad debts , inventories , investments , intangible assets , income taxes , financing operations , warranty obligations , long-term service contracts , contingencies and litigation . the company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements . revenue recognition the company recognizes revenue upon the shipment of products or the performance of services when : ( 1 ) persuasive evidence of the arrangement exists ; ( 2 ) services have been rendered ; ( 3 ) the price is fixed or determinable ; and ( 4 ) collectibility is reasonably assured . when a sales agreement involves multiple deliverables , such as extended support provisions , training to be supplied after delivery of the systems , and test programs specific to customers ' routine applications , the multiple deliverables are evaluated to determine the unit of accounting . judgment is required to properly identify the accounting units of multiple element transactions and the manner in which revenue is allocated among the accounting units . j udgments made , or changes to judgments made , may significantly affect the timing or amount of revenue recognition . revenue related to the multiple elements are allocated to each unit of accounting using the relative selling price hierarchy . consistent with accounting guidance , the selling price is based upon vendor specific objective evidence ( vsoe ) . if vsoe is not available , third party evidence ( tpe ) is used to establish the selling price . in the absence of vsoe or tpe , estimated selling price is used . the company has adopted this guidance effective with the first quarter of fiscal 2012. prior to fiscal 2012 , revenue for arrangements containing multiple deliverables was allocated based upon estimated fair values . the adoption of the new revenue recognition accounting standards did not have a material impact on our consolidated financial statements . during the first quarter of fiscal 2013 , the company entered into an agreement with a customer to develop a next generation fox system . the project identifies multiple milestones with values assigned to each . the consideration earned upon achieving the milestone is required to meet the following conditions prior to recognition : ( i ) the value is commensurate with the vendor 's performance to meet the milestone , ( ii ) it relates solely to past performance , ( iii ) and it is reasonable relative to all of the deliverables and payment terms within the arrangement . revenue is recognized for the milestone upon acceptance by the customer . 18 sales tax collected from customers is not included in net sales but rather recorded as a liability due to the respective taxing authorities . provisions for the estimated future cost of warranty and installation are recorded at the time the products are shipped . royalty-based revenue related to licensing income from performance test boards and burn-in boards is recognized upon the earlier of the receipt by the company of the licensee 's report related to its usage of the licensed intellectual property or upon payment by the licensee . the company 's terms of sales with distributors are generally free on board , or fob , shipping point with payment due within 60 days . all products go through in-house testing and verification of specifications before shipment . apart from warranty reserves , credits issued have not been material as a percentage of net sales . the company 's distributors do not generally carry inventories of the company 's products . instead , the distributors place orders with the company at or about the time they receive orders from their customers . story_separator_special_tag the fair value of each option grant and the right to purchase shares under the company 's stock purchase plan are estimated on the date of grant using the black-scholes option valuation model with assumptions concerning expected term , stock price volatility , expected dividend yield , risk-free interest rate and the expected life of the award . see note 1 to our consolidated financial statements for additional information relating to stock-based compensation . see notes 12 and 13 to our consolidated financial statements for detailed information regarding the stock option plan and the espp . 20 story_separator_special_tag primarily of salaries and related costs of employees , customer support costs , commission expenses to independent sales representatives , product promotion , other professional services and bad debt expenses . sg & a expenses were $ 6.3 million for the fiscal year ended may 31 , 2014 , compared with $ 6.9 million for the fiscal year ended may 31 , 2013 , a decrease of 8.0 % . the decrease in sg & a expenses was primarily due to decreases of $ 0.3 million in sales commissions to outside sales representatives and $ 0.2 million in pre-sales support expenses . research and development . research and development , or r & d , expenses consist primarily of salaries and related costs of employees engaged in ongoing research , design and development activities , costs of engineering materials and supplies and professional consulting expenses . r & d expenses increased to $ 3.4 million for the fiscal year ended may 31 , 2014 from $ 3.2 million for the fiscal year ended may 31 , 2013 , an increase of 5.9 % . the increase in r & d expenses was primarily due to increases of $ 0.3 million of project expenses and $ 0.2 million of outside services . these were partially offset by an increase of $ 0.4 million of r & d expenditures , related to non-recurring engineering milestones , transferred into cost of goods sold and prepaid expenses . interest expense . interest expense decreased to $ 26,000 for the fiscal year ended may 31 , 2014 from $ 49,000 for the fiscal year ended may 31 , 2013 as a result of lower average borrowings on the line of credit . other income ( expense ) , net . other expense , net increased to $ 64,000 for the fiscal year ended may 31 , 2014 from $ 33,000 for the fiscal year ended may 31 , 2013. the change in other expense was due to foreign exchange losses resulting from the fluctuation in the value of the dollar compared to foreign currencies . income tax ( expense ) benefit . income tax benefit was $ 15,000 for the fiscal year ended may 31 , 2014 , compared with income tax expense of $ 30,000 for the fiscal year ended may 31 , 2013. the income tax benefit for the fiscal year ended may 31 , 2014 was primarily due to the reversal of tax liabilities previously established under fin-48 , which were no longer required . 22 liquidity and capital resources we consider cash and cash equivalents as liquid and available for use . as of may 31 , 2015 , the company had $ 5.5 million in cash and cash equivalents , compared to $ 1.8 million as of may 31 , 2014. net cash used in operating activities was $ 2.3 million and $ 0.6 million for the fiscal years ended may 31 , 2015 and 2014 , respectively . for the fiscal year ended may 31 , 2015 , net cash used in operating activities was primarily the result of the net loss of $ 6.6 million , as adjusted to exclude the effect of non-cash charges including stock-based compensation expense of $ 1.0 million , and an increase in inventories of $ 1.0 million , partially offset by an increase in customer deposits and deferred revenue of $ 3.7 million and a decrease in accounts receivable of $ 1.8 million . the increase in inventories was primarily due to inventory purchases to support future shipments . the increase in customer deposits and deferred revenue was primarily due to the receipt of additional down payments from certain customers . the decrease in accounts receivable was primarily due to a decrease in sales . for the fiscal year ended may 31 , 2014 , net cash used in operating activities was primarily the result of net income of $ 0.4 million , as adjusted to exclude the effect of non-cash charges including stock-based compensation expense of $ 0.8 million , a decrease in customer deposits and deferred revenue of $ 1.0 million and an increase in inventories of $ 0.7 million . the decrease in customer deposits and deferred revenue was primarily due to the shipments against customer orders with down payments . the increase in inventories was primarily due to inventory purchases to support future shipments . net cash used in investing activities was $ 0.1 million for the fiscal year ended may 31 , 2015 as compared to net cash used in investing activities of $ 0.3 million for the fiscal year ended may 31 , 2014. net cash used in investing activities during the fiscal years ended may 31 , 2015 and 2014 was primarily due to the purchase of property and equipment .
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results of operations the following table sets forth statements of operations data as a percentage of net sales for the periods indicated . replace_table_token_4_th fiscal year ended may 31 , 2015 compared to fiscal year ended may 31 , 2014 net sales . net sales consist primarily of sales of systems , test fixtures , die carriers , upgrades and spare parts as well as revenues from service contracts . net sales decreased to $ 10.0 million for the fiscal year ended may 31 , 2015 from $ 19.7 million for the fiscal year ended may 31 , 2014 , a decrease of 49.1 % . the decrease in net sales in fiscal 2015 was primarily due to customer order and shipment push outs , customers absorbing capacity taken in earlier quarters , and the delay in the release of our new fox-1p system . the decreases included both net sales of the company 's wafer-level products and test during burn-in ( tdbi ) products . net sales of the wafer-level products for fiscal 2015 were $ 3.1 million , and decreased approximately $ 5.2 million from fiscal 2014. net sales of the tdbi products for fiscal 2015 were $ 6.6 million , and decreased approximately $ 4.6 million from fiscal 2014. gross profit . gross profit consists of net sales less cost of sales . cost of sales consists primarily of the cost of materials , assembly and test costs , and overhead from operations . gross profit decreased to $ 3.8 million for the fiscal year ended may 31 , 2015 from $ 10.2 million for the fiscal year ended may 31 , 2014 , a decrease of 62.5 % primarily due to a decrease in net sales .
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as of december 31 , 2013 , the company had net operating loss carryforwards for federal and california income tax purposes of approximately $ story_separator_special_tag overview we believe that we are the first company dedicated solely to developing the full spectrum of next-generation access network solutions to cost-effectively deliver high bandwidth services while simultaneously preserving the investment in today 's networks . our next-generation solutions are based upon our slms architecture . from its inception , this slms architecture was specifically designed for the delivery of multiple classes of subscriber services ( such as voice , data and video distribution ) , rather than being based on a particular protocol or media . in other words , our slms products are built to support the migration from legacy circuit to packet technologies and from copper to fiber technologies . this flexibility and versatility allows our products to adapt to future technologies while allowing service providers to focus on the delivery of additional high bandwidth services . because this slms architecture is designed to interoperate with existing legacy equipment , service providers can leverage their existing networks to deliver a combination of voice , data and video services today , while they migrate , either simultaneously or at a future date , from legacy equipment to next-generation equipment with minimal interruption . we believe that our slms solution provides an evolutionary path for service providers from their existing infrastructures , as well as gives newer service providers the capability to deploy cost-effective , multi-service networks that can support voice , data and video . our global customer base includes regional , national and international telecommunications carriers . to date , our products are deployed by over 750 network service providers on six continents worldwide . we believe that we have assembled the employee base , technological breadth and market presence to provide a simple yet comprehensive set of next-generation solutions to the bandwidth bottleneck in the access network and the other problems encountered by network service providers when delivering communications services to subscribers . although we generated net income of $ 4.3 million for the year ended december 31 , 2013 , we incurred net losses for the years ended december 31 , 2012 , 2011 and 2010 and there can be no assurance that we will continue to generate net income or have positive cash flows from operations in any future period . we had an accumulated deficit of $ 1,036.8 million as of december 31 , 2013. if we are unable to access or raise the capital needed to meet liquidity needs and finance capital expenditures and working capital , or if the economic , market and geopolitical conditions in the united states and the rest of the world deteriorate , we may experience material adverse impacts on our business , operating results and financial condition . during the past four years , we have continued our focus on cost control and operating efficiency along with restrictions on discretionary spending . in september 2012 , we closed our development center in portsmouth , new hampshire to reduce occupancy and personnel-related expenses . going forward , our key financial objectives include the following : increasing revenue while continuing to carefully control costs ; continued investments in strategic research and product development activities that will provide the maximum potential return on investment ; and minimizing consumption of our cash and cash equivalents . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states of america . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent 24 assets and liabilities . the policies discussed below are considered by management to be critical because changes in such estimates can materially affect the amount of our reported net income or loss . for all of these policies , management cautions that actual results may differ materially from these estimates under different assumptions or conditions . revenue recognition we recognize revenue when the earnings process is complete . we recognize product revenue upon shipment of product under contractual terms which transfer title to customers upon shipment , under normal credit terms , net of estimated sales returns and allowances at the time of shipment . revenue is deferred if there are significant post-delivery obligations or if the fees are not fixed or determinable . when significant post-delivery obligations exist , revenue is deferred until such obligations are fulfilled . our arrangements generally do not have any significant post-delivery obligations . if our arrangements include customer acceptance provisions , revenue is recognized upon obtaining the signed acceptance certificate from the customer , unless we can objectively demonstrate that the delivered products or services meet all the acceptance criteria specified in the arrangement prior to obtaining the signed acceptance . in those instances where revenue is recognized prior to obtaining the signed acceptance certificate , we use successful completion of customer testing as the basis to objectively demonstrate that the delivered products or services meet all the acceptance criteria specified in the arrangement . we also consider historical acceptance experience with the customer , as well as the payment terms specified in the arrangement , when revenue is recognized prior to obtaining the signed acceptance certificate . when collectability is not reasonably assured , revenue is recognized when cash is collected . we make certain sales to product distributors . these customers are given certain privileges to return a portion of inventory . return privileges generally allow distributors to return inventory based on a percent of purchases made within a specific period of time . story_separator_special_tag the expected stock price volatility is based on the weighted average of the historical volatility of our common stock over the most recent period commensurate with the estimated expected life of our stock options . we base our expected life assumption on our historical experience and on the terms and conditions of the stock awards we grant to employees . risk free interest rates reflect the yield on zero-coupon u.s. treasury securities . we do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero . if factors change , and we employ different assumptions for estimating stock-based compensation expense in future periods , or if we decide to use a different valuation model , the future periods may differ significantly from what we have recorded in the current period and could materially affect our operating income , net income ( loss ) and net income ( loss ) per share . we are also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates . in 2011 , our board of directors approved the acceleration of vesting of all unvested options to purchase shares of zhone common stock that were held by members of our senior management as of that date . the acceleration was effective as of september 30 , 2011. options to purchase an aggregate of approximately 0.6 million shares of zhone common stock were subject to the acceleration and resulted in a compensation charge of $ 0.7 million which was fully expensed in the three-month period ended september 30 , 2011. the acceleration of these options was undertaken to partially offset previous reductions in cash compensation and other benefits by our senior management . on august 9 , 2012 , our board of directors approved the acceleration of vesting of all unvested options to purchase shares of zhone common stock that were held by our senior management and employees as of that date . the acceleration for shares held by senior management was effective as of august 9 , 2012 and the acceleration of shares held by all other employees was effective as of september 30 , 2012. options to purchase an aggregate of approximately 0.6 million shares of zhone common stock were subject to the acceleration and resulted in a compensation charge of $ 0.7 million which was fully expensed in the three month period ended september 30 , 2012. the acceleration of these options was undertaken to partially offset previous reductions in cash compensation and other benefits by our senior management and employees . inventories inventories are stated at the lower of cost or market , with cost being determined using the first-in , first-out ( fifo ) method . in assessing the net realizable value of inventories , we are required to make judgments as to future demand requirements and compare these with the current or committed inventory levels . once inventory has been written down to its estimated net realizable value , its carrying value can not be increased due to subsequent changes in demand forecasts . to the extent that a severe decline in forecasted demand occurs , or we experience a higher incidence of inventory obsolescence due to rapidly changing technology and customer requirements , we may incur significant charges for excess inventory . 26 accounting for impairment of long-lived assets long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be fully recoverable based on expected undiscounted cash flows attributable to that asset . recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the future net undiscounted cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated future net undiscounted 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 . any 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 would no longer be depreciated . the assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet . during the year ended december 31 , 2013 , we did not record any impairment charges related to the impairment of long-lived assets . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-weight : bold ; '' > general and administrative expenses general and administrative expenses decreased 13 % or $ 1.0 million to $ 6.2 million for 2013 compared to $ 7.2 million for 2012. the decrease was mainly attributable to lower personnel-related expenses of $ 0.7 million , as our chief executive officer continued to forego his annual base cash compensation , which was partially offset by an increase in bonuses . the decrease in general and administrative expenses was also due to lower bad debt expenses of $ 0.6 million , lower stock-based compensation expenses of $ 0.3 million , and decreased transportation costs of $ 0.3 million . these decreases were partially offset by a $ 1.0 million gain recorded in 2012 as a result of patent sales . there was no similar gain in 2013. impairment of fixed assets impairment of fixed assets was zero , $ 0.1 million , and $ 4.2 million for 2013 , 2012 , and 2011 , respectively . in 2011 , our continued negative cash flows and operating losses as well as the significant decrease in the market price of our stock indicated that the book value of our fixed assets could be impaired . after determining there were indicators of impairment , we proceeded to test for impairment on an annual basis .
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results of operations we list in the table below the historical consolidated statement of comprehensive income ( loss ) as a percentage of net revenue for the periods indicated . replace_table_token_4_th 2013 compared with 2012 net revenue information about our net revenue for products and services for 2013 and 2012 is summarized below ( in millions ) : replace_table_token_5_th 27 information about our net revenue for north america and international markets for 2013 and 2012 is summarized below ( in millions ) : replace_table_token_6_th net revenue increased 6 % or $ 6.8 million to $ 122.2 million for 2013 compared to $ 115.4 million for 2012. the increase in net revenue was attributable to increases in product and service revenue . product revenue increased 3 % or $ 3.7 million from 2012 primarily due to increased sales of our ont products . service revenue increased 61 % or $ 3.1 million in 2013. service revenue represents revenue from maintenance and other services associated with product shipments . the increase in service revenue was primarily due to new service contracts , increased sales of installation services , and recognition of previously deferred revenue associated with extended warranties . international net revenue increased 25 % or $ 16.1 million to $ 80.6 million in 2013 and represented 66 % of total net revenue compared with 56 % in 2012. the increase in international net revenue was primarily due to increased sales in europe , middle east , and asia , as a result of recent growth in demand for our products in these regions , which was partially offset by lower revenue from latin america . domestic net revenue decreased 18 % or $ 9.3 million to $ 41.6 million in 2013 compared to $ 50.9 million in 2012. the decrease was primarily due to fewer broadband development projects in connection with federal stimulus funding .
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are not limited to , those described in the section titled `` risk factors '' and elsewhere in this annual report on form 10-k. overview we are a pioneer and leading provider of a cloud-based platform delivering security and compliance solutions that enable organizations to identify security risks to their information technology ( it ) infrastructures , help protect their it systems and applications from ever-evolving cyber-attacks and achieve compliance with internal policies and external regulations . our cloud solutions address the growing security and compliance complexities and risks that are amplified by the dissolving boundaries between internal and external it infrastructures and web environments , the rapid adoption of cloud computing and the proliferation of geographically dispersed it assets . our integrated suite of security and compliance solutions delivered on our qualys cloud platform enables our customers to identify their it assets , collect and analyze large amounts of it security data , discover and prioritize vulnerabilities , recommend remediation actions and verify the implementation of such actions . organizations use our integrated suite of solutions delivered on our qualys cloud platform to cost-effectively obtain a unified view of their security and compliance posture across globally-distributed it infrastructures as our solution offers a single platform for information security , application security , endpoint , developer security and cloud teams . we were founded and incorporated in december 1999 with a vision of transforming the way organizations secure and protect their it infrastructure and applications and initially launched our first cloud solution , vulnerability management ( vm ) , in 2000. as vm gained acceptance , we introduced new solutions to help customers manage increasing it security and compliance requirements . today , the suite of solutions offered on our cloud platform , which we refer to as the qualys cloud apps , includes : asset inventory ( ai ) , cmdb sync ( syn ) , vm , continuous monitoring ( cm ) , cloud agent platform ( cap ) , threat protection ( tp ) , security configuration assessment ( sca ) , indication of compromise ( ioc ) , policy compliance ( pc ) , pci compliance ( pci ) , security assessment questionnaire ( saq ) , file integrity monitoring ( fim ) , web application scanning ( was ) and web application firewall ( waf ) . our vm solutions ( including vm , ai , syn , cm , tp , cloud agent for vm , allocated scanner revenue and qualys private cloud platform ) have provided a substantial majority of our revenues to date , representing 75 % , 76 % and 77 % of total revenues in 2017 , 2016 and 2015 , respectively . we provide our solutions through a software-as-a-service model , primarily with renewable annual subscriptions . these subscriptions require customers to pay a fee in order to access our cloud solutions . we invoice our customers for the entire subscription amount at the start of the subscription term , and the invoiced amounts are treated as deferred revenues and are recognized ratably over the term of each subscription . we continue to experience significant revenue growth from existing customers as they renew and purchase additional subscriptions . revenues from customers existing at or prior to december 31 , 2016 grew by $ 21.5 million to $ 219.4 million during 2017 . subscriptions from new customers added in 2017 contributed $ 11.4 million to the increase in revenues . we expect revenue growth from existing and new customers to continue . we market and sell our solutions to enterprises , government entities and small and medium-sized businesses across a broad range of industries , including education , financial services , government , healthcare , insurance , manufacturing , media , retail , technology and utilities . as of december 31 , 2017 , we had over 10,300 customers in more than 130 countries , including a majority of each of the forbes global 100 and fortune 100. in 2017 , 2016 and 2015 , approximately 70 % , 71 % and 70 % , respectively , of our revenues were derived from customers in the united states . we sell our solutions to enterprises and government entities primarily through our field sales force and to small and medium-sized businesses through our inside sales force . we generate a significant portion of sales through our channel partners , including managed service providers , value-added resellers and consulting firms in the united states and internationally . we have had continued revenue growth over the past three years . our revenues increased from $ 164.3 million in 2015 to $ 197.9 million in 2016 , and reached $ 230.8 million in 2017 , representing period-over-period increases of $ 33.6 million and $ 32.9 million , or 20 % and 17 % , respectively . we generated net income of $ 15.9 million in 2015 , $ 19.2 million in 2016 , and $ 40.4 million in 2017 . 41 key metric in addition to measures of financial performance presented in our consolidated financial statements , we monitor the key metric set forth below to help us evaluate growth trends , establish budgets , measure the effectiveness of our sales and marketing efforts and assess operational efficiencies . replace_table_token_4_th adjusted ebitda we monitor adjusted ebitda , a non-gaap financial measure , to analyze our financial results and believe that it is useful to investors , as a supplement to u.s. gaap measures , in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance . we believe that adjusted ebitda helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that we exclude in adjusted ebitda . furthermore , we use this measure to establish budgets and operational goals for managing our business and evaluating our performance . story_separator_special_tag sales commissions are expensed in the quarter in which the related order is received and are paid in the month subsequent to the end of that quarter , which results in increased expenses prior to the recognition of related revenues . our new sales personnel are typically not immediately productive , and the resulting increase in sales and marketing expenses we incur when we add new personnel may not result in increased revenues if these new sales personnel fail to become productive . the timing of our hiring of sales personnel , or the participation in new marketing events or programs , and the rate at which these generate incremental revenues , may affect our future operating results . we expect to continue to significantly invest in additional sales personnel worldwide and also in more marketing programs to support new solutions on our platform , which will increase sales and marketing expenses in absolute dollars . 44 general and administrative general and administrative expenses consist primarily of personnel expenses , comprised of salaries , benefits , performance-based compensation and stock-based compensation , for our executive , finance and accounting , legal and human resources teams , as well as professional services , insurance , fees , and software licenses . we expect that general and administrative expenses will increase in absolute dollars , as we continue to add personnel and incur professional services to support our growth and compliance with legal requirements . other income ( expense ) , net our other income ( expense ) , net consists primarily of interest and investment income from our short-term and long-term investments ; foreign exchange gains and losses , the majority of which result from fluctuations between the u.s. dollar and the euro , british pound and indian rupee ; losses on disposal of property and equipment ; and impairment of long-lived assets . provision for income taxes we are subject to federal , state and foreign income taxes for jurisdictions in which we operate , and we use estimates in determining our provision for these income taxes and deferred tax assets . earnings from our non-u.s. activities are subject to income taxes in the local countries at rates which were generally lower than u.s. tax rates during 2017 and may also be subject to u.s. income taxes . our effective rates differ from the u.s. statutory rate primarily due to foreign income subject to different tax rates than the u.s. , research and development tax credits , non-deductible stock-based compensation expense , excess tax benefits related to stock-based compensation and other adjustments . income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the tax impact of timing differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards . deferred tax assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the statutory rate change is enacted into law . during 2017 , we recognized an expense of $ 10.4 million as a result of re-measuring deferred tax assets and liabilities using the reduced u.s. federal tax rate of 21 % which decreased from 35 % due to the enactment of the 2017 tax act . we assess the likelihood that deferred tax assets will be realized , and we recognize a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be recognized . this assessment requires judgment as to the likelihood and amounts of future taxable income . our benefit from income taxes in 2017 consists of a tax benefit for excess tax benefits related to stock-based compensation and the recognition of our u.s. federal and certain state deferred tax assets including federal research credits . the tax benefit was partially offset by the re-measurement of deferred taxes due to the 2017 tax act and income taxes for profits generated in foreign jurisdictions by wholly-owned subsidiaries . 45 story_separator_special_tag style= '' vertical-align : bottom ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; padding-right:2px ; '' > december 31 , change 2016 2015 $ % ( in thousands , except percentages ) revenues $ 197,925 $ 164,284 $ 33,641 20 % revenues increased $ 33.6 million in 2016 compared to 2015 . revenues from customers existing at or prior to december 31 , 2015 grew by $ 20.4 million to $ 184.7 million during 2016 . subscriptions from new customers added in 2016 contributed $ 13.2 million to the increase in revenues . of the total increase of 33.6 million , $ 24.4 million was from customers in the united states and the remaining $ 9.3 million was from customers in foreign countries . the growth in revenues reflects the continued demand for our solutions . 49 cost of revenues replace_table_token_15_th cost of revenues increased $ 8.8 million in 2016 compared to 2015 , primarily due to an increase in personnel expenses of $ 2.7 million to support the continued growth of our business ; a $ 2.2 million increase in depreciation expenses related to additional computer hardware and software ; an increase in third-party software maintenance expense of $ 2.1 million ; increased data center and equipment repair and maintenance of $ 0.5 million ; increased overhead costs of $ 0.5 million ; and increased temporary services of $ 0.2 million as we continued to grow . research and development expenses replace_table_token_16_th research and development expenses increased $ 6.2 million in 2016 compared to 2015 , primarily due to an increase in personnel expenses of $ 4.9 million , driven by the increase in the number of employees ; increased temporary services of $ 0.5 million ; and increased overhead costs of $ 0.5 million we continued to grow .
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results of operations the following tables set forth selected consolidated statements of operations data for each of the periods presented . replace_table_token_6_th ( 1 ) includes stock-based compensation as follows : replace_table_token_7_th 46 the following table sets forth selected consolidated statements of operations data for each of the periods presented as a percentage of revenues . replace_table_token_8_th comparison of years ended december 31 , 2017 and 2016 revenues year ended december 31 , change 2017 2016 $ % ( in thousands , except percentages ) revenues $ 230,828 $ 197,925 $ 32,903 17 % revenues increased $ 32.9 million in 2017 compared to 2016 . revenues from customers existing at or prior to december 31 , 2016 grew by $ 21.5 million to $ 219.4 million during 2017 . subscriptions from new customers added in 2017 contributed $ 11.4 million to the increase in revenues . of the total increase of $ 32.9 million , $ 22.9 million was from customers in the united states and the remaining $ 10.0 million was from customers in foreign countries . we expect revenue growth from existing and new customers to continue . the growth in revenues reflects the continued demand for our solutions . cost of revenues replace_table_token_9_th cost of revenues increased $ 8.5 million in 2017 compared to 2016 , primarily due to an increase in personnel expenses of $ 4.1 million , driven by the increase in the number of employees to support the continued growth of our business ; a $ 2.8 million increase in depreciation expense related to additional computer hardware and software ; a $ 0.5 million increase in amortization expense related to acquired technology resulting from our business acquisitions ; increased data center costs of $ 0.5 million ; and increased consulting services and third-party software license maintenance expense of $ 0.2 million each as our business continues to grow .
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through the company 's subsidiaries , we offer a range of complementary services to delivery companies , freight forwarders , e-commerce operators , airlines and government customers . our principal subsidiaries include three independently certificated airlines ( abx , ati and oai ) and an aircraft leasing company ( cam ) . the health and safety of our employees is paramount . maintaining the health of our employees during the /covid-19 pandemic is essential for us to operate safely and maintain our customers ' networks . we have taken precautions to prevent , detect and limit the spread of the covid-19 virus in the workplace . these practices include daily temperature checks , requiring face masks , periodically sanitizing facilities , frequent cleaning of high touch surfaces , supporting remote working , travel restrictions , promoting social distancing and frequent hand washing , contact tracing , quarantining , and other practices prescribed by the centers for disease control and prevention . our airline operations rely on flight crews , aircraft maintenance technicians , flight support personnel and aircraft loading personnel . we rely on a skilled workforce to perform aircraft maintenance . similarly , we staff personnel near airports to sort customer packages , load aircraft and maintain related equipment . we have added extra precautions and redundancies related to crews reserves , employee travel protocols , sanitation and other measures . we have not experienced a wide-spread outbreak at any location . however , a covid-19 outbreak among our flight crews , at one of our maintenance facilities , at customer sorting centers or an airport could result in workforce shortages , facility closures and significant numbers of flight cancellations . in such event , flight delays and additional costs could become significant . a covid-19 outbreak at one of our maintenance facilities , or at customer sorting centers could result in workforce shortages and facility closures . we have two reportable segments : cam , which leases boeing 777 , 767 , and 757 aircraft and aircraft engines , and acmi services , which includes the cargo and passenger transportation operations of the three airlines . our other business operations , which primarily provide support services to the transportation industry , include providing aircraft maintenance and modification services to customers , load transfer and sorting services as well as related equipment maintenance services . these operations do not constitute reportable segments . on november 9 , 2018 , the company acquired oai , a passenger airline , along with related entities ( referred to collectively as `` omni '' ) . revenues and operating expenses include the activities of omni for periods since their acquisition by the company on november 9 , 2018. at december 31 , 2020 , we owned 100 boeing aircraft that were in revenue service . at december 31 , 2020 , cam also owned eight boeing 767-300 aircraft either already undergoing or awaiting induction into the freighter conversion process . in addition to these aircraft , we leased two freighter aircraft provided by a customer and four passenger aircraft . our largest customers are the u.s. department of defense ( dod ) , asi , which is a subsidiary of amazon , and dhl . the dod comprised 31 % , 34 % and 15 % of the company 's consolidated revenues during the years ended december 31 , 2020 , 2019 and 2018 , respectively . the company 's airlines have been providing passenger and cargo airlift services to the u.s. dod since the mid 1990 's . contracts with the ustc are typically for a one-year period , however , the current passenger international charter contract has a two-year term with option periods , at the election of the dod , through september 2024 and the contract with ati to provide combi aircraft operations , runs through december 2021. due to the acquisition of oai , the dod comprises a larger portion of our 2020 and 2019 consolidated revenues compared to previous years . revenues from our commercial arrangements with asi comprised approximately 30 % , 23 % and 27 % of our consolidated revenues during the years ended december 31 , 2020 , 2019 and 2018 , respectively . on march 8 , 2016 , we entered into an air transportation services agreement ( as amended , the โ atsa โ ) with asi pursuant to which we lease boeing 767 freighter aircraft to asi , operate the aircraft via our airline subsidiaries and provide ground 30 handling services by our subsidiary , lgstx . under the atsa , we operate aircraft based on pre-defined fees scaled for the number of aircraft hours flown , aircraft scheduled and flight crews provided to asi for its network . the operating term of the atsa runs through march of 2024 and is thereafter subject to renewal provisions . the aircraft lease terms range from 5 to 10 years . for more information about the atsa , including its amendments , see item 1 of this report . the table below summarizes aircraft lease placements and commitments with amazon as of december 31 , 2020. replace_table_token_4_th in conjunction with the execution of the atsa and its amendments , the company and amazon entered into an investment agreement and a stockholders agreement on march 8 , 2016 ( the 2016 investment agreement ) and a second investment agreement on december 20 , 2018 ( the 2018 investment agreement ) . pursuant to these investment agreements , the company issued warrants to amazon in conjunction with aircraft leases . through the 2016 and 2018 investment agreements and the exercise of the warrants granted thereunder , amazon could potentially own approximately 39.9 % of the company if all the issued and issuable warrants vest and are settled in full with cash . our accounting for the warrants issued to amazon has been determined in accordance with the financial reporting guidance for financial instruments . story_separator_special_tag adjusted pre-tax earnings from continuing operations for 2019 improved by 22.6 % compared to 2018 , driven primarily by additional revenues and the improved financial results of our airline operations , including omni , which we acquired in november 2018. adjusted pre-tax earnings for 2019 also improved due to additional aircraft leases and the expansion of gateway ground operations for asi . pre-tax earnings for 2019 included additional interest expense of $ 37.8 million due to the acquisition of omni and the expansion of the fleet . 32 a summary of our revenues and pre-tax earnings and adjusted pre-tax earnings from continuing operations is shown below ( in thousands ) : replace_table_token_5_th adjusted pre-tax earnings from continuing operations , a non-gaap measure , is pre-tax earnings excluding the following : ( i ) settlement charges and other non-service components of retiree benefit costs ; ( ii ) gains and losses for the fair value re-measurement of financial instruments ; ( iii ) customer incentive amortization ; ( iv ) the transaction fees related to the acquisition of omni ; ( v ) the start-up costs of a non-consolidated joint venture ; ( vi ) the sale of an airline investment and ( vii ) impairment charges for aircraft and related assets . we exclude these items from adjusted pre-tax earnings because they are distinctly different in their predictability or not closely related to our on-going operating activities . we also excluded the recognition of government grants from adjusted earnings to improve comparability between periods . management uses adjusted pre-tax earnings to compare the performance of core operating results between periods . presenting this measure provides investors with a comparative metric of fundamental operations while highlighting changes to certain items among periods . adjusted pre-tax earnings should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap . 33 story_separator_special_tag style= '' margin-top:12pt ; text-align : justify '' > 2020 and 2019 cam cam offers aircraft leasing and related services to external customers and also leases aircraft internally to the company 's airlines . cam acquires passenger aircraft and manages the modification of the aircraft into freighters . the follow-on aircraft leases normally cover a term of five to ten years . as of december 31 , 2020 and 2019 , cam had 73 and 62 aircraft under lease to external customers , respectively . cam 's revenues grew by $ 23.4 million during 2020 compared to 2019 , primarily as a result of additional aircraft leases . revenues from external customers totaled $ 205.0 million and $ 168.1 million for 2020 and 2019 , respectively . cam 's revenues from the company 's airlines totaled $ 103.6 million during 2020 , compared to $ 117.2 million for 2019. cam 's aircraft leasing and related services revenues , which exclude customer lease incentive amortization , increased $ 25.2 million in 2020 compared to 2019 , as a result of new aircraft leases in 2020 . 35 durin g 2020 , cam added 11 boeing 767-300 aircraft to its portfolio and placed 11 boeing 767-300 aircraft to external customers under long-term leases . cam 's pre-tax earnings , inclusive of internally allocated interest expense , were $ 77.4 million and $ 68.6 million during 2020 and 2019 , respectively . increased pre-tax earnings reflect the eleven aircraft placed into service in 2020 , offset by a $ 1.0 million increase in internally allocated interest expense due to higher debt levels and a $ 13.5 million increase in depreciation expense driven by the addition of eleven boeing aircraft in 2020 compared to 2019. in addition to the eight boeing 767-300 aircraft which were in the modification process at december 31 , 2020 , cam has agreements to purchase five more boeing 767-300 aircraft and expects to complete their modifications through 2021. cam 's operating results will depend on its continuing ability to convert passenger aircraft into freighters within planned costs and within the time frames required by customers . we expect to lease at least twelve newly modified boeing 767-300 freighters and re-deploy four boeing 767-300 freighters during 2021 , comprising eleven to amazon and five to other external customers . cam 's future operating results will also depend on the timing and lease rates under which aircraft are redeployed when leases expire . during 2021 , three leases for boeing 767-200 aircraft are expected to be returned . cam 's future operating results will also be impacted by the additional amortization of warrant incentives as incremental long-term aircraft leases to asi commence . acmi services the acmi services segment provides airline operations to its customers , typically under contracts providing for a combination of aircraft , crews , maintenance , insurance and aviation fuel . our customers are typically responsible for supplying the necessary aviation fuel and cargo handling services and reimbursing our airline for other operating expenses such as landing fees , ramp expenses , certain aircraft maintenance expenses and fuel procured directly by the airline . aircraft charter agreements , including those for the dod , usually require the airline to provide full service , including fuel and other operating expenses for a fixed , all-inclusive price . total revenues from acmi services increased $ 69.0 million during 2020 compared with 2019 to $ 1,147.3 million . improved revenues were driven by a 14 % increase in billable block hours during 2020. increased revenues for 2020 included additional aircraft operations for asi and dhl , while block hours flown for the dod declined . revenues for the year ending december 31 , 2020 were impacted by the covid-19 pandemic . in late february 2020 , the dod began canceling combi aircraft flights and in march , commercial customers began canceling scheduled passenger flights as a result of the pandemic . combined block hours flown for contracted commercial passenger and combi flights declined 39 % for the year ended december 31 , 2020 , compared to december 31 , 2019 due to the pandemic .
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aircraft fleet summary our fleet of cargo and passenger aircraft is summarized in the following table as of december 31 , 2020 , 2019 and 2018. our cam-owned operating aircraft fleet has increased by 12 aircraft since the end of 20 18 , driven by customer demand for the boeing 767-300 converted freighter . our freighters , converted from passenger aircraft , utilize standard shipping containers and can be deployed into regional cargo markets more economically than larger capacity aircraft , newly built freighters or other competing alternatives . at december 31 , 2020 , the company owned eight boeing 767-300 aircraft that were either already undergoing or awaiting induction into the freighter conversion process . aircraft fleet activity during 2020 is summarized below : cam completed the modification of seven boeing 767-300 freighter aircraft purchased in the previous year and began to lease six of these aircraft to external customers under a multi-year lease . ati operates two of these aircraft for the customer . cam leased the seventh aircraft to ati . cam completed the modification of two boeing 767-300 freighter aircraft purchased in 2020 and began to lease one of these aircraft to an external customer under a multi-year lease . cam leased the other aircraft to ati . cam leased two boeing 767-300 freighter aircraft purchased during 2020 to an external customer under a multi-year lease . ati operates these aircraft for the customer . cam leased two boeing 767-200 freighter aircraft to external customers under a multi-year lease . cam sold one boeing 767-300 freighter aircraft to an external customer . an external customer returned one boeing 737-400 freighter aircraft to cam . cam sold the boeing 737-400 aircraft to another external customer during the second quarter of 2020. an external customer returned one boeing 767-200 freighter aircraft to cam . this aircraft was leased to an external customer under a multi-year lease .
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further , the information about our intentions contained in this report is a statement of our intention as of the date of this report and is based upon , among other things , the existing regulatory environment , industry conditions , market conditions and prices and our assumptions as of such date . we may change our intentions , at any time and without notice , based upon any changes in such factors , in our assumptions or otherwise . unless the context indicates otherwise , as used in the following discussion , โ company โ , โ we , โ โ us , โ and โ our , โ refer to ( i ) china green agriculture , inc. ( โ green nevada โ ) , a corporation incorporated in the state of nevada ; ( ii ) green agriculture holding corporation ( โ green new jersey โ ) , a wholly-owned subsidiary of green nevada incorporated in the state of new jersey ; ( iii ) shaanxi techteam jinong humic acid product co. , ltd. ( โ jinong โ ) , a wholly-owned subsidiary of green new jersey organized under the laws of the prc ; ( iv ) xi'an jintai agriculture technology development company ( โ jintai โ ) , wholly-owned subsidiary of jinong in the prc , ( v ) xi'an hu county yuxing agriculture technology development co. , ltd. ( โ yuxing โ ) , a variable interest entity ( โ vie โ ) of jinong in the prc ; ( vi ) beijing gufeng chemical products co. , ltd. , a wholly-owned subsidiary of jinong in the prc ( โ gufeng โ ) , and ( vii ) beijing tianjuyuan fertilizer co. , ltd. , gufeng 's wholly-owned subsidiary in the prc ( โ tianjuyuan โ ) . unless the context otherwise requires , all references to ( i ) โ prc โ and โ china โ are to the people 's republic of china ; ( ii ) โ u.s . dollar , โ โ $ โ and โ us $ โ are to united states dollars ; and ( iii ) โ rmb โ , โ yuan โ and renminbi are to the currency of the prc or china . overview we are engaged in the research , development , production and sale of various types of fertilizers and agricultural products in the prc through our wholly-owned chinese subsidiaries , jinong , gufeng ( including gufeng 's subsidiary tianjuyuan ) and our vie , yuxing . our primary business is fertilizer products , specifically humic-acid based compound fertilizer produced by jinong and compound fertilizer , blended fertilizer , organic compound fertilizer , slow-release fertilizers , highly-concentrated water-soluble fertilizers and mixed organic-inorganic compound fertilizer produced by gufeng . in addition , through yuxing , we develop and produce agricultural products , such as top-grade fruits , vegetables , flowers and colored seedlings . for financial reporting purposes , our operations are organized into four business segments : fertilizer products ( jinong ) , fertilizer products ( gufeng ) , agricultural products production ( yuxing ) and agricultural products production ( jintai ) . the fertilizer business conducted by jinong and gufeng generated approximately 98.4 , 96.4 % and 96.1 % of our total revenues for the years ended june 30 , 2013 , 2012 and 2011 , respectively . yuxing serves as a research and development base for our fertilizer products . jintai had served for that function too . however , as reported in our previous annual and quarterly reports , we started to relocate jintai to the facilities of yuxing due to the deteriorated surrounding environment that caused the death and obsolescence of large amount of jintai 's flowers and seedlings . as a result , jintai has not been in operation since march 1 , 2012 , when the relocation commenced . the relocation and its affiliated process are in progress . 53 fertilizer products as of june 30 , 2013 , we had developed and produced a total of 454 different fertilizer products in use , of which 134 were developed and produced by jinong and 320 by gufeng . below is a table that shows the metric tons of fertilizer sold by jinong and gufeng and the revenue per ton for the periods indicated : replace_table_token_12_th replace_table_token_13_th for the year ended june 30 , 2013 , we sold approximately 303,323 metric tons of fertilizer products , as compared to 318,208 metric tons and 337,769 metric tons for the years ended june 30 , 2012 and 2011 , respectively . for the year ended june 30 , 2013 , jinong sold approximately 75,934 metric tons of fertilizer products , as compared to 61,590 metric tons and 48,038 metric tons for the years ended june 30 , 2012 and 2011 , respectively . for the year ended june 30 , 2013 , gufeng sold approximately 227,389 metric tons of fertilizer products , as compared to 256,618 metric tons and 289,731 metric tons for the years ended june 30 , 2012 and 2011 , respectively . our sales of fertilizer products to five provinces accounted for approximately 63.5 % of our fertilizer revenue for the year ended june 30 , 2013. specifically , the provinces and their respective percentage contributed to our fertilizer revenues were heilongjiang ( 22.9 % ) , hebei ( 13.8 % ) , shaanxi ( 7.2 % ) , jilin ( 5.7 % ) and shandong ( 5.5 % ) . as of june 30 , 2013 , we had a total of 1,034 distributors covering 27 provinces , four autonomous regions and three central government-controlled municipalities in china . jinong had 826 distributors in china . jinong 's sales are not dependent on any single distributor or any group of distributors . its top five distributors accounted for 2.0 % of jinong 's fertilizer revenues for the year ended june 30 , 2013. gufeng had 208 distributors , including some large state-owned enterprises . story_separator_special_tag in addition , jinong did not have any taxable income for the year ended june 30 , 2013. yuxing has no income tax for the year ended june 30 , 2013 as a result of being exempted from paying income tax due to its products fall into the tax exemption list set out in the eit , the same treatment as jintai receives . 58 net income net income for the year ended june 30 , 2013 was $ 44,774,048 , an increase of $ 2,816,223 , or 6.7 % , compared to $ 41,957,825 for the year ended june 30 , 2012. the increase was attributable to the decrease in operating expenses and an increase in government subsidies . net income as a percentage of total net sales was approximately 20.6 % and 19.3 % for the year ended june 30 , 2013 and 2012 , respectively . the fiscal year ended june 30 , 2012 compared to the fiscal year ended june 30 , 2011. the following table shows the operating results of the company on a consolidated basis for the fiscal years ended june 30 , 2012 and 2011. replace_table_token_15_th net sales total net sales for the fiscal year ended june 30 , 2012 were $ 217,524,205 , an increase of $ 37,806,239 , or 21.0 % , from $ 179,717,966 for the fiscal year ended june 30 , 2011. this increase was largely due to the strong sales of humic acid liquid and compound fertilizer products from jinong and gufeng respectively , which had higher selling prices . 59 for the fiscal year ended june 30 , 2012 , jinong 's net sales increased $ 22,539,475 , or 34.3 % , to $ 88,168,740 from $ 65,629,265 from the fiscal year ended june 30 , 2011. this increase was mainly attributable to the greater sales of humic acid fertilizer products including our liquid and powder fertilizers during this period as a result of our increased distributors and the aggressive marketing . for the fiscal year ended june 30 , 2012 , net sales at gufeng were $ 121,480,943 , an increase of $ 14,399,925 , or 13.4 % , from $ 107,081,018 for the fiscal year ended june 30 , 2011. the increase was due to the increasing demand for the organic/inorganic humic acid compound fertilizer products of gufeng , higher average selling price per metric ton for the fiscal year ended june 30 , 2012 than the price for the fiscal year ended june 30 , 2011 , and higher percentage of more expensive humic acid-based fertilizers in gufeng 's product mix than in the same period in 2011. while with increase of 28 % in the average unit price per metric ton at gufeng from fiscal year 2011 to fiscal year 2012 , the total sales volume at gufeng decreased by 11 % in metric tons from the fiscal year ended june 30 , 2011 to the fiscal year ended june 30 , 2012. such decrease in sales volume is mainly attributable to the decrease in gufeng 's export sales volume for the fiscal year ended june 30 , 2012. jintai 's net sales decreased by $ 1,034,931 , or 15.2 % , to $ 5,792,002 for the fiscal year ended june 30 , 2012 from $ 6,826,933 for the same period in 2011. the decrease was mainly attributable to jintai 's nearby environmental degradation which resulted in its relocation commenced on march 1 , 2012 and is still ongoing . therefore , jintai did not generate any sales revenue since march 1 , 2012. for the fiscal year ended june 30 , 2012 , yuxing 's net sales were $ 2,082,520 , an increase of $ 1,901,770 , from $ 180,750 during the fiscal year ended june 30 , 2011. the increase was mainly attributable to the strong sales of yuxing 's top-grade flowers in the fiscal year 2012 , while in the fiscal year 2011 yuxing did not have commercialized top-grade flowers . the company 's current credit policy allows clients to pay off their receivable balance by up to 180 days from the point the revenue is recognized . under this policy , for receivable older than 180 days , the company will book 100 % allowance toward the outstanding balance immediately . such a policy became effective since the fiscal quarter period ended march 31 , 2012. the extended credit period was referred to in the company 's quarterly report on form 10-q for the fiscal quarter ended march 31 , 2012. the current policy is a revision of the company 's previous credit policy , which allowed the clients to pay off receivables up to a shorter period of 90 days , instead of 180 days . the implementation of the current policy was a result of the change in fertilizer market in the middle of fiscal year 2012. it applies to the company 's subsidiaries in fertilizer segment , jinong and gufeng . starting from 2011 , the economy in china slowed down . the demand in the fertilizer market declined from previous year and remained softened toward year end . in addition , in december 2011 , in overseeing the fertilizer market in china , the ministry of finance under the supervision of the state council of the central government of the prc , or the prc authority , raised the 2012 export tariff for certain fertilizer products that gufeng exports to in the international market . while we always keep a balanced mix of our domestic clients and oversea clients , gufeng 's export ability was largely expected to be reduced during 2012 due to the prohibitively high export tariff imposed . we then had to rely on domestic clients to fill in the orders that could be under the export contract instead . to combat the adverse effect of high export tariff , we launched aggressive marketing campaign by forgoing advance payments and offering warehouse credit sales to selected clients .
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results of operations year ended june 30 , 2013 compared to the year ended june 30 , 2012. replace_table_token_14_th net sales total net sales for the year ended june 30 , 2013 were $ 216,897,956 , a decrease of $ 626,249 , or 0.3 % , from $ 217,524,205 for the year ended june 30 , 2012. this decrease was largely due to the decrease in gufeng 's net sales . for the year ended june 30 , 2013 , jinong 's net sales increased $ 22,416,282 , or 25.4 to $ 110,585,022 from $ 88,168,740 for the year ended june 30 , 2012. this increase was mainly attributable to the greater sales of humic acid fertilizer products including our liquid and powder fertilizers during this period as a result of our increased distributors and the aggressive marketing strategy . 56 for the year ended june 30 , 2013 , net sales at gufeng were $ 102,915,414 , a decrease of $ 18,565,529 , or 15.3 % , from $ 121,480,943 for the year ended june 30 , 2012. the fiscal quarter ended march 31 , 2013 fell in the โ export window โ in which no special tariff tax applied , however , due to the lower demand on nitrogen-phosphorous elemented compound fertilizer by importing countries which is arising from the backlog of their imported compound fertilizers in previous quarters , which also led to lower-than-before profit margin over the export contracts , gufeng had no export contract in the quarter ended march 31 , 2013. despite of that , gufeng has been expanding and penetrating the domestic market particularly since the fiscal quarter ended march 31 , 2012 , during which period no revenue was generated from fertilizer exportation either due to sustained special tariff tax levied by china authority or due to continuously weak demand by importing countries .
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โ these well-recognized brand names include arm & hammer , used in multiple product categories such as baking soda , cat litter , carpet deodorization and laundry detergent ; trojan condoms , lubricants and vibrators ; oxiclean stain removers , cleaning solutions , laundry detergent , dishwashing detergent and bleach alternatives ; spinbrush battery-operated and manual toothbrushes ; first response home pregnancy and ovulation test kits ; nair depilatories ; orajel oral analgesic ; xtra laundry detergent ; l'il critters and vitafusion gummy dietary supplements ; and batiste dry shampoos . the company considers four of these brands to be โ mega brands โ : arm & hammer , oxiclean , trojan , and l'il critters and vitafusion , and is giving greatest focus to the growth of these brands . the company operates its business in three segments : consumer domestic , consumer international and spd . the consumer domestic segment includes the power brands noted above and other household and personal care products such as scrub free , kaboom and orange glo cleaning products , arrid antiperspirant , close-up and aim toothpastes and simply saline nasal saline moisturizer . the consumer international segment primarily sells a variety of personal care products , some of which use the same brand names as the company 's domestic product lines , in international markets including canada , france , australia , the united kingdom , mexico and brazil . the spd segment is the largest u.s. producer of sodium bicarbonate , which it sells together with other specialty inorganic chemicals for a variety of industrial , institutional , medical and food applications . this segment also sells a range of animal nutrition and specialty cleaning products . in 2015 , the consumer domestic , consumer international and spd segments represented approximately 76 % , 15 % and 9 % , respectively , of the company 's consolidated net sales . 2015 financial highlights key fiscal year 2015 financial results include : ยท 2015 net sales grew 2.9 % over fiscal year 2014 , with gains in all three of the company 's segments , primarily due to volume growth and the impact of the 2014 acquisition of the lil ' drug store brands and the january 2015 acquisition of substantially all of the assets of varied industries corporation ( the โ vi-cor acquisition โ ) , partially offset by currency fluctuations . ยท gross margin increased 40 basis points to 44.5 % in fiscal year 2015 from 44.1 % in fiscal year 2014 , reflecting the favorable impact of the lil ' drug store brands and vi-cor acquisitions , higher volumes and lower commodity costs partially offset by unfavorable foreign exchange rates . ยท operating margin increased 50 basis points to 19.9 % in fiscal year 2015 from 19.4 % in fiscal year 2014 , reflecting a higher gross margin and slightly lower marketing costs , partially offset by higher selling , general and administrative expenses ( โ sg & a โ ) . ยท during the second quarter , the company settled its previously announced termination of an international pension plan and recorded an $ 8.9 charge in sg & a . ยท also during the second quarter , the company recorded a $ 17.0 impairment charge associated with its remaining investment in natronx . ยท the company reported diluted net earnings per share in fiscal year 2015 of $ 3.07 , an increase of approximately 2.0 % from fiscal year 2014 diluted net earnings per share of $ 3.01 . ยท cash provided by operations was $ 606.1 , a $ 65.8 increase from the prior year , which includes higher cash earnings and improved working capital . 34 church & dwight co. , inc and subsidiaries ( dollars in millions , except share and per share data ) ยท the company returned $ 538.4 to its stockholders through dividends and share repurchases . strategic goals , challenges and initiatives the company 's ability to generate sales depends on consumer demand for its products and retail customers ' decisions to carry its products , which are , in part , affected by general economic conditions in its markets . in 2015 , many of the markets in which the company operates continued to experience general economic softness and weak or inconsistent consumer demand . although the company 's consumer products generally are consumer staples and less vulnerable to decreases in discretionary spending than other products , the continued economic downturn has reduced demand in many categories , particularly those in personal care , and affected company sales in recent periods . some customers have responded to economic conditions by increasing their private label offerings ( primarily in the dietary supplements , diagnostic kits and oral analgesics categories ) , and consolidating the product selections they offer to the top few leading brands in each category . in addition , an increasing portion of the company 's product categories are being sold by club stores , dollar stores and mass merchandisers . these customer actions have placed downward pressure on the company 's sales and gross margins . the company expects a competitive marketplace in 2016 due to new product introductions by competitors and continuing aggressive competitive pricing pressures . in the u.s. , an improving unemployment rate and higher disposable income due to low gasoline prices are expected to have a positive effect on consumption patterns . to continue to deliver attractive results for stockholders in this environment , the company intends to continue to aggressively pursue several key strategic initiatives : maintain competitive marketing and trade spending , tightly control its cost structure , continue to develop and launch new and differentiated products , and pursue strategic acquisitions . the company also intends to continue to grow its product sales geographically ( in an attempt to mitigate the impact of weakness in any one area ) , and maintain an offering of premium and value brand products ( to appeal to a wide range of consumers ) . story_separator_special_tag in addition , the company 's ability to quickly integrate acquisitions and leverage existing infrastructure has enabled it to establish a strong track record in making accretive acquisitions . since 2001 , the company has acquired nine of its ten โ power brands โ . the company believes it is positioned to meet the ongoing challenges described above due to its strong financial condition , experience operating in challenging environments and continued focus on key strategic initiatives : maintaining competitive marketing and trade spending , managing its cost structure , continuing to develop and launch new and differentiated products , and pursuing strategic acquisitions . this focus , together with the strength of the company 's portfolio of premium and value brands , has enabled the company to succeed in a range of economic environments , and is expected to position the company to continue to increase stockholder value over the long-term . moreover , the generation of a significant amount of cash from operations , as a result of net income and effective working capital management , combined with an investment grade credit rating provides the company with the financial flexibility to pursue acquisitions , drive new product development , make capital expenditures to support organic growth and gross margin improvements , return cash to stockholders through dividends and share buy backs , and reduce outstanding debt , positioning it to continue to create stockholder value . for information regarding risks and uncertainties that could materially adversely affect the company 's business , results of operations and financial condition , see โ risk factors โ in item 1a of this annual report . recent developments toppik acquisition on january 4 , 2016 , the company acquired spencer forrest , inc. , the maker of toppik ( โ toppik acquisition โ ) , the leading brand of hair building fibers for people with thinning hair , for approximately $ 175.0 , which is subject to adjustment based on the closing working capital . the company financed the acquisition with commercial paper . toppik 's annual sales are approximately $ 30.0. this brand will be managed within the consumer domestic and consumer international segments . dividend increase on february 2 , 2016 , the board declared a 6 % increase in the regular quarterly dividend from $ 0.335 to $ 0.355 per share , equivalent to an annual dividend of $ 1.42 per share payable to stockholders of record as of february 16 , 2016. the increase raises the annual dividend payout from $ 175 to approximately $ 185 , and maintains the company 's payout of dividends relative to net income at approximately 40 % . 36 church & dwight co. , inc and subsidiaries ( dollars in millions , except share and per share data ) critical accounting policies and estimates the company 's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the u.s. ( gaap ) . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . by their nature , these judgments are subject to uncertainty . they are based on the company 's historical experience , its observation of trends in industry , information provided by its customers and information available from other outside sources , as appropriate . the company 's significant accounting policies and estimates are described below . revenue recognition and promotional and sales return reserves virtually all of the company 's revenue represents sales of finished goods inventory and is recognized when received or picked up by the company 's customers . the reserves for consumer and trade promotion liabilities and sales returns are established based on the company 's best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date . promotional reserves are provided for sales incentives , such as coupons to consumers , and sales incentives provided to customers ( such as slotting , cooperative advertising , incentive discounts based on volume of sales and other arrangements made directly with customers ) . all such costs are netted against sales . slotting costs are recorded when the product is delivered to the customer . cooperative advertising costs are recorded when the customer places the advertisement for the company 's products . discounts relating to price reduction arrangements are recorded when the related sale takes place . costs associated with end-aisle or other in-store displays are recorded when product that is subject to the promotion is sold . the company relies on historical experience and forecasted data to determine the required reserves . for example , the company uses historical experience to project coupon redemption rates to determine reserve requirements . based on the total face value of consumer domestic coupons redeemed over the past several years , if the actual rate of redemptions were to deviate by 0.1 % from the rate for which reserves are accrued in the financial statements , an approximately $ 4.8 difference in the reserve required for coupons would result . with regard to other promotional reserves and sales returns , the company uses experience-based estimates , customer and sales organization inputs and historical trend analysis in arriving at the reserves required . if the company 's estimates for promotional activities and sales returns were to change by 10 % the impact to promotional spending and sales return accruals would be approximately $ 5.8. while management believes that its promotional and sales returns reserves are reasonable and that appropriate judgments have been made , estimated amounts could differ materially from actual future obligations . during the twelve months ended december 31 , 2015 , 2014 and 2013 , the company reduced promotion liabilities by approximately $ 4.3 , $ 6.7 and $ 3.7 , respectively , based on a change in estimate as a result of actual experience and updated information .
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consolidated results 2015 compared to 2014 replace_table_token_10_th net sales net sales for the year ended december 31 , 2015 were $ 3,394.8 , an increase of $ 97.2 , or approximately 2.9 % compared to 2014 net sales . the components of the net sales increase are as follows : net sales - consolidated december 31 , 2015 product volumes sold 3.1 % pricing/product mix 0.5 % foreign exchange rate fluctuations / other ( 2.7 % ) acquired product lines ( 1 ) 2.0 % net sales increase 2.9 % ( 1 ) on september 19 , 2014 , the company acquired certain brands in the lil ' drug store brands acquisition ( the ( โ lil ' drug store brands acquisition โ ) and on january 2 , 2015 , the company acquired certain assets of varied industries corporation ( the โ vi-cor acquisition โ ) . net sales of these acquisitions are included in the company 's results since the date of acquisition . all three segments reported volume increases and favorable price/mix for the year ended december 31 , 2015. gross profit the company 's gross profit for 2015 was $ 1,511.8 , a $ 58.9 increase compared to 2014. gross margin was 44.5 % in 2015 compared to 44.1 % in 2014 , a 40 basis points ( โ bps โ ) increase . the increase is due to 30 bps associated with higher volume , price and mix , favorable impact associated with the lil ' drug store brands and vi-cor acquisitions of 40 bps , lower commodity costs of 70 bps , partially offset by higher manufacturing costs ( net of productivity programs and including higher than anticipated start-up costs associated with the company 's new vitamin manufacturing facility ) of 70 bps and unfavorable foreign exchange rates of 30 bps . the higher volume , price and mix favorability included higher trade promotion and couponing to continue to support proven consumer trial generating activities for the oxiclean megabrand .
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the company held plmbss , including cmos , at december 31 , 2015 with an amortized cost of $ 554.8 thousand and approximate fair value of $ 556.3 thousand . management monitors each of these securities on a quarterly basis to identify any deterioration in the credit quality , collateral values and credit support underlying the investments . during the years ended december 31 , 2016 , december 31 , 2015 and december 31 , 2014 , no otti charges were recorded in earnings for the plmbs portfolio . at december 31 , 2016 the company does not own any securities rated below investment grade . state and local governments and other : management monitors these securities on a quarterly basis to identify any deterioration in the credit quality . included in the monitoring is a review of the credit rating , a financial analysis and certain demographic data on the underlying issuer . the company does not consider these securities to be otti at december 31 , 2016 and december 31 , 2015 . 75 note 5โloans loans summarized by category are as follows : replace_table_token_29_th activity in the allowance for loan losses was as follows : replace_table_token_30_th 76 note 5โloans ( continued ) the detailed activity in the allowance for loan losses and story_separator_special_tag overview the company is headquartered in lexington , south carolina and the bank holding company for the bank . we operate from our main office in lexington , south carolina , and our 15 full-service offices located in the south carolina counties of lexington county ( 6 ) , richland county ( 4 ) , newberry county ( 2 ) , kershaw county ( 1 ) , and aiken county ( 1 ) , and richmond county , georgia ( 1 ) . in addition we operate a mortgage loan production office in richland county , south carolina and a loan production office in greenville county , south carolina . we engage in a general commercial and retail banking business characterized by personalized service and local decision making , emphasizing the banking needs of small to medium-sized businesses , professional concerns and individuals . the following discussion describes our results of operations for 2016 , as compared to 2015 and 2014 , and also analyzes our financial condition as of december 31 , 2016 , as compared to december 31 , 2015. like most community banks , we derive most of our income from interest we receive on our loans and investments . a primary source of funds for making these loans and investments is our deposits , on which we pay interest . consequently , one of the key measures of our success is our amount of net interest income , or the difference between the income on our interest-earning assets , such as loans and investments , and the expense on our interest-bearing liabilities , such as deposits . we have included a number of tables to assist in our description of these measures . for example , the โ average balances โ table shows the average balance during 2016 , 2015 and 2014 of each category of our assets and liabilities , as well as the yield we earned or the rate we paid with respect to each category . a review of this table shows that our loans typically provide higher interest yields than do other types of interest earning assets , which is why we intend to channel a substantial percentage of our earning assets into our loan portfolio . similarly , the โ rate/volume analysis โ table helps demonstrate the impact of changing interest rates and changing volume of assets and liabilities during the years shown . we also track the sensitivity of our various categories of assets and liabilities to changes in interest rates , and we have included a โ sensitivity analysis table โ to help explain this . finally , we have included a number of tables that provide detail about our investment securities , our loans , and our deposits and other borrowings . there are risks inherent in all loans , so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible . we establish and maintain this allowance by charging a provision for loan losses against our operating earnings . in the following section we have included a detailed discussion of this process , as well as several tables describing our allowance for loan losses and the allocation of this allowance among our various categories of loans . in addition to earning interest on our loans and investments , we earn income through fees and other expenses we charge to our customers . we describe the various components of this noninterest income , as well as our noninterest expense , in the following discussion . the discussion and analysis also identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements . we encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information also included in this report . 34 recent developments on february 18 , 2015 , the bank entered into a consent order with the fdic ( the โ consent order โ ) . the consent order required the bank to take certain actions with respect to the bsa , including , among other things , enhancing its annual bsa risk assessment processes ; revising certain internal controls related to bsa ; and further developing and implementing certain bsa-related training programs . the bank took immediate actions to correct and resolve all of the bsa issues included in the consent order and , on january 28 , 2016 , the fdic advised the bank that the consent order had been terminated . on february 1 , 2014 , we completed our acquisition of savannah river and its wholly-owned subsidiary , savannah river banking company . story_separator_special_tag management has determined that the company has four reporting units ( see note 24 to the consolidated financial statements ) . core deposit intangibles consist of costs that resulted from the acquisition of deposits from savannah river and first south . core deposit intangibles represent the estimated value of long-term deposit relationships acquired in this transaction . these costs are amortized over the estimated useful lives of the deposit accounts acquired on a method that we believe reasonably approximates the anticipated benefit stream from the accounts . the estimated useful lives are periodically reviewed for reasonableness . income taxes and deferred tax assets and liabilities income taxes are provided for the tax effects of the transactions reported in our consolidated financial statements and consist of taxes currently due plus deferred taxes related to differences between the tax basis and accounting basis of certain assets and liabilities , including available-for-sale securities , allowance for loan losses , write downs of oreo properties , accumulated depreciation , net operating loss carry forwards , accretion income , deferred compensation , intangible assets , and pension plan and post-retirement benefits . the deferred tax assets and liabilities represent the future tax return consequences of those differences , which will either be taxable or deductible when the assets and liabilities are recovered or settled . deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled . a valuation allowance is recorded when it is โ more likely than not โ that a deferred tax asset will not be realized . as changes in tax laws or rates are enacted , deferred tax assets and liabilities are adjusted through the provision for income taxes . we file a consolidated federal income tax return for our bank . at december 31 , 2016 , we are in a net deferred tax asset position . other-than-temporary impairment we evaluate securities for other-than-temporary impairment at least on a quarterly basis . consideration is given to ( 1 ) the length of time and the extent to which the fair value has been less than cost , ( 2 ) the financial condition and near-term prospects of the issuer , ( 3 ) the outlook for receiving the contractual cash flows of the investments , ( 4 ) the anticipated outlook for changes in the general level of interest rates , and ( 5 ) our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or for a debt security whether it is more-likely-than-not that the company will be required to sell the debt security prior to recovering its fair value ( see note 4 to the consolidated financial statements ) . 36 business combinations , method of accounting for loans acquired we account for acquisitions under fasb asc topic 805 , business combinations , which requires the use of the acquisition method of accounting . all identifiable assets acquired , including loans , are recorded at fair value . no allowance for loan losses related to the acquired loans is recorded on the acquisition date because the fair value of the loans acquired incorporates assumptions regarding credit risk . acquired credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality , found in fasb asc topic 310-30 , receivablesโloans and debt securities acquired with deteriorated credit quality . and initially measured at fair value , which includes estimated future credit losses expected to be incurred over the life of the loans . loans acquired in business combinations with evidence of credit deterioration are considered impaired . loans acquired through business combinations that do not meet the specific criteria of fasb asc topic 310-30 , but for which a discount is attributable , at least in part to credit quality , are also accounted for under this guidance . certain acquired loans , including performing loans and revolving lines of credit ( consumer and commercial ) , are accounted for in accordance with fasb asc topic 310-20 , where the discount is accreted through earnings based on estimated cash flows over the estimated life of the loan . story_separator_special_tag in 2015 as compared to 2014 while the cost of these funds on average decreased eight basis points in 2015 as compared to 2014 . 38 average balances , income expenses and rates . the following table depicts , for the periods indicated , certain information related to our average balance sheet and our average yields on assets and average costs of liabilities . such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities . average balances have been derived from daily averages . replace_table_token_4_th ( 1 ) all loans and deposits are domestic . average loan balances include non-accrual loans and loans held for sale . ( 2 ) the computation includes federal funds sold , securities purchased under agreement to resell and interest bearing deposits . ( 3 ) based on 32.5 % marginal tax rate . 39 the following table presents the dollar amount of changes in interest income and interest expense attributable to changes in volume and the amount attributable to changes in rate . the combined effect related to volume and rate which can not be separately identified , has been allocated proportionately , to the change due to volume and the change due to rate . replace_table_token_5_th market risk and interest rate sensitivity market risk reflects the risk of economic loss resulting from adverse changes in market prices and interest rates . the risk of loss can be measured in either diminished current market values or reduced current and potential net income . our primary market risk is interest rate risk . we have established an asset/liability management committee ( โ alco โ ) to monitor and manage interest rate risk .
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results of operations as noted above , on february 1 , 2014 , we completed the acquisition of savannah river . therefore , the results for the year ended december 31 , 2014 include the impact of this acquisition from february 1 , 2014 through december 31 , 2014. also , as noted above , on september 26 , 2014 , we completed the purchase of certain loans and assumption of deposits from first south 's columbia , south carolina office located at 1333 main street . these loans and deposits were consolidated into the bank 's branch located at 1213 lady street . therefore , the results for the year ended december 31 , 2014 include the impact of this acquisition from september 26 , 2014 to december 31 , 2014. see note 3 to the consolidated financial statements for additional information related to the savannah river and first south acquisitions . net income was $ 6.7 million , or $ 0.98 diluted earnings per common share , for the year ended december 31 , 2016 , as compared to net income $ 6.1 million , or $ 0.91 diluted earnings per common share , for the year ended december 31 , 2015. the primary reason for the increase in net income is that our net interest income improved by $ 1.2 million from $ 25.3 million in 2016 to $ 26.5 million for 2015. this improvement was a primarily result of an increase of $ 46.3 million in average earning assets in 2016 as compared to 2015. see below under โ net interest income โ and โ market risk and interest rate sensitivity โ for a further discussion about the effect average earning assets on net interest income .
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for fiscal 2018 , we had net income of $ 368,000 , accounts receivable decreased $ 376,000 , inventories increased $ 118,000 , prepaid expenses and other assets increased $ 12,000 , accounts payable and accrued expenses increased $ 341,000 , customer deposits increased $ 265,000 and income taxes payable increased $ 70,000. in addition , we incurred non-cash expenses of $ 399,000 for depreciation and amortization , $ 42,000 for stock based compensation expense , an increase in our inventory reserve of $ 104,000 , and $ 33,000 for an increase in our deferred tax expense . investing activities - for fiscal 2018 , we used $ 2,194,000 of cash in our investing activities as compared with using $ 716,000 for the prior fiscal year . in fiscal 2018 and fiscal 2017 , we used $ 189,000 and $ 183,000 , respectively , for the purchase or manufacture of equipment , furnishings and leasehold improvements . in fiscal 2018 and fiscal 2017 , we used $ 2,004,000 and $ 534,000 , respectively , for the purchase of marketable securities . financing activities โ for fiscal 2018 , we used $ 149,000 of cash in our financing activities as compared with using $ 143,000 for the prior fiscal year . in fiscal 2018 and fiscal 2017 , we used $ 150,000 and $ 143,000 , respectively , for the repayments of notes payable . net decrease in cash โ for fiscal 2018 , our cash balance decreased by $ 541,000 as compared with an increase of $ 169,000 for the prior fiscal year ended february 28 , 2017. during fiscal 2018 , our operations provided $ 1,802,000 of cash , we used $ 2,194,000 in our investing activities and used $ 150,000 in our financing activities . 11 bank credit facilities : we currently have a revolving credit line of $ 750,000 and a $ 250,000 equipment purchase facility , both of which are with a bank . the revolving credit line is collateralized by all of the assets of the company , except for the land and buildings . the line of credit is payable on demand and must be retired for a 30-day period once annually . as of february 28 , 2018 , there were no outstanding borrowings under the line of credit . we had outstanding borrowings under a note payable of $ 1,027,000 at february 28 , 2018. the note is payable over six years and accrues interest at 4.15 % per year . the note payable is secured by a mortgage on our land and buildings . off - balance sheet arrangements we do not have any off - balance sheet arrangements as of february 28 , 2018. critical accounting policies the discussion and analysis of the company 's financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires the company to make estimates and judgments that affect the reported amount of assets and liabilities , revenues and expenses , and related disclosure on contingent assets and liabilities at the date of the financial statements . actual results may differ from these estimates under different assumptions and conditions . critical accounting policies are defined as those that are reflective of significant judgments and uncertainties , and may potentially result in materially different results under different assumptions and conditions . as of february 28 , 2018 , management believes there are no critical accounting policies applicable to the company that are reflective of significant judgments and or uncertainties . stock-based compensation the computation of the expense associated with stock-based compensation requires the use of a valuation model . asc 718 is a complex accounting standard , the application of which requires significant judgment and the use of estimates , particularly surrounding black-scholes assumptions such as stock price volatility , expected option lives , and expected option forfeiture rates , to value equity-based compensation . we currently use a black-scholes option pricing model to calculate the fair value of stock options . we primarily use historical data to determine the assumptions to be used in the black-scholes model and have no reason to believe that future data is likely to differ materially from historical data . however , changes in the assumptions to reflect future stock price volatility and future stock award exercise experience could result in a change in the assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based awards . asc 718 requires the recognition of the fair value of stock compensation in net income . although every effort is made to ensure the accuracy of our estimates and assumptions , significant unanticipated changes in those estimates , interpretations and assumptions may result in recording stock option expense that may materially impact our financial statements for each respective reporting period . impact of new accounting pronouncements in may 2014 , the financial accounting standards board ( โ fasb โ ) issued accounting standards update ( โ asu โ ) no . 2014-09 , โ revenue from contracts with customers โ ( topic 606 ) , to clarify the principles of recognizing revenue and create common revenue recognition guidance between u.s. gaap and international financial reporting standards . under asu 2014-09 , revenue is recognized when a customer obtains control of promised goods or services and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services . in addition , asu 2014-09 requires disclosure of the nature , amount , timing , and uncertainty of revenue and cash flows arising from contracts with customers . the asu is effective for fiscal years beginning after december 15 , 2017 . 12 the new revenue standard is principle based and interpretation of those story_separator_special_tag for fiscal 2018 , we had net income of $ 368,000 , accounts receivable decreased $ 376,000 , inventories increased $ 118,000 , prepaid expenses and other assets increased $ 12,000 , accounts payable and accrued expenses increased $ 341,000 , customer deposits increased $ 265,000 and income taxes payable increased $ 70,000. in addition , we incurred non-cash expenses of $ 399,000 for depreciation and amortization , $ 42,000 for stock based compensation expense , an increase in our inventory reserve of $ 104,000 , and $ 33,000 for an increase in our deferred tax expense . investing activities - for fiscal 2018 , we used $ 2,194,000 of cash in our investing activities as compared with using $ 716,000 for the prior fiscal year . in fiscal 2018 and fiscal 2017 , we used $ 189,000 and $ 183,000 , respectively , for the purchase or manufacture of equipment , furnishings and leasehold improvements . in fiscal 2018 and fiscal 2017 , we used $ 2,004,000 and $ 534,000 , respectively , for the purchase of marketable securities . financing activities โ for fiscal 2018 , we used $ 149,000 of cash in our financing activities as compared with using $ 143,000 for the prior fiscal year . in fiscal 2018 and fiscal 2017 , we used $ 150,000 and $ 143,000 , respectively , for the repayments of notes payable . net decrease in cash โ for fiscal 2018 , our cash balance decreased by $ 541,000 as compared with an increase of $ 169,000 for the prior fiscal year ended february 28 , 2017. during fiscal 2018 , our operations provided $ 1,802,000 of cash , we used $ 2,194,000 in our investing activities and used $ 150,000 in our financing activities . 11 bank credit facilities : we currently have a revolving credit line of $ 750,000 and a $ 250,000 equipment purchase facility , both of which are with a bank . the revolving credit line is collateralized by all of the assets of the company , except for the land and buildings . the line of credit is payable on demand and must be retired for a 30-day period once annually . as of february 28 , 2018 , there were no outstanding borrowings under the line of credit . we had outstanding borrowings under a note payable of $ 1,027,000 at february 28 , 2018. the note is payable over six years and accrues interest at 4.15 % per year . the note payable is secured by a mortgage on our land and buildings . off - balance sheet arrangements we do not have any off - balance sheet arrangements as of february 28 , 2018. critical accounting policies the discussion and analysis of the company 's financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires the company to make estimates and judgments that affect the reported amount of assets and liabilities , revenues and expenses , and related disclosure on contingent assets and liabilities at the date of the financial statements . actual results may differ from these estimates under different assumptions and conditions . critical accounting policies are defined as those that are reflective of significant judgments and uncertainties , and may potentially result in materially different results under different assumptions and conditions . as of february 28 , 2018 , management believes there are no critical accounting policies applicable to the company that are reflective of significant judgments and or uncertainties . stock-based compensation the computation of the expense associated with stock-based compensation requires the use of a valuation model . asc 718 is a complex accounting standard , the application of which requires significant judgment and the use of estimates , particularly surrounding black-scholes assumptions such as stock price volatility , expected option lives , and expected option forfeiture rates , to value equity-based compensation . we currently use a black-scholes option pricing model to calculate the fair value of stock options . we primarily use historical data to determine the assumptions to be used in the black-scholes model and have no reason to believe that future data is likely to differ materially from historical data . however , changes in the assumptions to reflect future stock price volatility and future stock award exercise experience could result in a change in the assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based awards . asc 718 requires the recognition of the fair value of stock compensation in net income . although every effort is made to ensure the accuracy of our estimates and assumptions , significant unanticipated changes in those estimates , interpretations and assumptions may result in recording stock option expense that may materially impact our financial statements for each respective reporting period . impact of new accounting pronouncements in may 2014 , the financial accounting standards board ( โ fasb โ ) issued accounting standards update ( โ asu โ ) no . 2014-09 , โ revenue from contracts with customers โ ( topic 606 ) , to clarify the principles of recognizing revenue and create common revenue recognition guidance between u.s. gaap and international financial reporting standards . under asu 2014-09 , revenue is recognized when a customer obtains control of promised goods or services and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services . in addition , asu 2014-09 requires disclosure of the nature , amount , timing , and uncertainty of revenue and cash flows arising from contracts with customers . the asu is effective for fiscal years beginning after december 15 , 2017 . 12 the new revenue standard is principle based and interpretation of those
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results of operations sales : replace_table_token_1_th strong market conditions and the expansion of our global sales effort drove sales up 14 % to $ 11,008,000 in fiscal 2018 compared with the prior fiscal year . stronger sales were primarily driven by the alternative energy industry , specifically fuels cell development programs in china , and the medical device coating market in the us and canada , where we provide coating technologies for stents , medical devices , blood collection tubes and other items . product sales : replace_table_token_2_th 8 the increase in multi-axis systems and integrated coating systems reflects new customers and increased demand from existing customers primarily in the alternative energy and medical markets . market sales : replace_table_token_3_th growth in the medical market was from sales of customized machines primarily used for coating implantable devices with polymers and other active nanomaterials . the company 's application expertise provides a competitive advantage in this market . the alternative energy market expanded as applications for fuel cells increased . asia , specifically china , has been driving demand for fuel cells because of the investments being made by the chinese government . our equipment is used to produce highly durable , uniform , pinhole free coatings of carbon-based catalyst inks onto fuel cell proton exchange membranes reducing waste and improving functionality . geographic sales : replace_table_token_4_th in fiscal 2018 , approximately 56 % of sales originated outside of the united states and canada . this compares with 60 % in fiscal 2017. gross profit : our gross profit increased $ 933,000 , or 21 % , to $ 5,296,000 for fiscal 2018 from $ 4,363,000 for the prior fiscal year . gross profit margin improved by 280 basis points to 48.1 % for fiscal 2018 primarily due to product mix , as a greater portion of the sales growth was from higher margin multi-axis systems and integrated coating systems .
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( dollars in thousands , except per-share amounts ) the following discussion and analysis should be read in conjunction with the โ selected financial data โ in part ii item 6 and our consolidated financial statements and related notes thereto in part ii item 8 of this annual report on form 10-k. certain statements contained in this discussion may constitute forward looking statements within the meaning of section 27a of the securities act , and , section 21e of the exchange act . these statements involve a number of risks , uncertainties and other factors that could cause actual results to differ materially from those reflected in any forward looking statements , as a result of a variety of risks and uncertainties , including those described under item 1 , โ cautionary statements concerning forward looking statements โ and item 1a , โ risk factors โ . overview our business we are a global provider of 3d printing machines and 3d printed and other products , materials and services to industrial customers . our business primarily consists of manufacturing and selling 3d printing machines and printing products to specification for our customers using our installed base of 3d printing machines . our machines serve direct and indirect applications . direct printing produces a component ; indirect printing makes a tool to produce a component . we offer pre-production collaboration and printed products for customers through our nine production pscs , which are located in the united states , germany , italy , sweden and japan . we build 3d printing machines at our facilities in the united states and germany . we also supply the associated materials , including consumables and replacement parts , and other services , including training and technical support , necessary for purchasers of our machines to print products . we believe that our ability to print in a variety of industrial materials , as well as our industry-leading printing capacity ( as measured by build box size and printhead speed ) uniquely position us to serve the needs of industrial customers . 2015 developments and 2016 outlook our results of operations for 2015 were negatively affected by lower than expected sales of 3d printing machines as a result of longer than expected sales cycles for certain customers and as a result , our gross profit was negatively affected based on a lower contribution margin from the sale of these units . we have additionally experienced overall increased costs of production , principally in the form of expanded facilities and personnel costs both of which were attributable to the transition and expansion of our german and united states operations and deployment of the first phase of our new erp system for our europe operations ( both resulting in production and operational inefficiencies ) . our selling , general and administrative expenses and research and development expenses have both declined in 2015 , as we stabilize our operating expenses as a public company . we additionally recognized a goodwill impairment charge in 2015 in connection with completing an interim test for impairment during the quarter ended september 30 , 2015 , as a result of a significant decline in our market capitalization and continued operating losses and cash flow deficiencies . note the following operations highlights for 2015 : introduction of innovent 3d printing system for research and education customers . in january 2015 , we announced the introduction of our new laboratory-sized machine offering , the innovent , which allows for testing material properties , specifically in educational institutions , research laboratories and research and development departments at commercial organizations . compared to our previous laboratory-sized machine offering , the x1-lab , the innovent offers a build volume that is eight times larger and incorporates software and mechanical component upgrades that mirror our m-flex and m-print platforms , allowing for integrated use of the platforms together for testing ( innovent ) and prototype and series production ( m-flex or m-print ) . introduction of six new printable materials for use in our 3d printing systems . in february 2015 , we announced the introduction of six new printable materials for use in our 3d printing systems : cobalt-chrome , in alloy 718 , iron-chrome-aluminum , 17-4 stainless steel , 316 stainless steel and tungsten carbide . the introduction of these print materials allows customers interested in 3d printing materials for their own product development the opportunity to utilize a wider variety of materials , each offering unique properties and uses . transition to our new facility in gersthofen , germany . in 2015 , we completed our transition to our new facility in gersthofen , germany which has resulted in approximately doubling our available facility space and has substantially increased our production capacity of indirect printing machines and psc operations . this transition has also resulted in a full consolidation of our german production , research and development , sales and marketing and administrative teams under one combined facility . expansion of our north huntingdon , pa facility . in march 2015 , we completed our expansion of our north huntingdon , pa facility which has resulted in approximately doubling our available psc production space for this facility and has also expanded our available space for research and development activities . 32 debut of the exerial 3d printing system and delivery of the initial production units . in june 2015 , we debuted the exerial machine platform at the gifa international foundry trade fair in dusseldorf , germany . the exerial is unique compared to our other indirect printi ng systems in that it contains multiple industrial stations that allow for continuous production and simultaneous processing . the exerial is distinctly equipped with two build boxes , each 1.5 times larger than the single build box in our next largest model , the s-max . notably , the exerial system offers a total build platform of 3,168 liters and is expected to be capable of printing output rates nearly four times faster than the s-max . story_separator_special_tag we use these metrics to assess the progress of our business , make decisions on where to allocate capital , time and technology investments , and assess longer-term performance within our marketplace . the key metrics are as follows : revenue . our revenue consists of sales of our 3d printing machines and 3d printed and other products , materials and services . 3d printing machines . 3d printing machine revenues consist of 3d printing machine sales and leasing arrangements . sales of 3d printing machines may also include optional equipment , materials , replacement components and services ( installation , training and other services , including maintenance services and or an extended warranty ) . 3d printing machine sales and leasing arrangements are influenced by a number of factors including , among other things , ( i ) the adoption rate of our 3d printing technology , ( ii ) end-user product design and manufacturing activity , ( iii ) the capital expenditure budgets of end-users and potential end-users and ( iv ) other macroeconomic factors . purchases or leases of our 3d printing machines , particularly our higher-end , higher-priced systems , typically involve long sales cycles . several factors can significantly affect revenue reported for our 3d printing machines for a given period including , among others , ( i ) the overall low unit volume of 3d printing machine sales , ( ii ) the sales mix of machines for a given period and ( iii ) the customer-driven acceleration or delay of orders and shipments of machines . 3d printed and other products , materials and services . 3d printed and other products , materials and services consist of sales of ( i ) products printed in our global psc network or manufactured through our specialty machining or excast strategy , ( ii ) consumable materials and replacement parts for the network of 3d printing machines installed by our global customer base and ( iii ) services for maintenance and certain research and development activities . our pscs utilize our 3d printing machine technology to print products to the specifications of customers . in addition , our pscs also provide support and services such as pre-production collaboration prior to printing products for a customer . sales of consumable materials , replacement parts and service maintenance contracts are linked to the aftermarket opportunities from our growing network of 3d printing machines installed by our global customer base . research and development arrangements are a function of customer-specific needs in applying our additive manufacturing technologies . cost of sales and gross profit . our cost of sales consists primarily of labor ( related to our global workforce ) , materials ( for both the manufacture of 3d printing machines and for our psc and other manufacturing operations ) and overhead to produce 3d printing machines and 3d printed and other products , materials and services . also included in cost of sales are license fees ( based upon a percentage of revenue of qualifying products and processes ) for the use of intellectual properties , warranty costs and other overhead associated with our production processes . our gross profit is influenced by a number of factors , the most important of which is the volume and mix of sales of our 3d printing machines and 3d printed and other products , materials and services . as 3d printing machine sales are cyclical , we seek to achieve a balance in revenue from 3d printing machines and 3d printed and other products , materials and services in order to maximize gross profit while managing business risk . in addition , we expect to reduce our cost of sales over time by continued research and development and supply chain activities directed towards achieving increased efficiencies in our production processes . operating expenses . our operating expenses consist of research and development expenses and selling , general and administrative expenses . research and development expenses . our research and development expenses consist primarily of salaries and related personnel expenses aimed at 3d printing machine development and materials qualification activities . additional costs include the related software and materials , laboratory supplies , and costs for facilities and equipment . research and development expenses are charged to operations as they are incurred . we capitalize the cost of materials , equipment and facilities that have future alternative uses in research and development projects or otherwise . 34 selling , general and administrative expenses . our selling , general and administrative expenses consist primarily of employee-related costs ( salaries and benef its ) of our executive officers , and sales and marketing ( including sales commissions ) , finance , accounting , information technology and human resources personnel . other significant general and administrative costs include the facility costs related to our u nited states and european headquarters and external costs for legal , accounting , consulting and other professional services . interest expense . interest expense consists of the interest cost associated with outstanding long-term debt and capital and financing lease arrangements . we expect our interest expense to continue to decrease as our outstanding debt is lowered over time . included in our business strategy is the consideration of early retirement of debt ( where practicable ) . ( benefit ) provision for income taxes . prior to our reorganization , we were organized as a limited liability company . under the provisions of the internal revenue code and similar state provisions , we were taxed as a partnership and were not liable for income taxes . following our reorganization , we are taxed as a corporation for united states federal , state , local and foreign income tax purposes . current statutory tax rates in the jurisdictions in which we operate , the united states , germany , italy , sweden and japan , are approximately 35.0 % ( including state taxes ) , 28.4 % , 31.0 % , 22.0 % and 33.1 % , respectively .
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resulting in a lower average selling price of machines sold ) for 2014 as compared to 2013. the following table summarizes 3d printing machines sold by type for each of the years ending december 31 ( please refer to part i item 1 , โ our machines and machine platforms โ of this annual report on form 10-k for a description of 3d printing machines by type ) : replace_table_token_5_th * during 2015 , one m-print unit and two innovent units were sold to related parties . during 2014 , one m-print unit was sold to a related party . there were no sales of 3d printing machines to related parties during 2013. refer to note 18 to consolidated financial statements and related notes thereto in part ii item 8 of this annual report on form 10-k. cost of sales and gross profit cost of sales for 2015 was $ 32,010 compared with cost of sales of $ 33,443 for 2014 , a decrease of $ 1,433 , or 4.3 % . this decrease was principally as a result of a decrease in the volume of sales of 3d printing machines and the mix of 3d printing machines sold , resulting in overall lower revenues ( and cost of sales ) from the sale of 3d printing machines . this decrease was offset by an increase in our production costs associated with ( i ) our global facilities transition and expansion in germany and the united states , ( ii ) costs incurred in connection with our erp system deployment and ( iii ) costs associated with our continued development of operations at our italy psc and commencement of operations at our sweden psc , all resulting in production inefficiencies . favorable changes in currency also impacted cost of sales ( principally appreciation of the united states dollar against the euro and japanese yen ) .
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reinsurance recoverables also reflect amounts that are due from trade capital providers . reinsurance recoverables are presented in our consolidated balance sheets net of an allowance for doubtful accounts of $ 3.4 million and $ 3.7 million at december 31 , 2014 and 2013 , respectively ( see note 4 , โ reinsurance โ for related disclosures ) . an estimate of amounts that are likely to be charged off is established as an allowance for doubtful accounts as of the balance sheet date . our estimate includes specific insured and reinsurance balances that are considered probable to be charged off after all collection efforts have ceased and in accordance with historical write-off trends based on aging categories . premiums receivable and reinsurance recoverables on paid losses written off , net of recoveries against the allowance for doubtful accounts or directly to the income statement are as follows : replace_table_token_31_th recoveries occur when subsequent collection or litigation results in the receipt of amounts previously written off . amounts recovered are applied against the bad debt expense account . earned premiums premium revenue is recognized ratably over the story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and related notes beginning on page f-1 . this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in the forward looking statements as a result of various factors described in this report . story_separator_special_tag replace_table_token_8_th in determining appropriate reserve levels for the year ended december 31 , 2014 , we maintained the same general processes and disciplines that were used to set reserves at prior reporting dates . no significant changes in methodologies were made to estimate the reserves since the last reporting date ; however , at each reporting date we reassess the actuarial estimate of the reserve for loss and loss adjustment expenses and record our best estimate . consistent with prior reserve valuations , as claims data becomes more mature for prior accident years , actuarial estimates were refined to weigh certain actuarial methods more heavily in order to respond to any emerging trends in the paid and reported loss data . while prior accident years ' net reserves for losses and loss adjustment expenses for some lines of business have developed favorably in recent years , this does not imply that more recent accident years ' reserves also will develop favorably ; pricing , reinsurance costs , legal environment , general economic conditions including changes in inflation and many other factors impact our ultimate loss estimates . consolidated gross reserves for loss and loss adjustment expenses were $ 3,042.4 million ( including $ 80.3 million of reserves attributable to argoglobal syndicate 1200 's trade capital providers ) , $ 3,230.3 million ( including $ 128.6 million of reserves attributable to the trade capital providers ) and $ 3,223.5 million ( including $ 161.6 million of reserves attributable to the trade capital providers ) as of december 31 , 2014 , 2013 and 2012 , respectively . management has recorded its best estimate of loss reserves at each date based on current known facts and circumstances . due to the significant uncertainties inherent in the estimation of loss reserves , there can be no assurance that future loss development , favorable or unfavorable , will not occur . in 2011 , we entered into two reinsurance transactions with a special purpose reinsurance company which provided coverage through the issuance of two catastrophe bond transactions . the reinsurance transactions provided coverage for selected events . the initial catastrophe bond cover expired on december 31 , 2012. the second catastrophe bond cover expired on december 31 , 2013. in accordance with generally accepted accounting principles in the united states ( โ gaap โ ) , we accounted for these covers as derivatives , and as such , presented the financial statement impact in โ other reinsurance-related expenses โ in our consolidated statements of income . other reinsurance-related expenses totaled $ 19.2 million and $ 27.3 million for the years ended december 31 , 2013 and 2012 , respectively . as the last of these contracts expired in december 2013 , there was no expense recognized in 2014. as management viewed these coverages as reinsurance protection , we treated the financial statement effects of these covers as ceded premium for the purposes of calculating our loss , expense and combined ratios . consolidated underwriting , acquisition and insurance expenses were $ 539.2 million , $ 510.8 million and $ 464.5 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . the increase in the consolidated expense ratio for 2014 as compared to 2013 was primarily attributable to increased compensation related costs , coupled with increased consulting and information technology expenses . the decrease in the consolidated expense ratio for 2013 as compared to 2012 was primarily attributable to reduced fixed 45 costs as a percentage of earned premiums , partially offset by increased equity compensation expense due to the impact of the increase in our stock price on cash-settled equity awards . consolidated interest expense was $ 19.9 million , $ 20.2 million and $ 23.7 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . the decline in consolidated interest expense from 2014 as compared to 2013 was the result of the july 2014 extinguishment of a junior subordinated debenture . the decline in consolidated interest expense for the year ended december 31 , 2013 as compared to 2012 was due to the redemption in november 2012 of the $ 118.6 million capital trust securities with proceeds from the senior fixed rate notes , which bear a lower interest rate . story_separator_special_tag the decline in the expense ratio for the year ended december 31 , 2014 as compared to the same period in 2013 was primarily attributable to an increase in ceding commission received coupled with a decline in agent contingent commissions . fixed expenses were comparable between the periods . the decline in the expense ratio for the year ended december 31 , 2013 as compared to the same period in 2012 was primarily attributable to the increase in earned premiums , without a corresponding increase in fixed costs . 47 commercial specialty the following table summarizes the results of operations for the commercial specialty segment : replace_table_token_10_th the increase in gross written premiums for the year ended december 31 , 2014 as compared to the same period ended 2013 was primarily attributable to increased underwriting in our surety , commercial mining and state funds units . partially offsetting these increases was reduced underwriting in our retail business , commercial programs and public entity units due to planned reductions as we exited unprofitable accounts and implemented underwriting initiatives . the decline in gross written premiums for the year ended december 31 , 2013 as compared to 2012 was primarily due to reduced writings in our retail business and public entity units due to planned reductions noted above . the decline in earned premiums was attributable to the reduced gross written premiums for the years presented . included in losses and loss adjustment expense for the year ended december 31 , 2014 was $ 5.7 million in catastrophe losses for storm activity in the united states . included in losses and loss adjustment expense for the year ended december 31 , 2014 was $ 2.4 million related to current accident year large losses primarily within the property lines . additionally , included in losses and loss adjustment expenses was $ 6.8 million in net unfavorable loss reserve development on prior accident years , primarily attributable to $ 19.5 million of unfavorable development in general liability due to increases in claim severity , partially offset by favorable development of $ 7.9 million of favorable development in short-tail lines and $ 5.8 million in workers compensation . included in losses and loss adjustment expense for the year ended december 31 , 2013 was $ 4.0 million in catastrophe losses for storm activity in the united states . included in losses and loss adjustment expense for the year ended december 31 , 2013 was $ 7.4 million related to current accident year large losses in our retail , commercial programs and public entity businesses . additionally , included in losses and loss adjustment expenses was $ 1.1 million in net unfavorable loss reserve development on prior accident years , primarily attributable to $ 16.2 million of unfavorable development in general liability due to increases in claim severity and $ 2.0 million of unfavorable development in automobile liability , offset by favorable development of $ 9.5 million in workers compensation and $ 6.8 million of favorable development in short-tail lines . included in losses and loss adjustment expenses for the year ended december 31 , 2012 was $ 16.7 million in catastrophe losses from storm activity in the united states , including $ 8.8 million from superstorm sandy . in addition , commercial specialty experienced several large non-cat property losses during the year . the commercial specialty segment had net unfavorable loss reserve development on prior accident years of $ 22.2 million primarily attributable to $ 31.5 million of unfavorable development in general liability due to increases in claim severity and $ 5.5 million of unfavorable development in the automobile liability lines of business . partially offsetting this unfavorable development was $ 10.1 million of favorable development in workers compensation . the increase in the expense ratio for the year ended december 31 , 2014 as compared to the same period in 2013 was primarily due to increased corporate and information technology costs and decreasing ceding commissions earned . the decline in the expense ratio for the year ended december 31 , 2013 as compared to 2012 was primarily attributable to a shift of select functions from risk bearing activities to non-risk bearing activities , as we were developing our fee-based business . 48 as noted above , in 2013 we began to focus on the development of our fee-based operations . as a result , the expenses associated with the fee-based operations have outpaced the income received for these activities , resulting in net fee expense for the years ended december 31 , 2014 and 2013 , respectively . as a result of our annual evaluation of goodwill and other intangible assets , we determined that the goodwill and intangible asset which resulted from a 2010 acquisition were impaired and therefore , they were written-off during the fourth quarter of 2014. international specialty the following table summarizes the results of operations for the international specialty segment : replace_table_token_11_th the slight decline in gross written premiums for the year ended december 31 , 2014 as compared to the same period in 2013 was primarily attributable to declines in our property reinsurance unit due to increased competition and declining rates . partially offsetting this decline was increased gross written premiums in our casualty , professional liability and brazil units . the increase in earned premiums for the year ended december 31 , 2014 as compared to 2013 was due to premium growth in the first half of 2014. gross written and earned premiums increased for the year ended december 31 , 2013 in comparison to the same period in 2012 primarily as a result of continued growth in our brazil operations and in our excess casualty and professional lines units , while gross written premiums for the property reinsurance lines remained consistent . losses and loss adjustment expenses for the year ended december 31 , 2014 included $ 8.2 million in catastrophe losses primarily attributable to hail and other storms . loss reserve development on prior accident years was negligible .
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consolidated results of operations for the year ended december 31 , 2014 , we reported net income of $ 183.2 million , or $ 6.90 per fully diluted share . for the year ended december 31 , 2013 , we reported net income of $ 143.2 million , or $ 5.14 per fully diluted share . for the year ended december 31 , 2012 , we reported net income of $ 52.3 million , or $ 1.83 per fully diluted share . 43 the following is a comparison of select data from our results of operations : replace_table_token_7_th the modest increase in gross written premiums for the year ended december 31 , 2014 as compared to the same period ended in 2013 was primarily the result of increased premiums in our excess and surplus lines and commercial specialty segments , partially offset by a decline in our syndicate 1200 segment as we continue to experience competition in this segment . all segments were impacted to some degree by increasing competition and , in some cases , declining rates . the increase in consolidated earned premiums for the year ended december 31 , 2014 as compared to 2013 was due to increased premiums in the fourth quarter of 2013 which continued into 2014. consolidated net investment income decreased for the year ended december 31 , 2014 as compared to the same periods ended 2013 and 2012 due primarily to the continued reinvestment at market yields below the portfolio 's book yield and an increased focus on total portfolio returns relative to investment income . additionally , the decline in consolidated net investment income was impacted by the transfer of invested assets used to settle a quota share reinsurance agreement within our syndicate 1200 segment . total invested assets at december 31 , 2014 were $ 4,022.7 million , net of $ 75.2 million of invested assets attributable to argoglobal syndicate 1200 's trade capital providers .
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the company sold its ars during the fourth quarter of fiscal 2016 and the first quarter of fiscal 2017. the company includes within short-term investments its income yielding available-for-sale securities that can be readily converted to cash and includes within long-term investments those income yielding available-for-sale securities with maturities of over one year that have unrealized losses attributable to them or those that can not be story_separator_special_tag note regarding forward-looking statements this report , including `` item 1 โ business , '' `` item 1a โ risk factors , '' and `` item 7 โ management 's discussion and analysis of financial condition and results of operations , '' contains certain forward-looking statements that involve risks and uncertainties , including statements regarding our strategy , financial performance and revenue sources . we use words such as `` anticipate , '' `` believe , '' `` plan , '' `` expect , '' `` future , '' `` continue , '' `` intend '' and similar expressions to identify forward-looking statements . our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors including those set forth under `` risk factors , '' beginning at page 12 and elsewhere in this form 10-k. 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 . you should not place undue reliance on these forward-looking statements . we disclaim any obligation to update information contained in any forward-looking statement . these forward-looking statements include , without limitation , statements regarding the following : the effects that adverse global economic conditions and fluctuations in the global credit and equity markets may have on our financial condition and results of operations ; the effects and amount of competitive pricing pressure on our product lines ; our ability to moderate future average selling price declines ; the effect of product mix , capacity utilization , yields , fixed cost absorption , competition and economic conditions on gross margin ; the amount of , and changes in , demand for our products and those of our customers ; our expectation that in the future we will acquire additional businesses that we believe will complement our existing businesses ; our expectation that in the future we will enter into joint development agreements or other business or strategic relationships with other companies ; the level of orders that will be received and shipped within a quarter ; our expectation that our days of inventory levels in the june 2017 quarter will be 97 days to 106 days . our belief that our existing level of inventory will allow us to maintain competitive lead times and provide strong delivery performance to our customers ; the effect that distributor and customer inventory holding patterns will have on us ; our belief that customers recognize our products and brand name and use distributors as an effective supply channel ; anticipating increased customer requirements to meet voluntary criteria related to the reduction or elimination of substances in our products ; our belief that deferred cost of sales are recorded at their approximate carrying value and will have low risk of material impairment ; our belief that our direct sales personnel combined with our distributors provide an effective means of reaching our customer base ; our ability to increase the proprietary portion of our analog and interface product lines and the effect of such an increase ; our belief that our processes afford us both cost-effective designs in existing and derivative products and greater functionality in new product designs ; the impact of any supply disruption we may experience ; our ability to effectively utilize our facilities at appropriate capacity levels and anticipated costs ; that we adjust capacity utilization to respond to actual and anticipated business and industry-related conditions ; that our existing facilities will provide sufficient capacity to respond to increases in demand with modest incremental capital expenditures ; that manufacturing costs will be reduced by transition to advanced process technologies ; our ability to maintain manufacturing yields ; continuing our investments in new and enhanced products ; the cost effectiveness of using our own assembly and test operations ; our anticipated level of capital expenditures ; continuation and amount of quarterly cash dividends ; the sufficiency of our existing sources of liquidity to finance anticipated capital expenditures and otherwise meet our anticipated cash requirements , and the effects that our contractual obligations are expected to have on them ; 32 that our u.s. operations and capital requirements are funded primarily by cash generated from u.s. operating activities , which has been and is expected to be sufficient to meet our business needs in the u.s. for the foreseeable future ; the impact of seasonality on our business ; the accuracy of our estimates used in valuing employee equity awards ; that the resolution of legal actions will not have a material effect on our business , and the accuracy of our assessment of the probability of loss and range of potential loss ; the recoverability of our deferred tax assets ; the adequacy of our tax reserves to offset any potential tax liabilities , having the appropriate support for our income tax positions and the accuracy of our estimated tax rate ; our belief that our determinations with respect to the tax consequences of the atmel acquisition are reasonable ; our belief that the expiration of any tax holidays will not have a material impact on our overall tax expense or effective tax rate ; our belief that the estimates used in preparing our consolidated financial statements are reasonable ; our belief that some of the recently issued accounting pronouncements listed in this document will not have a material impact on our consolidated financial statements ; the accuracy of our estimates of the useful life and values of our property , assets and other liabilities ; the adequacy of our patent strategy , and our belief that the impact of the expiration of story_separator_special_tag our engineers utilize advanced computer-aided design tools and software to perform circuit design , simulation and layout , and our in-house photomask and wafer fabrication facilities enable us to rapidly verify design techniques by processing test wafers quickly and efficiently . we are committed to continuing our investment in new and enhanced products , including development systems , and in our design and manufacturing process technologies . we believe these investments are significant factors in maintaining our competitive position . our current research and development activities focus on the design of new microcontrollers , digital signal controllers , memory , analog and mixed-signal products , flash-ip systems , development systems , software and application-specific software libraries . we are also developing new design and process technologies to achieve further cost reductions and performance improvements in our products . we market and sell our products worldwide primarily through a network of direct sales personnel and distributors . our distributors focus primarily on servicing the product and technical support requirements of a broad base of diverse customers . we believe that our direct sales personnel combined with our distributors provide an effective means of reaching this broad and diverse customer base . our direct sales force focuses primarily on major strategic accounts in three geographical markets : the americas , europe and asia . we currently maintain sales and support centers in major metropolitan areas in north america , europe and asia . we believe that a strong technical service presence is essential to the continued development of the embedded control market . many of our client engagement manager ( cems ) , embedded system engineer ( eses ) , and sales management personnel have technical degrees and have been previously employed in an engineering environment . we believe that the technical knowledge of our sales force is a key competitive advantage in the sale of our products . the primary mission of our ese team is to provide technical assistance to strategic accounts and to conduct periodic training sessions for cems and distributor sales teams . eses also frequently conduct technical seminars for our customers in major cities around the world , and work closely with our distributors to provide technical assistance and end-user support . see `` our operating results are impacted by both seasonality and the wide fluctuation of supply and demand in the semiconductor industry , '' on page 15 for discussion of the impact of seasonality on our business . 34 critical accounting policies and estimates general our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. we review the accounting policies we use in reporting our financial results on a regular basis . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent liabilities . on an ongoing basis , we evaluate our estimates , including those related to revenue recognition , business combinations , share-based compensation , inventories , income taxes , senior and junior subordinated convertible debt and contingencies . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . our results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions . we review these estimates and judgments on an ongoing basis . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . we also have other policies that we consider key accounting policies , such as our policy regarding revenue recognition to original equipment manufacturers ( oems ) ; however , we do not believe these policies require us to make estimates or judgments that are as difficult or subjective as our policies described below . revenue recognition โ distributors our distributors worldwide generally have broad price protection and product return rights which prevent the sales pricing from being fixed or determinable at the time of shipment to our distributors . therefore , revenue recognition is deferred until the pricing uncertainty is resolved , which generally occurs when the distributor sells the product to their customer . at the time of shipment to these distributors , we record a trade receivable for the selling price as there is a legally enforceable right to payment , relieve inventory for the carrying value of goods shipped since legal title has passed to the distributor , and record the gross margin in deferred income on shipments to distributors on our consolidated balance sheets . in connection with our acquisitions of atmel and micrel , we acquired certain distributor relationships where revenue was recognized upon shipment to the distributors based on certain contractual terms or prevailing business practices that result in the price not being fixed and determinable at such time . following an acquisition , we undertake efforts to align the contract terms and business practices of the acquired entity with our own . once these efforts are complete , revenue recognition is changed . with respect to such distributor relationships acquired in the atmel acquisition , as of october 1 , 2016 , these business practices were conformed to those of our other distributors resulting in the deferral of revenue recognition until the distributor sells the product to their customers . with respect to such distributor relationships acquired in the micrel acquisition , in the december 2015 quarter , these distributor contracts were changed to be consistent with those of our other distributors which resulted in the deferral of revenue recognition under such contracts until the distributor sells the product to their customers .
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results of discontinued operations discontinued operations represent the mobile touch operations that we acquired as part of our acquisition of atmel . the mobile touch assets had been marketed for sale since our acquisition of atmel closed on april 4 , 2016 based on our management 's decision that such business was not a strategic fit for our product portfolio . on november 10 , 2016 , we completed the sale of the mobile touch assets to solomon systech ( limited ) international , a hong kong based semiconductor company . the transaction included the sale of certain semiconductor products , equipment , customer list , backlog , and a license to certain other intellectual property and patents related to atmel 's mobile touch product line . we also agreed to provide certain transition services to solomon systech , which were substantially complete as of march 31 , 2017. for financial statement purposes , the results of operations for this discontinued business have been segregated from those of the continuing operations and are presented in our consolidated financial statements as discontinued operations . net loss from discontinued operations for the year ended march 31 , 2017 was $ 6.0 million and consists of a pre-tax loss from operations of $ 8.2 million and a pre-tax gain on sale of $ 0.6 million . liquidity and capital resources we had $ 1,410.2 million in cash , cash equivalents and short-term and long-term investments at march 31 , 2017 , a decrease of $ 1,154.4 million from the march 31 , 2016 balance .
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substantially all of the operations are conducted through pebblebrook hotel , l.p. ( our `` operating partnership '' ) , a delaware limited partnership of which pebblebrook hotel trust is the sole general partner . in this report , we use the terms `` the company '' , `` we '' or `` our '' , to refer to pebblebrook hotel trust and its subsidiaries , unless the context indicates otherwise . overview overall in 2018 our portfolio performed at the high end of our guidance . the strongest markets of the year for us include naples , florida and key west , florida , both of which continue to recover from the negative impact of hurricane irma in 2017 , and san francisco , which is expected to be even stronger in 2019 as we see an incredibly favorable convention calendar following the moscone convention center renovation , combined with strong business and leisure hotel demand and limited supply growth . as we look ahead to 2019 , despite the softening global economic growth trends , group and transient business travel along with leisure travel demand remain solid . we continue to see supply increases in many of the larger urban markets such as new york , los angeles , miami , nashville , portland , seattle and chicago . on november 30 , 2018 , we completed our merger with lasalle hotel properties . the combined company , headquartered in bethesda , maryland , continues to be led by the senior management team leading us immediately prior to the merger . as of december 31 , 2018 , the company owned 63 hotels with a total of 15,253 guest rooms . during the year ended december 31 , 2018 , in addition to our merger with lasalle , we had the following transactions : the remediation of our 189-room laplaya beach resort and club ( โ laplaya โ ) property following damage caused by hurricane irma was completed in january 2018 with additional repair work that was completed during the third quarter of 2018. as of december 31 , 2018 , we reached a final settlement agreement with our insurance carriers totaling $ 20.5 million , and we recognized a gain of $ 13.1 million for the year ended december 31 , 2018 . on december 4 , 2018 , we sold the grand hotel minneapolis for $ 30.0 million . while we do not operate our hotel properties , both our asset management team and our executive management team monitor and work cooperatively with our hotel managers by advising and making recommendations in all aspects of our hotels ' operations , including property positioning and repositioning , revenue and expense management , operations analysis , physical design , renovation and capital improvements , guest experience and overall strategic direction . through these efforts , we seek to improve property efficiencies , lower costs , maximize revenues and enhance property operating margins , which we expect will enhance returns to our shareholders . key indicators of financial condition and operating performance we measure hotel results of operations and the operating performance of our business by evaluating financial and non-financial metrics such as room revenue per available room ( `` revpar '' ) ; average daily rate ( `` adr '' ) ; occupancy rate ( `` occupancy '' ) ; funds from operations ( `` ffo '' ) ; earnings before interest , income taxes , depreciation and amortization 38 ( `` ebitda '' ) ; and ebitda for real estate ( `` ebitda re '' ) . we evaluate individual hotel and company-wide performance with comparisons to budgets , prior periods and competing properties . adr , occupancy and revpar may be impacted by macroeconomic factors as well as regional and local economies and events . see `` non-gaap financial matters '' for further discussion of ffo , ebitda and ebidta re . hotel operating statistics the following table represents the key same-property hotel operating statistics for our hotels for the years ended december 31 , 2018 and 2017 . replace_table_token_8_th this schedule of hotel results for the year ended december 31 includes information from all of the hotels we owned as of december 31 , 2018 , except for the grand hotel minneapolis for q4 in both 2018 and 2017 because it was sold during the fourth quarter of 2018 , and laplaya beach resort & club for q3 and q4 in both 2018 and 2017 because it was closed during the fourth quarter of 2017 due to the impact from hurricane irma . hotels acquired through the merger with lasalle hotel properties are excluded from january through november in both 2018 and 2017 , as the company 's ownership of these hotels began in december 2018. story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 5.7 million primarily due to additional real estate taxes , personal property taxes , property insurance and ground rent from the acquisition of the lasalle portfolio . corporate general and administrative โ corporate general and administrative expenses decreased by $ 1.5 million primarily as a result of the decrease in pre-opening expenses related to less hotel renovations in 2018. corporate general and administrative expenses consist of employee compensation costs , legal and professional fees , insurance , state franchise taxes and other expenses . transaction costs โ transaction costs increased by $ 75.0 million as a result of the merger with lasalle . transaction costs consist of transfer taxes and financial advisory , legal and other professional service fees in connection with the mergers and integration costs related to professional fees and employee-related costs , including compensation for transition employees . impairment and other losses โ impairment and other losses decreased by $ 4.6 million . in 2017 , we recognized a $ 5.0 million loss related to property damage sustained by laplaya as a result of hurricane irma and an impairment loss of $ 1.0 related to the dumont nyc . story_separator_special_tag equity in earnings ( losses ) of joint venture โ equity in losses of joint venture decreased from $ ( 64.8 ) million in 2016 to zero in 2017 as a result of redeeming our 49 % interest in a joint venture which owned six hotel properties in new york , new york ( the `` manhattan collection joint venture '' ) in october 2016. income tax ( expense ) benefit โ income tax expense remained consistent compared to the prior year . non-controlling interests โ non-controlling interests represent the allocation of income or loss of our operating partnership to the common units held by the ltip unit holders . distributions to preferred shareholders โ distributions to preferred shareholders decreased $ 3.6 million as a result of the redemptions of all of the series a preferred shares in march 2016 and all of the series b preferred shares in september 2016 which were offset , in part , by the issuance of the series d preferred shares in june 2016. issuance costs of redeemed preferred shares โ these issuance costs relate to the series a and series b preferred shares which we redeemed in march and september 2016 , respectively . these costs are included in the determination of net income attributable to common shareholders . other comprehensive income ( loss ) โ other comprehensive income ( loss ) increased by $ 29.9 million as a result of an increase in net income and the change in the fair values of our interest rate swaps . non-gaap financial measures 41 non-gaap financial measures are measures of our historical or future financial performance that are different from measures calculated and presented in accordance with u.s. gaap . we report ffo , ebitda and ebitda re , which are non-gaap financial measures that we believe are useful to investors as key measures of our operating performance . we calculate ffo in accordance with standards established by nareit , formerly known as the national association of real estate investment trusts , which defines ffo as net income ( calculated in accordance with u.s. gaap ) , excluding real estate related depreciation and amortization , gains ( losses ) from sales of real estate , impairments of real estate assets ( including impairment of real estate related joint ventures ) , the cumulative effect of changes in accounting principles and adjustments for unconsolidated partnerships and joint ventures . historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time . since real estate values instead have historically risen or fallen with market conditions , most industry investors consider presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves . by excluding the effect of real estate related depreciation and amortization including our share of the joint venture depreciation and amortization , gains ( losses ) from sales of real estate and impairments of real estate assets ( including impairment of real estate related joint ventures ) , all of which are based on historical cost accounting and which may be of lesser significance in evaluating current performance , we believe that ffo provides investors a useful financial measure to evaluate our operating performance . the following table reconciles net income ( loss ) to ffo and ffo available to common share and unit holders for the years ended december 31 , 2018 , 2017 and 2016 ( in thousands ) : replace_table_token_9_th ebitda is defined as earnings before interest , income taxes , depreciation and amortization . the white paper issued by nareit entitled โ earnings before interest , taxes , depreciation and amortization for real estate โ defines ebitda re as net income or loss ( computed in accordance with u.s. gaap ) , excluding interest expense , income tax , depreciation and amortization , gains or losses on the disposition of depreciated property ( including gains or losses on change of control ) , impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate , and after comparable adjustments for our portion of these items related to unconsolidated affiliates . we believe that ebitda and ebitda re provide investors useful financial measures to evaluate our operating performance , excluding the impact of our capital structure ( primarily interest expense ) and our asset base ( primarily depreciation and amortization ) . the following table reconciles net income ( loss ) to ebitda and ebitda re for the years ended december 31 , 2018 , 2017 and 2016 ( in thousands ) : 42 replace_table_token_10_th ffo , ebitda and ebitda re do not represent cash generated from operating activities as determined by u.s. gaap and should not be considered as alternatives to u.s. gaap net income ( loss ) , as indications of our financial performance , or to u.s. gaap cash flow from operating activities , as measures of liquidity . in addition , ffo , ebitda and ebitda re are not indicative of funds available to fund cash needs , including the ability to make cash distributions . critical accounting policies we consider these policies critical because they require estimates about matters that are inherently uncertain , involve various assumptions and require significant management judgment , and because they are important for understanding and evaluating our reported financial results . these judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods . applying different estimates or assumptions may result in materially different amounts reported in our financial statements . hotel properties investment in hotel properties estimation and judgment is required to allocate the purchase price to elements of our acquired hotel properties .
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results of operations at december 31 , 2018 and 2017 , we had 63 and 28 wholly owned properties and leasehold interests , respectively . all properties owned during these periods have been included in our results of operations during the respective periods since their dates of acquisition or through the dates of disposition . based on when a property was acquired or disposed , operating results for certain properties are not comparable for the years ended december 31 , 2018 and 2017 . the properties listed in the table below are hereinafter referred to as `` non-comparable properties '' for the periods indicated and all other properties are considered and referred to as `` comparable properties '' : non-comparable property for the property location acquisition/disposition date years ended 2018 and 2017 years ended 2017 and 2016 viceroy miami miami , fl june 1 , 2016 x the redbury hollywood hollywood , ca june 1 , 2016 x manhattan nyc ( 1 ) new york , ny october 19 , 2016 x dumont nyc ( 2 ) new york , ny october 19 , 2016 x x doubletree by hilton hotel bethesda -washington dc bethesda , maryland november 2 , 2016 x lasalle hotel properties ' portfolio ( 3 ) various november 30 , 2018 x the grand hotel minneapolis minneapolis , mn december 4 , 2018 x ( 1 ) we obtained full ownership of this property as a result of the joint venture redemption transaction on october 19 , 2016 and subsequently sold this property on december 20 , 2016 . ( 2 ) we obtained full ownership of this property as a result of the joint venture redemption transaction on october 19 , 2016 and subsequently sold this property on june 20 , 2017 .
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collectively , we refer to the holding company and all our subsidiaries , including non-insurance subsidiaries , as โ upc insurance , โ which is the preferred brand identification for our company . our company 's primary source of revenue is generated from writing insurance in connecticut , florida , georgia , hawaii , louisiana , massachusetts , new jersey , new york , north carolina , rhode island , south carolina and texas . we are also licensed to write property and casualty insurance in an additional six states ; however , we have not commenced writing in these states . our target market in such areas consists of states where the perceived threat of natural catastrophe has caused large national insurance carriers to reduce their concentration of policies . we believe an opportunity exists for upc insurance to write profitable business in such areas . we have historically grown our business through strong organic growth complemented by strategic acquisitions and partnerships , including our acquisitions of amco holding company ( amco ) and its subsidiaries , including acic , in april 2017 , iic in april 2016 , and family security holdings , llc ( fsh ) , including its subsidiary fsic in february 2015 , and our strategic partnership with a subsidiary of tokio marine kiln group limited ( kiln ) , which formed jic in august 2018. as a result of these transactions , along with the organic growth of premium in states in which we currently write premium , we have grown our policies in-force by 10.2 % from 528,193 policies in-force at december 31 , 2017 to 582,096 policies in-force at december 31 , 2018 . our business is subject to the impact of weather-related catastrophes on our loss and loss adjustment expenses ( lae ) . during the third quarter of 2017 , hurricane harvey made landfall in texas and hurricane irma made landfall in florida . in 2017 , we retained $ 83,000,000 of pre-tax catastrophe losses , net of reinsurance recoverable as a result of hurricanes . during the year ended december 31 , 2018 , we increased our loss and lae reserves as a result of development trends from hurricane irma that indicated our ultimate gross loss estimate should be increased . there was no net change or impact to our 2018 results as a result of this reserve re-estimation as it was 100 % ceded under our catastrophe reinsurance program . during the third quarter of 2018 , hurricane florence made landfall in north carolina , and during the fourth quarter of 2018 , hurricane michael made landfall in florida . we estimate retention of $ 50,000,000 of pre-tax catastrophe losses , net of reinsurance recoverable , as a result of these storms . the following discussion highlights significant factors influencing the consolidated financial position and results of operations of upc insurance . in evaluating our results of operations , we use premiums written and earned , policies in-force and new and renewal policies by geographic concentration . we also consider the impact of catastrophe losses and prior year development on our loss ratios , expense ratios and combined ratios . in monitoring our investments , we use credit quality , investment income , cash flows , realized gains and losses , unrealized gains and losses , asset diversification and portfolio duration . to evaluate our financial condition , we consider our liquidity , financial strength , ratings , book value per share and return on equity . 30 united insurance holdings corp. consolidated net income replace_table_token_6_th ( 1 ) loss ratio , net is calculated as losses and lae . net of losses ceded to reinsurers , relative to net premiums earned . we use this operating metric to analyze our loss trends . ( 2 ) expense ratio is calculated as the sum of all operating expenses less interest expense relative to net premiums earned . we use this operating metric to analyze our expense trends . ( 3 ) combined ratio is the sum of the loss ratio , net and expense ratio , net . ( 4 ) for the year ended december 31 , 2018 , we presented $ 42,416,000 of ceding commissions earned as a $ 9,323,000 decrease to ceded earned premium and a $ 33,093,000 decrease in policy acquisition costs which reduced other revenue and removed the distortive impact to our underlying combined ratio . ( 5 ) underlying combined ratio , a measure that is not based on gaap , is reconciled above to the combined ratio , the most directly comparable gaap measure . additional information regarding non-gaap financial measures presented in this form 10-k can be found in โ definitions of non-gaap measures โ , below . ( 6 ) included in both the expense ratio and the combined ratio are merger professional fees and amortization expense predominately associated with the amco , iic , and fsh acquisitions , which cause comparative differences among periods . 31 united insurance holdings corp. definitions of non-gaap measures we believe that investors ' understanding of upc insurance 's performance is enhanced by our disclosure of the following non-gaap measures . our methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited . combined ratio excluding the effects of current year catastrophe losses , prior year reserve development and ceding commission income earned ( underlying combined ratio ) is a non-gaap ratio , which is computed by subtracting the effect of current year catastrophe losses , prior year development , and ceding commission income earned related to our quota share reinsurance agreement from the combined ratio . we believe that this ratio is useful to investors and it is used by management to reveal the trends in our business that may be obscured by current year catastrophe losses , prior year development , and ceding commission income earned . story_separator_special_tag replace_table_token_10_th ( 1 ) for the year ended december 31 , 2018 , we presented $ 42.4 million of ceding commissions earned as a $ 9.3 million decrease to ceded earned premium and a $ 33.1 million decrease in policy acquisition costs , which reduced other revenue and remove the distortive impact to our underlying expense ratio ( 2 ) underlying expense is a non-gaap financial measure and is reconciled above to total operating expenses , the most directly comparable gaap measure . additional information regarding non-gaap financial measures presented in this form 10-k can be found in the โ definitions of non-gaap measures โ section , above . loss and lae increased by $ 43,054,000 , or 11.8 % , to $ 408,589,000 for the year ended december 31 , 2018 , from $ 365,535,000 for the year ended december 31 , 2017 . loss and lae expense as a percentage of net earned premiums decreased 3.1 points to 59.3 % for the year ended december 31 , 2018 , compared to 62.4 % for the year ended december 31 , 2017. excluding catastrophe losses and reserve development , our gross underlying loss and lae ratio for the year ended december 31 , 2018 would have been 25.8 % , an increase of 0.3 points from 25.5 % during the year ended december 31 , 2017 . policy acquisition costs increased by $ 27,696,000 , or 15.8 % , to $ 203,140,000 for the year ended december 31 , 2018 , from $ 175,444,000 for the year ended december 31 , 2017 . the primary drivers of the increase in costs were the managing general agent fees paid to amrisc in relation to amco commercial premium which increased by approximately $ 50,401,000 , along with an increase in agent commission costs of approximately $ 12,264,000 , which were generally consistent with our growth in premium production and higher average market commission rates outside of florida . these increases were partially offset by the 34 united insurance holdings corp. approximately $ 33,093,000 decrease in costs resulting from the change in presentation of ceding commission income as an offset to policy acquisition costs in 2018. operating and underwriting expenses increased by $ 12,915,000 , or 46.7 % , to $ 40,590,000 for the year ended december 31 , 2018 , from $ 27,675,000 for the year ended december 31 , 2017 , primarily due to approximately $ 3,715,000 of increased agent incentive costs from our new contingent commission program , along with approximately $ 3,070,000 in incurred expenses related to our investment in software and approximately $ 1,464,000 of assessments incurred in texas and north carolina throughout the year . general and administrative expenses decreased by $ 15,650,000 , or 19.1 % , to $ 66,112,000 for the year ended december 31 , 2018 , from $ 81,762,000 for the year ended december 31 , 2017 , primarily due to higher amortization costs related to the merger with amco incurred during the last three quarters of 2017 of approximately $ 16,095,000 that were fully expensed at the end of the first quarter of 2018. we experienced unfavorable reserve development in the current year and its historical impact on our net loss and net underlying loss ratios is outlined in the following table . replace_table_token_11_th ( 1 ) underlying net loss and lae ratio is a non-gaap measure and is reconciled above to the consolidated net loss and lae ratio , the most directly comparable gaap measure . additional information regarding non-gaap financial measures presented in this form 10-k can be found in the โ definitions of non-gaap measures โ section , above . 35 united insurance holdings corp. story_separator_special_tag style= '' line-height:120 % ; text-align : center ; font-size:10pt ; '' > replace_table_token_16_th we classify all of our investments as available-for-sale . our investments at december 31 , 2018 and 2017 consisted mainly of u.s. government and agency securities , states , municipalities and political subdivisions and securities of investment-grade 39 united insurance holdings corp. corporate issuers . our equity holdings consisted mainly of securities issued by companies in the energy , consumer products , financial , technology and industrial sectors . most of the corporate bonds we hold reflected a similar diversification . at december 31 , 2018 , approximately 87.2 % of our fixed maturities were u.s. treasuries , or corporate bonds rated โ a โ or better , and 12.8 % were corporate bonds rated โ bbb โ or โ bb โ . reinsurance we follow industry practice of reinsuring a portion of our risks . reinsurance involves transferring , or โ ceding โ , all or a portion of the risk exposure on policies we write to another insurer , known as a reinsurer . to the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements , we remain primarily liable for the entire insured loss under the policies we write . our reinsurance program is designed , utilizing our risk management methodology , to address our exposure to catastrophes . according to the insurance service office ( iso ) , a catastrophe loss is defined as a single unpredictable incident or series of closely related incidents that result in $ 25,000,000 or more in u.s. industry-wide direct insured losses to property and that affect a significant number of policyholders and insurers ( iso catastrophes ) . in addition to iso catastrophes , we also include as catastrophes those events ( non-iso catastrophes ) , which may include losses , that we believe are , or will be , material to our operations which we define as incidents that result in $ 1,000,000 or more in losses for multiple policyholders . during the second quarter of 2018 , we placed our reinsurance program for the 2018 hurricane season . we purchased catastrophe excess of loss reinsurance protection of $ 3,100,000,000 . the contracts reinsure for personal and commercial lines property excess catastrophe losses caused by multiple perils including hurricanes , tropical storms , and tornadoes .
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results of operations - 2017 compared to 2016 net income for the year ended december 31 , 2017 was $ 10,145,000 , or $ 0.27 per diluted share , compared to net income of $ 5,698,000 , or $ 0.26 per diluted share , for the year ended december 31 , 2016 . the increase in net income was primarily due to an increase in gross premiums earned and improvement in our underlying loss ratio , as well as the favorable impact of the tax cuts and jobs act of 2017. revenues our total gross written premium increased by $ 332,692,000 , or 47.0 % , to $ 1,040,848,000 for the year ended december 31 , 2017 , from $ 708,156,000 for the year ended december 31 , 2016 , primarily reflecting our merger with amco on april 3 , 2017 , as well as strong organic growth in new and renewal business generated in our gulf and northeast regions . the breakdown of the yearโoverโyear changes in both direct written and assumed premiums by region and gross written premium by line of business is shown in the following table : replace_table_token_12_th ( 1 ) โ gulf โ is comprised of hawaii , louisiana and texas ; โ northeast โ is comprised of connecticut , massachusetts , new jersey , new york and rhode island ; and โ southeast โ is comprised of georgia , north carolina and south carolina . ( 2 ) assumed premiums written for 2017 primarily included commercial property business assumed from unaffiliated insurers and 2016 premium assumed included homeowners ' business from citizens property insurance corporation and texas windstorm insurance association . ( 3 ) includes gross written premium from flood policies . replace_table_token_13_th ( 1 ) only includes new and renewal homeowner , commercial and dwelling fire policies written during the year .
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on october 29 , 2018 , the company and zaklady farmaceutyczne polpharma ( โ polpharma โ ) extended the term of the supply agreement to eight years from the date of the launch of the product . in addition , under the terms of the amended agreement , polpharma is eligible to receive a milestone payment totaling $ 2.0 million upon the achievement of a certain development milestone , as well as royalty payments for sales of the product . f- 10 avenue therapeutics , inc notes to financial statements note 5 โ related party agreements founders agreement and management services agreement with fortress fortress entered into a founders agreement with avenue in february 2015 , pursuant to which fortress assigned to avenue all of its rights and interest under fortress 's license agreement with revogenex for iv tramadol ( the โ license agreement โ ) . as consideration for the founders agreement , avenue assumed $ 3.0 million in debt ( see note 7 ) that fortress accumulated to nsc for expenses and costs of forming avenue and obtaining the iv tramadol license , of which $ 3.0 million represents the acquisition of the license agreement . as additional consideration for the transfer of rights under the founders agreement , avenue shall also : ( i ) issue annually to fortress , on the anniversary date of the founders agreement , shares of common stock equal to two and one half percent ( 2.5 % ) of the fully-diluted outstanding equity of avenue at the time of issuance ; ( ii ) pay an equity fee in shares of avenue common stock , payable within five ( 5 ) business days of the closing of any equity or debt financing for avenue or any of its respective subsidiaries that occurs after the effective date of the founders agreement and ending on the date when fortress no longer has majority voting control in avenue 's voting equity , equal to two and one half percent ( 2.5 % ) of the gross amount of any such equity or debt financing ; and ( iii ) pay a cash fee equal to four and one half percent ( 4.5 % ) of avenue 's annual net sales , payable on an annual basis , within ninety ( 90 ) days of the end of each calendar year . in the event of a change in control ( as it is defined in the founders agreement ) , fortress will be paid a one-time change in control fee equal to five ( 5x ) times the product of ( i ) net sales for the twelve ( 12 ) months immediately preceding the change in control and ( ii ) four and one-half percent ( 4.5 % ) . this additional consideration was waived on november 12 , 2018 with the waiver agreement signed between avenue , fortress and invagen . on september 13 , 2016 , the company entered into an amended and restated the founders agreement ( โ a & r founders agreement โ ) with fortress . the a & r founders agreement eliminated the annual equity fee in connection with the original agreement and added a term of 15 years , which upon expiration automatically renews for successive one-year periods unless terminated by fortress or a change in control occurs . concurrently with the a & r founders agreement the company entered into an exchange agreement whereby the company exchanged fortress ' 2.3 million class a common shares for approximately 2.5 million common shares and 250,000 class a preferred shares ( see note 9 ) . on june 26 , 2017 , the company issued 158,125 common shares to fortress representing 2.5 % of common shares issued in connection with the ipo ( see note 9 ) . the company recorded expense of approximately $ 0.9 million related to the financing fee in general and administrative expenses in the statement of operations for the year ended december 31 , 2017. effective as of february 17 , 2015 , fortress entered into a management services agreement ( the โ msa โ ) with avenue and each of avenue 's current directors and officers who are directors or officers of fortress , excluding services provided by dr. lucy lu , the company 's current chief executive officer as of june 26 , 2017 and the former chief financial officer of fortress ( resigned as of june 26 , 2017 ) , to provide services to avenue pursuant to the terms of the msa . pursuant to the terms of the msa , for a period of five ( 5 ) years , fortress will render advisory and consulting services to avenue . services provided under the msa may include , without limitation , ( i ) advice and assistance concerning any and all aspects of avenue 's operations , clinical trials , financial planning and strategic transactions and financings and ( ii ) conducting relations on behalf of avenue with accountants , attorneys , financial advisors and other professionals ( collectively , the โ services โ ) . story_separator_special_tag forward-looking statements statements in the following discussion and throughout this report that are not historical in nature are โ forward-looking statements. โ you can identify forward-looking statements by the use of words such as โ expect , โ โ anticipate , โ โ estimate , โ โ may , โ โ will , โ โ should , โ โ intend , โ โ believe , โ and similar expressions . story_separator_special_tag 44 the spma was approved by a majority of our stockholders , including a majority of our non-affiliated stockholders , at our special shareholder meeting on february 6 , 2019. on february 8 , 2019 , the company and invagen consummated the stock purchase transaction whereby invagen acquired 5,833,333 shares of our common stock at $ 6.00 per share for total gross consideration of $ 35.0 million , representing a 33.3 % stake in our capital stock on a fully diluted basis . our net loss for the years ended december 31 , 2018 and 2017 was approximately $ 21.5 million and $ 12.3 million , respectively . as of december 31 , 2018 , we had an accumulated deficit of approximately $ 42.2 million . substantially all our net losses resulted from costs incurred in connection with our research and development program of iv tramadol and from general and administrative costs associated with our operations . we expect to continue to incur increased research and development costs and increased general and administration related costs and incur operating losses for at least the next several years as we develop and seek regulatory approval for iv tramadol in the u.s. we may need to obtain additional capital through the sale of debt or equity financings or other arrangements to fund our operations and research and development activity ; however , there can be no assurance that we will be able to raise needed capital under acceptable terms , if at all . the sale of additional equity may dilute existing stockholders and newly issued shares may contain senior rights and preferences compared to currently outstanding shares of common stock . issued debt securities may contain covenants and limit our ability to pay dividends or make other distributions to stockholders . if we are unable to obtain such additional financing , future operations would need to be scaled back or discontinued . we are a majority controlled subsidiary of fortress . for related party transactions , see note 5. avenue therapeutics , inc. was incorporated in delaware on february 9 , 2015. our executive offices are located at 2 gansevoort street , 9th floor , new york , ny 10014. our telephone number is ( 781 ) 652-4500 , and our email address is info @ avenuetx.com . critical accounting policies and use of estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states ( gaap ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and the disclosure of contingent assets and liabilities in our financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses and stock-based compensation . we base our estimates on historical experience , known trends and events and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . research and development research and development costs are expensed as incurred . advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made . upfront and milestone payments due to third parties that perform research and development services on our behalf will be expensed as services are rendered or when the milestone is achieved . costs incurred in obtaining technology licenses are charged to research and development expense if the technology licensed has not reached technological feasibility and has no alternative future use . research and development costs primarily consist of personnel related expenses , including salaries , benefits , travel , and other related expenses , stock-based compensation , payments made to third parties for license and milestone costs related to in-licensed products and technology , payments made to third party contract research organizations for preclinical and clinical studies , investigative sites for clinical trials , consultants , the cost of acquiring and manufacturing clinical trial materials , costs associated with regulatory filings and patents , laboratory costs and other supplies . costs incurred in obtaining technology licenses are charged to research and development expense if the technology licensed has not reached commercial feasibility and has no alternative future use . the licenses purchased by us require substantial completion of research and development , regulatory and marketing approval efforts in order to reach commercial feasibility and has no alternative future use . accordingly , the total purchase price for the licenses acquired are reflected as research and development โ licenses acquired on our statement of operations . annual stock dividend in september 2016 , in connection with the amended and restated articles of incorporation , we issued 250,000 class a preferred shares to fortress . the class a preferred shares entitle the holder to a stock dividend equal to 2.5 % of our fully diluted outstanding equity ( the annual stock dividend ) . on june 13 , 2018 , our stockholders adopted an amendment to our third amended and restated certificate of incorporation amending the payment date going forward to january 1 of each year .
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results of operations comparison of the years ended december 31 , 2018 and 2017 replace_table_token_3_th research and development expenses for the years ended december 31 , 2018 and 2017 , research and development expenses were $ 17.7 million and $ 6.7 million , respectively . the $ 11.0 million increase primarily reflects an increase of $ 10.2 million in clinical trial costs associated with the completion of the bunionectomy study in may 2018 , the ongoing safety study and the initiation of the abdominoplasty study in december 2018. there were also increases of $ 0.4 million in personnel costs and $ 0.4 million in stock compensation costs associated with increased headcount . research and development expenses โ licenses acquired for the years ended december 31 , 2018 and 2017 , research and development expenses โ licenses acquired were $ 0 and $ 1.1 million , respectively . the $ 1.1 million expense in 2017 represents the payment of the annual class a preferred stock dividend of 2.5 % of the fully dilutive shares . there was no payment for the year ended december 31 , 2018 due to the spma with invagen . general and administrative expenses for the years ended december 31 , 2018 and 2017 , general and administrative expenses were $ 4.1 million and $ 3.6 million , respectively . the $ 0.5 million increase primarily reflects increases of $ 0.2 million for personnel costs , $ 0.4 million for legal costs , $ 0.1 million for marketing research cost and $ 0.2 million for professional fees partially offset by a decrease of $ 0.4 million for stock compensation costs associated with the 2.5 % financing fee due to fortress from the ipo in 2017. interest income interest income was $ 0.1 million for the years ended december 31 , 2018 and 2017 , respectively .
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unless stated otherwise , all financial information presented below , throughout this report , and in the consolidated financial statements and related notes includes mannatech and all of our subsidiaries on a consolidated basis . refer to the non-gaap financial measure section herein for a description of how constant dollar ( โ constant dollar โ ) growth rate ( a non-gaap financial metric ) is determined . company overview mannatech is a global wellness solution provider , which was incorporated and began operations in november 1993. we develop and sell innovative , high quality , proprietary nutritional supplements , topical and skin care and anti-aging products , and weight-management products that target optimal health and wellness . we currently sell our products in three regions : ( i ) the americas ( the united states , canada and mexico ) ; ( ii ) europe/the middle east/africa ( โ emea โ ) ( austria , the czech republic , denmark , estonia , finland , germany , the republic of ireland , namibia , the netherlands , norway , south africa , spain , sweden and the united kingdom ) ; and ( iii ) asia/pacific ( australia , japan , new zealand , the republic of korea , singapore , taiwan , hong kong , and china ) . we conduct our business as a single reporting segment and primarily sell our products through a network of approximately 183,000 active associates and preferred customer positions held by individuals that purchased our products and or packs or paid associate fees during the last 12 months , who we refer to as current associates and preferred customers . new pack sales and the receipt of new associate fees in connection with new positions in our network are leading indicators for the long-term success of our business . new associate or preferred customer positions are created in our network when our associate fees are paid or packs and products are purchased for the first time under a new account . we operate as a seller of nutritional supplements , topical and skin care and anti-aging products , and weight-management products through our network marketing distribution channels operating in 24 countries and direct e-commerce retail in china . we review and analyze net sales by geographical location and by packs and products on a consolidated basis . each of our subsidiaries sells similar products and exhibits similar economic characteristics , such as selling prices and gross margins . because we sell our products through network marketing distribution channels , the opportunities and challenges that affect us most are : recruitment of new and retention of current associates and preferred customers that occupy sales or purchasing positions in our network ; entry into new markets and growth of existing markets ; niche market development ; new product introduction ; and investment in our infrastructure . our subsidiary in china , meitai , is currently operating as a traditional retailer under a cross-border e-commerce model . meitai can not legally conduct a direct selling business in china unless it acquires a direct selling license in china . 40 current economic conditions and recent developments overall net sales decreased $ 6.3 million , or 4.0 % , for 2020 , as compared to 2019. our 2020 net sales declined $ 4.2 million , or 2.7 % , on a constant dollar basis ( see non-gaap financial measures , below ) , and unfavorable foreign exchange caused a $ 2.1 million decrease in gaap net sales as compared to 2019. the net sales comparisons for the year ended december 31 , 2020 and december 31 , 2019 were primarily affected by foreign currency translation and the worldwide spread of covid-19 . excluding the effects due to the translation of foreign currencies into u.s. dollars , net sales would have decreased $ 4.2 million for 2020. these adjusted net sales expressed in constant dollars are a non-gaap financial measure discussed in further detail below . story_separator_special_tag style= '' margin-bottom:6pt ; padding-left:54pt ; text-indent : -18pt '' > changes in consumer demand ; changes in the number of independent associates and preferred customers ; changes in competitors ' products ; changes in economic conditions ; changes in regulations ; announcements of new scientific studies and breakthroughs ; introduction of new products ; discontinuation of existing products ; adverse publicity ; changes in our commissions and incentives programs ; direct competition ; and fluctuations in foreign currency exchange rates . our sales mix for the years ended december 31 , was as follows ( in millions , except percentages ) : replace_table_token_12_th product sales our product sales are made to our independent associates and preferred customers at published wholesale prices . product sales for the year ended december 31 , 2020 decreased by $ 8.4 million , or 5.4 % , to $ 146.2 million , as compared to $ 154.6 million for the same period in 2019. the decrease in product sales was primarily due to a decrease in the number of orders processed . the average order value in 2020 was $ 183 , as compared to $ 190 for the same period in 2019. the number of orders processed during the year ended december 31 , 2020 decreased by 0.1 % as compared to the same period in 2019 . 43 pack sales and associate fees the company collects associate fees in lieu of selling packs in certain markets . associate fees are paid annually by new and continuing associates to the company , which entitle them to earn commissions , benefits and incentives for that year . the company collected associate fees in lieu of pack sales within the united states , canada , south africa , japan , australia , new zealand , singapore , hong kong , taiwan , austria , the czech republic , denmark , estonia , finland , germany , the republic of ireland , the netherlands , norway , spain , sweden and the united kingdom . story_separator_special_tag for the year ended december 31 , 2020 , other operating costs decreased by $ 2.4 million , or 10.4 % , to $ 20.2 million , as compared to $ 22.6 million for the same period in 2019. for the year ended december 31 , 2020 , other operating costs , as a percentage of net sales , were 13.4 % , as compared to 14.3 % for the same period in 2019. the decrease was due to a $ 1.2 million decrease in travel and entertainment costs , a $ 0.6 million decrease in office expenses , a $ 0.3 million decrease in legal and consulting fees , and a $ 0.3 million decrease in credit card fees , sales tax adjustments and other operating costs . 45 depreciation and amortization expense for the years ended december 31 , 2020 and 2019 , depreciation and amortization expense was $ 2.0 million and $ 2.1 million , respectively . other income ( expense ) , net primarily due to foreign exchange gains , other income ( expense ) was $ 1.2 million and $ ( 0.7 ) million for the years ending december 31 , 2020 and 2019 , respectively . provision for income taxes provision for income taxes include current and deferred income taxes for both our domestic and foreign operations . our statutory income tax rates by jurisdiction are as follows , for the years ended december 31 : replace_table_token_15_th ( 1 ) for 2020 , the company qualified for a reduced 5 % tax rate in china as a small low profit enterprise . ( 2 ) on august 1 , 2016 , the company established a legal entity in russia called mannatech rus ltd. , but currently does not operate in russia . ( 3 ) on july 1 , 2019 , the company suspended active operations in switzerland , but maintains the legal entity . ( 4 ) on march 21 , 2014 , the company suspended operations in the ukraine , but maintains the legal entity , mannatech ukraine llc . foreign tax income from our international operations is subject to taxation in the countries in which we operate . although we may receive foreign income tax credits that would reduce the total amount of income taxes owed in the united states , we may not be able to fully utilize our foreign income tax credits in the united states . 46 u.s. tax for the years ended december 31 , 2020 and 2019 , the company 's effective tax rate was ( 9.4 ) % and 42.5 % , respectively . in 2020 , the company had a significant decrease in its rate due to the carryback of u.s. net operating losses as allowed by the coronavirus aid , relief , and economic security act ( โ cares act โ ) , enacted on march 27 , 2020. in 2019 , the company had a higher effective rate due to its mix of earnings across jurisdictions and valuation allowance recorded on certain losses . at december 31 , 2020 and 2019 , the company 's valuation allowance was $ 11.9 million and $ 12.4 million , respectively . the provisions of accounting standards codification topic 740 , income taxes ( โ asc topic 740 โ ) require a company to record a valuation allowance when the โ more likely than not โ criterion for realizing a deferred tax asset can not be met . a company is to use judgment in reviewing both positive and negative evidence of realizing a deferred tax asset . furthermore , the weight given to the potential effect of such evidence is commensurate with the extent the evidence can be objectively verified . the valuation allowance against the company 's deferred tax assets consisted of the following at december 31 ( in thousands ) : replace_table_token_16_th seasonality we believe the impact of seasonality on our consolidated results of operations is minimal . we have experienced and believe we will continue to experience variations on our quarterly results of operations in response to , among other things : the timing of the introduction of new products and incentives ; our ability to attract and retain associates and preferred customers ; the timing of our incentives and contests ; the general overall economic outlook ; government regulations ; the outcome of certain lawsuits ; the perception and acceptance of network marketing ; and the consumer perception of our products and overall operations . as a result of these and other factors , our quarterly results may vary significantly in the future . period-to-period comparisons should not be relied upon as an indication of future performance since we can give no assurances that revenue trends in new markets , as well as in existing markets , will follow our historical patterns . the market price of our common stock may also be adversely affected by the above factors . 47 liquidity and capital resources cash and cash equivalents as of december 31 , 2020 , our cash , cash equivalents and restricted cash decreased by 11.3 % , or $ 3.5 million , to $ 27.5 million from $ 31.0 million as of december 31 , 2019. the company is required to restrict cash for ( i ) direct selling insurance premiums and credit card sales in the republic of korea ; ( ii ) reserve on credit card sales in the united states and canada ; and ( iii ) australia building lease collateral . the current portion of restricted cash at each of december 31 , 2020 and 2019 was $ 0.9 million . fluctuations in currency rates produced an increase of $ 1.3 million in cash and cash equivalents in 2020 as compared to a decrease of $ 0.6 million in 2019. our principal use of cash is to pay for operating expenses , including commissions and incentives , capital assets , inventory purchases , and periodic cash dividends . we fund our business objectives , operations , and expansion of our operations through net cash flows from operations rather than incurring long-term debt .
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results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 the tables below summarize our consolidated operating results in dollars and as a percentage of net sales for the years ended december 31 , 2020 and 2019 ( in thousands , except percentages ) . replace_table_token_8_th 41 non-gaap financial measures to supplement our financial results presented in accordance with generally accepted accounting principles in the united states ( `` gaap '' ) , we disclose operating results that have been adjusted to exclude the impact of changes due to the translation of foreign currencies into u.s. dollars , including changes in : net sales , gross profit , and income ( loss ) from operations . we refer to these adjusted financial measures as constant dollar items , which are non-gaap financial measures . we believe these measures provide investors an additional perspective on trends . to exclude the impact of changes due to the translation of foreign currencies into u.s. dollars , we calculate current year results and prior year results at a constant exchange rate , which is the prior year 's rate . currency impact is determined as the difference between actual growth rates and constant currency growth rates .
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a monitoring trustee has been appointed by the district court that has the power and authority to monitor the defendants ' compliance with the final judgment and settle disputes among the defendants regarding compliance with the provisions of the final judgment and may recommend action to the doj in the event a party fails to comply with the final judgment . โ fcc build-out commitments โ in a letter filed with the fcc on july 26 , 2019 , we voluntarily committed to deploy a nationwide 5g broadband network and meet revised timelines relating to the build-out of our aws-4 , lower 700 mhz e block , aws h block and 600 mhz spectrum assets , subject to certain penalties . pursuant to these commitments , we requested multi-year extensions to deploy our aws-4 , lower 700 mhz e block , and aws h block spectrum , and we have committed to build out our 600 mhz licenses on an accelerated schedule to better align with our 5g deployment . we have also committed to offer 5g broadband service to certain population coverage targets , along with minimum core network , tower and spectrum use targets , and have waived our right to deploy any technology of our choice under the fcc 's โ flexible use โ rules with respect to these spectrum bands . failure to meet the various commitments would require us to pay voluntary contributions totaling up to $ 2.2 billion to the fcc and would subject certain licenses in the aws-4 , lower 700 mhz e block , and aws h block spectrum to forfeiture . we have also agreed not to sell our aws-4 and 600 mhz spectrum for six years without prior doj and fcc approval ( unless such sale is part of a change of control of dish network ) . additionally , we have agreed not to lease a certain percentage of network capacity on our aws-4 and 600 mhz spectrum for six years to the three largest u.s. wireless carriers ( i.e. , at & t , verizon and ntm ) , without prior fcc approval . on november 5 , 2019 , the fcc released an order that , among other things , approved the sprint-tmus merger , tolled our existing march 7 , 2020 build-out deadline for our aws-4 and lower 700 mhz e block licenses , and directed the fcc 's wireless telecommunications bureau to adopt our commitments after a 30 day review period ( the โ fcc merger order โ ) . โ โ 87 โ โ beginning on november 5 , 2019 , and while the approval of the sprint-tmus merger is pending , the march 7 , 2020 build-out deadline for both the aws-4 and lower 700 mhz e block spectrum bands is tolled ; however , if the sprint-tmus merger is not consummated , the original deadline will be reinstated with extensions equal to the length of time the deadline was tolled . except for the tolling of the march 2020 deadline , we may not receive the requested buildout extensions unless and until the prepaid business sale closes . โ our 5g deployment commitments for each of the four spectrum bands are generally as follows : โ with respect to the 600 mhz licenses , we committed to offer 5g broadband service to at least 70 % of the u.s. population and to have deployed a core network no later than june 14 , 2023 , and to offer 5g broadband service to at least 75 % of the population in each partial economic area ( which are service areas established by the fcc ) no later than june 14 , 2025. note that these commitments are earlier than the current 600 mhz final build-out requirement date of june 2029. see note 15 in the notes to our consolidated financial statements in this annual report on form 10-k for further information . โ with respect to the aws-4 licenses , we committed to offer 5g broadband service to at least 20 % of the u.s. population and to have deployed a core network no later than june 14 , 2022 , and to offer 5g broadband service to at least 70 % of the u.s. population no later than june 14 , 2023 . โ with respect to the lower 700 mhz e block licenses , we committed to offer 5g broadband service to at least 20 % of the u.s. population who are covered by such licenses and to have deployed a core network no later than june 14 , 2022 , and to offer 5g broadband service to at least 70 % of the u.s. population who are covered by such licenses no later than june 14 , 2023 . โ with respect to the aws h block licenses , we committed to offer 5g broadband service to at least 20 % of the u.s. population and to have deployed a core network no later than june 14 , 2022 , and to offer 5g broadband service to at least 70 % of the u.s. population no later than june 14 , 2023 . โ on june 11 , 2019 , a number of state attorneys general filed a lawsuit against tmus , dt , sprint , and softbank in the southern district , alleging that the sprint-tmus merger , if consummated , would violate section 7 of the clayton act and therefore should be enjoined . on february 11 , 2020 , the southern district ruled in favor of the sprint-tmus merger . if this decision is appealed by any state attorneys general , we can not predict the timing or outcome of any such appeals process . story_separator_special_tag โ wireless โ beginning on november 5 , 2019 , and while the approval of the sprint-tmus merger is pending , the march 7 , 2020 build-out deadline for both the aws-4 and lower 700 mhz e block spectrum bands is tolled ; however , if the sprint-tmus merger is not consummated , the original deadlines ( as discussed in note 15 โ commitments and contingencies โ commitments โ wireless โ dish network spectrum โ in the notes to our consolidated financial statements in this annual report on form 10-k ) would be reinstated with extensions equal to the length of time the deadline was tolled . during october 2019 , we paused work on our narrowband iot deployment due to our march 2020 build-out deadlines being tolled . we have issued rfi/ps to various vendors in the wireless industry as we move forward with our 5g network deployment . โ โ 88 โ โ since 2008 , we have directly invested over $ 11 billion to acquire certain wireless spectrum licenses and related assets and made over $ 10 billion in non-controlling investments in certain entities , for a total of over $ 21 billion , as described further below . the $ 21 billion of investments related to wireless spectrum licenses described below does not include $ 5 billion of capitalized interest related to the carrying value of such licenses . see note 2 โ capitalized interest โ in the notes to our consolidated financial statements in this annual report on form 10-k for further information on capitalized interest . โ dish network spectrum โ we have directly invested over $ 11 billion to acquire certain wireless spectrum licenses and related assets . these wireless spectrum licenses are subject to certain interim and final build-out requirements , as well as certain renewal requirements . in march 2017 , we notified the fcc that we planned to deploy a narrowband iot network on certain of these wireless licenses , which was to be the first phase . we expected to complete the first phase by march 2020 , with subsequent phases to be completed thereafter . we have entered into vendor contracts with multiple parties for , among other things , base stations , chipsets , modules , tower leases , the core network , rf design , and deployment services for the first phase . among other things , initial rf design in connection with the first phase was complete , we had secured certain tower sites , and we were in the process of identifying and securing additional tower sites . the core network had been installed and commissioned . we installed the first base stations on sites in 2018 and were in the process of deploying the remaining base stations . during october 2019 , we paused work on our narrowband iot deployment due to our march 2020 build-out deadlines being tolled as discussed above . in addition , we have issued rfi/ps to various vendors in the wireless industry as we move forward with our 5g network deployment . we currently expect expenditures for our wireless projects to be between $ 250 million and $ 500 million during 2020 , excluding capitalized interest . we currently expect expenditures for our 5g network deployment to be approximately $ 10 billion , excluding capitalized interest . we will need to make significant additional investments or partner with others to , among other things , commercialize , build-out , and integrate these licenses and related assets , and any additional acquired licenses and related assets ; and comply with regulations applicable to such licenses . โ depending on the nature and scope of such commercialization , build-out , integration efforts , and regulatory compliance , any such investments or partnerships could vary significantly . in addition , as we consider our options for the commercialization of our wireless spectrum , we will incur significant additional expenses and will have to make significant investments related to , among other things , research and development , wireless testing and wireless network infrastructure . we may also determine that additional wireless spectrum licenses may be required to commercialize our wireless business and to compete with other wireless service providers . see note 2 โ capitalized interest โ and note 15 โ commitments and contingencies โ commitments โ wireless โ dish network spectrum โ in the notes to our consolidated financial statements in this annual report on form 10-k for further information . โ dish network non-controlling investments in the northstar entities and the snr entities related to aws-3 wireless spectrum licenses โ during 2015 , through our wholly-owned subsidiaries american aws-3 wireless ii l.l.c . ( โ american ii โ ) and american aws-3 wireless iii l.l.c . ( โ american iii โ ) , we initially made over $ 10 billion in certain non-controlling investments in northstar spectrum , llc ( โ northstar spectrum โ ) , the parent company of northstar wireless , l.l.c . ( โ northstar wireless , โ and collectively with northstar spectrum , the โ northstar entities โ ) , and in snr wireless holdco , llc ( โ snr holdco โ ) , the parent company of snr wireless licenseco , llc ( โ snr wireless , โ and collectively with snr holdco , the โ snr entities โ ) , respectively . on october 27 , 2015 , the fcc granted certain aws-3 wireless spectrum licenses ( the โ aws-3 licenses โ ) to northstar wireless and to snr wireless , respectively , which are recorded in โ fcc authorizations โ on our consolidated balance sheets . under the applicable accounting guidance in accounting standards codification 810 , consolidation ( โ asc 810 โ ) , northstar spectrum and snr holdco are considered variable interest entities and , based on the characteristics of the structure of these entities and in accordance with the applicable accounting guidance , we consolidate these entities into our
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financial highlights โ 2019 consolidated results of operations and key operating metrics โ โ revenue of $ 12.808 billion โ net income attributable to dish network of $ 1.400 billion and basic and diluted earnings per share of common stock of $ 2.92 and $ 2.60 , respectively โ loss of approximately 336,000 net pay-tv subscribers โ loss of approximately 511,000 net dish tv subscribers โ addition of approximately 175,000 net sling tv subscribers โ pay-tv arpu of $ 85.92 โ gross new dish tv subscriber activations of approximately 1.348 million โ dish tv churn rate of 1.62 % โ dish tv sac of $ 822 โ consolidated financial condition as of december 31 , 2019 โ โ cash , cash equivalents and current marketable investment securities of $ 2.860 billion โ total assets of $ 33.231 billion โ total long-term debt and finance lease obligations of $ 14.140 billion โ business segments โ we currently operate two primary business segments : ( 1 ) pay-tv ; and ( 2 ) wireless . โ pay-tv โ we are the nation 's fourth largest pay-tv provider and offer pay-tv services under the dish brand , and the sling brand . as of december 31 , 2019 , we had 11.986 million pay-tv subscribers in the united states , including 9.394 million dish tv subscribers and 2.592 million sling tv subscribers . โ competition has intensified in recent years as the pay-tv industry has matured . to differentiate our dish tv services from our competitors , we offer the hopper whole-home dvr and have continued to add functionality and simplicity for a more intuitive user experience . our hopper and joey ยฎ whole-home dvr promotes a suite of integrated features and functionality designed to maximize the convenience and ease of watching tv anytime and anywhere .
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components of net deferred tax assets , including a valuation allowance , are as follows as of august 31 , 2019 and august 31 , 2018 : august 31 , 2019 2018 deferred tax asset attributable to : net operating loss carry over $ 201,056 $ 149,948 less : valuation allowance ( 201,056 ) ( 149,948 ) net deferred tax asset $ โ $ โ the valuation allowance for deferred tax assets was $ 201,056 as of august 31 , 2019 and $ 149,948 as of august 31 , 2018. in assessing the recovery of the deferred tax assets , management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible . management considers the scheduled reversals of future deferred tax assets , projected future taxable income , and tax planning strategies in making this assessment . as a result , management determined it was more likely than not the deferred tax assets would not be realized as of august 31 , 2019 and august 31 , 2018. reconciliation between the statutory rate and the effective tax rate is as follows at august 31 , 2019 and august 31 , 2018 : replace_table_token_8_th the company 's fully owned subsidiary app board limited registered and located in hong kong . it is governed by the income tax law of the hong kong and is subject to a tax rate of 16.5 % . during the years ended august 31 , 2019 and 2018 , the company and its subsidiary have incurred a loss of ( $ 404,635 ) and ( $ 1,111,950 ) , respectively . as a result , the company and its subsidiary did not incur any income tax during the years ended august 31 , 2019 and 2018. note 13 โ concentration risk 45 % and 100 % of revenue was generated from one customer during the year ended august 31 , 2019 and 2018 , respectively . 100 % of account receivables was due from one customer as of august 31 , 2019 and august 31 , 2018. f- 16 note 14 โ commitments and contingencies operating lease the company leases office premises and a display store under non-cancelable operating lease agreements with an option to renew the lease . the rental expense for the year ended august 31 , 2019 and 2018 was $ 34,381 and $ 19,456 respectively . all leases are on a fixed payment basis . none of the leases include contingent rentals . the company had lease commitment of $ 229,120 as of august 31 , 2019 , of which $ 87,245 was within one year . future lease commitments fy 2020 $ 87,245 fy 2021 $ 87,245 fy 2022 $ 54,630 total $ 229,120 note 15 โ subsequent events in accordance with asc 855-10 , the company has analyzed its operations subsequent to august 31 , 2019 to the date these financial story_separator_special_tag forward-looking statements certain statements , other than purely historical information , including estimates , projections , statements relating to our business plans , objectives , and expected operating results , and the assumptions upon which those statements are based , are โ forward-looking statements โ within the meaning of the private securities litigation reform act of 1995 , section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. these forward-looking statements generally are identified by the words โ believes , โ โ project , โ โ expects , โ โ anticipates , โ โ estimates , โ โ intends , โ โ strategy , โ โ plan , โ โ may , โ โ will , โ โ would , โ โ will be , โ โ will continue , โ โ will likely result , โ and similar expressions . we intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the private securities litigation reform act of 1995 , and are including this statement for purposes of complying with those safe-harbor provisions . forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements . our ability to predict results or the actual effect of future plans or strategies is inherently uncertain . factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include , but are not limited to : changes in economic conditions , legislative/regulatory changes , availability of capital , interest rates , competition , and generally accepted accounting principles . these risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements . we undertake no obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise . further information concerning our business , including additional factors that could materially affect our financial results , is included herein and in our other filings with the sec . results of operations for the years ended august 31 , 2019 and 2018 story_separator_special_tag cash flow for the year ended august 31 , 2019 is mainly the result of a note receivable in the amount of $ 1,047,040. our negative investing cash flow for the year ended august 31 , 2018 is the result of our purchase of intangible assets for our cryptocurrency business and our investment in icrowdu , offset by the sale of the copyright and all other rights in a film named โ gong fu nv pai โ copyright and the mobile application ( amoney )assets to an unrelated party . story_separator_special_tag financing activities provided $ 3,400,000 in cash for the year ended august 31 , 2019 , as compared with $ 1,156,924 for the year ended august 31 , 2018. our positive operating cash flow for both periods was mainly proceeds from the sale of our common stock . there can be no assurance that we will be successful in raising additional funding . if we are not able to secure additional funding , the implementation of our business plan will be impaired . there can be no assurance that such additional financing will be available to us on acceptable terms or at all . off balance sheet arrangements as of august 31 , 2019 , there were no off balance sheet arrangements . critical accounting policies in december 2001 , the sec requested that all registrants list their most โ critical accounting polices โ in the management discussion and analysis . the sec indicated that a โ critical accounting policy โ is one which is both important to the portrayal of a company 's financial condition and results , and requires 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 . our critical accounting policies are set forth in note 2 to the financial statements . 16 recently issued accounting pronouncements in february 2016 , the fasb issued asu no . 2016-02 , leases . the standard requires that a lessee recognize the assets and liabilities that arise from operating leases . a lessee should recognize in its balance sheet a liability to make lease payments ( the lease liability ) and a right-of-use asset representing its right to use the underlying asset for the lease term . for leases with a term of 12 months or less , a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities . in transition , lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach . the guidance in asu 2016-02 is effective for annual and interim reporting periods beginning after december 15 , 2018. in september 2017 , the fasb has issued asu no . 2017-13 , revenue recognition ( topic 605 ) , revenue from contracts with customers ( topic 606 ) , leases ( topic 840 ) , and leases ( topic 842 ) : amendments to sec paragraphs pursuant to the staff announcement at the july 20 , 2017 eitf meeting and rescission of prior sec staff announcements and observer comments. โ the amendments in asu no . 2017-13 amends the early adoption date option for certain companies related to the adoption of asu no . 2014-09 and asu no . 2016-02. both of the below entities may still adopt using the public company adoption guidance in the related asus , as amended . the effective date is the same as the effective date and transition requirements for the amendments for asu 2014-09 and asu 2016-02. in february 2018 , the fasb issued guidance to address the income tax accounting treatment of the tax effects within other comprehensive income due to the enactment of the tax cuts and jobs act ( the โ act โ ) . this guidance allows entities to elect to reclassify the tax effects of the change in the income tax rates from other comprehensive income to retained earnings . the guidance is effective for periods beginning after december 15 , 2018 although early adoption is permitted . the company has evaluated and concluded that there was no impact on its consolidated financial position and results of operations . in march 2018 , the fasb issued asu 2018-05 : โ income taxes ( topic 740 ) -amendments to sec paragraphs pursuant to sec staff accounting bulletin no . 118 โ . the amendments in this asu add various sec paragraphs pursuant to the issuance of sec staff accounting bulletin no . 118 , which expresses the view of the staff regarding application of topic 740 , income taxes , in the reporting period that includes december 22 , 2017 โ the date on which the tax cuts and jobs act was signed into law . the company has evaluated and concluded that there was no impact on its consolidated financial position and results of operations . in june 2018 , the fasb issued asu 2018-07 : โ compensation โ stock compensation ( topic 718 ) โ improvements to nonemployee share-based payment accounting โ . this asu expands the scope of topic 718 , compensationโstock compensation ( which currently only includes share-based payments to employees ) to include share-based payments issued to nonemployees for goods or services . consequently , the accounting for share-based payments to nonemployees and employees will be substantially aligned . this asu supersedes subtopic 505-50 , equityโequity-based payments to nonemployees . the amendments in this asu are effective for public companies for fiscal years beginning after december 15 , 2018 , including interim periods within that fiscal year . for all other companies , the amendments are effective for fiscal years beginning after december 15 , 2019 , and interim periods within fiscal years beginning after december 15 , 2020. early adoption is permitted , but no earlier than a company 's adoption date of topic 606 , revenue from contracts with customers . the company does not currently expect the adoption of the amendment to have a material impact on its consolidated financial position and results of operations . in july 2018 , the fsab issued asu 2018-10 asc topic 842 : โ codification improvements to leases โ the amendments are to address stakeholders ' questions about how to apply certain aspects of the new guidance in accounting standards codification ( asc ) 842 , leases . the clarifications address the rate implicit in
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revenues we generated $ 433,567 in revenues from continued operations during the year ended august 31 , 2019 , as compared with $ 250,112 in revenues from continued operations for the same period ended august 31 , 2018. forty-five percent and 100 % of revenue was generated from one customer during the years ended august 31 , 2019 and 2018 , respectively . our cost of revenues was $ 174,533 for the year ended august 31 , 2019 , as compared with $ 150,022 for the same period ended august 31 , 2018. we had gross profit of $ 259,034 for the year ended august 31 , 2019 , as compared with a gross profit of $ 100,090 for the year ended august 31 , 2018. we expect to continue to achieve steadily increasing revenues within the coming months . however , as we are a start-up , we have limited operating history to rely upon and we can not guarantee that our business plan will be successful . operating expenses we incurred operating expenses in the amount of $ 702,088 for the year ended august 31 , 2019 , compared with operating expenses of $ 977,328 for the year ended august 31 , 2018. our operating expenses for the year ended august 31 , 2019 mainly consisted of general and administrative expenses of $ 525,109 , and related party - salaries and wages of $ 176,979. our operating expenses for the year ended august 31 , 2018 mainly consisted of general and administrative expenses of $ 897,587 , and related party - salaries and wages of $ 79,741. we anticipate our operating expenses will increase as we undertake our plan of operations , including increased costs associated with marketing , personnel , and other general and administrative expenses , along with increased professional fees associated with sec compliance as our business grows more complex and more expensive to maintain .
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% indenture - the indenture , dated as of august 7 , 2013 , pursuant to which we issued the $ 425 million 7.75 % senior secured notes due 2019. osha - occupational safety and health administration . pcc - pryor chemical company . pp & e - plant , property and equipment . properties - zena 's former rights , title and interests in all of its oil and natural gas properties located in wyoming county , pennsylvania . pryor facility - our chemical production facility located in pryor , oklahoma . purchaser - lsb funding l.l.c . renewed rights agreement - a renewed shareholder rights plan effective january 5 , 2009. renewed rights amendment - an amendment to a shareholder rights plan effective december 4 , 2015. retirement date - date of retirement of jack e. golsen as executive chairman of the board , december 31 , 2017. rfs - federal renewable fuel standards . sar - stock appreciation rights . sec - the u.s. securities and exchange commission . secured promissory note due 2019 - a secured promissory note between edc and a lender which matures in june 2019. secured promissory note due 2021 - a secured promissory note between edc and a lender which matures in march 2021. secured promissory note due 2023 - a secured promissory note between eda and a lender which matures in may 2023. s. golsen - steven j. golsen . senior secured notes - the senior secured notes , subsequently amended under the supplemental indenture , with a current interest rate of 8.50 % . senior secured notes indenture - the original 7.75 % indenture agreement , dated as of august 7 , 2013 , governing the 7.75 % senior secured notes , together with the first supplemental indenture to the original 7.75 % indenture , dated as of september 7 , 2016 . series b preferred - the series b 12 % cumulative convertible class c preferred stock . series d preferred - the series d 6 % cumulative convertible class c preferred stock . series e redeemable preferred - the 14 % series e redeemable preferred stock with participating rights and liquidating distributions based on a certain number of shares of our common stock . series f redeemable preferred - the series f redeemable preferred stock with one share to vote as a single class on all matters with our common stock equal to 456,225 shares of our common stock . sg & a - selling , general and administrative expense . shortfall - tax deficiencies recorded in equity to the extent of previous windfalls and then to the income statement . springing maturity date - 90 days prior to the maturity date of the senior secured notes , to the extent the senior secured notes are not refinanced or repaid prior to 90 days prior to january 17 , 2022. stock purchase agreement - an agreement between nibe and consolidated to purchase all of the outstanding common stock of the climate control group . 23 supplemental indenture - the first supplemental indenture , dated as of september 7 , 2016 , to the original 7.75 % indenture . transition agreement - an agreement between jack golsen and lsb , dated june 30 , 2017. tsa - a transition services agreement . turnaround - a planned major maintenance activity . uan - urea ammonium nitrate . umb - umb bank , n.a . u.s. - united states . warrants - a warrant to purchase 4,103,746 shares of our common stock at a par value $ 0.10 which was held by lsb funding llc . wasde - world agricultural supply and demand estimates report . wells fargo - wells fargo capital finance l.l.c . west fertilizer - west fertilizer company . windfall - tax benefits in excess of compensation costs . working capital revolver loan - our secured revolving credit facility . working capital revolver loan amendment - the senior secured revolving credit facility , amended effective january 17 , 2016. zena - zena energy l.l.c. , a former subsidiary of the company . 1992 agreement - an individual benefit agreement with a former executive . 2005 agreement - a death benefit agreement with jack e. golsen . 2015 restricted stock - grants under the 2008 plan of restricted stock during 2015 to certain executives . 2016 crop - corn crop marketing year ( september 1 - august 31 ) , which began in 2015 and ended in 2016 . 2016 restricted stock - grants under the 2016 plan of restricted stock during 2016 . 2017 crop - corn crop marketing year ( september 1 - august 31 ) , which began in 2016 and ended in 2017 . 2017 restricted stock - grants under the 2016 plan of restricted stock during 2017 . 2018 crop - corn crop marketing year ( september 1 - august 31 ) , which began in 2017 and ending in 2018 . 7.75 % senior secured notes - $ 425 million aggregate principal amount of 7.75 % senior secured notes due august 1 , 2019 issued pursuant to the original 7.75 % indenture , subsequently amended under the supplemental indenture , with a current interest rate of 8.50 % 12 % senior secured notes - the $ 50 million aggregate principal amount of 12 % senior secured notes due august 1 , 2019. item 1b . unresolved staff comments not applicable . 24 item 2. p roperties the following table presents our significant properties for 2017 : replace_table_token_2_th ( a ) we distribute our agricultural products through 11 wholesale and retail distribution centers , with 9 of the centers located in texas ( 8 of which we own and 1 of which we lease ) ; 1 center located in tennessee ( owned ) ; and 1 center located in missouri ( owned ) . ( b ) the percentage of utilization for the el dorado facility relates to its ammonia production capacity . the capacity utilization rate is based on 1,150 tons per day of produ ction since production began . story_separator_special_tag continue broadening of the distribution of our an and nitric acid products . we increased our overall sales volume of hdan in 2017 by approximately 60,000 tons or 26 % to approximately 290,000 tons compared to 230,000 tons for 2016 through various marketing initiatives which include : ( 1 ) storing and distributing hdan at our pryor and cherokee facilities which allows us to sell to new markets and customers out of those facilities and ; ( 2 ) educating growers on the additional applications for hdan . in 2018 , we will continue to focus on those initiatives and other initiatives in an effort to continue to grow our annual sales volumes over 2017. in addition , through increased marketing efforts , we increased our sales volumes of nitric acid by approximately 18,000 tons from 82,000 tons in 2016 to 100,000 tons in 2017. we will continue to focus on increasing our marketing efforts in order to expand our market for our nitric acid products in north america . improving the margins on sales of our products . over the last several years , we have focused on increasing our sales volumes to produce at optimal on-stream rates and lower our manufacturing costs per ton of product . beginning in 2018 , we will undertake a review of all sales to customers to determine if there are opportunities to improve the margins on sales to those customers and to explore if there are further product upgrading opportunities . reducing and controlling our cost structure . we have engaged outside experts to assist us in centralizing and expanding our company-wide procurement efforts . we expect this to be implemented by the end of the second quarter of 2018 and believe that these efforts will result in a reduction in expenses and capital spend in the aggregate of between $ 3 million to $ 5 million on an annualized basis . over the last 18 months , we have reduced our sg & a and plant expenses over $ 12 million annually and believe , in addition to the procurement initiative discussed above , there is still an opportunity to further reduce those expenses . focus on improving our capital structure and overall cost of capital . we are actively seeking ways to improve our capital structure and reduce our overall cost of capital . we believe that the improving end markets for our products combined with our improved operating performance will be a benefit . we may not successfully implement any or all of these initiat ives . even if we successfully implement the initiatives , they may not achieve the results that we expect or desire . 28 business developments - 201 7 sale of working interests in natural gas properties and other non-core assets at the end of 2016 , we identified certain assets that were no longer necessary in the operations of our business . during 2017 , we sold assets totaling approximately $ 23.8 million . we sold all of zena energy l.l.c . ( โ zena โ ) assets including zena 's right , title , and interest in all of its oil and natural gas properties ( the โ properties โ ) located in wyoming county , pennsylvania for a purchase price of approximately $ 16.3 million , which sale was completed on june 26 , 2017. concurrently with the closing of the purchase and sale agreement , a portion of the net proceeds ( approximately $ 3.5 million ) was used to repay the remaining outstanding balance of a promissory note , which was secured by the properties . as a result of the sale , we no longer own any working interest in oil and natural gas properties . during 2017 , we also sold our engineered products business ( industrial machinery and related components ) and other various non-core assets for approximately $ 7.5 million of net proceeds . we continue to evaluate our assets in order to determine if there are additional non-core assets that we should monetize . approval of arkansas incentive tax credit during 2017 , we received notification from the state of arkansas that incentive tax credits had been approved associated with certain capital expenditures associated with the el dorado facility 's expansion projects completed primarily in the fourth quarter of 2015 and the second quarter of 2016. as a result , we recognized a current and noncurrent receivable totaling approximately $ 8.1 million associated with these incentive tax credits with the offset reducing plant , property and equipment ( โ pp & e โ ) ( covered by the tax credit ) by approximately $ 7.4 million and the remaining balance of $ 0.7 million as a reduction to cost of sales ( recovery of previously incurred depreciation expense related to the pp & e ) . as of december 31 , 2017 , our current and noncurrent incentive tax credits receivable totaled $ 7.4 million . planned and unplanned downtime at our pryor and el dorado facilities during 2017 , we experienced an aggregate of 158 days of unplanned downtime that contributed to approximately $ 21 million in lost improvement to our operating results . the following were the main unplanned downtime events : in may 2017 , the ammonia plant at our pryor facility experienced a lightning strike causing a loss of power to the facility and 16 days of unplanned downtime . in june 2017 , the ammonia plant at our el dorado facility was taken out of service to perform proactive adjustments and heat exchanger cleaning and repairs to enable the plant to operate closer to the higher end of its operating envelope on a sustained basis . total downtime relating to this event was 12 days . in july 2017 , the pryor facility experienced an electrical outage shutting the facility down .
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items affecting comparability of results on-stream rates the on-stream rates of our plants affect our production , the absorption of fixed costs of each plant and sales of our products . it is a key operating metric that we use to manage our business . in particular , we closely monitor the on-stream rates of our ammonia plants as that is the basic product as used to produce all upgraded products . in 2017 , we improved the operating rates at our cherokee ammonia plant . the on-stream rate ( excluding the effect from its scheduled turnaround in 2016 ) for 2017 for our ammonia plant increased to 99 % from 96 % in 2016. we believe that the ammonia plant will have a minimum on-stream rate for 2018 of 95 % , excluding the planned turnaround days out of service . the el dorado facility 's ammonia plant began production in mid-2016 . it is typical for newly operated plants that are in production to go through a period of optimization ( shakedown ) that may require the plant to be taken out of operation for a period of time . our reported 2016 on-stream rate for the ammonia plant at el dorado was 64 % . for 2017 , the on-stream rate for its ammonia plant was 86 % . we believe that the ammonia plant will operate at a minimum of 95 % on-stream rate for 2018 , excluding the planned turnaround days out of service . the plant is currently producing ammonia in excess of 1,300 tons per day , which is above its nameplate capacity of 1,150 tons per day . at our pryor facility , the on-stream rate ( excluding the effect from its turnaround ) for 2017 for our ammonia plant decreased to 69 % from 86 % in 2016 , due primarily to the unplanned downtime discussed under โ business developments - 2017.
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stock-based compensation expense the company estimates the fair value of its stock-based awards using the black-scholes option pricing model , which requires the input of subjective assumptions , including ( a ) the expected stock price volatility , ( b ) the calculation of the expected term of the award 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 appearing elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this report , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read the ยrisk factorsย section in part 1ยitem 1a . 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 forward-looking statements contained in the following discussion and analysis . overview we are a clinical stage biopharmaceutical company applying our extensive knowledge of deuterium chemistry to discover and develop novel small molecule drugs . our approach starts with approved drugs , advanced clinical candidates or previously studied compounds that we believe can be improved with deuterium substitution , a process we refer to as deuteration , to provide better pharmacokinetic or metabolic properties and thereby enhance clinical safety , tolerability or efficacy . we believe this approach may enable drug discovery and clinical development that is more efficient and less expensive than conventional small molecule drug research and development . we are utilizing our dce platform to discover and develop product candidates for a variety of indications . ctp-354 and avp-786 are advancing in clinical trials and we have multiple preclinical candidates , two of which we expect to move into clinical trials in 2014. our priority programs include : ctp-354 for spasticity associated with multiple sclerosis and spinal cord injury , which is in phase 1 clinical trials ; ctp-499 for type 2 diabetic kidney disease , which is in a phase 2 clinical trial ; avp-786 for neurologic and psychiatric disorders , which has completed a phase 1 clinical trial under our collaboration with avanir ; ctp-730 for inflammatory diseases , which is in preclinical development under our collaboration with celgene ; and jzp-386 for narcolepsy , which is in preclinical development under our collaboration with jazz pharmaceuticals . since our inception in 2006 , we have devoted substantially all of our resources to our research and development efforts relating to our product candidates , including activities to : develop our dce platform and our core capabilities in deuterium chemistry , identify potential product candidates , undertake preclinical studies and clinical trials , manufacture product in compliance with current good manufacturing practices , provide general and administrative support for these operations and establish our intellectual property . we have generated an accumulated deficit of $ 113.6 million since inception through december 31 , 2013 and will require substantial additional capital to fund our research and development . we do not have any products approved for sale and have not generated any revenue from product sales . we have funded our operations primarily through the public offering and private placement of our equity , debt financing and funding from collaborations . since inception through december 31 , 2013 , we have raised an aggregate of $ 222.3 million to fund our operations , of which $ 89.3 million was through upfront license fees , milestone payments , reimbursement of research and development costs and other payments under our current and former collaborations , $ 113.0 million in gross proceeds from the sale of convertible preferred stock , which includes an equity premium of $ 3.9 million , and $ 20.0 million was from the gross proceeds of a secured debt financing and the related issuance of a warrant to purchase preferred stock . on february 19 , 2014 , we completed the sale of 6,000,000 shares of common stock in our initial public offering , or ipo , at a price to the public of $ 14.00 per share , resulting in net proceeds to us of $ 74.6 million after 88 deducting underwriting discounts and commissions of $ 5.9 million and offering costs of $ 3.5 million . on march 3 , 2014 , we completed the sale of an additional 649,690 shares of common stock at a price to the public of $ 14.00 per share under the underwriters ' over-allotment option to purchase additional shares of common stock , resulting in net proceeds to us of $ 8.5 million after deducting underwriting discounts and commissions . we have incurred net losses in each year from our inception in 2006 through 2013. our net losses were $ 11.3 million , $ 20.4 million and $ 6.1 million for the years ended december 31 , 2011 , 2012 and 2013 , respectively . we do not expect to be profitable for the year ending december 31 , 2014. substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . story_separator_special_tag under the celgene agreement , we received a non-refundable upfront payment of $ 35.0 million in april 2013. during the year ended december 31 , 2013 , we recognized $ 17.0 million of revenue upon the delivery of a license for the initial program and $ 1.3 million of revenue related to research and development services performed on the initial program . in addition , we are eligible to earn up to $ 23.0 million in development milestone payments , including $ 8.0 million related to the completion of a phase 1 clinical trial , up to $ 247.5 million in regulatory milestone payments and up to $ 50.0 million in sales-based milestone payments related to products within the initial program . if celgene exercises its rights with respect to either of the two additional license programs , we will receive a license exercise fee for the applicable program of $ 30.0 million and will also be eligible to earn up to $ 23.0 million in development milestone payments and up to $ 247.5 million in regulatory milestone payments for that program . additionally , with respect to one of the additional license programs we are eligible to receive up to $ 100.0 million in sales-based milestone payments based on net sales of products , and with respect to the other additional license program we are eligible to receive up to $ 50.0 million in sales-based milestone payments based on net sales of products . if celgene exercises its option with respect to the option program in respect of a compound to be identified at a later time , we will receive an option exercise fee of $ 10.0 million and will be eligible to earn up to $ 23.0 million in development milestone payments and up to $ 247.5 million in regulatory milestone payments . in addition , with respect to each program , celgene is required to pay us royalties on net sales of each licensed product at defined percentages ranging from the mid-single digits to low double digits below 20 % , on worldwide net product sales of licensed products . the royalty rate is reduced on a country-by-country basis during any period within the royalty term when there is no patent claim or regulatory exclusivity covering the licensed product in the particular country . 90 under the celgene agreement , we are responsible for conducting and funding research and development activities for the initial program at our own expense pursuant to agreed upon development plans . these activities consist of the completion of single and multiple ascending dose phase 1 clinical trials and any mutually agreed upon additional phase 1 clinical trials . if celgene exercises its rights with respect to any additional program and pays us the applicable exercise fee , we are responsible for conducting research and development activities at our own expense pursuant to agreed upon development plans until the completion of the first phase 1 clinical trial , which will be defined in each development plan on a program-by-program basis . in addition , if celgene exercises its rights with respect to the option program and pays us the applicable exercise fee , we are responsible for seeking to generate a deuterated compound for clinical development in the selected option program at our own expense . avanir . in february 2012 , we entered into a development and license agreement with avanir under which we granted avanir an exclusive worldwide license to develop , manufacture and commercialize deuterated dextromethorphan containing products . avanir is initially focused on developing avp-786 , which is a combination of a deuterated dextromethorphan analog and an ultra-low dose of quinidine , for the treatment of neurologic and psychiatric disorders . under the avanir agreement , we received a non-refundable upfront payment of $ 2.0 million in february 2012 and a milestone payment of $ 2.0 million in april 2013. we are also eligible to receive , with respect to licensed products comprising a combination of deuterated dextromethorphan and quinidine , up to $ 4.0 million in development milestone payments , including $ 2.0 million related to initiation of dosing in a phase 2 or phase 3 clinical trial for avp-786 , up to $ 37.0 million in regulatory and commercial launch milestone payments and up to $ 125.0 million in sales-based milestone payments based on net product sales of licensed products . in addition , we are eligible for higher development milestones , up to an additional $ 43.0 million , for licensed products that do not require quinidine . avanir is currently developing deuterated dextromethorphan only in combination with quinidine . avanir also is required to pay us royalties at defined percentages ranging from the mid-single digits to low double digits below 20 % on worldwide net product sales of licensed products . the royalty rate is reduced , on a country-by-country basis , during any period within the royalty term when there is no patent claim covering the licensed product in the particular country . avanir is responsible for funding 100 % of our research and development costs incurred under the development plan or for activities conducted at avanir 's request , subject to limitations specified in the agreement . however , avanir is currently conducting all research and development activities without our services . jazz pharmaceuticals . in february 2013 , we entered into a development and license agreement with jazz pharmaceuticals to research , develop and commercialize products containing deuterated sodium oxybate , or d-sxb . we are initially focusing on one analog , designated as jzp-386 . under the terms of the agreement , we granted jazz pharmaceuticals an exclusive , worldwide , royalty-bearing license under intellectual property controlled by us to develop , manufacture and commercialize d-sxb products including jzp-386 .
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results of operations comparison of the years ended december 31 , 2012 and 2013 the following table summarizes our results of operations for the years ended december 31 , 2012 and 2013 , together with the changes in those items in dollars . replace_table_token_8_th 101 revenue revenue was $ 25.4 million for the year ended december 31 , 2013 , compared to $ 12.8 million for the year ended december 31 , 2012 , an increase of $ 12.6 million . the increase in revenue was primarily due to license revenue recognized for the year ended december 31 , 2013 of $ 17.0 million under our collaboration with celgene and $ 3.7 million under our collaboration with jazz pharmaceuticals , in connection with our grant of licenses under these collaborations , as well as $ 2.0 million of milestone revenue recognized for the year ended december 31 , 2013 based on positive data from avanir 's phase 1 clinical trial of avp-786 . in comparison , we recognized revenue for the year ended december 31 , 2012 comprised primarily of $ 8.3 million of research and development revenue and $ 1.5 million of milestone revenue under our collaboration with gsk , which ended in 2012. we recognized license revenue of $ 2.0 million in the year ended december 31 , 2012 relating to the license grant to avanir for deuterated dextromethorphan . in addition , an increase of $ 1.7 million in revenue recognized for services performed under our collaborations contributed to the overall increase in revenue for the year ended december 31 , 2013 as compared to the prior year , of which $ 1.4 million was related to services performed under our collaboration with celgene .
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royalties to oem vendors are accrued and recorded in cost of revenue story_separator_special_tag for an understanding of synnex and the significant factors that influenced our performance during the past two fiscal years , the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the description of the business appearing in item 1 of this report , selected consolidated financial data and item 8 financial statements and supplementary data included elsewhere in this report . you should carefully review and consider the information regarding our financial condition and results of operations set forth under part i-item 7 ( management 's discussion and analysis of financial condition and results of operations ) in our annual report on form 10-k for the fiscal year ended november 30 , 2019 , filed with the securities and exchange commission on january 29 , 2020 , f or an understanding of our results of operations and liquidity discussions and analysis comparing fiscal year 2019 to fiscal year 2018 . amounts in certain tables appearing in this report may not add or compute due to rounding . when used in this annual report on form 10-k , or this report , the words โ believes , โ โ estimates , โ โ expects , โ โ allows , โ โ can , โ โ may , โ โ designed , โ โ will , โ and similar expressions are intended to identify forward-looking statements . these are statements that relate to future periods and include statements about market trends , our business model and our services , our market strategy , including expansion of our product lines , the separation of synnex and concentrix , including as to the effect on our results of operations going forward , our infrastructure , our investment in information technology , or it , systems , our employee hiring , retention and turnover , the ownership interest of mitac holdings corporation , or mitac holdings , in us and its impact , our revenue , our gross margins , our operating costs and results , the value of our inventory , competition with synnex technology international corp. , our future needs for additional financing , the likely sources for such funding and the impact of such funding , market acceptance of our customers ' products , concentration of customers , our international operations , foreign currency exchange rates and expected trends related thereto , expansion and scaling of our operations and related effects , our strategic acquisitions and divestitures of businesses and assets , our goodwill , seasonality of sales , adequacy of our capital resources to meet our capital needs , cash held by our international subsidiaries and repatriation , changes in fair value of derivative instruments , adequacy of our disclosure controls and procedures , pricing pressures , competition , impact of economic and industry trends , impact of our accounting policies and recently issued accounting pronouncements , our belief regarding the impact of inventory repurchase obligations and commitments and contingencies , our effective tax rates , our share repurchase and dividend program , our securitization programs and revolving credit lines , our succession planning , our investments in working capital , personnel , facilities and operations . forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected . these risks and uncertainties include , but are not limited to , those risks discussed herein , as well as the seasonality of the buying patterns of our customers , concentration of sales to large customers , dependence upon and trends in capital spending budgets in the it , and consumer electronics , or ce , industries , fluctuations in general economic conditions and other risk factors set forth under part i , item 1a , โ risk factors. โ these forward-looking statements speak only as of the date hereof . we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events , conditions or circumstances on which any such statement is based . revenue and cost of revenue we derive our technology solutions revenue primarily through the distribution of peripherals , it systems , system components , software , networking , communications and security equipment and ce and complementary products , and the delivery of servers and networking solutions for our design and integration solutions customers ' data centers . in our concentrix segment , we provided high value business outsourcing services and solutions to improve customer experience of our clients . our concentrix customer contracts typically consisted of a master services agreement or statement of work , which contained the terms and conditions of each program or service we offered . our agreements could range from less than one year to over five years and were subject to early termination by our customers or us for any reason , typically with 30 to 90 days ' notice . in fiscal years 2020 and 2019 , approximately 34 % of our consolidated revenue and approximately 24 % of our technology solutions revenue , was generated from our international operations . as a result , our revenue growth has been impacted by fluctuations in foreign currency exchange rates . the market for it products and services is generally characterized by declining unit prices and short product life cycles . our overall business is also highly competitive on the basis of price . we set our sales price based on the market supply and demand characteristics for each particular product or bundle of products we distribute and solutions we provide . from time to time , we also participate in the incentive and rebate programs of our oem suppliers . these programs are important determinants of the final sales price we charge to our reseller customers . story_separator_special_tag critical accounting policies and estimates the discussions and analysis of our consolidated financial condition and results of operations are based on our consolidated financial statements , which have been prepared in conformity with gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of any contingent assets and liabilities at the financial statement date , and reported amounts of revenue and expenses during the reporting period . on an ongoing basis , we review and evaluate our estimates and assumptions . our estimates are based on our historical experience and a variety of other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making our judgment about the carrying values of assets and liabilities that are not readily available from other sources . actual results could differ from these estimates under different assumptions or conditions . 27 table of content we believe the following critical accounting policies involve the more significant judgments , estimates and or assumptions used in the preparation of our consolidated financial statements . revenue recognition . we generate revenue primarily from ( i ) the sale of various it products through our technology solutions business unit and ( ii ) the provision of business outsourcing services focused on customer experience through our concentrix business unit . revenue from our technology solutions segment is categorized as products revenue in our consolidated statements of operations . revenue from our concentrix segment is categorized as services revenue in the consolidated statements of operations . we recognize revenue from the sale of it hardware and software as control is transferred to customers , which is at the time when the product is shipped or delivered . products sold by us are delivered via shipment from our facilities , drop-shipment directly from the vendor , or by electronic delivery of software products . we account for a contract with a customer when it has written approval , the contract is committed , the rights of the parties , including payment terms , are identified , the contract has commercial substance and consideration is probable of collection . binding purchase orders from customers together with agreement to our terms and conditions of sale by way of an executed agreement or other signed documents are considered to be the contract with a customer . in situations where arrangements include customer acceptance provisions , revenue is recognized when we can objectively verify the products comply with specifications underlying acceptance and the customer has control of the products . revenue is presented net of taxes collected from customers and remitted to government authorities . we generally invoice a customer upon shipment , or in accordance with specific contractual provisions . payments are due as per contract terms and do not contain a significant financing component . provisions for sales returns and allowances are estimated based on historical data and are recorded concurrently with the recognition of revenue . a liability is recorded at the time of sale for estimated product returns based upon historical experience and an asset is recognized for the amount expected to be recorded in inventory upon product return . these provisions are reviewed and adjusted periodically . revenue is reduced for early payment discounts and volume incentive rebates offered to customers , which are considered variable consideration , at the time of sale based on an evaluation of the contract terms and historical experience . we recognize revenue on a net basis on certain contracts , where our performance obligation is to arrange for the products or services to be provided by another party or the rendering of logistics services for the delivery of inventory for which we do not assume the risks and rewards of ownership , by recognizing the margins earned in revenue with no associated cost of revenue . such arrangements , which are not material to our consolidated revenue or our โ products โ or โ services โ revenue , include supplier service contracts , post-contract software support services and extended warranty contracts . we consider shipping and handling activities as costs to fulfill the sale of products . shipping revenue is included in revenue when control of the product is transferred to the customer , and the related shipping and handling costs are included in cost of products sold . for the concentrix segment , we recognize revenue from services contracts over time as the promised services are delivered to clients for an amount that reflects the consideration to which we are entitled in exchange for those services . we account for a contract with a customer when it has written approval , the contract is committed , the rights of the parties , including payment terms , are identified , the contract has commercial substance and consideration is probable of collection . revenue is presented net of taxes collected from customers and remitted to government authorities . we generally invoice a customer after performance of services , or in accordance with specific contractual provisions . payments are due as per contract terms and do not contain a significant financing component . service contracts may be based on a fixed price or on a fixed unit-price per transaction or other objective measure of output . we determine whether the services performed during the initial phases of an arrangement , such as setup activities , are distinct . in most cases , the arrangement is a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer ( i.e. , distinct days of service ) . we record deferred revenue attributable to certain process transition , setup activities where such activities do not represent separate performance obligations . billings related to such transition activities are classified under contract liabilities and subsequently recognized ratably over the period in which the related services are performed .
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results of operations the following table sets forth , for the indicated periods , data as percentages of total revenue : replace_table_token_6_th with the completion of the separation on december 1 , 2020 , our services revenue and cost of services revenue which represent revenue and cost of revenue of our concentrix segment will be discontinued . further , selling , general and administrative expenses , interest expense and finance charges , net , other income ( expense ) , net and provision for income-taxes will decrease by amounts related to the concentrix segment or impacted by the separation , with related reductions in gross profit , operating income and net income . additionally , our gross margin and operating margin will decrease due to the discontinuance of the higher margins earned in the concentrix segment . in addition , in the second half of 2021 , we expect a decrease in our products revenue of approximately $ 1.2 billion due to a customer moving to a consignment model where we will provide integration services on an agency basis . certain non-gaap financial information in addition to disclosing financial results that are determined in accordance with gaap , we also disclose certain non-gaap financial information , including : revenue in constant currency , which is revenue adjusted for the translation effect of foreign currencies so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates , thereby facilitating period-to-period comparisons of our business performance . revenue in constant currency is calculated by translating the revenue of fiscal year 2020 in the billing currency using the prior year 's currency conversion rate . generally , when the dollar either strengthens or weakens against other currencies , the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates . 29 table of content non-gaap operating income , which is operating income , adjusted to exclude transaction -related and integration expenses , restructuring costs and amortization of intangible assets .
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the qualitative factors are consistent with the existing guidance and examples in asc topic 350 , which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . as a result , goodwill impairments may be reported sooner or more often compared to current practice . asu 2010-28 is effective for fiscal years and interim periods within those years , beginning after december 15 , 2010 story_separator_special_tag you should read the following discussion and analysis in conjunction with item 6 ย selected financial data and our consolidated financial statements and related notes , each included elsewhere in this annual report on form 10-k. overview we are a global network marketing company that sells weight management products , nutritional supplements , energy , sports & fitness products and personal care products . we pursue our mission of ยchanging people 's livesย by providing a financially rewarding business opportunity to distributors and quality products to distributors and their customers who seek a healthy lifestyle . we are one of the largest network marketing companies in the world with net sales of approximately $ 2.7 billion for the year ended december 31 , 2010. as of december 31 , 2010 , we sold our products in 74 countries through a network of approximately 2.1 million independent distributors . in china , we sell our products through retail stores , sales representatives , sales employees and licensed business providers . we believe the quality of our products and the effectiveness of our distribution network , coupled with geographic expansion , have been the primary reasons for our success throughout our 31-year operating history . our products are grouped in four principal categories : weight management , targeted nutrition , energy , sports & fitness and outer nutrition , along with literature and promotional items . our products are often sold in programs that are comprised of a series of related products and literature designed to simplify weight management and nutrition for consumers and maximize our distributors ' cross-selling opportunities . industry-wide factors that affect us and our competitors include the global obesity epidemic and the aging of the worldwide population , which are driving demand for nutrition and wellness-related products along with the global increase in under and unemployment which can affect the recruitment and retention of distributors seeking part time or full time income opportunities . while we are closely monitoring the current global economic crisis , we remain focused on the opportunities and challenges in retailing of our products , recruiting and retaining distributors , improving distributor productivity , opening new markets , further penetrating existing markets , globalizing successful distributor methods of operation such as nutrition clubs and weight loss challenges , introducing new products and globalizing existing products , developing niche market segments and further investing in our infrastructure . management remains intently focused on the venezuela market and especially the limited ability to repatriate cash . we report revenue from our six regions : north america , which consists of the u.s. , canada and jamaica ; mexico ; south and central america ; emea , which consists of europe , the middle east and africa ; asia pacific ( excluding china ) , which consists of asia , new zealand and australia ; and china . volume points by geographic region a key non-financial measure we focus on is volume points on a royalty basis , or volume points , which is essentially our weighted unit measure of product sales volume . it is a useful measure that we rely on as it excludes the impact of foreign currency fluctuations , changes in retail pricing , and ignores the differences generated by varying retail pricing across geographic markets . the volume point measure , in the aggregate and in each region , can be a measure of our sales volume as well as of sales volume trends . in general , an increase in volume points in a particular geographic region or country indicates an increase in our sales volume which results in an increase in our 50 local currency net sales ; a decrease in volume points in a particular geographic region or country indicates a decrease in our sales volume , which results in decreasing local currency net sales . replace_table_token_12_th average active sales leaders by geographic region with the continued expansion of daily consumption business models in our different markets , we believe the average active sales leader metric , which represents the monthly average number of sales leaders that place an order from us in a given quarter , is a useful metric . we rely on this metric as an indication of the engagement level of sales leaders in a given region . changes in the average active sales leader metric may be indicative of the current momentum in a region as well as the potential for higher annual retention levels and future sales growth through utilization of consumption based daily methods of operations , or dmos . replace_table_token_13_th ( 1 ) worldwide average active sales leaders may not equal the sum of the average active sales leaders in each region due to the calculation being an average of sales leaders active in a period , not a summation . number of new sales leaders by geographic region during the reporting period we also focus on the number of distributors qualified as new sales leaders under our compensation system . excluding china , distributors qualify for sales leader status based on their volume points . the changes in the total number of sales leaders or changes in the productivity of sales leaders may cause volume points to increase or decrease . the fluctuation in the number of new sales leaders has historically been a general indicator of the level of distributor recruitment . story_separator_special_tag however , net sales in local currency measures should not be considered in isolation or as an alternative to net sales in u.s. dollars measures that reflect current period exchange rates , or to other financial measures calculated and presented in accordance with u.s. gaap . our ยgross profitย consists of net sales less ยcost of sales , ย which represents our manufacturing costs , the price we pay to our raw material suppliers and manufacturers of our products as well as costs related to product 53 shipments , duties and tariffs , freight expenses relating to shipment of products to distributors and importers and similar expenses . ยroyalty overridesย are our most significant expense and consist of : royalty overrides and production bonuses which total approximately 15 % and 7 % , respectively , of the retail sales of weight management , targeted nutrition , energy , sports & fitness , outer nutrition and promotional products ; the mark hughes bonus payable to some of our most senior distributors in the aggregate amount of up to 1 % of retail sales of weight management , targeted nutrition , energy , sports & fitness , outer nutrition products and promotional products ; and other discretionary incentive cash bonuses to qualifying distributors . royalty overrides are generally earned based on retail sales and provide potential earnings to distributors of up to 23 % of retail sales or approximately 33 % of our net sales . royalty overrides together with distributor allowances of up to 50 % represent the potential earnings to distributors of up to approximately 73 % of retail sales . the compensation to distributors is generally for the development , retention and improved productivity of their distributor sales organizations and is paid to several levels of distributors on each sale . due to restrictions on direct selling in china , our full-time employed sales representatives in china are compensated with wages , bonuses and benefits and our licensed business providers in china are compensated with service fees instead of the distributor allowances and royalty overrides utilized in our traditional marketing program . because of local country regulatory constraints , we may be required to modify our typical distributor incentive plans as described above . consequently , the total distributor discount percentage may vary over time . we also offer reduced distributor allowances and pay reduced royalty overrides with respect to certain products worldwide . our ยoperating marginsย consist of net sales less cost of sales and royalty overrides . ยselling , general and administrative expensesย represent our operating expenses , components of which include labor and benefits , sales events , professional fees , travel and entertainment , distributor marketing , occupancy costs , communication costs , bank fees , depreciation and amortization , foreign exchange gains and losses and other miscellaneous operating expenses . most of our sales to distributors outside the united states are made in the respective local currencies . in preparing our financial statements , we translate revenues into u.s. dollars using average exchange rates . additionally , the majority of our purchases from our suppliers generally are made in u.s. dollars . consequently , a strengthening of the u.s. dollar versus a foreign currency can have a negative impact on our reported sales and operating margins and can generate transaction losses on intercompany transactions . throughout the last five years , foreign currency exchange rates have fluctuated significantly . from time to time , we enter into foreign exchange forward and option contracts to partially mitigate our foreign currency exchange risk as discussed in further detail in item 7a ย quantitative and qualitative disclosures about market risk . story_separator_special_tag and benefits , higher distributor promotion and event costs , higher china sales employee and licensed business provider costs , higher credit card fees , higher non-income tax expenses and higher depreciation expense . net income for the year ended december 31 , 2010 included a $ 15.1 million unfavorable impact related to the remeasurement of monetary assets and liabilities resulting from venezuela being designated as a highly inflationary economy beginning january 1 , 2010 ; a $ 12.7 million unfavorable impact related to incremental u.s. dollar costs of 2009 imports into venezuela which were recorded at the unfavorable parallel market exchange rate and were not devalued based on 2010 exchange rates but rather recorded to cost of sales at their historical dollar costs as products were sold in the first quarter of 2010 ; a $ 5.8 million favorable impact resulting from receipt of u.s. dollars approved by the venezuelan government 's foreign exchange commission , cadivi , at the official exchange rate relating to 2009 product importations which were previously registered with cadivi ; a $ 14.5 million one-time favorable impact to income taxes related to venezuela becoming a highly inflationary economy ; a $ 4.0 million pre-tax ( $ 2.6 million post-tax ) foreign exchange gain in herbalife venezuela as a result of remeasuring its bolivar denominated monetary assets and liabilities as of june 30 , 2010 at the sitme rate of 5.3 bolivars per u.s. dollar as opposed to the last parallel market rate of 8.3 bolivars per u.s. dollar . net income for the year ended december 31 , 2010 also included a $ 3.2 million tax benefit from an international income tax audit settlement . net income for the year ended december 31 , 2009 included a $ 12.2 million unfavorable after tax impact ( net of $ 6.6 million tax benefit ) related to incremental u.s. dollar cost of imports into venezuela at the unfavorable parallel market exchange rate rather than the official currency exchange rate ; a $ 0.9 million unfavorable after tax impact ( net of $ 0.4 million tax benefit ) in connection with our restructuring activities ; and a $ 3.8 million net favorable impact to income taxes from the expiration of certain statute of limitations offset by a charge for an international income tax audit settlement .
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results of operations our results of operations for the periods below are not necessarily indicative of results of operations for future periods , which depend upon numerous factors , including our ability to recruit new distributors and retain existing distributors , open new markets , further penetrate existing markets , introduce new products and programs that will help our distributors increase their retail efforts and develop niche market segments . 54 the following table sets forth selected results of our operations expressed as a percentage of net sales for the periods indicated : replace_table_token_18_th ( 1 ) compensation to our china sales employees and licensed business providers is included in selling , general and administrative expenses while distributor compensation for all other countries is included in royalty overrides . changes in net sales are directly associated with the recruiting and retention of our distributor force , retailing of our products , the quality and completeness of our product offerings that the distributor force has to sell and the number of countries in which we operate . management 's role , both in-country and at the region and corporate level is to provide distributors with a competitive and broad product line , encourage strong teamwork and distributor leadership and offer leading edge business tools and technology services to make doing business with herbalife simple . management uses the distributor marketing program coupled with educational and motivational tools and promotions to incentivize distributors to increase recruiting , retention and retailing , which in turn affect net sales . such tools include company sponsored sales events such as extravaganzas , leadership development weekends and world team schools where large groups of distributors gather , thus allowing them to network with other distributors , learn recruiting , retention and retailing techniques from our leading distributors and become more familiar with how to market and sell our products and business opportunities .
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the valuation allowance was based on the company 's assessment of deferred tax assets story_separator_special_tag the following discussion and analysis presents factors that had a material effect on our results of operations during the years ended december 31 , 2014 , 2013 and 2012. also discussed is our financial position as of december 31 , 2014 and 2013. you should read this discussion in conjunction with our consolidated financial statements , including the notes thereto , appearing elsewhere in this report or incorporated herein by reference . this discussion and analysis contains forward-looking statements . please refer to the sections of this report entitled `` cautionary statement concerning forward-looking statements '' and `` item 1a . risk factors '' for discussion of some of the uncertainties , risks and assumptions associated with these statements . overview through skywest airlines and expressjet , we operate the largest regional airline in the united states . as of december 31 , 2014 , skywest airlines and expressjet offered scheduled passenger and air freight service with approximately 3,600 total daily departures to destinations in the united states , canada , mexico and the caribbean . as of december 31 , 2014 , we had a combined fleet of 749 aircraft consisting of the following : replace_table_token_11_th for the year ended december 31 , 2014 , approximately 61.4 % of our aggregate capacity was operated for united , approximately 31.6 % was operated for delta , approximately 3.2 % was operated for american , approximately 2.1 % was operated for alaska and approximately 1.7 % was operated for us airways . under our fixed-fee arrangements , three compensation components have a significant impact on comparability of revenue and operating expense for the periods presented in this report . the first item is the reimbursement of fuel expense , which is a directly-reimbursed expense under all of our fixed-fee arrangements . if we purchase fuel directly from vendors , our major partners reimburse us for fuel 38 expense incurred under each respective fixed-fee contract , and we record such reimbursement as passenger revenue . thus , the price volatility of fuel and the volume of fuel expensed under our fixed-fee arrangements during a particular period will impact our fuel expense and our passenger revenue during the period equally , with no impact on our operating income . over the past few years , some of our major airline partners have purchased an increased volume of fuel directly from vendors on flights we operated under our fixed-fee contracts , which has decreased both revenue and operating expenses compared to previous periods presented in this report . the second item is the reimbursement of landing fees and station rents , which is a directly-reimbursed expense under all of our fixed-fee arrangements . our major partners reimburse us for landing fees and station rent expense incurred under each respective fixed-fee contract , and we record such reimbursement as passenger revenue . over the past few years , some of our major airline partners have paid an increased volume of landing fees and station rents directly to our vendors on flights we operated under our flying contracts , which has also decreased both revenue and operating expenses compared to previous periods presented in this report . the third item is the compensation we receive for engine maintenance under our fixed-fee arrangements . under our united crj and e175 contracts , american , us airways and alaska fixed-fee contracts , a portion of our compensation is based upon fixed hourly rates the aircraft is in operation , which is intended to cover various operating costs , including engine maintenance costs ( `` fixed-rate engine contracts '' ) . under the compensation structure for our delta connection and united erj145 flying contracts , our major partner reimburses us for engine maintenance expense when the expense is incurred as a pass-through cost ( `` directly-reimbursed engine contracts '' ) . we use the direct-expense method of accounting for our crj200 regional jet aircraft engine overhaul costs and , accordingly , we recognize engine maintenance expense on our crj200 engines on an as-incurred basis . under the direct-expense method , the maintenance liability is recorded when the maintenance services are performed ( `` crj200 engine overhaul expense '' ) . because we use the direct-expense method of accounting for our crj200 engine expense , and because we recognize revenue using the applicable fixed hourly rates under our fixed-rate engine contracts , the number of engine maintenance events and related expense we incur each reporting period under the fixed-rate engine contracts has a direct impact on the comparability of our operating income for the presented reporting periods . because we recognize revenue at the same amount and in the same period when we incur engine maintenance expense on engines operating under our directly-reimbursed engine contracts , the number of engine events and related expense we incur each reporting period does not have a direct impact on the comparability of our operating income for the presented reporting periods . we have an agreement with a third-party vendor to provide long-term engine maintenance covering scheduled and unscheduled repairs for engines on our crj700s operating under our fixed-rate engine contracts ( a `` power by the hour agreement '' ) . under the terms of the power by the hour agreement , we are obligated to pay a set dollar amount per engine hour flown on a monthly basis and the vendor assumes the obligation to repair the engines at no additional cost to us , subject to certain specified exclusions . thus , under the power by the hour agreement , we expense the engine maintenance costs as flight hours are incurred on the engines and using the contractual rate set forth in the agreement . story_separator_special_tag in order to determine the proper classification of our leased aircraft as either operating leases or capital leases , we must make certain estimates at the inception of the lease relating to the economic useful life and the fair value of an asset as well as select an appropriate discount rate to be used in discounting future lease payments . these estimates are utilized by management in making computations as required by existing accounting standards that determine whether the lease is classified as an operating lease or a capital lease . all of our aircraft leases have been classified as operating leases , which results in rental payments being charged to expense over the terms of the related leases . additionally , operating leases are not reflected in our consolidated balance sheet and accordingly , neither a lease asset nor an obligation for future lease payments is reflected in our consolidated balance sheets . impairment of long-lived assets as of december 31 , 2014 , we had approximately $ 3.0 billion of property and equipment and related assets . additionally , as of december 31 , 2014 , we had approximately $ 12.7 million in intangible assets . in accounting for these long-lived and intangible assets , we make estimates about the expected useful lives of the assets , the expected residual values of certain of these assets , and the potential for impairment based on the fair value of the assets and the cash flows they generate . we recorded an intangible of approximately $ 33.7 million relating to the acquisition of atlantic southeast in september 2005. the intangible is being amortized over fifteen years under the straight-line method . as of december 31 , 2014 , we had recorded $ 21.0 million in accumulated amortization expense . factors indicating potential impairment include , but are not limited to , significant decreases in the market value of the long-lived assets , a significant change in the condition of the long-lived assets and operating cash flow losses associated with the use of the long-lived assets . when considering whether or not impairment of long-lived assets exists , we group similar assets together at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and compare the undiscounted cash flows for each asset group to the net carrying amount of the assets supporting the asset group . asset groupings are done at the fleet type or contract level . in november 2014 , we made the decision to remove all emb120 aircraft from service by the end of the second quarter of 2015. this decision resulted in an impairment review of our long-lived assets specific to the emb120 aircraft , which included owned aircraft , capitalized engine overhaul assets , spare engines and other emb120 specific long-lived assets . the impairment analysis required us to use judgment to estimate the fair value of our emb120 long-lived assets . as the largest operator of the emb120 aircraft in the united states , our decision to remove all our emb120 aircraft from service by the end of the second quarter of 2015 may consequently have a negative impact on the fair value of our long-lived assets . the amounts we ultimately realize from the disposal of our emb120 long-lived assets may vary from our december 31 , 2014 fair value assessments . 43 in november 2014 , expressjet entered into an amended and restated expressjet united erj agreement , which reduced the term of the agreement from the year 2020 to 2017 and accelerated the removal of erj145 aircraft from the contract between the years 2015 and 2017. as of december 31 , 2014 , all of expressjet 's erj145 aircraft were operated pursuant to the expressjet united erj agreement . the reduced term of the expressjet united erj agreement shortened our anticipated use of erj145 specific long-lived assets and resulted in an impairment review for such aircraft type specific assets , which included capitalized aircraft improvements , spare engines and other erj145 long-lived assets . the impairment analysis required us to use judgment to estimate the fair value of our erj145 long-lived assets . the amounts we ultimately realize from the disposal of our erj145 long-lived assets may vary from our december 31 , 2014 fair value assessments . in conjunction with the acquisition of expressjet delaware , we acquired an aircraft paint facility located in saltillo , mexico . during the three months ended september 30 , 2014 , we discontinued use of the facility and wrote down the value of the facility and related assets to its estimated fair value . during the three months ended december 31 2014 , we sold the paint facility to a third party for an amount that approximated our estimated fair market value . stock-based compensation expense we estimate the fair value of stock options as of the grant date using the black-scholes option pricing model . we use historical data to estimate option exercises and employee termination in the option pricing model . the expected term of options granted is derived from the output of the option pricing model and represents the period of time that options granted are expected to be outstanding . the expected volatilities are based on the historical volatility of our common stock and other factors . fair value we hold certain assets that are required to be measured at fair value in accordance with united states gaap . we determined fair value of these assets based on the following three levels of inputs : level 1 ย quoted prices in active markets for identical assets or liabilities . level 2 ย observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities ; quoted prices in markets that are not active ; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities .
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financial highlights we had total operating revenues of $ 3.2 billion for the year ended december 31 , 2014 , a 1.8 % decrease , compared to total operating revenues of $ 3.3 billion for the year ended december 31 , 2013. we had a net loss of $ 24.2 million , or $ ( 0.47 ) per diluted share , for the year ended december 31 , 2014 , compared to $ 59.0 million , or $ 1.12 per diluted share , for the year ended december 31 , 2013. the significant items affecting our financial performance during the year ended december 31 , 2014 are outlined below : revenue under our fixed-fee arrangements , certain expenses are subject to direct reimbursement from our major partners and we record such reimbursements as passenger revenue ( referred to as pass through costs ) . these pass-through costs include fuel , landing fees , station rents and engine maintenance expenses under certain fixed-fee contracts . excluding the pass-through expenses for fuel , landing fees and engine maintenance and the associated direct reimbursement from our major partners , our passenger revenues increased from $ 2,570 million for the year ended december 31 , 2013 to $ 2,583 million for the year ended december 31 , 2014 , a $ 13 million increase . this increase during the 2014 year was primarily due to the addition of the e175 aircraft , certain contract renewals and modifications at improved rates and increased volume of departures on routes subject to government subsidies . block hours incurred on completed flights is a significant driver of our revenue under our fixed-fee arrangements . during the three months ended march 31 , 2014 , we experienced unusual weather-related disruptions and cancelled approximately 15,800 more flights compared to the three months ended march 31 , 2013 , or a 144 % increase in weather-cancelled flights .
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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 risk factors โ in part i , item 1a . certain statements contained in this annual report on form 10-k , including statements regarding the development , growth and expansion of our business , our intent , belief or current expectations , primarily with respect to our future operating performance , and the products we expect to offer and other statements regarding matters that are not historical facts , are โ forward-looking statements โ within the meaning of section 27a of the securities act and section 21e of the exchange act , and are subject to the โ safe harbor โ created by these sections . future filings with the sec , future press releases and future oral or written statements made by us or with our approval , which are not statements of historical fact , may also contain forward-looking statements . because such statements include risks and uncertainties , many of which are beyond our control , actual results may differ materially from those expressed or implied by such forward-looking statements . some of the factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements can be found under the caption โ risk factors โ and elsewhere in this annual report . readers are cautioned not to place undue reliance on forward-looking statements . the forward-looking statements speak only as of the date on which they are made , and we undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made . overview we are a medical device company with an innovative approach to the design , development and commercialization of products for people with insulin-dependent diabetes . we designed and commercialized our flagship product , the t : slim insulin delivery system , or t : slim , based on our proprietary technology platform and unique consumer-focused approach . the foundation of our product portfolio is our proprietary technology platform and unique consumer-focused approach , which allows us to focus on both consumer and clinical needs to develop and commercialize products that address different segments of the insulin-dependent diabetes market . we began commercial sales of t : slim , in august 2012. in january 2015 we received clearance from the u.s. food and drug administrat ion , or fda , to commercialize our next product , the t : flex insulin delivery system , or t : flex , for people with greater insulin needs . we intend to begin commercial sales of t : flex in the united states during the second quarter of 2015. our technology platform features our patented micro-delivery technology , a miniaturized pumping mechanism which draws insulin from a flexible bag within the pump 's cartridge rather than relying on a syringe and plunger mechanism . it also features an easy-to-navigate embedded software architecture , a vivid color touchscreen and a micro-usb connection that supports both a rechargeable battery and t : connect , our data management application . our innovative approach to product design and development is also consumer-focused and based on our extensive market research as we believe the user is the primary decision maker when purchasing an insulin pump . we also apply the science of human factors to our design and development process , which seeks to optimize our devices to the intended users , allowing users to successfully operate our devices in their intended environment . leveraging our technology platform and consumer-focused approach , we develop products to address unmet needs of people in different segments of the large and growing insulin-dependent diabetes market . the fda cleared t : slim in november 2011 and we commenced commercial sales of t : slim in the united states in the third quarter of 2012. in january 2015 , we received fda clearance to commercialize t : flex . we intend to begin commercial sales of t : flex in the united states during the second quarter of 2015. we consider the number of units shipped per quarter to be an important metric for managing our business . since the launch of t : slim , we have shipped approximately 18,300 pumps as of december 31 , 2014 , broken down by quarter as follows : replace_table_token_4_th for the years ended december 31 , 2014 , 2013 and 2012 , our sales were $ 49.7 million , $ 29.0 million and $ 2.5 million , respectively . for the years ended december 31 , 2014 , 2013 and 2012 , our net loss was $ 79.5 million , $ 63.1 million and $ 33.0 million , respectively . our accumulated deficit as of december 31 , 2014 was $ 248.7 million . 56 we have derived nearly all of our revenue from the sale of t : slim and associated supplies in the united states and expect to continue to do so until we are able to commercialize t : flex and our other products that are currently under development . during the third quarter of 2014 , we submitted a pma application to the fda for the t : slim g4 insulin pump system , which we have previously referred to as t : sensor . a substantial portion of the purchase price of an insulin pump is typically paid for by third-party payors , including private insurance companies , preferred provider organizations and other managed care providers . access to adequate coverage and reimbursement for our current and future products by third-party payors is essential to the acceptance of our products by customers . future sales of our current and future products will be limited unless our customers can rely on third-party payors to pay for all or part of the associated purchase cost . story_separator_special_tag cost of sales includes raw materials , labor costs , manufacturing overhead expenses , product training costs and reserves for expected warranty costs , scrap and inventory obsolescence . due to our relatively low production volumes compared to our potential capacity to produce our products , manufacturing overhead expenses are a significant portion of our per-unit costs . these expenses include quality assurance , manufacturing engineering , material procurement , inventory control , facilities , equipment , information technology and operations supervision and management . we expect our overall gross margin , which is calculated as sales less cost of sales for a given period divided by sales , to fluctuate in future periods as a result of the changing percentage of products sold to distributors versus directly to individual customers , varying levels of reimbursement among third-party payors , changing mix of products sold with different gross margins , new product launches , warranty and training costs , and changes in our manufacturing processes , costs or manufacturing output . manufacturing inefficiencies will also impact our gross margins , which we may experience as we attempt to manufacture our products on a larger scale , change our manufacturing processes , change our manufacturing capacity or output , implement additional automated manufacturing equipment and expand our manufacturing facilities . any new products that we sell in the future , such as the t : flex pump , may also change our gross margins . selling , general and administrative we expect our selling , general and administrative , or sg & a , expenses to increase as our business expands . our sg & a expenses primarily consist of salary , cash-based incentive compensation , fringe benefits and stock-based compensation for our executive , financial , marketing , sales , business development , regulatory affairs and administrative functions . other significant expenses include those incurred for product demonstration samples , commercialization activities associated new product launches , trade shows , outside legal counsel fees , independent auditor fees , outside consultant fees , insurance premiums , facilities costs and information technology costs . research and development we expect our research and development , or r & d , expenses to increase as we initiate and advance our development projects . our r & d activities primarily consist of engineering and research programs associated with our products under development , as well as r & d activities associated with our core technologies and processes . r & d expenses are primarily related to employee compensation , including salary , fringe benefits , stock-based compensation and temporary employee expenses . we also incur significant expenses for supplies , license fees , development prototypes , outside design and testing services and milestone payments under our development and commercialization agreements with dexcom and other collaborators . other income and expense our other income and expense primarily consists of interest expense and amortization of debt discount and debt issuance costs associated with term loan agreements . at december 31 , 2014 , there was $ 30.0 million of outstanding principal under our amended and restated term loan agreement with capital royalty partners , which accrues interest at a rate of 11.5 % per annum ( see `` indebtedness '' ) . in previous years , other income and expense also included interest expense and amortization of debt discount associated with convertible notes payable and the change in the fair value of outstanding common and preferred stock warrants , for which the final revaluation was performed in connection with our initial public offering in the fourth quarter of 2013 . 58 story_separator_special_tag style= '' font-style : normal ; '' > we expect our r & d expenses will continue to increase in 2015 , but at a lower rate as compared to 2014. other income ( expense ) . other expense in 2014 was $ 3.8 million , compared to $ 13.7 million in 2013. other expense in 2014 was primarily due to $ 3.9 million of interest expense associated with the term loan agreement executed with capital royalty partners in december 2012 and subsequently amended and restated in april 2014 and february 2015. we borrowed $ 30 million under the agreement in january 2013. in comparison , other expense in 2013 was primarily comprised of $ 9.0 million of expense associated with the revaluation of the fair value of common and preferred stock warrants and $ 4.7 million of interest expense associated with the term loan agreement . we performed the final revaluation of the warrant liability in november 2013 in connection with completion of the initial public offering . the decrease in interest expense during 2014 compared to 2013 was due to the decrease in the interest rate on our outstanding debt from 14.0 % to 11.5 % in conjunction with the amendment to our term loan agreement . comparison of years ended december 31 , 2013 and 2012 sales . we began selling our products in the third quarter of 2012. sales for the years ended december 31 , 2013 and 2012 were $ 29.0 million and $ 2.5 million , respectively . sales from the t : slim pump accounted for 90 % and 91 % of sales , respectively , for the years ended december 31 , 2013 and 2012 , while pump-related supplies primarily accounted for the remainder in each year . sales of accessories were not material in either year . the commercialization of the t : slim pump and pump-related supplies and accessories initially involved a sales force of limited size . during 2013 , we expanded the number of our sales territories to 36 from 11 at commercial launch in 2012. sales to distributors accounted for 69 % and 73 % of our total sales for the years ended december 31 , 2013 and 2012 , respectively . cost of sales and gross profit ( loss ) .
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results of operations replace_table_token_5_th comparison of years ended december 31 , 2014 and 2013 sales . for the years ended december 31 , 2014 and 2013 , sales were $ 49.7 million and $ 29.0 million , respectively . sales from the t : slim pump accounted for 86 % and 90 % of sales , respectively , for the years ended december 31 , 2014 and 2013 , while pump-related supplies primarily accounted for the remainder in each year . sales of accessories were not material in either year . the growth in sales was primarily driven by a 67 % increase in t : slim pump shipments from 6,472 in 2013 to 10,822 in 2014. we expanded the number of sales territories in the united states from 36 at the end of 2013 to 60 at the end of the second quarter of 2014. as a result of our sales force expansion , our field personnel experienced some initial disruption in their sales productivity as their territories were realigned and responsibilities adjusted . sales to distributors accounted for 75 % and 69 % of our total sales for the years ended december 31 , 2014 and 2013 , respectively . the mix of sales to distributors versus direct customers is driven by whether or not we have a contracted arrangement with the underlying third-party insurance payor . typically reimbursement is higher for sales to direct customers as compared to distributors , and we do not capture all of the pump supply sales for distributors .
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the 4.5 % sales growth in 2012 follows an 11 % increase in revenues in both 2010 and 2011. our 15 % increase in net income follows a 19 % increase in net income in 2010 and 2011. throughout the two year period preceding 2012 , we experienced strong and steady growth in three of our four business segments , as conditions in these industries improved significantly from the depressed levels experienced in 2009. these favorable conditions began to moderate following the first quarter of 2012 , which created a more challenging sales environment over the balance of the year . over the three year period of 2010 through 2012 , our financial performance was also positively impacted by a variety of initiatives we implemented to grow sales and earnings in each of our four businesses . examples of such initiatives include strategic acquisitions , the introduction of new and expanded 15 product lines , geographic expansion , sales to new markets , enhanced customer marketing programs and a variety of gross margin and cost savings initiatives . we discuss these initiatives further below . with regard to the december 31 , 2012 consolidated balance sheet , the company 's cash balance of $ 403 million was down from cash of $ 525 million at december 31 , 2011 , due primarily to two investments in our automotive business during 2012 , which are discussed further under liquidity and capital resources . the company 's strong cash position was supported by the increase in net income and ongoing working capital management in 2012. accounts receivable increased by approximately 2 % , which is below our sales increase in the fourth quarter of the year , and inventory was up by just under 7 % , primarily from acquisitions . accounts payable increased $ 241 million or 17 % from the prior year . the significant increase in this line item is due primarily to improved payment terms with certain suppliers . total debt outstanding at december 31 , 2012 was unchanged from $ 500 million at december 31 , 2011. story_separator_special_tag quarter and were down 2 % in the fourth quarter . based on the underlying assumption for stronger manufacturing expansion in 2013 , the company currently anticipates another year of reasonable growth in the electrical business . net sales for electrical increased to $ 558 million in 2011 , up 24 % from 2010. acquisitions contributed approximately 11 % to electrical 's sales growth , and the effect of copper pricing had a 3 % positive sales impact for the year . the increase in sales volume , supported by continued manufacturing expansion during the year , contributed 5 % to sales in 2011 and product inflation , which resulted in higher transaction values , added another 5 % to sales . electrical sales increased by 39 % in the first quarter , followed by increases of 28 % in the second quarter , 22 % in the third quarter and 10 % in the fourth quarter . cost of goods sold the company includes in cost of goods sold the actual cost of merchandise , which represents the vast majority of this line item . other costs in cost of goods sold include warranty costs and in-bound freight from the supplier , net of any vendor allowances and incentives . cost of goods sold was $ 9.2 billion , $ 8.9 billion and $ 8.0 billion in 2012 , 2011 and 2010 , respectively . the 4 % increase in cost of goods sold from 2011 to 2012 is directly related to the sales increase for the same period , as actual costs remained steady . cost of goods sold represented 71.0 % of net sales in 2012 , 71.1 % of net sales in 2011 and 71.0 % of net sales in 2010. the slight decrease in cost of goods sold as a percent of net sales for 2012 reflects our gross margin initiatives to enhance our pricing strategies , promote and sell higher margin products and minimize material acquisition costs . in 2011 , these initiatives were offset by the negative impact of certain pricing adjustments implemented in automotive as well as ongoing competitive pricing pressures in the industrial and office businesses , hence the lower gross margin level in 2011 when compared to 2010. in 2012 , only the industrial and office business segments experienced vendor price increases . in the previous two years , all four of our business segments experienced vendor price increases although , in 2010 , the automotive and office increases were relatively immaterial . in any year where we experience price increases , we are able to work with our customers to pass most of these along to them . operating expenses the company includes in selling , administrative and other expenses ( ยsg & aย ) , all personnel and personnel related costs at its headquarters , distribution centers and stores , which accounts for approximately 60 % of total sg & a . additional costs in sg & a include our facility , delivery , marketing , advertising , legal and professional costs . sg & a increased by $ 54 million or approximately 2 % to $ 2.6 billion in 2012 , representing 20.4 % of net sales and down from 20.8 % of net sales in 2011. sg & a expenses as a percentage of net sales improved from the prior year due to slightly greater expense leverage associated with our sales growth , combined with management 's ongoing cost control measures in areas such as personnel , freight , fleet and logistics . excluding acquisitions , the company 's headcount at december 31 , 2012 decreased by approximately 1 % from 2011. these expense initiatives have served to further improve the company 's cost structure . story_separator_special_tag the improvement in gross margin reflects several factors , including higher margin business associated with recent acquisitions , and the decrease in copper prices during the year , which generally do not affect profit dollars , but positively impact margins , as the standard industry practice is to bill copper to the customer at cost . electrical will continue to focus on its sales initiatives and cost controls to further improve its operating margin in the years ahead . electrical 's operating margin increased to 7.3 % in 2011 from 6.9 % in 2010. the increase in operating margin was due to the combination of greater expense leverage associated with a 24 % sales increase and the ongoing benefits of effective cost controls . the improvement in these areas was partially offset by the increase in copper prices during the year , which negatively impacted margins . income taxes the effective income tax rate of 36.4 % in 2012 was down slightly from 36.6 % in 2011 , primarily due to the favorable impact of a retirement asset valuation adjustment in 2012 relative to 2011. the income tax rate decreased to 36.6 % in 2011 from 37.6 % in 2010. the decrease from 2010 is primarily attributable to a favorable adjustment recorded in the first quarter of 2011 associated with the statute of limitations related to international taxes . net income net income was $ 648 million in 2012 , an increase of 15 % from $ 565 million in 2011. on a per share diluted basis , net income was $ 4.14 in 2012 compared to $ 3.58 in 2011 , up 16 % . net income in 2012 was 5.0 % of net sales compared to 4.5 % of net sales in 2011. in december 2012 , the company 's u.s. defined benefit plan was amended to reflect a hard freeze as of december 31 , 2013. the company recorded a one-time noncash curtailment gain of $ 23.5 million in connection with this amendment . net income was $ 565 million in 2011 , an increase of 19 % from $ 476 million in 2010. on a per share diluted basis , net income was $ 3.58 in 2011 compared to $ 3.00 in 2010 , up 19 % . net income in 2011 was 4.5 % of net sales compared to 4.2 % of net sales in 2010. financial condition our cash balance of $ 403 million at december 31 , 2012 was down approximately $ 122 million from our cash balance at december 31 , 2011. in 2012 , cash provided by the increase in net income and ongoing working capital management was offset by approximately $ 530 million used for the exego investment and quaker city and light fabrication acquisitions . the company 's accounts receivable balance at december 31 , 2012 increased by approximately 2 % from the prior year , which is less than the company 's 3.5 % sales increase for the fourth quarter of 2012. inventory at december 31 , 2012 was up by approximately 7 % from december 31 , 2011 , which is primarily attributable to acquisitions . excluding acquisitions , inventory was up by approximately 2 % from the prior year . accounts payable increased $ 241 million or approximately 17 % from december 31 , 2011 due primarily to improved payment terms with certain suppliers . goodwill and other intangible assets increased by $ 218 million or 78 % from december 31 , 2011 due to the company 's acquisitions during the year . the change in our december 31 , 2012 balances for pension and other post-retirement benefits liabilities , up $ 79 million or approximately 16 % from december 31 , 2011 , is primarily due to a change in funded status of the company 's pension and other post-retirement plans in 2012. liquidity and capital resources the company 's sources of capital consist primarily of cash flows from operations , supplemented as necessary by private issuances of debt and bank borrowings . we have $ 500 million of total debt outstanding at 20 december 31 , 2012 , of which $ 250 million matures in november 2013 and $ 250 million matures in november 2016. in addition , the company entered into a syndicated facility agreement ( the ยsyndicated facilityย ) for $ 850 million in september 2012 , which replaced the $ 350 million unsecured revolving line of credit that was scheduled to mature in december 2012. no amounts were outstanding under the syndicated facility or line of credit at december 31 , 2012 and 2011 , respectively . the capital and credit markets were volatile over the last few years , although these conditions did not materially impact our access to these markets . currently , we believe that our cash on hand and available short-term and long-term sources of capital are sufficient to fund the company 's operations , including working capital requirements , scheduled debt payments , interest payments , capital expenditures , benefit plan contributions , income tax obligations , dividends , share repurchases and contemplated acquisitions . the ratio of current assets to current liabilities was 1.9 to 1 at december 31 , 2012 , and , before consideration of current debt outstanding at december 31 , 2012 , the ratio of current assets to current liabilities was 2.2 to 1. this compares to 2.4 to 1 at december 31 , 2011. our liquidity position remains solid .
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results of operations our results of operations are summarized below for the three years ended december 31 , 2012 , 2011 and 2010. replace_table_token_6_th net sales consolidated net sales for the year ended december 31 , 2012 totaled $ 13.0 billion , a 4.5 % increase from 2011 and driven by sales increases in three of our four business segments . acquisitions in our automotive and electrical businesses contributed 2 % to our sales growth and increased sales volume added approximately 2 % to sales . the impact of product inflation varied by business , as , cumulatively , prices in 2012 were flat in the automotive segment , up approximately 2 % in the industrial segment , flat in the electrical segment and up approximately 3 % in the office segment . the company is well positioned to improve sales again in 2013. consolidated net sales for the year ended december 31 , 2011 totaled $ 12.5 billion , an 11 % increase from 2010. the company showed sales growth in all four of our business segments in 2011. the increase in total sales volume for the year added approximately 9 % to sales , while acquisitions and the effect of currency associated with our canadian and mexican businesses each contributed 1 % as well . cumulatively , prices in 2011 were up approximately 3 % in the automotive segment , up approximately 4 % in the industrial segment , up approximately 5 % in the electrical segment and up approximately 2 % in the office segment . automotive group net sales for the automotive group ( ยautomotiveย ) were $ 6.3 billion in 2012 , an increase of 4 % from 2011. the increase in sales for the year was primarily due to the may 1 , 2012 acquisition of quaker city motor parts co. ( ยquaker cityย ) , which contributed approximately 3 % to sales . additionally , automotive achieved a positive comparable store sales increase of slightly more than 1 % .
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no portion of the benefit of an uncertain tax position may be recognized if the position has less than a 50 % likelihood of being sustained . the company currently does not have any unrecognized tax benefits of uncertain tax positions . the company does not expect any significant increases to its unrecognized tax benefits within twelve months of the reporting date . the company currently files income tax returns in the united states and canada , the jurisdictions in which the company believes that it is subject to tax . further , while the statute of limitations in each jurisdiction where an income tax return has been filed generally limits the examination period , as a result of loss carry-forwards , the limitation period for examination generally does not expire until several years after the loss carry-forwards are utilized . other than routine audits by tax authorities for tax credits and tax refunds that the company has claimed , the company is not aware of any other material story_separator_special_tag forward-looking statements the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that reflect our plans , estimates and beliefs , and involve risks and uncertainties . actual events or results may differ materially . our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks , uncertainties and other factors . we discuss many of these risks , uncertainties and other factors in this annual report on form 10-k in greater detail under the heading ยitem 1a ย risk factors.ย we caution investors that our business and financial performance are subject to substantial risks and uncertainties . overview we are a pharmaceutical company discovering and developing novel therapeutics for conditions marked by inflammation , inflammatory pain and blood cancers . we commenced operations in canada in december 2003. aquinox pharmaceuticals ( canada ) inc. , a corporation formed under the canada business corporations act , is a wholly owned subsidiary of aquinox pharmaceuticals , inc. , a delaware corporation formed in may 2007. we operate in vancouver , british columbia , canada . on june 27 , 2018 , we announced that our phase 3 leadership 301 clinical trial evaluating once-daily , oral rosiptor for the treatment of interstitial cystitis/bladder pain syndrome ( ic/bps ) failed to meet its primary endpoint . as a result , in july 2018 , our board of directors approved a restructuring plan to reduce operating costs and to better align our workforce with the needs of our business going forward . all further development activities with rosiptor were halted . on november 6 , 2018 , our board of directors approved a second restructuring plan to further reduce operating costs . after the completion of both restructuring plans , we have reduced our workforce from 56 to eight employees . as of the date of this report , we do not have any product candidates in clinical development or identified for clinical development . in order for our business to continue , we must identify products or product candidates that we can advance into development . in connection with this , we and our board of directors are evaluating potential merger transactions with companies that have more advanced development and product candidates . we are also evaluating the potential in-license or direct acquisition of potential products and or product candidates as well as assessing whether any of our existing research stage compounds can be advanced into clinical development . if we are unable to identify products or additional product candidates , through merger , license or otherwise , that we and our board of directors determine would merit the investment of our capital and resources , our board of directors may pursue other options , which would potentially include a return of capital to our stockholders and the dissolution of our business . since inception , we have incurred significant operating losses . our net loss for the year ended december 31 , 2018 was $ 31.6 million , compared to $ 50.2 million for the year ended december 31 , 2017. as of december 31 , 2018 , we had an accumulated deficit of $ 230.1 million , compared to $ 198.5 million as of december 31 , 2017. we have funded our operations primarily through the sale of common stock and preferred stock . as of december 31 , 2018 , we had $ 76.9 million in cash and cash equivalents in liquid , high-quality securities . story_separator_special_tag ended december 31 , 2016. higher expenditure during the year ended december 31 , 2017 was primarily driven by increased clinical activities as we continued our leadership 301 clinical trial of rosiptor in ic/bps . general and administrative expenses general and administrative expenses consist primarily of personnel related costs ( including severance , stock-based compensation and travel expenses ) , facility-related costs , insurance , public company expenses , professional fees for consulting , legal and accounting services , and restructuring costs . for the year ended december 31 , 2018 , general and administrative expenses of $ 15.8 million were higher compared to $ 14.9 million for the year ended december 31 , 2017. the increase was primarily the result of restructuring costs . we incurred $ 1.1 million of general and administrative related restructuring costs for the year ended december 31 , 2018 compared to none for the year ended december 31 , 2017. for the year ended december 31 , 2017 , general and administrative expenses of $ 14.9 million were higher compared to $ 9.3 million for the year ended december 31 , 2016. the increase was primarily the result of higher personnel related costs and pre-commercial and market assessment activities . story_separator_special_tag our future capital requirements will depend on many factors , including : the number and characteristics of any future product candidates we develop or may acquire ; the scope , progress , results and costs of researching and developing our product candidates or any future product candidates , and conducting preclinical studies and clinical trials ; the timing of , and the costs involved in , obtaining regulatory approvals for any future product candidates ; the cost of manufacturing our future product candidates and any products that may achieve regulatory approval ; the cost of commercialization activities if any future product candidates are approved for sale , including marketing , sales and distribution costs ; the timing , receipt and amount of sales of , or royalties on , future approved products , if any ; our ability to establish and maintain strategic collaborations , licensing or other arrangements and the financial terms of such agreements ; any product liability or other lawsuits related to our products ; the expenses needed to attract and retain skilled personnel ; the costs involved in preparing , filing , prosecuting , maintaining , defending and enforcing patent claims , including litigation costs and the outcome of such litigation . please see item 1a of this annual report titled ยrisk factorsย for additional risks associated with our substantial capital requirements . contractual obligations and commitments the following is a summary of our long-term contractual cash obligations as of december 31 , 2018 : replace_table_token_8_th 1. we have a lease agreement for approximately 10,946 square feet of office space in canada which was effective on november 1 , 2016 and expires october 31 , 2021 , with the option to extend the lease to october 31 , 2026. on december 22 , 2016 , we took over a lease agreement for an additional 2,500 square feet of office space in canada . the lease for the additional 2,500 square feet expires june 30 , 2019. the dollar amounts shown in these columns reflect the u.s. dollar equivalent of the obligations . the amounts were converted to u.s. dollars from cad dollars using the december 31 , 2018 daily closing exchange rate of us $ 0.73303 . 63 purchase commitments we have no material non-cancelable purchase commitments with contract manufacturers or service providers as we have generally contracted on a cancelable purchase order basis . milestone , royalty-based and other commitments in august 2009 , aqxp canada entered into an asset purchase agreement with biolipox ab of sweden , or biolipox , for the purchase of all assets , including patent rights and know-how , relating exclusively or principally to a compound library from which we ultimately identified and selected rosiptor . under the terms of the agreement , aqxp canada paid biolipox cad $ 50,000 immediately upon closing . an additional cad $ 250,000 by way of issuance of our common stock was made in june 2014 upon the first submission to the fda of an ind for a compound from the acquired class . in november 2016 we made a one-time cad $ 3.0 million milestone payment to biolipox as a result of the advancement of rosiptor into a phase 3 clinical trial . we will also be required to make certain other milestone payments totaling up to cad $ 1.5 million in the aggregate upon the first commercial sale of the first compound covered by the acquired patent rights ( which we expect will be triggered by the first commercial sale of rosiptor ) in each of the united states , europe and japan . there are no royalty payments due under this agreement . in june 2006 , aqxp canada entered into an exclusive license agreement with the university of british columbia , or ubc , for certain patent rights and technology relating to small molecule compounds and pharmaceutical compositions as modulators of ship1 activity . this agreement was amended and restated in june 2007 , and subsequently amended in october 2006 , june 2007 , september 2008 and april 2010. this agreement will expire on the expiry of the last issued patent covering the licensed technology . the agreement will terminate automatically upon our insolvency or may be terminated by either party for material breach by the other party . the terms of the agreement required aqxp canada to pay an initial license fee of cad $ 50,000 all of which was paid by the issuance of shares of our common stock . we do not currently have any product candidates under development that are covered by the agreement , nor have we sublicensed our rights under the licensed patents . however , if we develop products covered by the ubc technology in the future , we will be required to pay certain development and regulatory milestones up to an aggregate of cad $ 2.2 million for the first drug product developed under the license and up to cad $ 1.5 million for each subsequent drug product , which may be paid in cash or by issue of our shares . we must also pay ubc low single-digit royalties based on aggregate worldwide net sales of products covered by the licensed patents and a percentage of sublicensing revenue ranging from the low single digits to the mid double digits based on the stage of development at which such sublicense is granted . we are also required to reimburse costs incurred by ubc related to the prosecution and maintenance of the licensed patents , and to pay an annual license maintenance fee in the amount of cad $ 1,000. in may 2005 , aqxp canada entered into an assignment agreement , which was subsequently amended in december 2005 and march 2006 , with the british columbia cancer agency ( bcca ) and stemcell technologies , inc. ( sti ) for the assignment to aqxp canada of the 2002 exclusive license agreement between bcca and sti to certain patents relating to technology relating to ship1 .
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results of operations revenue on may 9 , 2018 , we entered into an exclusive license and collaboration agreement with astellas us llc , a subsidiary of astellas pharma inc. ( ยastellasย ) . astellas was granted an exclusive , royalty-bearing license to use , research , develop , manufacture and commercialize rosiptor and related compounds for all human diseases and conditions in japan and certain other countries in the asia-pacific region , including major markets such as taiwan , indonesia , malaysia , south korea , and australia , but excluding china and india . as consideration for entering into this agreement , we received a non-refundable upfront payment of $ 25.0 million and potential future development and commercial milestone payments , as well as royalties on any future sales of rosiptor within the licensed territory . on september 4 , 2018 , we received notice from astellas that it was terminating this exclusive license and collaboration agreement effective march 4 , 2019 , unless an earlier termination date is agreed to by 59 the parties . on november 8 , 2018 , the company entered into an early termination agreement with astellas to terminate the exclusive license and collaboration agreement between the company and astellas effective november 8 , 2018. the upfront payment of $ 25.0 million from astellas is non-refundable and has been recorded as revenue for the year ended december 31 , 2018. operating expenses the following table summarizes our operating expenses for the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_4_th research and development expenses on june 27 , 2018 , we announced that our phase 3 leadership 301 clinical trial evaluating once-daily , oral rosiptor for the treatment of ic/bps failed to meet its primary endpoint . the leadership 301 clinical trial enrolled 433 participants , including 341 female subjects who were randomized to receive rosiptor 100 mg or 200 mg , or placebo .
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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 ยrisk factors.ย overview we are a leading global provider of cloud-based services for video . we were incorporated in delaware in august 2004 and our headquarters are in boston , massachusetts . our suite of products and services reduce the cost and complexity associated with publishing , distributing , measuring and monetizing video across devices . brightcove video cloud , or video cloud , our flagship product released in 2006 , is the world 's leading online video platform . 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 . brightcove zencoder , or zencoder , is a cloud-based video encoding service . brightcove ssai , or ssai , is an innovative , cloud-based ad insertion and video stitching service that addresses the limitations of traditional online video ad insertion technology . brightcove player , or player , is a cloud-based service for creating and managing video player experiences . brightcove ott flow is a service for media companies and content owners to rapidly deploy high-quality , direct-to-consumer , live and on-demand video services across platforms . brightcove video marketing suite , or video marketing suite , is a comprehensive suite of video technologies designed to address the needs of marketers to drive awareness , engagement and conversion . brightcove enterprise video suite , or enterprise video suite , is an enterprise-class platform for internal communications , employee training , live streaming , marketing and ecommerce videos . our philosophy for the next few years will continue to be to invest in our product strategy and development , sales , and go-to-market activities to support our long-term revenue growth . we believe these investments will help us address some of the challenges facing our business such as demand for our products by existing 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 , the innovation of new features for existing products and the development of new products . we believe this strategy will help us retain our existing customers , increase our average annual subscription revenue per premium customer 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 . as of december 31 , 2018 , we had 495 employees and 3,783 customers , of which 2,226 used our premium offerings and 1,557 used our volume offerings . as of december 31 , 2017 , we had 498 employees and 4,168 customers , of which and 2,167 used our premium offerings and 2,001 used our volume offerings . we generate revenue by offering our products to customers on a subscription-based , software as a service , or saas , model . our revenue grew from $ 155.9 million in the year ended december 31 , 2017 to $ 164.8 million in the year ended december 31 , 2018 , primarily related to an increase in revenue from professional services engagements and to a lesser extent our subscription-based saas . our consolidated net loss was $ 14.0 million and $ 19.5 million for the years ended december 31 , 2018 and 2017 , respectively . included in consolidated net loss for the year ended december 31 , 2018 was stock-based compensation expense and amortization of acquired intangible assets of $ 6.6 million and $ 2.3 million , respectively . included in consolidated net loss for the year ended december 31 , 2017 was stock-based compensation expense and amortization of acquired intangible assets of $ 7.2 million and $ 2.7 million , respectively . 34 for the years ended december 31 , 2018 and 2017 , our revenue derived from customers located outside north america was 46 % and 41 % , 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 . key metrics we regularly review a number of metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . number of customers . we define our number of customers at the end of a particular quarter as the number of customers generating subscription revenue at the end of the quarter . we believe the number of customers is a key indicator of our market penetration , the productivity of our sales organization and the value that our products bring to our customers . we classify our customers by including them in either premium or volume offerings . our premium offerings include our premium video cloud customers ( enterprise and pro editions ) , our zencoder customers ( other than zencoder customers on month-to-month contracts and pay-as-you-go contracts ) , our ssai customers , our player customers , our ott flow customers , our video marketing suite customers and our enterprise video suite customers . our volume offerings include our video cloud express customers and our zencoder customers on month-to-month contracts and pay-as-you-go contracts . as of december 31 , 2018 , we had 3,783 customers , of which 1,557 used our volume offerings and 2,226 used our premium offerings . as of december 31 , 2017 , we had 4,168 customers , of which 2,001 used our volume offerings and 2,167 used our premium offerings . our go-to-market focus and growth strategy is to expand our premium customer base , as we believe our premium customers represent a greater opportunity for our solutions . story_separator_special_tag should a customer 's usage exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements . ott flow is offered to customers on a subscription basis , with varying levels of functionality , usage entitlements and support based on the size and complexity of a customer 's needs . customer arrangements are typically one-year contracts . video marketing suite and enterprise video suite are offered to customers on a subscription basis in starter , pro and enterprise editions . the pro and enterprise customer arrangements are typically one-year contracts , which typically include a subscription to video cloud , gallery , brightcove social ( for video marketing suite customers ) or brightcove live ( for enterprise video suite customers ) , basic support and a pre-determined amount of video streams or plays ( for video marketing suite customers ) , viewers ( for enterprise video suite customers ) , bandwidth and storage or videos . we also generally offer gold support or platinum support to these customers for an additional fee , which includes extended phone support . the pricing for our pro and enterprise editions is based on the number of users , accounts and usage , which is comprised of video streams or plays , viewers , bandwidth and storage or videos . should a customer 's usage exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements , or will require the customer to upgrade its package upon renewal . the starter edition provides customers with the same basic functionality that is offered in our pro and enterprise editions but has been designed for customers who have lower usage requirements and do not typically seek advanced features and functionality . customers who purchase the starter edition may enter into one-year agreements or month-to-month agreements . starter customers with month-to-month agreements are generally billed on a monthly basis and pay via a credit card . all ssai , player , ott flow , video marketing suite and enterprise video suite customers are considered premium 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 . 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 , or cdn , expenses , 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 . 37 cost of revenue increased in absolute dollars from 2017 to 2018. in future periods we expect our cost of revenue will increase in absolute dollars as our revenue increases . cost of revenue as a percentage of revenue could fluctuate from period to period depending on the number of our professional services engagements 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 .
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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_5_th overview of results of operations for the years ended december 31 , 2018 and 2017 total revenue increased by 6 % , or $ 8.9 million , in 2018 compared to 2017 due to an increase in subscription and support revenue of 5 % , or $ 7.8 million , primarily related to the continued growth of our customer base for our premium offerings including sales to both new and existing customers . the increase in professional services and other revenue of 9 % , or $ 1.1 million , was primarily related to the size and number of professional services engagements in 2018 compared to 2017. in addition , our revenue from premium offerings grew by $ 10.0 million , or 7 % , in 2018 compared to 2017. 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 . our gross profit increased by $ 6.9 million , or 8 % , in 2018 compared to 2017 , primarily due to an increase in revenue . our ability to continue to maintain our overall gross profit will depend primarily on our ability to continue controlling our costs of delivery . loss from operations was $ 13.1 million in 2018 compared to $ 19.7 million in 2017. we expect operating loss to decrease from greater sales to both new and existing customers and from improved efficiencies throughout our organization as we continue to grow and scale our operations .
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2016-13 , financial instruments - credit losses ( topic 326 ) : measurement of credit story_separator_special_tag the following information should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere in part iv , item 15 of this annual report on form 10-k. overview we are a reit organized under maryland law . as of december 31 , 2017 , we wholly owned 108 properties ( 167 buildings ) and had a noncontrolling ownership interest in two properties ( three buildings ) totaling 443,867 rentable square feet through two unconsolidated joint ventures in which we own 50 % and 51 % interests . as of december 31 , 2017 , our consolidated properties are located in 30 states and the district of columbia and contain 17,499,338 rentable square feet , of which 41.2 % was leased to the u.s. government , 14.9 % was leased to 13 state governments , 2.6 % was leased to five other government tenants , 5.8 % was leased to government contractor tenants , 29.7 % was leased to various other non-governmental organizations and 5.8 % was available for lease . the u.s. government , 13 state governments and five other government tenants combined were responsible for 62.6 % and 87.9 % of our annualized rental income as of december 31 , 2017 and 2016 , respectively . the term annualized rental income as used in this section is defined as the annualized contractual base rents from our tenants pursuant to our lease agreements as of the measurement date , plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us , and excluding lease value amortization . on october 2 , 2017 , we completed the fpo transaction , pursuant to which we acquired 35 office properties ( 72 buildings ) with 6,028,072 rentable square feet and two properties ( three buildings ) with 443,867 rentable square feet owned by joint ventures in which we acquired fpo 's 50 % and 51 % interests . the aggregate value we paid for fpo was $ 1,370,888 , including $ 651,696 in cash consideration paid to fpo shareholders , the repayment of $ 483,000 of fpo corporate debt , the assumption of $ 167,548 of fpo mortgage debt ; this amount excludes the $ 82,000 of mortgage debt that encumbers the two properties that were owned by joint ventures that fpo had 50 % and 51 % interests in , and the payment of certain transaction fees and expenses , net of fpo cash on hand . we financed the cash portion of the fpo transaction consideration with borrowings under our revolving credit facility and with cash on hand , which included net proceeds from our public offerings of common shares and senior unsecured notes , as described further in notes 9 and 11 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. as of december 31 , 2017 , we owned 24,918,421 common shares , or approximately 27.8 % of the then outstanding common shares , of sir . sir is a reit which primarily owns single tenant , net leased properties . see notes 7 and 12 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k for more information regarding our investment in sir . we account for our investment in sir under the equity method . 52 consolidated property operations as of december 31 , 2017 , 94.2 % of our consolidated rentable square feet was leased , compared to 95.1 % of our consolidated rentable square feet as of december 31 , 2016 , which excludes one property ( one building ) classified as discontinued operations which was sold on august 31 , 2017. occupancy data for our consolidated properties as of december 31 , 2017 and 2016 was as follows ( square feet in thousands ) : replace_table_token_5_th ( 1 ) based on consolidated properties we owned on december 31 , 2017 and 2016 , respectively , and excludes one property ( one building ) classified as discontinued operations which was sold on august 31 , 2017 . ( 2 ) based on consolidated properties we owned on december 31 , 2017 and which we owned continuously since january 1 , 2016. our comparable properties decreased from 70 properties ( 90 buildings ) at december 31 , 2016 as a result of the sale of one property ( one building ) during the year ended december 31 , 2017 . ( 3 ) subject to changes when space is re-measured or re-configured for tenants . ( 4 ) percent leased includes ( i ) space being fitted out for tenant occupancy pursuant to our lease agreements , if any , and ( ii ) space which is leased , but is not occupied or is being offered for sublease by tenants , if any , as of the measurement date . the average annualized effective rental rate per square foot for our consolidated properties for the years ended december 31 , 2017 and 2016 are as follows : replace_table_token_6_th ( 1 ) average annualized effective rental rate per square foot represents annualized total rental income during the period specified divided by the average rentable square feet leased during the period specified . excludes one property ( one building ) classified as discontinued operations which was sold on august 31 , 2017 . ( 2 ) based on consolidated properties we owned on december 31 , 2017 and 2016 , respectively , and excludes one property ( one building ) classified as discontinued operations which was sold on august 31 , 2017 . ( 3 ) based on consolidated properties we owned on december 31 , 2017 and which we owned continuously since january 1 , 2016 . story_separator_special_tag government in the metropolitan washington , d.c. market area , and that could increase competition for government tenants and adversely affect our ability to retain government tenants when our leases expire . the irs has publicly stated that it plans to discontinue its paper tax return processing operations at our property located in fresno , ca in 2021. the irs lease for this property , which accounted for approximately 2.0 % of our annualized rental income as of december 31 , 2017 , expires in the fourth quarter of 2021. the irs has also publicly stated that it plans to discontinue its paper tax return processing operations in covington , ky in 2019. our property located in florence , ky is leased to the irs and we believe it is used to support the covington , ky operations . this irs lease , which accounted for approximately 0.6 % of our annualized rental income as of december 31 , 2017 , expires in the second quarter of 2022 but is subject to possible early termination by our tenant . despite its public announcements , the irs has not provided us any official notices of its intentions regarding these properties . as of december 31 , 2017 , we had leases at our consolidated properties totaling 1,666,566 rentable square feet that were scheduled to expire during 2018. as of february 23 , 2018 , tenants with leases totaling 630,788 rentable square feet that are scheduled to expire during 2018 have notified us that they do not plan to renew their leases upon expiration and we can not be sure as to whether other tenants may or may not renew their leases upon expiration . based upon current market conditions and tenant negotiations for leases scheduled to expire through december 31 , 2018 , we expect that the rental rates we are likely to achieve on new or renewed leases for space under leases expiring through december 31 , 2018 will , in the aggregate and on a weighted ( by annualized revenues ) average basis , be lower than the rates currently being paid , thereby generally resulting in lower revenue from the same space . we can not be sure of the rental rates which will result from our ongoing negotiations regarding lease renewals or any new leases we may enter ; also , we may experience material declines in our rental income due to vacancies upon lease expirations or early terminations . prevailing market conditions and government and other tenants ' needs at the time we negotiate and enter leases or lease renewals will generally determine rental rates and demand for leased space at our properties , and market conditions and government and other tenants ' needs are beyond our control . 56 as of december 31 , 2017 , lease expirations at our consolidated properties by year are as follows ( dollars in thousands ) : replace_table_token_11_th ( 1 ) the year of lease expiration is pursuant to current contract terms . some government tenants have the right to vacate their space before the stated expirations of their leases . as of december 31 , 2017 , government tenants occupying approximately 8.6 % of our consolidated rentable square feet and responsible for approximately 6.8 % of our annualized rental income as of december 31 , 2017 have currently exercisable rights to terminate their leases before the stated terms of their leases expire . also , in 2018 , 2019 , 2020 , 2021 , 2022 , 2023 , 2024 , 2025 , 2026 and 2027 , early termination rights become exercisable by other tenants who currently occupy an additional approximately 2.2 % , 5.2 % , 7.2 % , 1.4 % , 3.4 % , 0.5 % , 0.2 % , 0.1 % , 0.6 % and 0.4 % of our consolidated rentable square feet , respectively , and contribute an additional approximately 3.6 % , 4.9 % , 7.0 % , 1.4 % , 2.9 % , 0.6 % , 0.3 % , 0.2 % , 0.8 % and 0.4 % of our annualized rental income , respectively , as of december 31 , 2017 . in addition , as of december 31 , 2017 , 26 of our government tenants have currently exercisable rights to terminate their leases if the legislature or other funding authority does not appropriate rent amounts in their respective annual budgets . these 26 tenants occupy approximately 12.9 % of our consolidated rentable square feet and contribute approximately 12.3 % of our annualized rental income as of december 31 , 2017 . ( 2 ) leased square feet is pursuant to leases existing as of december 31 , 2017 , and includes ( i ) space being fitted out for tenant occupancy pursuant to our lease agreements , if any , and ( ii ) space which is leased , but is not occupied or is being offered for sublease by tenants , if any . square feet measurements are subject to changes when space is re-measured or re-configured for new tenants . ( 3 ) leased square footage excludes an expansion being constructed at an existing property we own prior to the commencement of the lease . acquisition activities ( dollar amounts in thousands ) in january 2017 , we acquired an office property ( one building ) located in manassas , va with 69,374 rentable square feet for a purchase price of $ 12,620 , excluding capitalized acquisition costs of $ 37 , using cash on hand and borrowings under our revolving credit facility . we acquired this property at a capitalization rate of 8.6 % .
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results of operations ( amounts in thousands , except per share amounts ) year ended december 31 , 2017 , compared to year ended december 31 , 2016 replace_table_token_12_th 59 replace_table_token_13_th ( 1 ) comparable properties consist of 69 consolidated properties ( 89 buildings ) we owned on december 31 , 2017 and which we owned continuously since january 1 , 2016 . ( 2 ) acquired properties consist of 39 consolidated properties ( 78 buildings ) we acquired since january 1 , 2016. in october 2017 , we acquired 35 of these properties ( 72 buildings ) in connection with the fpo transaction . we acquired one of these properties ( one building ) in a separate transaction during 2017. the remaining three properties ( five buildings ) were acquired during 2016 . ( 3 ) disposed properties consist of one consolidated property ( one building ) which we sold during 2016 and one consolidated property ( one building ) we sold during the year ended december 31 , 2017 and excludes one property ( one building ) classified as discontinued operations which was sold in august 2017 . ( 4 ) the calculations of consolidated property net operating income , or noi , exclude certain components of net income available for common shareholders in order to provide results that are more closely related to our consolidated property level results of operations . we define consolidated property noi as consolidated income from our rental of real estate less our consolidated property operating expenses . consolidated property noi excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization . we consider consolidated property noi to be an appropriate supplemental measure to net income available for common shareholders because it may help both investors and management to understand the operations of our consolidated properties .
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we were granted a tax holiday for our singapore operations effective 2011 through 2021. we expect to finalize an extension of the tax holiday through 2026 during the first quarter of 2021. the net impact of the tax holiday in singapore as compared to the singapore statutory rate was a benefit of 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 . for discussion related to changes in financial condition and the results of operations for fiscal year 2018-related items , refer to part ii , item 7 in our annual report on form 10โk for fiscal year 2019 , which was filed with the securities and exchange commission on march 6 , 2020. 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 . 31 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 california , minnesota , oregon , texas , singapore , malaysia , the united kingdom , korea , and mexico . in 2020 , 2019 , and 2018 , 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 . 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 capital equipment industry our business is subject to the cyclicality of the capital expenditures of the semiconductor industry , which drives cyclicality in the semiconductor capital equipment industry in which we operate . in 2020 , we derived over 95 % of our sales from the semiconductor capital equipment industry . demand for semiconductor capital equipment can fluctuate significantly based on changes in general economic conditions , including consumer spending , demand for semiconductor products , pricing , and other factors . in the past , these fluctuations have resulted in significant variations in the levels of spending within the semiconductor capital equipment industry , and as a result , our results of operations . the cyclicality of the semiconductor industry 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 2020 , our top two customers were lam research and applied material , with lam research and applied materials accounting for approximately 52 % and 35 % of sales , respectively . the sales we generated from these customers in 2020 were spread across 42 different product lines utilized in 13 unique manufacturing process steps . story_separator_special_tag selling , general , and administrative โ selling expense consists primarily of salaries and commissions paid to our sales and sales support employees and other costs related to the sales of our products . general and administrative expense consists primarily of salaries and overhead associated with our administrative staff , professional fees , and depreciation and other allocated facility related costs . we expect selling expenses to increase in absolute dollars as we continue to invest in expanding our markets and as we expand our international operations . we expect general and administrative expenses to also increase in absolute dollars due to an increase in costs related to being a public company , including higher legal , corporate insurance , and accounting expenses . amortization of intangibles โ amortization of intangible assets is related to our finite-lived intangible assets and is computed using the straight-line method over the estimated economic life of the asset . interest expense interest expense consists of interest on our outstanding debt under our credit facilities and any other indebtedness we may incur in the future . other expense ( income ) , net the functional currency of our international operations located in the singapore , malaysia , the united kingdom , and mexico is the u.s. dollar . 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 contracts , and most of our agreements with third-party suppliers , provide for pricing and payment in u.s. dollars . accordingly , these transactions are not subject to material exchange rate fluctuations . income tax benefit during 2020 , income tax benefit consisted primarily of the benefit from our tax holiday in singapore , as well as the impacts of withholding taxes , stock option exercises , and credit generation . during 2019 , income tax benefit consisted 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 consisted 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 . 34 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_6_th the following table sets forth our results of operations as a percentage of our total sales for the periods presented . replace_table_token_7_th 35 comparison of fiscal years 2020 and 2019 net sales year ended change december 25 , 2020 december 27 , 2019 amount % ( dollars in thousands ) net sales $ 914,236 $ 620,837 $ 293,399 47.3 % the increase in net sales from 2019 to 2020 was primarily due to increased demand from our customers as a result of growth in the global wafer fabrication equipment market , as well as share-gains at our largest customers . on a geographic basis , sales in the u.s. increased by $ 161.9 million to $ 491.0 million , and foreign sales increased by $ 131.5 million to $ 423.3 million . cost of sales and gross profit replace_table_token_8_th the increase in cost of sales and gross profit from 2019 to 2020 was primarily due to increased sales volume . the 20 basis point decrease in our gross margin from 2019 to 2020 was primarily due to increased costs to operate our production facilities in response to the covidโ19 pandemic ( see โ covidโ19 pandemic and market conditions update โ above ) , as well as the impacts of certain discrete charges to cost of sales during 2020 , including a loss on the sale of certain property and equipment and inventories from our tampa , florida facility of $ 3.6 million , costs incurred in connection with the shutdown of our union city , california facility of $ 2.2 million , and a contract settlement loss recorded upon reaching a mutual settlement with the counterparty of a contract dispute of $ 1.4 million . these charges , which had a combined 70 basis point impact on our gross margin , were mostly offset by higher operating leverage as a result of increased factory utilization and favorable product mix on a year-over-year basis . research and development year ended change december 25 , 2020 december 27 , 2019 amount % ( dollars in thousands ) research and development $ 13,361 $ 11,102 $ 2,259 20.3 % the increase in research and development expenses from 2019 to 2020 was primarily due to incremental expenses related to the development of our flow controller technology , as well as increased employee-related expense from our existing engineering team , partially offset by lower travel-related expenses . 36 selling , general , and administrative year ended change december 25 , 2020 december 27 , 2019 amount % ( dollars in thousands ) selling , general , and administrative $ 56,614 $ 47,270 $ 9,344 19.8 % the increase in selling , general , and administrative expense from 2019 to 2020 was primarily due to ( i ) $ 1.8 million in executive transition costs associated with the transition of our former ceo to executive chairman , ( ii ) $ 4.7 million in increased employee-related expense , of which $ 0.8 million was from increased share-based compensation expense , ( iii ) $ 1.6 million in increased legal and professional fees , ( iv ) $ 1.0 million in increased occupancy costs , and ( v ) $ 1.7 million in other administrative costs to support the growing company ; partially offset by $ 0.8 million in reduced travel-related costs and
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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_10_th 39 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_11_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 $ 252.9 million as of december 25 , 2020 , compared to $ 60.6 million as of december 27 , 2019. our principal uses of liquidity are to fund our working capital needs , purchase new capital equipment , and acquisitions . the increase was primarily due to net proceeds of $ 139.4 million from our issuance of 4.6 million ordinary shares on december 14 , 2020 , cash provided by operating activities of $ 38.3 million , net proceeds from our credit facilities of $ 21.3 million , and net proceeds from the issuance of shares under our share-based compensation plans of $ 8.0 million , partially offset by capital expenditures of $ 10.3 million and by cash paid to acquire a precision machining operation in sonora , mexico of $ 5.0 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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our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including , but not limited , to those set forth under โ item 1a โ risk factors โ and elsewhere in this annual report on form 10-k. overview background we are a pharmaceutical company committed to developing and commercializing therapies that address specific clinical needs for people living with pain-related conditions and central nervous system disorders who need innovative treatment alternatives to help them return to normal daily functioning . on october 25 , 2013 , we received marketing approval from the u.s. food and drug administration , or fda , for zohydro er ( hydrocodone bitartrate ) extended-release capsules , an opioid agonist , extended-release oral formulation of hydrocodone without acetaminophen , for the management of pain severe enough to require daily , around-the-clock , long-term opioid treatment and for which alternative treatment options are inadequate . zohydro er is the first extended-release oral formulation of hydrocodone without acetaminophen . zohydro er was launched on march 3 , 2014. in addition , we are commercializing sumavel ยฎ dosepro ยฎ ( sumatriptan injection ) needle-free delivery system , which was launched in january 2010. sumavel dosepro offers fast-acting , easy-to-use , needle-free subcutaneous administration of sumatriptan for the acute treatment of migraine and cluster headache in a pre-filled , single-use delivery system . sumavel dosepro is the first drug product approved by the fda that allows for the needle-free , subcutaneous delivery of medication . sumavel dosepro and zohydro er each have the potential to address significant unmet medical needs and become important and widely-used additions to the treatment options available to patients and physicians in the united states ' multi-billion dollar migraine and chronic pain markets , respectively . we are also developing relday , a proprietary , long-acting injectable formulation of risperidone using durect corporation 's saber controlled-release formulation technology through a development and license agreement with durect . risperidone is used to treat the symptoms of schizophrenia and bipolar disorder in adults and teenagers 13 years of age and older . if successfully developed and approved , we believe relday may be the first subcutaneous antipsychotic product that allows for once-monthly dosing . in may 2012 , we filed an investigational new drug , or ind , application with the fda . in july 2012 , we initiated our first clinical trial for relday . this phase 1 clinical trial was a single-center , open-label , safety and pharmacokinetic trial of 30 patients with chronic , stable schizophrenia or schizoaffective disorder . we announced positive single-dose pharmacokinetic results from the phase 1 clinical trial in january 2013. based on the favorable safety and pharmacokinetic profile demonstrated with the 25 mg and 50 mg once-monthly doses tested in the phase 1 trial , we extended the study to include an additional cohort of 10 patients at a 100 mg dose of the same formulation . we announced positive top-line results from the extended phase 1 clinical trial in may 2013. the positive results from this study extension position us to begin a multi-dose clinical trial , which we believe will provide the required steady-state pharmacokinetic and safety data prior to initiating phase 3 development studies . we plan to commence this multi-dose clinical trial in the second half of 2014. the development of relday will first focus on its delivery by conventional needle and syringe in order to allow the administration of different volumes of the same formulation of relday by a healthcare professional . we anticipate that the introduction of our dosepro needle-free technology for administration of relday can occur later in development or as part of life cycle management after further work involving formulation development , technology enhancements , and applicable regulatory approvals . we have experienced net losses and negative cash flow from operating activities since inception , and as of december 31 , 2013 , had an accumulated deficit of $ 410.2 million . we expect to continue to incur net losses and negative cash flow from operating activities for at least the next year primarily as a result of our efforts to commercialize zohydro er , the clinical development for relday , required post-market testing for zohydro er , additional development activities with respect to zohydro er , including the development of an abuse deterrent formulation of zohydro er , and the cost of the sales and marketing expenses associated with sumavel dosepro and zohydro er . as of december 31 , 2013 , we had cash and cash equivalents of $ 72.0 million . 82 on march 27 , 2013 , we entered into a controlled equity offering sales agreement , or the sales agreement , with cantor fitzgerald & co. , or cantor , as sales agent , under which we issued and sold shares of our common stock from time to time through cantor . the sales of common stock made under the sales agreement were made in โ at-the-market โ offerings as defined in rule 415 of the securities act of 1933 , as amended , or the securities act . under the sales agreement , we issued 6.8 million shares of our common stock during 2013 at an average stock issuance price of $ 1.66 per share , resulting in net proceeds of approximately $ 10.8 million . the sales agreement with cantor terminated on november 16 , 2013. on november 12 , 2013 , we completed a public offering of common stock for net proceeds of approximately $ 64.5 million ( including over-allotment purchase ) , after deducting underwriting discounts and commissions of $ 4.1 million and offering expenses of approximately $ 0.4 million , or the november 2013 offering . we sold a total of 30,666,667 shares of our common stock ( including the underwriters ' over-allotment purchase of 4,000,000 shares ) at a purchase price of $ 2.25 per share . story_separator_special_tag in partial consideration of our sales efforts , valeant pays us a co-promotion fee on a quarterly basis that represents specified percentages of net sales generated by us over defined baseline amounts of net sales , or the baseline forecast and adjusted baseline forecast . in addition , upon completion of the co-promotion term , and only if the valeant agreement is not terminated by valeant due to a bankruptcy event ( as defined in the valeant agreement ) or a material failure by us to comply with our material obligations under the valeant agreement , valeant will be required to pay us an additional tail payment calculated as a fixed percentage of our net sales over the baseline forecast ( or adjusted baseline forecast ) during the first full six months following the last day of the term . for the twelve months ended december 31 , 2013 , we recognized service revenue of $ 1.1 million under the valeant agreement . astellas pharma us , inc. co-promotion agreement in july 2009 , we entered into a co-promotion agreement , or the astellas co-promotion agreement , with astellas pharma u.s. , inc. , or astellas . under the terms of the astellas co-promotion agreement , we granted astellas the co-exclusive right , with us , to market and sell sumavel dosepro in the united states ( excluding puerto rico and the other territories and possessions of the united states ) until june 30 , 2013. under the astellas co-promotion agreement , both astellas and we were obligated to collaborate and fund the marketing of sumavel dosepro and to provide annual minimum levels of sales effort directed at sumavel dosepro during the term . in december 2011 , we entered into an amendment to the astellas co-promotion agreement , or the amended astellas co-promotion agreement , whereby the agreement terminated on march 31 , 2012. in connection with the execution of the astellas co-promotion agreement , astellas made a non-refundable up-front payment of $ 2.0 million and made additional payments of $ 18.0 million to us upon the achievement of a series of milestones . in consideration for astellas ' performance of its commercial efforts , we paid astellas a service fee on a quarterly basis that represented a fixed percentage of between 45 % and 55 % of sumavel dosepro net sales to primary care physicians , ob/gyns , emergency medicine physicians , and urologists in the united states , or the astellas segment . in accordance with accounting guidance for revenue arrangements with multiple deliverables , we initially recorded the $ 20.0 million in upfront and milestone payments received from astellas as deferred revenue . beginning with the launch of sumavel dosepro in january 2010 , we began amortizing the upfront and milestone payments as contract revenue in the consolidated statement of operations and comprehensive loss over the term of the agreement . upon termination of the astellas co-promotion agreement , we concluded that the remaining deferred revenue balance should be recognized ratably through the amended term of the agreement , and consequently , all deferred contract revenues were recognized through march 31 , 2012. for the years ended december 31 , 2013 , 2012 and 2011 we recognized $ 0 , $ 8.5 million and $ 7.2 million , respectively , of contract revenue . in addition , following completion of the co-promotion term in march 2012 , we were required to pay astellas one tail payment in july 2013 and are required to pay astellas another tail payment in july 2014 , calculated as decreasing fixed percentages ( ranging from mid-twenties down to a mid-teen percentage ) of net sales in the astellas segment during the 12 months ended march 31 , 2012. the value of such tail payments was estimated at a total of $ 5.3 million based upon the agreement termination date of march 31 , 2012 , and recorded as a long-term liability on the amendment date of december 20 , 2011. the fair value of the tail payments will be accreted through interest expense through the dates of payment in july 2013 and july 2014. the first tail payment of $ 2.0 million was made in july 2013. as of december 31 , 2013 and 2012 , the tail payment liability , after considering the august 2012 service fee reduction discussed below , was $ 1.1 million and $ 2.8 million , respectively . we recognized $ 0.4 million and $ 0.6 million of related interest expense during the years ended december 31 , 2013 and 2012 , and did not recognize any related interest expense during the year ended december 31 , 2011. further , under the terms of the amended astellas co-promotion agreement , astellas contributed its agreed upon portion of marketing expenses through march 31 , 2012 , and continued to earn a service fee based on product sales to the astellas segment during that period . as of april 1 , 2012 , we were no longer required to pay service fees to astellas for sales of sumavel 84 dosepro . additionally , beginning in the second quarter of 2012 , our sales force assumed full responsibility for the commercialization and the continued marketing of sumavel dosepro , expanding their focus to include headache specialists , neurologists and primary care physicians in the united states . amounts received from astellas for shared marketing costs and sample product are reflected as a reduction of selling , general and administrative expenses , and amounts payable to astellas for shared marketing expenses and service fees are reflected as selling , general and administrative expenses , inclusive of the estimated cost of the tail payments owed upon the termination of the agreement .
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results of operations comparison of years ended december 31 , 2013 , 2012 and 2011 revenue . we recognize net product sales upon the shipment of product to wholesale pharmaceutical distributors and retail pharmacies . prior to the third quarter of 2011 , we recognized product revenue based on product dispensed to patients as estimated by independent third party data providers , which amounts were recorded net of estimated wholesaler and retail pharmacy distribution fees , stocking allowances , prompt pay discounts , chargebacks , rebates and patient discount programs , as applicable . as a result , product revenue for the first six months of 2011 represents product revenue based on product dispensed to patients net of product-related discounts and allowances , as applicable , with the six months ended december 31 , 2011 and years ended december 31 , 2013 and 2012 consisting of sumavel dosepro shipped to wholesale distributors and retail pharmacies , net of product-related discounts , allowances and product returns , as applicable . revenue for the years ended december 31 , 2013 , 2012 and 2011 was $ 33.0 million , $ 44.3 million and $ 37.6 million , respectively . net product revenue for the years ended december 31 , 2013 , 2012 and 2011 was $ 31.7 million , $ 35.8 million and $ 30.4 million , respectively . the aggregate $ 4.1 million , or 12 % , decrease in net product revenue during 2013 compared to 2012 was primarily due to decreases in unit volume of 7 % and our average net selling price of 4 % . the decrease in our average net selling price was primarily due to an increase in our estimate for sumavel dosepro product returns .
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losses were posted to the fund mid-quarter as industrial metals weakened from expected slowing demand , however offset at the end of the third quarter with profits posted for the fund as gold prices firmed on the continued weakness of the dollar and overall credit concerns . the year ended with profits posted to the fund as gold continued to climb on the weakness of the u.s. dollar finishing the year with its best yearly gain since 1979. the currency sector was also profitable for the fund . at the beginning of the first quarter profits were posted to the fund due to the u.s. dollar reversed losses to move slightly higher by 1.2 % , subject to the new evidence of sustained u.s. growth . however , losses were posted to the fund mid-quarter through the end of the first quarter as the u.s. dollar resumed moving slightly lower again subject to the new evidence of moderating u.s. growth and inflation . the second quarter began with a small loss being posted to the fund due to market volatility and a minimal gain mid quarter . the u.s. dollar long positions and the gilt markets provided most of the gains at the end of the second quarter . the third quarter began with profits being posted to the fund as the fixed income portions were set up well to take in a period of global equity volatility . profits continued to be posted through mid-quarter as the fixed income book continued to benefit from a period of global equity volatility . however , the quarter ended with a small loss due to the fixed income portion of the sector which was basically long euro dollars and short the very short duration instruments in the euro zone . the year ended with profits posted to the fund in spite of the continued turmoil in the financial markets . 19 replace_table_token_18_th the fund posted an overall loss for the period with currency sector posting gains and agriculture , interest rates , energy and the metal sectors posting losses as the fund started trading december 1 , 2006. the currency sector was the most profitable for the fund . the u.s. dollar furthered recent losses to move slightly lower by 0.3 % , subject to the then expected u.s. federal reserve policy modifications . the agricultural sector posted losses for the fund . the agricultural market was soft which attributed to the difficult trading environment resulting in the fund posting losses for this sector . the interest rate sector posted losses for the fund . the year end revisions of sentiment were based on potentially stronger u.s. real growth and improving assessments for growth prospects particularly in europe and the pacific rim . the u.s. federal reserve , now data-driven , once again validated its stance by refraining from another interest rate increase . concurrently , the european central bank and bank of england continue to focus on reigning in renewed inflationary expectations through higher market interest rates . the energy sector posted losses for the fund . energy prices dropped sharply from a combination of weather , sanguine geo-political concerns and near-term inventory patterns worldwide . the metals sector was the least profitable for the fund . the metals collectively managed to lose value in response to market specific demand data , moving copper lower by 9.5 % and gold decreased roughly 1.7 % . variables affecting performance the principal variables that determine the net performance of the fund are gross profitability from the fund 's trading activities and interest income . during the period set forth above in ยselected financial dataย , the interest rates in many countries were at unusually low levels . the low interest rates in the united states ( although higher than in many other countries ) negatively impacted revenues because interest income is typically a major component of the fund 's profitability . in addition , low interest rates are frequently associated with reduced fixed income market volatility , and in static markets the fund 's profit potential generally tends to be diminished . on the other hand , during periods of higher interest rates , the relative attractiveness of a high risk investment such as the fund may be reduced as compared to high yielding and much lower risk fixed-income investments . the fund 's management fees and sponsor fees are a constant percentage of the fund 's assets . brokerage commissions , which are not based on a percentage of the fund 's assets , are based on actual round turns . the performance fees payable to apm are based on the new trading profits generated by the fund excluding interest and after reduction of the brokerage commissions . 20 unlike many investment fields , there is no meaningful distinction in the operation of the fund between realized and unrealized profits . most of the contracts traded by the fund are highly liquid and can be closed out at any time . except in unusual circumstances , factorsยregulatory approvals , cost of goods sold , employee relations and the likeยwhich often materially affect an operating business have virtually no impact on the fund . liquidity ; capital resources the fund borrows only to a limited extent and only on a strictly short-term basis in order to finance losses on non-u.s. dollar denominated trading positions pending the conversion of the fund 's u.s. dollar deposits . these borrowings are at a prevailing short-term rate in the relevant currency . substantially all of the fund 's assets are held in cash . the net asset value of the fund 's cash is not affected by inflation . however , changes in interest rates could cause periods of strong up or down price trends , during which the fund 's profit potential generally increases . inflation in commodity prices could also generate price movements , which the strategies might successfully follow . because substantially all of story_separator_special_tag losses were posted to the fund mid-quarter as industrial metals weakened from expected slowing demand , however offset at the end of the third quarter with profits posted for the fund as gold prices firmed on the continued weakness of the dollar and overall credit concerns . the year ended with profits posted to the fund as gold continued to climb on the weakness of the u.s. dollar finishing the year with its best yearly gain since 1979. the currency sector was also profitable for the fund . at the beginning of the first quarter profits were posted to the fund due to the u.s. dollar reversed losses to move slightly higher by 1.2 % , subject to the new evidence of sustained u.s. growth . however , losses were posted to the fund mid-quarter through the end of the first quarter as the u.s. dollar resumed moving slightly lower again subject to the new evidence of moderating u.s. growth and inflation . the second quarter began with a small loss being posted to the fund due to market volatility and a minimal gain mid quarter . the u.s. dollar long positions and the gilt markets provided most of the gains at the end of the second quarter . the third quarter began with profits being posted to the fund as the fixed income portions were set up well to take in a period of global equity volatility . profits continued to be posted through mid-quarter as the fixed income book continued to benefit from a period of global equity volatility . however , the quarter ended with a small loss due to the fixed income portion of the sector which was basically long euro dollars and short the very short duration instruments in the euro zone . the year ended with profits posted to the fund in spite of the continued turmoil in the financial markets . 19 replace_table_token_18_th the fund posted an overall loss for the period with currency sector posting gains and agriculture , interest rates , energy and the metal sectors posting losses as the fund started trading december 1 , 2006. the currency sector was the most profitable for the fund . the u.s. dollar furthered recent losses to move slightly lower by 0.3 % , subject to the then expected u.s. federal reserve policy modifications . the agricultural sector posted losses for the fund . the agricultural market was soft which attributed to the difficult trading environment resulting in the fund posting losses for this sector . the interest rate sector posted losses for the fund . the year end revisions of sentiment were based on potentially stronger u.s. real growth and improving assessments for growth prospects particularly in europe and the pacific rim . the u.s. federal reserve , now data-driven , once again validated its stance by refraining from another interest rate increase . concurrently , the european central bank and bank of england continue to focus on reigning in renewed inflationary expectations through higher market interest rates . the energy sector posted losses for the fund . energy prices dropped sharply from a combination of weather , sanguine geo-political concerns and near-term inventory patterns worldwide . the metals sector was the least profitable for the fund . the metals collectively managed to lose value in response to market specific demand data , moving copper lower by 9.5 % and gold decreased roughly 1.7 % . variables affecting performance the principal variables that determine the net performance of the fund are gross profitability from the fund 's trading activities and interest income . during the period set forth above in ยselected financial dataย , the interest rates in many countries were at unusually low levels . the low interest rates in the united states ( although higher than in many other countries ) negatively impacted revenues because interest income is typically a major component of the fund 's profitability . in addition , low interest rates are frequently associated with reduced fixed income market volatility , and in static markets the fund 's profit potential generally tends to be diminished . on the other hand , during periods of higher interest rates , the relative attractiveness of a high risk investment such as the fund may be reduced as compared to high yielding and much lower risk fixed-income investments . the fund 's management fees and sponsor fees are a constant percentage of the fund 's assets . brokerage commissions , which are not based on a percentage of the fund 's assets , are based on actual round turns . the performance fees payable to apm are based on the new trading profits generated by the fund excluding interest and after reduction of the brokerage commissions . 20 unlike many investment fields , there is no meaningful distinction in the operation of the fund between realized and unrealized profits . most of the contracts traded by the fund are highly liquid and can be closed out at any time . except in unusual circumstances , factorsยregulatory approvals , cost of goods sold , employee relations and the likeยwhich often materially affect an operating business have virtually no impact on the fund . liquidity ; capital resources the fund borrows only to a limited extent and only on a strictly short-term basis in order to finance losses on non-u.s. dollar denominated trading positions pending the conversion of the fund 's u.s. dollar deposits . these borrowings are at a prevailing short-term rate in the relevant currency . substantially all of the fund 's assets are held in cash . the net asset value of the fund 's cash is not affected by inflation . however , changes in interest rates could cause periods of strong up or down price trends , during which the fund 's profit potential generally increases . inflation in commodity prices could also generate price movements , which the strategies might successfully follow . because substantially all of
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performance summary this performance summary is an outline description of how the fund performed in the past , not necessarily any indication of how it will perform in the future . in addition , the general causes to which certain price movements are attributed may or may not in fact have caused such movements , but simply occurred at or about the same time . replace_table_token_17_th the fund posted profits for the year with gains being posted in all the sectors . the energy sector was the most profitable for the fund . energy prices dropped sharply at the beginning of the year but recovered mid-quarter through the end of the first quarter due to a combination of weather , geo-political concerns and near term inventory patterns worldwide . profits continued to be posted at the end of the second quarter due to lower than expected summer driving season . crude oil traded over $ 78.00 a barrel on continued high demand during the third quarter along with the international energy agency forecast that global demand will rise by 1.8 % in 2008 without any output increase from opec . losses were posted to the fund mid-quarter as crude oil traded down to $ 70.00 a barrel . hurricane dean did not significantly impact u.s. oil production , but it later traded back up with inventory levels falling and a record demand for gasoline . the third quarter ended with profits posted to the fund as crude oil had strong recovery as the department of energy 's short-term energy outlook reported a continued low surplus production and weak inventories .
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on july 18 , 2014 , we and watco companies , llc ( ยwatcoย ) , our joint venture partner , contributed our respective repair , refurbishment and retrofitting operations to gbw railcar services llc ( ยgbwย ) , an unconsolidated 50/50 joint venture which became our fourth reportable segment ( gbw joint venture ) upon formation . the manufacturing segment , operating from facilities in the united states , mexico and poland , produces double-stack intermodal railcars , tank cars , conventional railcars , automotive railcar products and marine vessels . the wheels , repair & parts segment performs wheel and axle servicing , as well as production and reconditioning of a variety of parts for the railroad industry in north america . the leasing & services segment owns approximately 8,600 railcars and provides management services for approximately 238,000 railcars for railroads , shippers , carriers , institutional investors and other leasing and transportation companies in north america . our gbw joint venture provides railcar repair , refurbishment , retrofitting and maintenance services through 39 shops throughout north america , 14 of which are currently tank car certified by the association of american railroads ( ยaarย ) and one location operated exclusively by our company for gbw . we also produce rail castings through an unconsolidated joint venture . multi-year supply agreements are a part of rail industry practice . customer orders may be subject to cancellations or modifications and contain terms and conditions customary in the industry . in most cases , little variation has been experienced between the quantity ordered and the quantity actually delivered . our total manufacturing backlog of railcar units as of august 31 , 2014 was approximately 31,500 units with an estimated value of $ 3.33 billion compared to 14,400 units with an estimated value of $ 1.52 billion as of august 31 , 2013. currently , the entire backlog is expected to be sold to third parties , therefore no orders in our backlog are expected to be placed into our owned lease fleet . a portion of the orders included in backlog reflects an assumed product mix . under terms of the orders , the exact mix will be determined in the future which may impact the dollar amount of backlog . marine backlog as of august 31 , 2014 was approximately $ 112 million compared to $ 10 million as of august 31 , 2013. our backlog of railcar units and marine vessels is not necessarily indicative of future results of operations . subsequent to year end we received new railcar orders for 11,400 units valued at nearly $ 1 billion . the new orders referenced are subject to customary documentation and completion of terms . we operate two manufacturing facilities in sahagun , mexico , one of which we own and one of which is leased with a lease expiration date in november 2014. we are replacing this leased capacity with an alternative site in tlaxcala , mexico which was purchased during 2014 and began production in october 2014. we expect to incur costs during the first quarter of 2015 related to relocating equipment and startup of lines in the new facility . we are also expanding capacity , particularly for tank car production , at our manufacturing facilities in mexico including our joint venture facility in northern mexico . in conjunction with these activities , we and our joint venture partner have extended the term of our joint venture through 2029. on july 18 , 2014 , we completed the formation of gbw , an unconsolidated 50/50 joint venture with watco . as of august 31 , 2014 , the gbw joint venture operates 38 shops previously part of our company 's and watco 's networks . the wheels , repair & parts segment included the results of operations for our repair , refurbishment and retrofitting operations through july 18 , 2014. after july 18 , 2014 , the results of operations were included as part of earnings ( loss ) from unconsolidated affiliates as we account for our interest in gbw under the equity method of accounting . upon the formation of gbw , we recognized a pre-tax non-cash gain of $ 29.0 million for the year ended august 31 , 2014 attributed to the operations we contributed to gbw . during 2013 , we implemented a restructuring plan to sell or close certain wheels , repair & parts facilities to enhance margins and improve capital efficiency . restructuring charges related to this plan were $ 1.5 million ( $ 1.0 million , net of tax ) and $ 2.7 million ( $ 1.8 million , net of tax ) for the years ended august 31 , 2014 and 2013. the restructuring plan was completed prior to the formation of gbw . the greenbrier companies 2014 annual report 29 story_separator_special_tag 3.44 $ ( 0.41 ) $ 1.91 the increase in revenue for the year ended august 31 , 2014 was primarily the result of a higher volume of deliveries in the manufacturing segment of our business . the decrease in revenue for the year ended august 31 , 2013 was primarily the result of a lower volume of deliveries in the manufacturing segment of our business . the increase in earnings for the year ended august 31 , 2014 was primarily attributable to an increase in manufacturing gross margin and a non-cash gain on contribution to joint venture of $ 13.6 million , net of tax . in addition , the prior year included a non-cash goodwill impairment charge of $ 71.8 million , net of tax . the decrease in net earnings for the year ended august 31 , 2013 as compared to the year ended august 31 , 2012 was primarily attributable to a non-cash goodwill impairment charge of $ 71.8 million , net of tax and restructuring charges of $ 1.8 million , net of tax . these were partially offset by an increase in gain on disposition of equipment . story_separator_special_tag these were partially offset by a decline in leasing revenue resulting from a smaller average owned lease fleet as compared to the prior year . the $ 0.4 million decrease in revenue in 2013 compared to 2012 was primarily the result of lower average volumes of rent-producing leased railcars for syndication and a decrease in earnings on mileage utilization leases . these were partially offset by an increase in management services revenue primarily due to the addition of new management services agreements . leasing & services margin as a percentage of revenue was 47.5 % in 2014 compared to 50.1 % in 2013 and 48.0 % in 2012. the decrease in 2014 compared to 2013 was primarily the result of a lower margin syndication of railcars purchased from a third party and the reduction in the maintenance accrual on terminated maintenance management agreements during the prior year . these were partially offset by higher average volumes of rent-producing leased railcars for syndication as compared to the prior year . the increase in 2013 compared to 2012 was primarily the result of a reduction in the maintenance accrual on terminated maintenance management agreements and a receipt of a settlement on a terminated railcar lease agreement , both in 2013. these were partially offset by lower average volumes of rent-producing leased railcars for syndication . leasing & services operating profit was $ 41.1 million and 49.2 % of revenue for the year ended august 31 , 2014 , $ 42.4 million and 59.3 % of revenue for the year ended august 31 , 2013 and $ 31.1 million and 43.2 % of revenue for the year ended august 31 , 2012. the decrease in operating profit in 2014 compared to 2013 was primarily attributed to a decrease in net gain on disposition of equipment . the increase in operating profit in 2013 compared to 2012 was primarily attributed to an increase in net gain on disposition of equipment . the percentage of owned units on lease as of august 31 , 2014 was 98.2 % compared to 97.4 % at august 31 , 2013 and 93.5 % at august 31 , 2012. selling and administrative selling and administrative expense was $ 125.3 million , or 5.7 % of revenue for the year ended august 31 , 2014 , $ 103.2 million , or 5.9 % of revenue for the year ended august 31 , 2013 and $ 104.6 million , or 5.8 % of revenue , for the year ended august 31 , 2012. the $ 22.1 million increase in 2014 compared to 2013 was primarily due to increased levels of activity resulting in an increase in employee related costs , including incentive compensation associated with increased levels of profitability . the increase was also attributed to an increase in legal and consulting costs associated with the formation of the new gbw joint venture . the $ 1.4 million decrease in 2013 compared to 2012 was primarily due to a decrease in incentive compensation costs . net gain on disposition of equipment net gain on disposition of equipment was $ 15.0 million , $ 18.1 million and $ 9.0 million for the years ended august 31 , 2014 , 2013 and 2012. the gain for the year ended august 31 , 2014 consists of $ 14.6 million in gains realized on the disposition of leased assets and $ 0.4 million on the disposition of equipment related to our restructuring plan to sell or close certain wheels , repair & parts facilities to enhance margins and improve capital efficiency . the gain for the year ended august 31 , 2013 consists of $ 19.0 million in gains realized on the disposition of leased assets , a $ 0.6 million other gain and a $ 1.5 million loss related to the sale of certain assets from our roller bearing operation in elizabethtown , kentucky . the entire gain for the year ended august 31 , 2012 was realized on the disposition of leased assets . 32 the greenbrier companies 2014 annual report assets from greenbrier 's lease fleet are periodically sold in the normal course of business in order to take advantage of market conditions and manage risk and liquidity . gain on contribution to joint venture on july 18 , 2014 , we and watco contributed our respective repair operations to a newly formed entity , gbw , an unconsolidated 50/50 joint venture with watco . as of august 31 , 2014 , the gbw joint venture operated 38 shops previously part of our company 's and watco 's networks . as a result of the formation of gbw , we recognized a pre-tax non-cash gain of $ 29.0 million for the year ended august 31 , 2014 which was calculated as the fair value of our 50 % share in gbw , less cash and intangibles contributed to gbw and an allocation in goodwill attributed to the repair , refurbishment and retrofitting business contributed to gbw . goodwill impairment the results of our annual goodwill impairment test during the third quarter of 2013 indicated that the carrying amount related to wheels , repair & parts was in excess of fair value . as a result , a non-cash impairment loss was recorded to the extent that the carrying amount of the reporting unit 's goodwill exceeded the implied fair value of that goodwill . a non-cash impairment charge of $ 76.9 million ( $ 71.8 million , net of tax ) was recorded for the year ended august 31 , 2013. the primary drivers of the impairment charge were lower than expected operating results and changes in forecasted future results , accompanied by a reduction in observed market multiples . restructuring charges during 2013 , we implemented a restructuring plan to sell or close certain wheels , repair & parts facilities to enhance margins and improve capital efficiency .
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results of operations revenue , margin and operating profit , presented below , include amounts from external parties and exclude intersegment activity that is eliminated in consolidation . performance for our segments is evaluated based on operating profit . corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business . management does not allocate interest and foreign exchange or income tax expense for either external or internal reporting purposes . overview ( in thousands ) 2014 2013 2012 revenue : manufacturing $ 1,624,916 $ 1,215,734 $ 1,253,964 wheels , repair & parts 495,627 469,222 481,865 leasing & services 83,419 71,462 71,887 2,203,962 1,756,418 1,807,716 margin : manufacturing 250,908 132,845 131,580 wheels , repair & parts 31,689 37,721 48,324 leasing & services 39,623 35,807 34,516 322,220 206,373 214,420 operating profit : manufacturing 202,555 88,822 87,880 wheels , repair & parts 40,597 ( 60,966 ) 31,455 leasing & services 41,055 42,411 31,055 corporate ( 44,687 ) ( 28,616 ) ( 31,602 ) earnings from operations 239,520 41,651 118,788 interest and foreign exchange 18,695 22,158 24,809 earnings before income tax and earnings ( loss ) from unconsolidated affiliates 220,825 19,493 93,979 income tax expense ( 72,401 ) ( 25,060 ) ( 32,393 ) earnings ( loss ) before earnings ( loss ) from unconsolidated affiliates 148,424 ( 5,567 ) 61,586 earnings ( loss ) from unconsolidated affiliates 1,355 186 ( 416 ) net earnings ( loss ) 149,779 ( 5,381 ) 61,170 net earnings attributable to noncontrolling interest ( 37,860 ) ( 5,667 ) ( 2,462 ) net earnings ( loss ) attributable to greenbrier $ 111,919 $ ( 11,048 ) $ 58,708 diluted earnings ( loss ) per common share $
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generally , the words ยanticipate , ย ยbelieves , ย ยplans , ย ยexpects , ย ยfuture , ย ยintends , ย ยmay , ย ยshould , ย ยestimates , ย ยpredicts , ย ยpotential , ย ยcontinueย and similar expressions identify forward-looking statements . our forward-looking statements are based on current expectations , forecasts and assumptions and are subject to risks , uncertainties and changes in condition , significance , value and effect . as a result of the factors described herein , and in the documents incorporated herein by reference , including , in particular , those factors described under ยrisk factors , ย we undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this report with the securities and exchange commission . business overview we are a premier intellectual property and technology licensing company . our primary focus is the creation , design , development and licensing of patented innovations , technologies and architectures that are foundational to nearly all digital electronics products and systems . our patented innovations and technologies aim to improve the performance , power efficiency , time-to-market and cost-effectiveness of our customers ' products , components and systems offered and used in semiconductors , computers , mobile applications , gaming and graphics , consumer electronics , lighting displays and general lighting . by licensing our patented innovations and technologies , we hope to continuously enrich the end-user experience of the digital electronics products and systems marketed and sold by our customers and licensees . we believe we have established an unparalleled licensing platform and business model that will continue to foster the development of new foundational and leading innovations and technologies . as a result , our goal is to create significant licensing opportunities , and thereby perpetuate strong company operating performance and long term stockholder value . while we have historically focused our efforts in developing and licensing patented innovations and technologies for the semiconductor industry , particularly in the area of chip interfaces , we have initiated diversification efforts to expand our portfolio of patented innovations and technologies into lighting and displays , mobile communications , and additional semiconductor technologies . we expect to continue this diversification initiative through the acquisition of assets and the hiring of the inventors , scientists and engineers who will lead the effort to further develop these patented innovations and technologies in these new areas of focus . during 2010 , we initiated an internal structural reorganization to establish separate business groups for our semiconductor industry focused operations ( sbg ) and operations focused on new or emerging licensing opportunities ( nbg ) which includes our ldt group . we expect this internal realignment to help drive efficiencies in operations and optimize our licensing platform and business model as we expand and diversify into new markets . segment information is not separately 31 discussed below as the operating results for nbg did not meet the quantitative thresholds for segment reporting in 2010. for additional information concerning segment reporting , see note 13 , ยbusiness segments and major customers , ย of notes to consolidated financial statements of this form 10-k. the key elements of our strategy are as follows : innovate : develop and patent our innovative technology to provide fundamental competitive advantage when incorporated into semiconductors , and digital electronics products and systems . drive adoption : communicate the advantages of our patented innovations and technologies to the industry and encourage its adoption through demonstrations and incorporation in the products of select customers . monetize : license our patented inventions and technology solutions to customers for use in their semiconductor and system products . as of december 31 , 2010 , our semiconductor , chip interface , lighting , display and other technologies are covered by approximately 1,180 u.s. and foreign patents . additionally , we have approximately 850 patent applications pending . these patents and patent applications cover important inventions in memory and logic chip interfaces , optoelectronics , mobile applications and other technologies . some of the patents and pending patent applications are derived from a common parent patent application or are foreign counterpart patent applications . we have a program to file applications for and obtain patents in the united states and in selected foreign countries where we believe filing for such protection is appropriate and would further our overall strategy and objectives . in some instances , obtaining appropriate levels of protection may involve prosecuting continuation and counterpart patent applications based on a common parent application . we believe that our patented innovations provide our customers means to achieve higher performance , improved power efficiency , lower risk , and greater cost-effectiveness in their digital electronics products and systems . our patented innovations and technologies are offered to our customers through either a patent license or a technology license . our revenues are primarily derived from patent licenses , through which we provide a license to our broad portfolio of patented innovations primarily to semiconductor and system companies who use these innovations in the development and manufacture of their own products . our patent licensing agreements may provide a license to all or part of our patent portfolio for a particular use , product or technology . the patent license essentially provides our customers with a defined right to use our patented innovations in the customer 's own digital electronics products and systems . patent license agreements are generally structured with variable royalty payments , although some agreements include fixed payments over certain defined periods . we also offer our customers technology licenses . we typically offer technology licenses to support the implementation and adoption of our patented innovations and technologies through know-how and technology transfers , product design , development , and system integration consulting and engineering services . story_separator_special_tag for the year ended december 31 , 2008 , revenue from amd , elpida , fujitsu , nec , panasonic , and sony , each accounted for 10 % or more of our total revenue . we expect to continue to experience significant revenue concentration for the foreseeable future . 33 many of our licensees have the right to cancel their licenses . the particular licensees which account for revenue concentration have varied from period to period as a result of the addition of new contracts , expiration of existing contracts , renewals of existing contracts , industry consolidation and the volumes and prices at which the licensees have recently sold licensed semiconductors to system companies . these variations are expected to continue in the foreseeable future . the semiconductor industry is intensely competitive and highly cyclical . our visibility with respect to future sales is very limited at this time . to the extent that macroeconomic fluctuations negatively affect our principal licensees , the demand for our technology may be significantly and adversely impacted and we may experience substantial period-to-period fluctuations in our operating results . the recent downturn in worldwide economic conditions also threatens the financial health of our commercial counterparties , including companies with whom we have entered into licensing arrangements , settlement agreements or that have been subject to litigation judgments that provide for payments to us , and their ability to fulfill their financial and other obligations to us . some of our existing patent licensees have fixed royalty payments which are not impacted by the recent economic downturn . royalty payments from the remaining licensees are related to variable royalty agreements which have been impacted by the recent economic conditions . current market indicators are mixed , but there are some recent signs of some stabilization . however , there continue to be indications that global demand will not quickly recover for the next few years . such lower demand levels may adversely impact our revenue and profitability . see item 1a , ยrisk factors.ย the royalties we receive are partly a function of the adoption of our chip interfaces by system companies . many system companies purchase semiconductors containing our chip interfaces from our licensees and do not have a direct contractual relationship with us . our licensees generally do not provide us with details as to the identity or volume of licensed semiconductors purchased by particular system companies . as a result , we face difficulty in analyzing the extent to which our future revenue will be dependent upon particular system companies . system companies face intense competitive pressure in their markets , which are characterized by extreme volatility , frequent new product introductions and rapidly shifting consumer preferences . there can be no assurance as to the unit volumes of licensed semiconductors that will be purchased by these companies in the future or as to the level of royalty-bearing revenue that our licensees will receive from sales to these companies . additionally , there can be no assurance that a significant number of other system companies will adopt our chip interfaces or that our dependence upon particular system companies will decrease in the future . see item 1a , ยrisk factors.ย the display industry is also intensely competitive and highly cyclical . we believe the potential percentage of transition to led lightguides from cold cathode fluorescent lights ( ยccflย ) lightguides could be up to 100 % for cellular phones and notebook computers and could reach up to 50 % for display monitors and lcd televisions in 2011. the tablet market is growing rapidly as a new category that primarily uses led lightguides to achieve slim designs . our ldt group has numerous patents in edge lit led lightguide technology . our plans are to license our technology to key companies that use led edge lit display products . there can be no assurance that we will be successful in our efforts to obtain licensees for our led edge lit technology . additionally , there are competing technologies , such as the active matrix organic light emitting diode , that do not use led edge lit lightguides which may limit the future market opportunity for our technology . the highly fragmented general lighting industry is undergoing a fundamental shift from incandescent technology to ccfl and led driven technology by the need to reduce energy consumption and to comply with government mandates . led lighting typically saves 40 % of the energy costs as compared to existing installed lighting . our ldt group has numerous patents in led edge lit lightguide technology which can be applied in the design of next generation led lighting products . while our goal is to be a major player in the general lighting industry with our technology and have established a technology center in brecksville , ohio , there are no assurances that we will be successful in our efforts . the market adoption of our technology may face delays in design , government mandates in specification , material shortages and manufacturing delays within the supply base and in overall market acceptance . additionally , there are competing design approaches and technologies , such as organic light emitting diode , that may also affect our ability to obtain additional licensees . our revenue from companies headquartered outside of the united states accounted for approximately 93 % , 83 % and 84 % of our total revenue for the years ended december 31 , 2010 , 2009 and 2008 , respectively . we expect 34 that revenue derived from international licensees will continue to represent a significant portion of our total revenue in the future . to date , all of the revenue from international licensees have been denominated in u.s. dollars . however , to the extent that such licensees ' sales to their customers are not denominated in u.s. dollars , any royalties that we receive as a result of such sales could be subject to fluctuations in currency exchange rates .
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results of operations the following table sets forth , for the periods indicated , the percentage of total revenue represented by certain items reflected in our consolidated statements of operations : replace_table_token_3_th replace_table_token_4_th royalty revenue patent licenses our patent royalties increased approximately $ 209.1 million to $ 288.4 million for the year ended december 31 , 2010 from $ 79.3 million for the same period in 2009. the increase was primarily due to the revenue recognized from the agreements signed with samsung and elpida during 2010 . 36 our patent royalties decreased approximately $ 21.2 million to $ 79.3 million for the year ended december 31 , 2009 from $ 100.5 million for the same period in 2008. the decrease was primarily due to the expiration of the elpida licensing agreement in the first quarter of 2008 , the one-time receipt of previously withheld royalties from the federal trade commission ( ยftcย ) disposition order in 2008 and lower variable patent royalty payments received in 2009 , as a result of , among other things , lower product shipment volumes reported by customers . in march 2010 , amd elected to exercise its right to renew the rambus-amd patent license agreement through the third quarter of 2015. the original term of amd 's agreement ran through the end of september 2010. in december 2010 , elpida renewed its patent license agreement . the effective date of the agreement is january 1 , 2010 and the expiration date of the term license is january 1 , 2015. in december 2010 , renesas renewed its patent license agreement . the effective date of the agreement is april 1 , 2010 and the expiration date of the term license is april 1 , 2015. we are in negotiations with prospective licensees as well as existing licensees regarding renewals .
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pursuant to the terms of the credit agreements , the term credit lenders provided the story_separator_special_tag financial condition and results of operations 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 kodak for the years ended december 31 , 2016 , 2015 and 2014. all references to notes relate to notes to the financial statements in item 8 . โ financial statements and supplementary data. โ cautionary statement pursuant to safe harbor provisions of the private securities litigation reform act of 1995 this report on form 10-k includes `` forwardโlooking statements '' as that term is defined under the private securities litigation reform act of 1995. forwardโlooking statements include statements concerning kodak 's plans , objectives , goals , strategies , future events , future revenue or performance , capital expenditures , liquidity , investments , financing needs and business trends and other information that is not historical information . when used in this document , the words โ estimates , โ โ expects , โ โ anticipates , โ โ projects , โ โ plans , โ โ intends , โ โ believes , โ โ predicts , โ โ forecasts , โ โ strategy , โ โ continues , โ โ goals , โ โ targets โ or future or conditional verbs , such as โ will , โ โ should , โ โ could , โ or โ may , โ and similar expressions , as well as statements that do not relate strictly to historical or current facts , are intended to identify forwardโlooking statements . all forwardโlooking statements , including management 's examination of historical operating trends and data , are based upon kodak 's expectations and various assumptions . future events or results may differ from those anticipated or expressed in the forward-looking statements . important factors that could cause actual events or results to differ materially from the forward-looking statements include , among others , the risks and uncertainties described in more detail in this report on form 10โk under the headings โ business , โ โ risk factors , โ โ legal proceedings โ and or โ management 's discussion and analysis of financial condition and results of operationsโliquidity and capital resources , โ and in other filings the company makes with the sec from time to time , as well as the following : kodak 's ability to improve and sustain its operating structure , cash flow , profitability and other financial results ; the ability of kodak to achieve cash forecasts , financial projections , and projected growth ; kodak 's ability to achieve the financial and operational results contained in its business plans ; kodak 's ability to fund continued investments , capital needs and restructuring payments and service its debt and series a preferred stock ; kodak 's ability to discontinue , sell or spin-off certain businesses or operations , including the prosper business , or otherwise monetize assets ; changes in foreign currency exchange rates , commodity prices and interest rates ; kodak 's ability to effectively anticipate technology trends and develop and market new products , solutions and technologies ; kodak 's ability to effectively compete with large , well-financed industry participants ; kodak 's ability to comply with the covenants in its various credit facilities ; continued sufficient availability of borrowings and letters of credit under the amended credit agreement , kodak 's ability to obtain additional financing if and as needed and kodak 's ability to provide or facilitate financing for its customers ; the performance by third parties of their obligations to supply products , components or services to kodak ; and the impact of the global economic environment on kodak . there may be other factors that may cause kodak 's actual results to differ materially from the forwardโlooking statements . all forwardโlooking statements attributable to kodak or persons acting on its behalf apply only as of the date of this report on form 10-k and are expressly qualified in their entirety by the cautionary statements included in this document . kodak undertakes no obligation to update or revise forwardโlooking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events . critical accounting policies and estimates revenue recognition kodak 's revenue transactions include sales of products ( such as components and consumables for use in kodak , and other manufacturers ' equipment , and film based products ) , equipment , software , services , integrated solutions , and intellectual property and brand licensing . complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting . for equipment sales , revenue recognition may depend on completion of installation based on the type of equipment , level of customer specific customization and other contractual terms . in instances in which the agreement with the customer contains a customer acceptance clause , revenue is deferred until customer acceptance is obtained , provided the customer acceptance clause is considered to be substantive . at the time revenue is recognized , kodak also records reductions to revenue for customer incentive programs . such incentive programs include cash and volume discounts and promotional allowances . for those incentives that require the estimation of sales volumes or redemption rates , such as for volume rebates , kodak uses historical experience and both internal and customer data to estimate the sales incentive at the time revenue is recognized . in the event that the actual results of these items differ from the estimates , adjustments to the sales incentive accruals are recorded . 28 future market conditions and product transitions may require kodak to take actions to increase customer ince ntive offers , possibly resulting in an incremental reduction of revenue at the time the incentive is offered . story_separator_special_tag kodak performed the annual test of impairment as of december 31 , 2016. the fair value of the kodak trade name , which has a carrying value of $ 40 million , was valued using the income approach , specifically the relief from royalty method based on the following significant assumptions : ( a ) forecasted revenues ranging from january 1 , 2017 to december 31 , 2021 , including a terminal year with growth rates ranging from โ3 % to 3 % ; ( b ) royalty rates ranging from .5 % to 1 % of expected net sales determined with regard to comparable market transactions and profitability analysis ; and ( c ) discount rates ranging from 10.1 % to 21.2 % , which were based on the after-tax weighted-average cost of capital . 29 based on the results of kodak 's december 31 , 2016 assessment , no impairment of the kodak trade name was indicated . impairment of the kodak trade name could occur in the future if expected revenu es decline or if there are significant changes in the discount or royalty rates . long-lived assets other than goodwill and indefinite-lived intangible assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable . when evaluating long-lived assets for impairment , the carrying value of an asset group is compared to its estimated undiscounted future cash flows . an impairment is indicated if the estimated future cash flows are less than the carrying value of the asset group . the impairment is the excess of the carrying value over the fair value of the long-lived asset group . the value of property , plant , and equipment is depreciated over its expected useful life in such a way as to allocate it as equitably as possible to the periods during which services are obtained from their use , which aims to distribute the value over the remaining estimated useful life of the unit in a systematic and rational manner . an estimate of useful life not only considers the economic life of the asset , but also the remaining life of the asset to the entity . impairment of long-lived assets other than goodwill and indefinite lived intangible assets could occur in the future if expected future cash flows decline or if there are significant changes in the estimated useful life of the assets . taxes kodak recognizes deferred tax liabilities and assets for the expected future tax consequences of operating losses , credit carry-forwards and temporary differences between the carrying amounts and tax basis of kodak 's assets and liabilities . kodak records a valuation allowance to reduce its net deferred tax assets to the amount that is more likely than not to be realized . kodak has considered forecasted earnings , future taxable income , the geographical mix of earnings in the jurisdictions in which kodak operates and prudent and feasible tax planning strategies in determining the need for these valuation allowances . as of december 31 , 2016 , kodak has net deferred tax assets before valuation allowances of approximately $ 1,228 million and a valuation allowance related to those net deferred tax assets of approximately $ 1,209 million , resulting in net deferred tax assets of approximately $ 19 million . the net deferred tax assets can be used to offset taxable income in future periods and reduce kodak 's income tax payable in those future periods . at this time , it is considered more likely than not that taxable income in the future will be sufficient to allow realization of these net deferred tax assets . however , if kodak is unable to generate sufficient taxable income , then a valuation allowance to reduce net deferred tax assets may be required , which could materially increase expenses in the period the valuation allowance is recognized . conversely , if kodak were to make a determination that it is more likely than not that deferred tax assets , for which there is currently a valuation allowance , would be realized , the related valuation allowance would be reduced and a benefit to earnings would be recorded . kodak considers both positive and negative evidence in determining whether a valuation allowance is needed by territory including , but not limited to , whether particular entities are in three-year cumulative income positions . in general , the amount of tax expense or benefit from continuing operations is determined without regard to the tax effects of other categories of income or loss , such as other comprehensive ( loss ) income . however , an exception to this rule applies when there is a loss from continuing operations and income from items outside of continuing operations that must be considered . this exception requires that income from discontinued operations and items charged or credited directly to other comprehensive income be considered in determining the amount of tax benefit that results from a loss in continuing operations . this exception affects the allocation of the tax provision amongst categories of income . the undistributed earnings of kodak 's foreign subsidiaries are not considered permanently reinvested . kodak has a deferred tax liability ( net of related foreign tax credits ) of $ 56 million and $ 102 million on the foreign subsidiaries ' undistributed earnings as of december 31 , 2016 and 2015 , respectively . kodak also has a deferred tax liability of $ 20 million and $ 19 million for the potential foreign withholding taxes on the undistributed earnings as of december 31 , 2016 and 2015 , respectively . kodak operates within multiple taxing jurisdictions worldwide and is subject to audit in these jurisdictions . these audits can involve complex issues , which may require an extended period of time for resolution .
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detailed results of operations net revenues from continuing operations by reportable segment replace_table_token_6_th segment operational ebitda and consolidated earnings ( loss ) from continuing operations before income taxes replace_table_token_7_th ( 1 ) red utilities variable interest entity ( interest and depreciation of red are included in the respective lines below ) . ( 2 ) composed of interest cost , expected return on plan assets , amortization of actuarial gains and losses , and curtailments and settlement components of pension and other postretirement benefit expenses . ( 3 ) primarily consists of costs for shared resources allocated to the prosper enterprise inkjet business discontinued operation in the prior year periods which are now included in the results of continuing operations and an estimate of costs for shared resources which would have been allocated to the prosper enterprise inkjet business discontinued operation in the current year period had the business remained in continuing operations . 33 ( 4 ) in the fourth quarter of 2015 , kodak changed the timing of when affected u.s. employees earn their vacation benefits , which reduced kodak 's obligation to employees and the related accrual by $ 17 million as of december 31 , 2015. the reduction in the accrual impacted gross profit by approximately $ 9 million , sg & a by approximately $ 5 million , r & d by approximately $ 2 million , and discontinued operations by $ 1 million . ( 5 ) consulting and other costs are primarily related to professional services provided for corporate strategic initiatives in 2016 and 2015. the costs in 2014 primarily represent the cost of alixpartners filling interim executive positions which are not captured within โ reorganization items , net โ as well as consulting services provided by former executives during transitional periods . ( 6 ) consists of third party costs such as security , maintenance , and utilities required to maintain land and buildings in certain locations not used in any kodak operations .
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including matters discussed under the `` item 7. management 's discussion and analysis of financial condition and results of operations '' contains forward-looking statements relating to our plans , estimates and beliefs that involve important risks and uncertainties . see `` cautionary notes regarding forward-looking information '' and `` item 1a . โ risk factors '' for a discussion of uncertainties , risks and assumptions that may cause actual results to differ materially from those contained in any forward-looking statements . business overview on january 29 , 2015 , our former parent , the manitowoc company , inc. ( `` mtw '' ) , announced plans to create two independent , public companies to separately operate its two businesses : its crane business and its foodservice business . to effect the separation , mtw first undertook an internal reorganization , following which mtw held the crane business and manitowoc foodservice , inc. ( `` mfs '' ) held the foodservice business . then on march 4 , 2016 , mtw distributed all the mfs common stock to mtw 's shareholders on a pro rata basis , and mfs became an independent , publicly-traded company ( the `` distribution '' ) . in this annual report on form 10-k , `` spin-off '' refers to both the above described internal reorganization and the distribution , collectively . effective march 6 , 2017 , we renamed the company to welbilt , inc. and rebranded our logo and brand identity to welbilt . this change was part of our strategic repositioning after we spun off from mtw and represents a long-standing commitment to put customers ' needs first . the financial condition and results of operations discussed in this management 's discussion and analysis of financial condition and results of operations are those of welbilt , inc. and its consolidated subsidiaries , collectively , the `` company , '' `` welbilt , '' `` we , '' `` our '' or `` us . '' we are one of the world 's leading commercial foodservice equipment companies . we design and manufacture a complementary portfolio of hot and cold foodservice equipment products integrated under one operating company and supported by a growing aftermarket parts and repair service business . our capabilities span refrigeration , ice-making , cooking , holding , food-preparation and beverage-dispensing technologies , which allow us to equip entire commercial kitchens and serve the world 's growing demand for food prepared away from home . our suite of products is used by commercial and institutional foodservice operators including full-service restaurants , quick-service restaurant ( `` qsr '' ) chains , hotels , caterers , supermarkets , convenience stores , business and industry , hospitals , schools and other institutions . our products and aftermarket parts and service support are recognized by our customers and channel partners for their quality , reliability and durability that enable our end customers profitable growth by improving their menus , enhancing operations and reducing costs . our products are sold in over 100 countries globally , across the americas ; europe , middle east and africa ( `` emea '' ) ; and asia pacific ( `` apac '' ) . our products , services and solutions are marketed through a worldwide network of 3,500 distributors and dealers and distributors under our portfolio of 12 award-winning brands , including cleveland , convotherm , delfield , fitkitchen , frymaster , garland , kolpak , lincoln , manitowoc ice , merco , merrychef and multiplex . all of our products are supported by kitchencare , our aftermarket parts and repair service business . our scale and expertise enable us to serve a global customer base across the world in continually evolving foodservice markets . for the years ended december 31 , 2017 , 2016 and 2015 , we generated revenue of $ 1,445.4 million , $ 1,456.6 million and $ 1,570.1 million , respectively . our customers include many of the fastest-growing and most-innovative foodservice companies in the world . we serve customers around the globe and we intend to support our customers as they grow . our integrated manufacturing operations , service sites and sales offices work together to assist customers worldwide , whether these customers are local businesses or global companies . global and regional markets for food and foodservice are growing . on a global scale , the demand for affordable dining is expected to continue increasing . market growth is expected to be driven by , among other factors , disposable income , increased employment , investment in new establishments and the underlying trend for increased convenience . overall , we believe that continued growth in demand for foodservice equipment will result from the development of new restaurant concepts in the u.s. , the expansion of u.s. and foreign chains into international markets , the replacement and upgrade of existing equipment , and new equipment requirements resulting from menu changes as well as waste reduction . we expect to benefit from these trends , and grow market penetration alongside our customers as they expand into new service categories and geographies . we believe we are well-positioned to take advantage of worldwide growth opportunities with global and regional new product introductions , improvement in operational performance and other strategic initiatives . we intend to achieve sustainable growth globally and drive increased profitability by leveraging our position as a leading commercial foodservice equipment provider , while selectively pursuing strategic acquisitions and partnerships , growing our customer base , expanding the frontiers of foodservice innovation and continuing to attract and grow industry-leading talent . - 32 - in 2017 , we focused on achieving profitable growth , developing new product and system solutions to support future revenues , reducing long-term debt obligations and developing our acquisition pipeline . conditions in the general market during the second half of 2017 were soft , and as part of our 80/20 customer line simplification , we focused on pursuing sales that supported our margin objectives and elected not to participate in selected margin-dilutive sales . story_separator_special_tag accordingly , mtw performed certain corporate overhead functions for us and certain costs related to us have been allocated from mtw for the period of january 1 , 2016 up to the spin-off on march 4 , 2016 and for the entirety of the year ended december 31 , 2015. the financial information included herein may not necessarily reflect our financial condition , results of operations and cash flows in the future or what our financial condition , results of operation and cash flows would have been had welbilt been an independent , publicly-traded company prior to the spin-off . story_separator_special_tag style= '' line-height:120 % ; font-size:9pt ; '' > income taxes for the year ended december 31 , 2017 were a benefit of $ 15.2 million , which was a decrease of $ 40.5 million compared to the prior year . this decrease was primarily due to a $ 45.5 million benefit from the revaluation of the u.s. deferred tax assets and liabilities at the reduced enacted rate and resulted in a reduction in our effective tax rate from 24.1 % for the year ended december 31 , 2016 to ( 12.8 ) % for the year ended december 31 , 2017. in addition , a valuation allowance of $ 8.6 million was released during the year ended december 31 , 2017 that was recorded against the deferred tax assets for certain entities in the united kingdom . a $ 3.5 million net state tax benefit was recorded in 2017 primarily due to revised estimates of our state tax liabilities . these benefits were partially offset by the deemed repatriation transition tax ( `` transition tax '' ) of $ 13.5 million on previously untaxed accumulated and current earnings and profits of certain foreign subsidiaries . our effective tax rate varies from the 35.0 % u.s. federal statutory rate due to the relative weighting of foreign earnings before income taxes and foreign taxes that are generally lower than the u.s. federal statutory rate in addition to the adjustments related to the impact of the tax act enacted in 2017. domestic earnings before income taxes in 2017 represent 17.3 % of total earnings and a favorable 6.6 % effective tax rate impact for net lower taxes on foreign income due in part to changes in foreign tax laws , whereas 2016 domestic earnings represent 29.1 % of total earnings and a favorable 9.3 % effective tax rate impact for net lower taxes on foreign income . the 2017 and 2016 effective tax rates were favorably impacted by income earned in jurisdictions , primarily in canada and china , where the statutory rates are approximately 25 % . in connection with the spin-off and as a result of mtw filing the 2016 u.s. corporate income tax returns at the end of the third quarter of 2017 , certain other adjustments were recorded . adjustments included a true-up of the differences between the book and tax bases of certain assets and liabilities , resulting in a $ 8.1 million increase to the deferred tax liability , which was partially offset by a $ 0.9 million decrease to the deferred tax liability to reflect the return to provision adjustments . as a result of these adjustments , a net $ 7.2 million increase in deferred tax liabilities with an offsetting decrease in additional paid-in capital was recorded . deferred income taxes are provided for the effects of temporary differences between the assets and liabilities recognized for financial reporting and tax reporting . these temporary differences result in taxable or deductible amounts in future years . management 's intent has been to reinvest the earnings of foreign subsidiaries indefinitely outside the u.s. the tax act includes the transition tax provision that imposes a tax on foreign earnings whether or not such earnings are repatriated to the u.s. as a result of this new tax , management is reviewing the prior position on the reinvestment of the earnings of foreign subsidiaries outside of the u.s. this review may be impacted by a number of additional considerations , including but not limited to the issuance of additional regulations , ongoing analysis of the tax act and gathering additional information to make a more informed decision for our intent to reinvest earnings of foreign subsidiaries indefinitely outside the u.s. - 36 - year ended december 31 , 2016 vs. year ended december 31 , 2015 our consolidated results comprised the following for the years ended december 31 , 2016 and 2015 : replace_table_token_9_th analysis of net sales net sales for our reportable segments comprised the following for the years ended december 31 , 2016 and 2015 : replace_table_token_10_th consolidated net sales totaled $ 1,456.6 million for the year ended december 31 , 2016 , representing a $ 113.5 million , or 7.2 % , decrease compared to the prior year , which was primarily driven by a 10.4 % decrease in the americas segment . prior year net sales included $ 122.1 million from kysor panel systems ( `` kps '' ) , which was sold in december 2015. in addition , foreign currency translation negatively impacted net sales for the year ended december 31 , 2016 by $ 26.4 million , or 1.8 % . net sales in the americas segment for the year ended december 31 , 2016 decreased $ 137.1 million , or 10.4 % , primarily due to the divestiture of kps in december 2015 , which caused a decrease of approximately $ 122.1 million . adjusted for the divestiture of kps , net sales decreased $ 15.0 million from the prior year , which is a non-gaap measure that consisted of a decrease in third-party net sales of $ 12.0 million and lower intersegment net sales of $ 3.0 million . the $ 12.0 million third-party net sales decrease year-over-year was due to softness in sales of hot-side products and a reduction in kitchencare sales of $ 2.4 million , partially offset by an increase of $ 28.7 million in pricing realization from our simplification and right-sizing initiatives . foreign currency translation had an $ 8.1
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results of operations year ended december 31 , 2017 vs. year ended december 31 , 2016 our consolidated results comprised the following for the years ended december 31 , 2017 and 2016 : replace_table_token_6_th n/m = not meaningful analysis of net sales net sales for our reportable segments comprised the following for the years ended december 31 , 2017 and 2016 : replace_table_token_7_th consolidated net sales totaled $ 1,445.4 million for the year ended december 31 , 2017 , representing a $ 11.2 million , or 0.8 % , decrease compared to the prior year . this decrease was primarily driven by lower volumes of $ 33.7 million in part due to 80/20 customer line simplification and partially offset by positive net pricing of $ 24.0 million , which includes $ 14.4 million of pricing realization from our simplification and right-sizing initiatives . prior year net sales for this period included $ 14.5 million from operations in latin america and china that were divested in 2016. in addition , foreign currency translation negatively impacted net sales for the year ended december 31 , 2017 by $ 1.4 million , or 0.1 % . - 34 - net sales in the americas segment for the year ended december 31 , 2017 decreased $ 19.8 million , or 1.7 % , which consisted of a decrease in third-party net sales of $ 16.0 million and lower intersegment net sales of $ 3.8 million . the third-party net sales decrease was driven by lower sales of both hot-side and cold-side products due in part to 80/20 customer line simplification . foreign currency translation had a positive impact of $ 2.0 million on third-party net sales for the year ended december 31 , 2017 .
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additionally , see note 3 in the accompanying consolidated financial statements for an overview of new accounting standards that we have adopted or that we plan to adopt that have had or may have an impact on our financial statements . overview during may 2014 , the board of directors of liberty media corporation and its subsidiaries ( โ liberty โ ) authorized management to pursue a plan to spin-off to its stockholders common stock of a wholly-owned subsidiary , liberty broadband corporation ( โ liberty broadband โ ) , and to distribute subscription rights to acquire shares of liberty broadband 's common stock ( the โ broadband spin-off โ ) . at the time of the broadband spin-off , liberty broadband was comprised of , ( i ) liberty 's former interest in charter communications , inc. ( โ legacy charter โ ) , ( ii ) liberty 's former wholly-owned subsidiary trueposition , inc. ( โ trueposition โ ) , ( iii ) liberty 's former minority equity investment in time warner cable , inc. ( โ time warner cable โ , โ twc โ , โ legacy time warner cable โ or โ legacy twc โ ) , ( iv ) certain deferred tax liabilities , as well as liabilities related to the time warner cable written call options and ( v ) initial indebtedness , pursuant to margin loans entered into prior to the completion of the broadband spin-off . the broadband spin-off was accounted for at historical cost due to the pro rata nature of the distribution to holders of liberty common stock . in the broadband spin-off , record holders of liberty series a , series b and series c common stock received one-fourth of a share of the corresponding series of liberty broadband common stock for each share of liberty common stock held by them , with cash paid in lieu of fractional shares . in addition , following the completion of the broadband spin-off , on december 10 , 2014 , stockholders received a subscription right to acquire one share of series c liberty broadband common stock for every five shares of liberty broadband common stock . the broadband spin-off and rights offering were intended to be tax-free to stockholders of liberty . during september 2015 , liberty entered into a closing agreement with the irs which provided that the broadband spin-off qualified for tax-free treatment . on may 18 , 2016 , time warner cable merged with legacy charter ( the โ time warner cable merger โ ) . in connection with the time warner cable merger , legacy charter underwent a corporate reorganization , resulting in cch i , llc , a former subsidiary of legacy charter ( โ charter โ ) , becoming the new publicly traded parent company . also on may 18 , 2016 , the previously announced acquisition of bright house networks , llc ( โ bright house โ or โ legacy bright house โ ) from advance/newhouse partnership ( โ a/n โ ) by charter ( the โ bright house transaction โ ) was completed . in connection with the time warner cable merger and bright house transaction , liberty broadband entered into certain agreements with legacy charter , charter , liberty interactive corporation ( โ liberty interactive โ ) and time warner cable . in connection with the time warner cable merger and bright house transaction ( collectively , the โ transactions โ ) , liberty broadband exchanged its shares of time warner cable for shares of charter and purchased additional shares of charter . as a result , and pursuant to proxy agreements with gci liberty , inc. and a/n , liberty broadband controls 25.01 % of the aggregate voting power of charter . in addition , in connection with the time warner cable merger , liberty broadband funded its purchase of shares of charter class a common stock using proceeds of $ 4.4 billion related to subscriptions for approximately 78.3 million newly issued shares of liberty broadband series c common stock . the financial information represents a combination of the historical financial information of skyhook , liberty broadband 's interest in charter , liberty 's former minority equity investment in time warner cable and certain deferred tax liabilities . this financial information refers to the combination of the aforementioned subsidiary , investments , and financial instruments , as โ liberty broadband , โ โ the company , โ โ us , โ โ we โ and โ our โ here and in the notes to the consolidated financial statements , except as the context otherwise requires . strategies and challenges executive summary skyhook holding , inc. ( formerly known as โ trueposition โ ) markets and sells two primary products : ( 1 ) a location determination service called the precision location solution ; and ( 2 ) a location intelligence and data insights service called geospatial insights . skyhook 's revenue is derived from the sale and integration of its precision location solution ( including the licensing of software and data components that make up that solution ) and the licensing of geospatial insights data . in addition , skyhook earns revenue through entering into licensing agreements with companies to utilize its underlying intellectual property ( including patents ) . ii-4 charter is the second largest cable operator in the united states and a leading broadband communications services company providing video , internet and voice services to approximately 29.2 million residential and small and medium business customers at december 31 , 2019. charter offers mobile services to residential customers and recently launched mobile service to small and medium business customers . in addition , charter sells video and online advertising inventory to local , regional and national advertising customers and tailored communications and managed solutions to larger enterprise customers . charter also owns and operates regional sports networks and local sports , news and community channels . story_separator_special_tag upon acquisition , the company allocated the excess basis , between the book basis of legacy charter and fair value of the shares acquired , and ascribed remaining useful lives of 7 years and 13 years to property and equipment and customer relationships , respectively , and indefinite lives to franchise fees , trademarks and goodwill . outstanding debt is amortized over the contractual period using the straight-line method . amortization related to debt and intangible assets with identifiable useful lives is included in the company 's share of earnings ( losses ) from affiliates line item in the accompanying consolidated statements of operations and aggregated $ 124 million , $ 119 million , and $ 277 million , net of related taxes , for the years ended december 31 , 2019 , 2018 and 2017 , respectively . the following is a discussion of charter 's stand alone results of operations . in order to provide a better understanding of charter 's operations , we have included a summarized presentation of charter 's results from operations . charter is a separate publicly traded company and additional information about charter can be obtained through its website and public filings , which are not incorporated by reference . the amounts included in the table below , derived from charter 's public filings , represent charter 's results for each of the years ended december 31 , 2019 , 2018 and 2017. replace_table_token_8_th charter 's revenue increased $ 2.1 billion during both of the years ended december 31 , 2019 and 2018 , as compared to the corresponding prior years . revenue growth primarily reflects increases in the number of residential internet and commercial business customers , price adjustments as well as the launch of charter 's mobile service in the second half of 2018 offset by a decrease in video customers . the increase in revenue during 2019 and 2018 was partially offset by the net impact of an increase in operating expenses , excluding stock-based compensation , of $ 1.2 billion in each of the respective years . operating costs also increased due to an increase in programming costs as a result of contractual rate adjustments , including renewals and increases in amounts paid for retransmission consents partly offset by lower video customers and pay-per-view during the years ended december 31 , 2019 and 2018. charter expects programming expenses to continue to increase in future periods due to a variety of factors , including annual increases imposed by programmers with additional selling power as a result of media consolidation , increased demands by owners of broadcast stations for payment for retransmission consent or linking carriage of other services to retransmission consent , and additional programming , particularly new services . charter has been unable to fully pass these increases on to its customers and do not expect to be able to do so in the future without a potential loss of customers . operating costs also increased due to incremental mobile costs which were comprised of mobile device costs , and mobile services and operating costs . as charter continues to launch its mobile service and scale the business , it is expected that these investments will have continued negative impacts on operating costs and adjusted oibda . ii-8 charter 's adjusted oibda in 2019 and 2018 increased as a result of the above discussion . increases in both of these periods primarily were the result of an increase in residential and commercial revenue partially offset by increases in programming costs and other expenses . depreciation and amortization expense decreased $ 392 million and $ 270 million during the years ended december 31 , 2019 and 2018 , respectively . the decreases in both years were primarily due to a decrease in depreciation and amortization as certain assets acquired from legacy twc and legacy bright house become fully depreciated offset by an increase in depreciation as a result of more recent capital expenditures . other expenses increased $ 545 million and $ 457 million in the years ended december 31 , 2019 and 2018 , respectively , compared to the corresponding prior year periods . net interest expense increased by $ 257 million and $ 450 million during the years ended december 31 , 2019 and 2018 , respectively , as compared to the corresponding prior year periods . the increase in 2019 , as compared to the corresponding prior period , is primarily due to an increase in weighted average debt outstanding of approximately $ 3.0 billion primarily as a result of the issuance of notes in 2019 for general corporate purposes including stock buybacks and debt repayments , offset by a decrease in weighted average interest rates . the increase in 2018 as compared to the corresponding prior year period was primarily due to an increase in weighted average debt outstanding of approximately $ 6.6 billion primarily as a result of the issuance of notes in 2018 for general corporate purposes including stock buybacks . in addition , other expenses increased in 2019 , as compared to the corresponding prior year period , due to other pension costs primarily as a result of a remeasurement loss recorded in 2019 versus a remeasurement gain in 2018. income tax expense increased $ 259 million and $ 9.3 billion during the years ended december 31 , 2019 and 2018 , respectively , compared to the corresponding prior year periods . the income tax expense in 2019 was primarily the result of higher pretax income and lower benefit from state tax rate changes . the income tax benefit for the year ended december 31 , 2017 of $ 9.1 billion was primarily due to the impact of the 2017 tax reform , which was enacted on december 22 , 2017. gain ( loss ) on dilution of investment in equity affiliate the loss on dilution of investment in affiliate during 2019 and 2018 is primarily due to the issuance of charter common stock from the exercise of stock options held by employees and other third parties , as prices below liberty broadband 's book basis per share .
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consolidated operating results : replace_table_token_6_th revenue revenue decreased $ 7.4 million and increased $ 9.2 million for the years ended december 31 , 2019 and 2018 , respectively , as compared to the corresponding prior year periods . the decrease in revenue in 2019 was primarily due to a license agreement in the prior year , partially offset by increased net revenue from existing customers , coupled with new customer growth . the increase in revenue in 2018 was primarily due to a new license agreement . on february 16 , 2018 , skyhook entered into a license agreement pursuant to which skyhook agreed to grant to the licensee a perpetual , non-exclusive , non-transferable , worldwide license to patents and patent applications owned by skyhook . in exchange for this grant , the licensee agreed to pay a one-time lump sum payment of $ 8.5 million that was recognized as revenue during the three months ended march 31 , 2018. operating expense and selling , general and administrative expenses operating and selling , general and administrative expenses , increased collectively by $ 6.0 million and decreased by $ 3.7 million for december 31 , 2019 and 2018 , respectively , as compared to the corresponding prior year periods . the increase in operating expenses in 2019 was primarily due to increased personnel , data acquisition and cloud computing costs . the increase in selling , general and administrative expense in 2019 was primarily due to increased professional service fees at the corporate level of $ 4.6 million . during the year ended december 31 , 2019 , this increase was partially offset by decreased costs associated with entering into the license agreement in the prior year at skyhook .
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the carrying amounts of cash and cash equivalents , accounts and notes receivable , accounts payable and other current liabilities approximate fair value because of their short-term nature . we believe that the carrying amount of our credit facility approximates its fair value because the interest rates are adjusted regularly based on current market conditions . the fair value of the company 's credit facility was determined to be a level two instrument as defined by gaap . the fair value of the company 's story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidated financial statements and related notes included herein . unless otherwise specified , the meanings of all defined terms in โ management 's discussion and analysis of financial condition and results of operations โ are consistent with the meanings of such terms as defined in the notes to consolidated financial statements . during march 2020 , a global pandemic was declared by the world health organization related to the rapidly growing outbreak of a novel strain of coronavirus ( โ covid-19 โ ) . the pandemic has significantly impacted the economic conditions in the united states , with accelerated effects in february and march , as federal , state and local governments react to the public health crisis , creating significant uncertainties in the united states economy . in the interest of public health and safety , jurisdictions ( national , state and local ) where our stores are located , required mandatory store closures or capacity limitations or other restrictions for those that continued to operate . as of the date of this report , all of our 137 operating stores were closed ( including our one new store that opened on march 16 , 2020 ) . as a result of these developments , the company expects a material adverse impact on its revenues , results of operations and cash flows which raises substantial doubt about the company 's ability to continue as a going concern . the situation is rapidly changing and additional impacts to the business may arise that we are not aware of currently . we can not predict whether , when or the manner in which the conditions surrounding covid-19 will change including the timing of lifting any restrictions or closure requirements , when our stores will reopen , staffing levels for reopened stores , and customer re-engagement with our brand . as of march 31 , 2020 , we had approximiately $ 99,622 cash on hand and $ 752,500 funded debt on our credit facility . general we are a leading owner and operator of high-volume venues in north america that combine dining and entertainment for both adults and families under the name โ dave & buster 's โ . founded in 1982 , the core of our concept is to offer our customers the opportunity to โ eat drink play and watch โ all in one location . eat and drink are offered through a full menu of entrรฉes and appetizers and a full selection of non-alcoholic and alcoholic beverages . our play and watch offerings provide an extensive assortment of entertainment attractions centered around playing games and watching live sports and other televised events . our brand appeals to a relatively balanced mix of male and female adults , as well as families and teenagers . we believe we appeal to a diverse customer base by providing a highly customizable experience in a dynamic and fun setting . our stores average 41,000 square feet , range in size between 16,000 and 70,000 square feet and are open seven days a week , with hours of operation typically from 11:30 a.m. to midnight on sunday through thursday and 11:30 a.m. to 2:00 a.m. on friday and saturday . strategy during fiscal 2019 , we continued to invest in new stores , and focused on refreshing our strategy and customer experience to set us up for the next phase of growth . our refreshed strategy is built on four key components , including offering the latest entertainment to enjoy together , novel food & drink to bring people together , creating an aligned team and integrated experience , and driving guest engagement . for further information about our strategy , refer to โ item 1. strategy โ . key measures of our performance we monitor and analyze several key performance measures to manage our business and evaluate financial and operating performance . these measures include : comparable store sales . comparable store sales are a year-over-year comparison of sales at stores open at the end of the period that have been open for at least 18 months as of the beginning of each of the fiscal years . it is a key performance indicator used within the industry and is indicative of acceptance of our initiatives as well as local economic and consumer trends . our comparable store base consisted of 99 , 86 , and 76 stores as of the end of fiscal 2019 , 2018 and 2017 , respectively . new store openings . our ability to expand our business and reach new customers is influenced by the opening of additional stores in both new and existing markets . the success of our new stores is indicative of our brand appeal and the efficacy of our site selection and operating models . during fiscal 2019 , we opened sixteen new stores , eight of which were in new markets . 24 non-gaap financial measures in addition to the results provided in accordance with generally accepted accounting principles ( โ gaap โ ) , we provide non-gaap measures which present operating results on an adjusted basis . these are supplemental measures of performance that are not required by or presented in accordance with gaap and include adjusted ebitda , adjusted ebitda margin , store operating income before depreciation and amortization and store operating income before depreciation and amortization margin ( defined below ) . story_separator_special_tag during fiscal 2019 , we purchased 7,116,585 shares at an average cost of $ 41.78 per share . cash flows from operations were $ 288,946 in fiscal 2019 compared to $ 337,616 in fiscal 2018. lower operating margins were offset by growth in total revenues , with the decrease of approximately $ 49,000 driven by a decrease in working capital . capital expenditures were $ 228,091 in fiscal 2019 compared to $ 216,286 in fiscal 2018. share repurchases and dividend payments were $ 313,041 in fiscal 2019 compared to $ 160,695 in fiscal 2018. net borrowings of debt during fiscal 2019 were $ 254,000. store-level variability , quarterly fluctuations , seasonality and inflation we have historically operated stores varying in size and have experienced significant variability among stores in volumes , operating results and net investment costs . our new stores typically open with sales volumes in excess of their expected long-term run-rate levels , which we refer to as a โ honeymoon โ effect . we expect our new store sales volumes in year two to be 10 % to 20 % lower than our year one targets , and to grow in line with the rest of our comparable store base thereafter . as a result of the substantial revenues associated with each new store , the number and timing of new store openings will result in significant fluctuations in quarterly results . in the first year of operation new store operating margins ( excluding pre-opening expenses ) typically benefit from honeymoon sales leverage on occupancy , management labor and other fixed costs . this benefit is partially offset by normal inefficiencies in hourly labor and other costs associated with establishing a new store . in year two , operating margins may decline due to the loss of honeymoon sales leverage on fixed costs which is partially offset by improvements in store operating efficiency . furthermore , rents in our new stores are typically higher than our comparable store base . revenues are influenced by seasonal shifts in consumer spending . typically , we have higher revenues associated with the spring and year-end holidays , which will continue to be susceptible to the impact of severe or unseasonably mild weather on customer traffic and sales during that period . our third quarter , which encompasses the back-to-school fall season , has historically had lower revenues as compared to other quarters . we expect that economic and environmental conditions and changes in regulatory legislation will continue to exert pressure on both consumer spending related to entertainment and dining alternatives and availability and cost of products and supplies . although there is no assurance that our cost of products will remain stable or that federal , state or local minimum wage rates will not increase beyond amounts currently legislated , the effects of any supplier price increases or wage rate increases are expected to be partially offset by selected menu or game price increases where competitively appropriate . 26 fiscal 2019 compared to fiscal 2018 results of operations . the following table sets forth selected data , in thousands of dollars and as a percentage of total revenues ( unless otherwise noted ) for the periods indicated . all information is derived from the accompanying consolidated statements of comprehensive income . replace_table_token_5_th ( 1 ) our store in duluth ( atlanta ) , georgia permanently closed on march 3 , 2019 , as we did not exercise the renewal option , and has been excluded from fiscal 2019 store counts and comparable store sales . the number of new store openings during the last two fiscal years were as follows : replace_table_token_6_th reconciliations of non-gaap financial measures adjusted ebitda the following table reconciles ( in dollars and as a percent of total revenues ) net income to adjusted ebitda for the periods indicated : replace_table_token_7_th ( 1 ) primarily represents costs related to currency transaction ( gains ) or losses . 27 store operating income before depreciation and amortization the following table reconciles ( in dollars and as a percent of total revenues ) operating income to store operating income before depreciation and amortization for the periods indicated : replace_table_token_8_th capital additions the following table reflects accrual-based capital additions . capital additions do not include any reductions for accrual-based tenant improvement allowances or proceeds from sale-leaseback transactions ( collectively , โ payments from landlords โ ) . replace_table_token_9_th results of operations revenues total revenues increased $ 89,390 or 7.1 % , to $ 1,354,691 in fiscal 2019 compared to total revenues of $ 1,265,301 in fiscal 2018. for the year ended february 2 , 2020 , we derived 28.3 % of our total revenue from food sales , 13.3 % from beverage sales , 57.5 % from amusement sales and 0.9 % from other sources . for the year ended february 3 , 2019 we derived 28.9 % of our total revenue from food sales , 13.5 % from beverage sales , 56.8 % from amusement sales and 0.8 % from other sources . the net increase in revenues for fiscal 2019 compared to fiscal 2018 were from the following sources : comparable stores $ ( 28,408 ) non-comparable stores 117,592 other 206 total $ 89,390 comparable store revenue decreased $ 28,408 or 2.6 % , in fiscal 2019 compared to fiscal 2018. comparable store revenue compared to the prior fiscal year was , in part , negatively impacted by an unfavorable shift in the current year holiday/school break calendar , sales transfers to new stores that we opened in markets where we operate and increased competitive pressure .
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results of operations . the following table sets forth selected data , in thousands of dollars and as a percentage of total revenues ( unless otherwise noted ) for the periods indicated . all information is derived from the accompanying consolidated statements of comprehensive income . replace_table_token_10_th ( 1 ) the change in comparable store sales in fiscal 2018 has been calculated by shifting forward our 2017 fiscal year comparable store sales results by one week , to account for the fact that our 2017 fiscal year consisted of 53 weeks . the fiscal year 2017 comparable store sales have been adjusted to remove the impact of the 53 rd week prior to calculating the year-over-year change percentage . ( 2 ) our duluth ( atlanta ) , georgia store which closed in fiscal 2019 is included in our store counts and comparable store sales for all periods presented . the number of new store openings during the last two fiscal years were as follows : replace_table_token_11_th 30 reconciliations of non-gaap financial measures adjusted ebitda the following table reconciles ( in dollars and as a percent of total revenues ) net income to adjusted ebitda for the periods indicated : replace_table_token_12_th ( 1 ) primarily represents costs related to currency transaction ( gains ) or losses . store operating income before depreciation and amortization the following table reconciles ( in dollars and as a percent of total revenues ) operating income to store operating income before depreciation and amortization for the periods indicated : replace_table_token_13_th capital additions the following table reflects accrual-based capital additions . capital additions do not include payments from landlords .
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the effects of anti-dilutive common stock equivalents are excluded from the calculation of diluted earnings story_separator_special_tag the following presents management 's discussion and analysis of our consolidated financial condition at december 31 , 2019 and 2018 and the results of our operations for the years ended december 31 , 2019 and 2018. this discussion should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this report . in addition to historical information , this discussion contains forward-looking statements that involve risks , uncertainties and assumptions that could cause results to differ materially from management 's expectations . cautionary note about forward-looking statements we make certain forward-looking statements in this form 10-k that are subject to risks and uncertainties . these forward-looking statements represent plans , estimates , objectives , goals , guidelines , expectations , intentions , projections and statements of our beliefs concerning future events , business plans , objectives , expected operating results and the assumptions upon which those statements are based . forward-looking statements include without limitation , any statement that may predict , forecast , indicate or imply future results , performance or achievements , and are typically identified with words such as `` may , '' `` could , '' `` should , '' `` will , '' `` would , '' `` believe , '' `` anticipate , '' `` estimate , '' `` expect , '' `` aim , '' `` intend , '' `` plan , '' or words or phases of similar meaning . we caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are , in many instances , beyond our control . actual results , performance or achievements could differ materially from those contemplated , expressed or implied by the forward-looking statements . the following factors , among others , could cause our financial performance to differ materially from that expressed in such forward-looking statements : the strength of the united states economy in general and the strength of the local economies in which we conduct operations ; geopolitical conditions , including acts or threats of terrorism , or actions taken by the united states or other governments in response to acts or threats of terrorism and or military conflicts , which could impact business and economic conditions in the united states and abroad ; the occurrence of significant natural disasters , including severe weather conditions , floods , health related issues ( including the recent coronavirus outbreak and the associated efforts to limit the spread of the disease ) , and other catastrophic events ; 46 our management of risks inherent in our real estate loan portfolio , and the risk of a prolonged downturn in the real estate market , which could impair the value of our collateral and our ability to sell collateral upon any foreclosure ; changes in consumer spending and savings habits ; technological and social media changes ; the effects of , and changes in , trade , monetary and fiscal policies and laws , including interest rate policies of the federal reserve , inflation , interest rate , market and monetary fluctuations ; changing bank regulatory conditions , policies or programs , whether arising as new legislation or regulatory initiatives , that could lead to restrictions on activities of banks generally , or our subsidiary bank in particular , more restrictive regulatory capital requirements , increased costs , including deposit insurance premiums , regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products ; the impact of changes in financial services policies , laws and regulations , including laws , regulations and policies concerning taxes , banking , securities and insurance , and the application thereof by regulatory bodies ; the impact of changes in laws , regulations and policies affecting the real estate industry ; the effect of changes in accounting policies and practices , as may be adopted from time to time by bank regulatory agencies , the sec , the public company accounting oversight board , or pcaob , the financial accounting standards board or other accounting standards setting bodies ; the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers ; the willingness of users to substitute competitors ' products and services for our products and services ; the effect of acquisitions we may make , including , without limitation , the failure to achieve the expected revenue growth and or expense savings from such acquisitions ; changes in the level of our nonperforming assets and charge-offs ; our involvement , from time to time , in legal proceedings and examination and remedial actions by regulators ; potential exposure to fraud , negligence , computer theft and cyber-crime . the foregoing factors should not be considered exhaustive and should be read together with other cautionary statements that are included in this form 10-k , including those discussed in the section entitled `` risk factors '' in item 1a above . if one or more of the factors affecting our forward-looking information and statements proves incorrect , then our actual results , performance or achievements could differ materially from those expressed in , or implied by , forward-looking information and statements contained in this form 10-k. therefore , we caution you not to place undue reliance on our forward-looking information and statements . we will not update the forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements . new risks and uncertainties may emerge from time to time , and it is not possible for us to predict their occurrence or how they will affect us . 47 overview we are a bank holding company headquartered in fairfax county , virginia . story_separator_special_tag typically , financial institutions use their historical loss experience and trends in losses for each loan category which are then adjusted for portfolio trends and economic and environmental factors in determining their allowance for loan losses . since the bank 's inception in 2007 , we have experienced minimal loss history within our loan portfolio . because of this , our allowance model uses the average loss rates of similar institutions ( our custom peer group ) as a baseline which is then adjusted based on our particular qualitative loan portfolio characteristics and environmental factors . the indicated loss factors resulting from this analysis are applied for each of the five categories of loans . our peer group is defined by selecting commercial banking institutions of similar size within virginia , maryland and the district of columbia . this is known as our custom peer group . the commercial banking institutions comprising the custom peer group can change based on certain factors including but not limited to the characteristics , size , and geographic footprint of the institution . we have identified 24 banks for our custom peer group which are within $ 1 billion to $ 3 billion in total assets , the majority of whom are geographically concentrated in the washington , d.c. metropolitan area in which we operate , as this area has experienced more stable economic conditions than many other areas of the country . these baseline peer group loss rates are then adjusted based on an analysis of our loan portfolio characteristics , trends , economic considerations and other conditions that should be considered in assessing our credit risk . our peer loss rates are updated on a quarterly basis . the allowance for loan losses consists of specific and general components . the specific component relates to loans that are determined to be impaired and , therefore , individually evaluated for impairment . we individually assign loss factors to all loans that have been identified as having loss attributes , as indicated by deterioration in the financial condition of the borrower or a decline in underlying collateral value if the loan is collateral dependent . we evaluate the impairment of certain loans on a loan by loan basis for those loans that are adversely risk rated . measurement of impairment is based on the expected future cash flows of an impaired loan , which are discounted at the loan 's effective interest rate , or measured on an observable market value , if one exists , or the fair value of the collateral underlying the loan , discounted to consider estimated costs to sell the collateral for collateral-dependent loans . if the net collateral value is less than the loan balance ( including accrued interest and 49 any unamortized premium or discount associated with the loan ) we recognize an impairment and establish a specific reserve for the impaired loan . credit losses are an inherent part of our business and , although we believe the methodologies for determining the allowance for loan losses and the current level of the allowance are appropriate , it is possible that there may be unidentified losses in the portfolio at any particular time that may become evident at a future date pursuant to additional internal analysis or regulatory comment . additional provisions for such losses , if necessary , would be recorded , and would negatively impact earnings . allowance for loan lossesยacquired loans acquired loans accounted for under asc 310-30 for our acquired loans , to the extent that we experience a deterioration in borrower credit quality resulting in a decrease in our expected cash flows subsequent to the acquisition of the loans , an allowance for loan losses would be established based on our estimate of future credit losses over the remaining life of the loans . acquired loans accounted for under asc 310-20 subsequent to the acquisition date , we establish our allowance for loan losses through a provision for loan losses based upon an evaluation process that is similar to our evaluation process used for originated loans . this evaluation , which includes a review of loans on which full collectability may not be reasonably assured , considers , among other factors , the estimated fair value of the underlying collateral , economic conditions , historical net loan loss experience , carrying value of the loans , which includes the remaining net purchase discount or premium , and other factors that warrant recognition in determining our allowance for loan losses . purchased credit-impaired loans purchased credit-impaired ( `` pci '' ) loans , which are the loans acquired in our acquisition of colombo , are loans acquired at a discount ( that is due , in part , to credit quality ) . these loans are initially recorded at fair value ( as determined by the present value of expected future cash flows ) with no allowance for loan losses . we account for interest income on all loans acquired at a discount ( that is due , in part , to credit quality ) based on the acquired loans ' expected cash flows . the acquired loans may be aggregated and accounted for as a pool of loans if the loans being aggregated have common risk characteristics . a pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flow . the difference between the cash flows expected at acquisition and the investment in the loans , or the `` accretable yield , '' is recognized as interest income utilizing the level-yield method over the life of each pool . increases in expected cash flows subsequent to the acquisition are recognized prospectively through adjustment of the yield on the pool over its remaining life , while decreases in expected cash flows are recognized as impairment through a loss provision and an increase in the allowance for loan losses .
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overview at december 31 , 2019 , total assets were $ 1.54 billion , an increase of 13.7 % , or $ 185.7 million , from $ 1.35 billion at december 31 , 2018. total loans receivable , net of deferred fees and costs , increased 11.8 % , or $ 133.8 million , to $ 1.27 billion at december 31 , 2019 , from $ 1.14 billion at december 31 , 2018. total investment securities increased by $ 16.3 million , or 13.0 % , to $ 141.6 million at december 31 , 2019 , from $ 125.3 million at december 31 , 2018. total deposits increased 10.6 % , or $ 123.3 million , to $ 1.29 billion at december 31 , 2019 , from $ 1.16 billion at december 31 , 2018. from time to time , we may utilize other borrowed funds such as federal funds purchased and fhlb advances as an additional funding source for the bank . the bank had federal funds purchased and fhlb advances outstanding of $ 10.0 million and $ 15.0 million , respectively , at december 31 , 2019. at december 31 , 2018 , we had no federal funds purchased or fhlb advances outstanding . loans receivable , net total loans receivable , net of deferred fees and costs , were $ 1.27 billion at december 31 , 2019 , an increase of $ 133.8 million , or 11.8 % , compared to $ 1.14 billion at december 31 , 2018. the increase in the loans receivable portfolio was a result of organic loan growth primarily in our commercial real estate and commercial construction portfolios . at december 31 , 2019 , we had loans held for sale totaling $ 11.2 million compared to none for 2018. during 2019 , we reclassified our unsecured consumer loan portfolio that we had purchased over the last two years .
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forward-looking statements include , among other things , the information concerning the company 's possible future results of operations including revenue , costs of goods sold , and gross margin , future profitability , future economic improvement , business and growth strategies , financing plans , the company 's competitive position and the effects of competition , the projected growth of the industries in which we operate , and the company 's ability to consummate strategic acquisitions and other transactions . forward-looking statements include statements that are not historical facts and can be identified by forward-looking words such as ยanticipate , ย ยbelieve , ย ยcould , ย ยestimate , ย ยexpect , ย ยintend , ย ยplan , ย ยmay , ย ยshould , ย ยwill , ย ยwould , ย ยproject , ย and similar expressions . these forward-looking statements are based upon information currently available to the company and are subject to a number of risks , uncertainties , and other factors that could cause the company 's actual results , performance , prospects , or opportunities to differ materially from those expressed in , or implied by , these forward-looking statements . important factors that could cause the corporation 's actual results to differ materially from the results referred to in the forward-looking statements the corporation makes in this report include : the company 's access to capital , credit ratings , indebtedness , and ability to raise additional capital and operate under the terms of the company 's debt obligations ; the risks associated with our debt ; the effects of intense competition in the markets in which we operate ; our ability to successfully execute , manage and integrate key acquisitions and mergers , including the bauer acquisition ; the company 's ability to obtain or protect intellectual property rights ; the company 's ability to retain existing customers and our ability to attract new customers for growth of our business ; the effects of the loss or bankruptcy of or default by any significant customer , suppliers , or other entity relevant to the company 's operations ; the company 's ability to successfully pursue the company 's development activities and successfully integrate new operations and systems , including the realization of revenues , economies of scale , cost savings , and productivity gains associated with such operations ; the company 's ability to complete cost reduction actions and risks associated with such actions ; the company 's ability to control costs ; 34 failure of the company 's operating equipment or information technology infrastructure ; the company 's ability to achieve its business plans , including with respect to an uncertain economic environment ; changes in employment , environmental , tax and other laws and changes in the enforcement of laws ; the accuracy of estimated forecasts of oem customers and the impact of the current global economic environment on our customers ; fluctuations in the costs of raw materials used in our products ; the company 's ability to attract and retain key executives and other personnel ; work stoppages and other labor issues ; changes in the company 's pension and retirement liabilities ; the company 's risk of loss not covered by insurance ; the outcome of litigation to which the company is a party from time to time , including product liability claims ; changes in accounting rules and standards , audits , compliance with the sarbanes-oxley act , and regulatory investigations ; changes in market conditions that would result in the impairment of goodwill or other assets of the company ; changes in market conditions in which we operate that would influence the value of the company 's stock ; the effects of changes to critical accounting estimates ; changes in volatility of the company 's stock price and the risk of litigation following a decline in the price of the company 's stock ; the cyclical nature of the markets in which we operate ; the risks associated with the global recession and volatility and disruption in the global financial markets ; political and economic conditions nationally , regionally , and in the markets in which we operate ; natural disasters , war , civil unrest , terrorism , fire , floods , tornadoes , earthquakes , hurricanes , or other matters beyond the company 's control ; the risks associated with international operations , including currency risks ; and other factors , risks , and uncertainties referenced in the company 's filings with the securities and exchange commission , including the ยrisk factorsย set forth in this document all forward-looking statements speak only as of the date of this report . 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 report or to reflect the occurrence of unanticipated events . all subsequent written and oral forward-looking statements attributable to us or any person acting on the company 's behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section and in our risk factors set forth in part i , item 1a of this form 10-k and in other reports filed with the sec by the company . 35 the following discussion of the financial condition and results of income ( loss ) of altra holdings , inc. and its subsidiaries should be read together with the selected historical financial data , and the consolidated financial statements of altra holdings , inc. and its subsidiaries and related notes included elsewhere in this form 10-k. the following discussion includes forward-looking statements . for a discussion of important factors that could cause actual results to differ materially from the results referred to in the forward-looking statements , see ยforward-looking statementsย and ยrisk factorsย . story_separator_special_tag the income approach was considered the most appropriate valuation technique because the inherent value of these assets is their ability to generate current and future income . the income approach relies on historical financial and qualitative information , as well as assumptions and estimates for projected financial information . projected financial information is subject to risk if our estimates are incorrect . the most significant estimate relates to our projected revenues and profitability . if we do not meet the projected revenues and profitability used in the valuation calculations then the intangible assets could be impaired . in determining the value of customer relationships , we reviewed historical customer attrition rates which were determined to be approximately 5 % per year . most of our customers tend to be long-term customers with very little turnover . while we do not typically have long-term contracts with customers , we have established long-term relationships with customers which make it difficult for competitors to displace us . additionally , we assessed historical revenue growth within our industry and customers ' industries in determining the value of customer relationships . the value of our customer relationships intangible asset could become impaired if future results differ significantly from any of the underlying assumptions . this could include a higher customer attrition rate or a change in industry trends such as the use of long-term contracts which we may not be able to obtain successfully . customer relationships and product technology and patents are considered finite-lived assets , with estimated lives ranging from 8 years to 16 years . the estimated lives were determined by calculating the number of years necessary to obtain 95 % of the value of the discounted cash flows of the respective intangible asset . goodwill and trade names and trademarks are considered indefinite lived assets . trade names and trademarks were determined to be indefinite lived assets . other intangible assets include trade names and trademarks that identify us and differentiate us from competitors , and therefore competition does not limit the useful life of these assets . additionally , we believe that our trade names and trademarks will continue to generate product sales for an indefinite period . as a result of the december 31 , 2008 goodwill impairment analysis , we recorded a goodwill impairment charge of $ 31.8 million during 2009 , the company appointed a new chief operating decision maker ( ยcodmย ) and went through an extensive restructuring plan . as a result of the change in the codm and our restructuring activities , we re-evaluated our operating segments and reporting unit structure . we identified five operating segments and concluded that the five operating segments can be aggregated into one reportable segment . we 37 also identified twenty-one reporting units . our reporting units have common manufacturing and production processes . each unit includes a machine shop which uses similar equipment and manufacturing techniques . each of our segments uses common raw materials , such as aluminum , steel and copper . the materials are purchased and procurement contracts are negotiated by one global purchasing function . based on similar long-term average gross profit margins and the fact that all of our products are sold by one global sales force and are marketed by one global marketing function , we have concluded that the reporting units could be aggregated into five reporting units when performing the goodwill impairment analysis . as part of the annual goodwill impairment assessment we estimated the fair value of each of our reporting units using an income approach . we forecasted future cash flows by reporting unit for each of the next five years and applied a long term growth rate to the final year of forecasted cash flows . the cash flows were then discounted using our estimated discount rate . the forecasts of revenue and profitability growth for use in the long-range plan and the discount rate were the key assumptions in our intangible fair value analysis we review the difference between the estimated fair value and net book value of each reporting unit . if the excess is less than $ 1.0 million , the reporting unit could be required to perform a step two goodwill impairment analysis to determine what amount of goodwill is potentially impaired . as of december 31 , 2010 , each of our reporting units had estimated fair values that were at least $ 1.0 million greater than the net book value . we consider whether the sum of the fair value of all of our reporting units was reasonable when compared to our market capitalization on the date of the goodwill impairment analysis . as of december 31 , 2010 and 2009 , our estimated enterprise fair value was $ 583.1 million and $ 413.6 million , respectively . as of december 31 , 2010 and 2009 , our market capitalization was $ 531.3 million and $ 328.8 million , respectively . the difference between the fair value of the enterprise and our market capitalization represented a control market premium of between 25 % and 35 % . we determined that a control market premium of between 25 % and 35 % was appropriate based on historical experience with purchase and sales transactions , the historical market trends based on our industry and the control market premium paid in relation to these transactions . management believes the preparation of revenue and profitability growth rates for use in the long-range plan and the discount rate requires significant use of judgment . if any of our aggregated reporting units do not meet our forecasted revenue and or profitability estimates , we could be required to perform an interim goodwill impairment analysis in future periods . in addition , if our discount rate increases , we could be required to perform an interim goodwill impairment analysis .
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results of operations . replace_table_token_4_th 39 year ended december 31 , 2010 compared with year ended december 31 , 2009 replace_table_token_5_th net sales . the majority of the increase in sales in 2010 was due to improvement in the end markets we serve . all of our operating segments had increased sales in 2010 when compared to 2009 except the heavy duty clutch brake operating segment . this operating segment serves late cycle markets and was not impacted by the economic recovery until mid 2010. we forecast heavy duty clutch brake to have increased sales in 2011. we forecast that demand in all of our end markets will remain strong into 2011. the effect of foreign currency translation did not affect the increase in sales year over year . replace_table_token_6_th gross profit . the increase in gross profit as a percentage of sales was primarily due to the impact of cost saving measures put into place in 2009 , productivity improvements we have implemented , as well as better overhead absorption as a result of higher production levels . this was partially offset by increases in material costs in the later part of 2010. in addition , we recorded a one time inventory charge for $ 2.2 million in 2009 related to the economic downturn . all of our operating segments generated increased gross profit and gross profit as a percentage of sales . we forecast 2011 gross profit as a percentage of sales to increase modestly when compared to 2010. the effect of foreign currency translation did not affect the increase in gross profit year over year . replace_table_token_7_th selling , general and administrative expenses .
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the company does n't have any other office or equipment leases subject to the recently adopted asu 2016-02. in the locations in which it is economically feasible to continue to operate , management expects that lease options will be exercised . the company 's corporate office is under a real property lease that contains a one-time renewal option for an additional 36 months that we determined would be reasonably certain to be extended . the office lease contains provisions requiring payment of property taxes , utilities , insurance , maintenance and other occupancy costs applicable to the leased premise . as the company 's leases do not provide an implicit discount rate , the company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments . the components of lease expense were as follows : for the year ended december 31 , 2020 operating lease cost : amortization of assets $ 43,144 interest on lease liabilities 15,114 total lease cost $ 58,258 supplemental balance sheet information related to leases was as follows : replace_table_token_16_th f- 15 one world pharma , inc. notes to consolidated financial statements supplemental cash flow and other information related to leases was as follows : for the year ended december 31 , 2020 cash paid for amounts included in the measurement of lease liabilities : operating cash flows used for operating leases $ 306,827 future minimum annual lease commitments under non-cancelable operating leases are as follows at december 31 , 2020 : replace_table_token_17_th f- 16 one world pharma , inc. notes to consolidated financial statements note 12 โ convertible note payable convertible note payable consists of the following at december 31 , 2020 and 2019 , respectively : december 31 , december 31 , 2020 2019 on november 30 , 2018 , the company received proceeds of $ 300,000 on a secured convertible note that carries a 6 % interest rate from csw ventures , lp ( โ csw โ ) . the proceeds were used to fund the company 's purchase of 875,000 shares of common stock , on a 1:4 split adjusted basis , of one world pharma , inc. the note was due on demand . in the event that the company consummated the closing of a public or private offering of its equity securities , resulting in gross proceeds of at least $ 500,000 ( โ qualified financing โ ) at any time prior to the repayment of this note , then the outstanding principal and unpaid interest could have been , at the option of the holder , converted into such equity securities at a conversion price equal to eighty percent ( 80 % ) of the purchase price paid by the investors purchasing the equity securities in the qualified financing . a qualified financing subsequently occurred on february 4 , 2019 , at which time the convertible note became convertible at a fixed conversion price of $ 0.40 per share . the company 's obligations under this note were secured by a lien on the assets of the company . on september 14 , 2020 , the principal was repaid by the issuance of 30,000 shares of series a convertible preferred stock to csw in satisfaction of obligation to repay such principal . $ - $ 300,000 on january 14 , 2019 , the company received proceeds of $ 500,000 on an unsecured convertible promissory note that carries a 6 % interest rate from the sanguine group llc . the note was due january 14 , 2022. in the event that the company consummated the closing of a public or private offering of its equity securities , resulting in gross proceeds of at least $ 500,000 ( โ qualified financing โ ) at any time prior to the repayment of this note , then the outstanding principal and unpaid interest would automatically be converted into such equity securities story_separator_special_tag this discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of the company for the fiscal years ended december 31 , 2020 and 2019. the discussion and analysis that follows should be read together with the section entitled โ forward looking statements โ and our financial statements and the notes to the financial statements included elsewhere in this annual report on form 10-k. except for historical information , the matters discussed in this section are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the company 's control . consequently , and because forward-looking statements are inherently subject to risks and uncertainties , the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements . you are urged to carefully review and consider the various disclosures made by us in this report . overview on february 21 , 2019 , we entered into the merger agreement with owp merger sub , our wholly-owned subsidiary , and owp ventures . under the merger agreement , the acquisition of owp ventures by us was effected by the merger of owp merger sub with and into owp ventures , with owp ventures being the surviving entity as our wholly-owned subsidiary . the closing of the merger occurred on february 21 , 2019. as a result of the merger ( a ) holders of the outstanding capital stock of owp ventures received an aggregate of 39,475,398 shares of our common stock ; ( b ) options to purchase 825,000 shares of common stock of owp ventures at an exercise price of $ 0.50 automatically converted into options to purchase 825,000 shares of our common stock at an exercise price of $ 0.50 ; ( c ) the outstanding principal and interest under story_separator_special_tag monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates . transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction . exchange gains or losses arising from foreign currency transactions are included in the determination of net income ( loss ) for the respective periods . comprehensive income the company has adopted asc 220 , reporting comprehensive income , which establishes standards for reporting and displaying comprehensive income , its components , and accumulated balances in a full-set of general-purpose financial statements . accumulated other comprehensive income represents the accumulated balance of foreign currency translation adjustments . 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 may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from these estimates . reclassifications certain reclassifications have been made to the prior years ' financial statements to conform to current year presentation . these reclassifications had no effect on previously reported results of operations or retained earnings . 19 segment reporting asc topic 280 , โ segment reporting , โ requires use of the โ management approach โ model for segment reporting . the management approach model is based on the way a company 's management organizes segments within the company for making operating decisions and assessing performance . the company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations . fair value of financial instruments the company adopted asc 820 , fair value measurements and disclosures ( asc 820 ) . asc 820 defines fair value , establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures . the three levels are defined as follows : - level 1 inputs to the valuation methodology are quoted prices ( unadjusted ) for identical assets or liabilities in active markets . - level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets , and inputs that are observable for the asset or liability , either directly or indirectly , for substantially the full term of the financial instrument . - level 3 inputs to valuation methodology are unobservable and significant to the fair measurement . the carrying value of cash , accounts receivable , accounts payables and accrued expenses are estimated by management to approximate fair value primarily due to the short-term nature of the instruments . cash in excess of fdic insured limits the company maintains its cash in bank deposit accounts which , at times , may exceed federally insured limits . accounts are guaranteed by the federal deposit insurance corporation ( fdic ) up to $ 250,000 , under current regulations . the company did not have any cash in excess of fdic insured limits at december 31 , 2020 , and has not experienced any losses in such accounts . revenue recognition effective january 1 , 2018 , the company adopted asc 606 โ revenue from contracts with customers . under asc 606 , the company recognizes revenue from the commercial sales of products , licensing agreements and contracts to perform pilot studies by applying the following steps : ( 1 ) identify the contract with a customer ; ( 2 ) identify the performance obligations in the contract ; ( 3 ) determine the transaction price ; ( 4 ) allocate the transaction price to each performance obligation in the contract ; and ( 5 ) recognize revenue when each performance obligation is satisfied . there was no impact on the company 's financial statements from asc 606 for the years ended december 31 , 2020 or 2019. inventory inventories are stated at the lower of cost or market . cost is determined on a standard cost basis that approximates the first-in , first-out ( fifo ) method . market is determined based on net realizable value . appropriate consideration is given to obsolescence , excessive levels , deterioration , and other factors in evaluating net realizable value . our cannabis products consist of cannabis flower grown in-house , along with produced extracts . advertising costs the company expenses the cost of advertising and promotions as incurred . advertising and promotions expense was $ 143,341 and $ 114,244 for the years ended december 31 , 2020 and 2019 , respectively . 20 basic and diluted loss per share the basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding . diluted net loss per common share is computed by dividing the net loss adjusted on an โ as if converted โ basis , by the weighted average number of common shares outstanding plus potential dilutive securities . for the years ended december 31 , 2020 and 2019 , potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share . stock-based compensation the company accounts for equity instruments issued to employees in accordance with the provisions of asc 718 stock compensation ( asc 718 ) and equity-based payments to non-employees pursuant to asc 2018-07 ( asc 2018-07 ) .
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general and administrative expenses general and administrative expenses for the year ended december 31 , 2020 were $ 3,960,791 , compared to $ 2,225,551 for the year ended december 31 , 2019 , an increase of $ 1,735,240 , or 78 % . the expenses for the current period consisted primarily of compensation expenses , office rent , and travel costs , including $ 2,581,933 of stock-based compensation , of which $ 1,100,000 , consisting of 2,000,000 shares , were issued as severance pay to our former ceo , and $ 275,000 , consisting of 500,000 shares of common stock , along with $ 1,206,933 of expense related to stock options that were voluntarily surrendered and cancelled at year-end was incurred in connection with the employment of isiah thomas as our new chief executive officer in june 2020. goodwill impairment goodwill impairment , for the year ended december 31 , 2020 was $ -0- , compared to $ 102,000 during the year ended december 31 , 2019 , a decreased expense of $ 102,000. professional fees professional fees for the year ended december 31 , 2020 were $ 3,878,006 , compared to $ 3,473,300 during the year ended 2019 , an increase of $ 404,706 , or 12 % . professional fees included non-cash stock-based compensation of $ 3,167,252 during the year ended december 31 , 2020 , compared to $ 1,727,492 during the year ended december 31 , 2019 , an increase of $ 1,439,760 , or 83 % . professional fees increased primarily due to increased stock-based compensation during the current period . 22 depreciation expense we had $ 33,610 of depreciation expense for the year ended december 31 , 2020 , compared to $ 19,668 of depreciation expense for the year ended december 31 , 2019 , an increase of $ 13,942 , or 71 % . depreciation expense increased during the current period as additional assets have been placed in service .
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10.62 twelfth supplemental indenture to the twce indenture , dated as of september 30 , 2012 , among time warner cable enterprises llc ( โ twce โ ) , twc , tw ny , time warner cable internet holdings ii llc ( โ twc internet holdings ii โ ) and the bank of new york mellon , as trustee , supplementing the indenture dated april 30 , 1992 , as amended ( incorporated herein by reference to exhibit 4.2 to twc 's current report on form 8-k dated september 30 , 2012 and filed with the sec on october 1 , 2012 ( file no . 1-33335 ) ( the โ twc september 30 , 2012 form 8-k โ ) ) . 10.63 thirteenth supplemental indenture , dated as of may 18 , 2016 , by and among time warner cable enterprises llc , the guarantors party thereto and the bank of new york mellon ( formerly known as the bank of new york ) , as trustee story_separator_special_tag reference is made to โ part i. item 1a . risk factors โ and โ cautionary statement regarding forward-looking statements , โ which describe important factors that could cause actual results to differ from expectations and non-historical information contained herein . in addition , the following discussion should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto of cco holdings included in โ part ii . item 8. financial statements and supplementary data. โ overview we are the second largest cable operator in the united states and a leading broadband communications services company providing video , internet and voice services to approximately 28.1 million residential and small and medium business customers at december 31 , 2018 . we also recently launched our spectrum mobile service to residential customers . in addition , we sell video and online advertising inventory to local , regional and national advertising customers and fiber-delivered communications and managed it solutions to large enterprise customers . we also own and operate regional sports networks and local sports , news and community channels . see โ part i. item 1. business โ products and services โ for further description of these services , including customer statistics for different services . since the close of the transactions in 2016 , we have been focused on integrating the practices and systems of legacy charter , legacy twc and legacy bright house , centralizing our product , marketing , sales and service operations , insourcing the legacy twc and legacy bright house workforces in our call centers and field operations , and rolling out spp to legacy twc and legacy bright house service areas . in 2018 , we completed the conversion of the remaining legacy twc and legacy bright house analog service areas to an all-digital platform enabling us to deliver more hd channels and higher internet speeds . as of december 31 , 2018 , nearly all of our footprint was all-digital . additionally , we have doubled minimum internet speeds to 200 mbps in a number of service areas at no additional cost to new and existing internet customers . in 2018 , leveraging docsis 3.1 technology , we also expanded the availability of our spectrum internet gig service to nearly all of our footprint . with our integration nearly complete , we are focused on operating as one company , with a unified product , marketing and service infrastructure , which will allow us to accelerate growth and innovate faster . with significantly less customer-facing change expected in 2019 , we are focused on deploying superior products and service with minimal service disruptions . we expect our growing levels of productivity 28 will result in lower customer churn , longer customer lifetimes and improved productivity with fewer customer calls and truck rolls . with over 75 % of our residential customer base currently in spp packages , we expect additional benefits from higher spp penetration and as current spp customers roll off introductory pricing combined with modest price increases . further , we expect to continue to drive customer relationship growth through sales of video , internet , and wireline and mobile voice packaged services . additionally , with the completion of our all-digital conversion , roll-out of docsis 3.1 technology across our footprint , and the integration of legacy twc and legacy bright house mostly complete , we expect a meaningful reduction in capital expenditures in dollars and as a percent of revenue in 2019. at the end of the second quarter of 2018 , we launched our mobile product , spectrum mobile , under our mvno reseller agreement with verizon . our spectrum mobile service is offered to our residential customers subscribing to our internet service and runs on verizon 's mobile network combined with our existing network of in-home and outdoor wifi hotspots . we began mass market advertising of spectrum mobile in september 2018. we also continue to explore ways to manage our own network and drive even more mobile traffic to our network through our continued deployment of in-home and outdoor wifi hotspots . in 2018 , we invested in our mobile operating partnership with comcast corporation , with a portion representing our equity investment in the partnership and a portion representing a prepayment of software development and related services for the mobile back office platform . as the partnership delivers services , we will reflect such services as capital or operating expense depending on the nature of services delivered . we believe spectrum-branded mobile services will drive higher sales of our core products , create longer customer lives and increase profitability and cash flow over time . as a result of growth costs associated with our new mobile product line , we can not be certain that we will be able to grow revenues or maintain our margins at recent historical rates . story_separator_special_tag while our capitalization is based on specific activities , once capitalized , we track these costs on a composite basis by fixed asset category at the cable system level , and not on a specific asset basis . for assets that are sold or retired , we remove the estimated applicable cost and accumulated depreciation . the costs of disconnecting service and removing customer premise equipment from a dwelling and the costs to reconnect a customer drop or to redeploy previously installed customer premise equipment are charged to operating expense as incurred . costs for repairs and maintenance are charged to operating expense as incurred , while plant and equipment replacement , including replacement of certain components , betterments , and replacement of cable drops and outlets , are capitalized . we make judgments regarding the installation and construction activities to be capitalized . we capitalize direct labor and overhead using standards developed from actual costs and applicable operational data . we calculate standards annually ( or more frequently if circumstances dictate ) for items such as the labor rates , overhead rates , and the actual amount of time required to perform a capitalizable activity . for example , the standard amounts of time required to perform capitalizable activities are based on studies of the time required to perform such activities . overhead rates are established based on an analysis of the nature of costs incurred 30 in support of capitalizable activities , and a determination of the portion of costs that is directly attributable to capitalizable activities . the impact of changes that resulted from these studies were not material in the periods presented . labor costs directly associated with capital projects are capitalized . capitalizable activities performed in connection with installations include such activities as : dispatching a โ truck roll โ to the customer 's dwelling or business for service connection or placement of new equipment ; verification of serviceability to the customer 's dwelling or business ( i.e. , determining whether the customer 's dwelling is capable of receiving service by our cable network ) ; customer premise activities performed by in-house field technicians and third-party contractors in connection with the installation , replacement and betterment of equipment and materials to enable video , internet or voice services ; and verifying the integrity of the customer 's network connection by initiating test signals downstream from the headend to the customer premise equipment , as well as testing signal levels at the utility pole or pedestal . judgment is required to determine the extent to which overhead costs incurred result from specific capital activities , and therefore should be capitalized . the primary costs that are included in the determination of the overhead rate are ( i ) employee benefits and payroll taxes associated with capitalized direct labor , ( ii ) direct variable costs associated with capitalizable activities , ( iii ) the cost of support personnel , such as care personnel and dispatchers , who assist with capitalizable installation activities , and ( iv ) indirect costs directly attributable to capitalizable activities . while we believe our existing capitalization policies are appropriate , a significant change in the nature or extent of our system activities could affect management 's judgment about the extent to which we should capitalize direct labor or overhead in the future . we monitor the appropriateness of our capitalization policies , and perform updates to our internal studies on an ongoing basis to determine whether facts or circumstances warrant a change to our capitalization policies . we capitalized direct labor and overhead of $ 1.8 billion , $ 1.7 billion and $ 991 million , respectively , for the years ended december 31 , 2018 , 2017 and 2016 . valuation and impairment of property , plant and equipment . we evaluate the recoverability of our property , plant and equipment upon the occurrence of events or changes in circumstances indicating that the carrying amount of an asset may not be recoverable . such events or changes in circumstances could include such factors as the impairment of our indefinite life assets , changes in technological advances , fluctuations in the fair value of such assets , adverse changes in relationships with local franchise authorities , adverse changes in market conditions , or a deterioration of current or expected future operating results . a long-lived asset is deemed impaired when the carrying amount of the asset exceeds the projected undiscounted future cash flows associated with the asset . no impairments of long-lived assets held for use were recorded in the years ended december 31 , 2018 , 2017 and 2016 . we utilize the cost approach as the primary method used to establish fair value for our property , plant and equipment in connection with business combinations . the cost approach considers the amount required to replace an asset by constructing or purchasing a new asset with similar utility , then adjusts the value in consideration of physical depreciation and functional and economic obsolescence as of the valuation date . the cost approach relies on management 's assumptions regarding current material and labor costs required to rebuild and repurchase significant components of our property , plant and equipment along with assumptions regarding the age and estimated remaining useful lives of our property , plant and equipment . useful lives of property , plant and equipment . we evaluate the appropriateness of estimated useful lives assigned to our property , plant and equipment , based on annual analysis of such useful lives , and revise such lives to the extent warranted by changing facts and circumstances . any changes in estimated useful lives as a result of this analysis are reflected prospectively beginning in the period in which the study is completed . our analysis of useful lives in 2018 did not indicate any significant changes in useful lives of our fixed assets .
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results of operations the following table sets forth the consolidated statements of operations for the periods presented ( dollars in millions , except per share data ) : replace_table_token_4_th revenues . total revenues grew $ 2.0 billion or 4.9 % during the year ended december 31 , 2018 as compared to 2017 and grew $ 12.6 billion or 43.4 % during the year ended december 31 , 2017 as compared to 2016 . revenue growth primarily reflects increases in the number of residential internet and commercial business customers , price adjustments as well as the launch of our mobile service in 2018 offset by a decrease in limited basic video customers . the transactions increased revenues for the year ended 34 2017 as compared to 2016 by approximately $ 11.4 billion . on a pro forma basis , assuming the transactions occurred as of january 1 , 2015 , total revenue growth was 3.9 % for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016. revenues by service offering were as follows ( dollars in millions ; all percentages are calculated using whole numbers . minor differences may exist due to rounding ) : replace_table_token_5_th video revenues consist primarily of revenues from basic and digital video services provided to our residential customers , as well as franchise fees , equipment service fees and video installation revenue . the increases in video revenues are attributable to the following ( dollars in millions ) : replace_table_token_6_th the increases related to rate changes were primarily due to price adjustments including promotional roll-off , service level changes and bundle revenue allocation . residential video customers decreased by 296,000 and 301,000 in 2018 and 2017 , respectively .
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the company does not rely on any one specific customer for any significant portion of our revenue base . for both the years ended december 31 , 2017 and 2016 , purchases from one supplier through a โ channel partner โ agreement were approximately 23 % and 24 % respectively . this channel partner agreement is for a one year term and automatically renews for an additional one year term on the anniversary of the agreements effective date . for the years ended december 31 , 2017 and 2016 , one supplier represented approximately 37 % and 42 % of total accounts payable , respectively . financial instruments that potentially subject the company to concentrations of credit risk consist primarily of trade accounts receivable and cash and cash equivalents . as of december 31 , 2017 , the company believes it has no significant risk related to its concentration of accounts receivable . accounts receivable accounts receivable consist primarily of invoices for maintenance and professional services . full payment for software ordered by customers is due in advance of ordering from the software supplier . payments for maintenance and support plan renewals are due before the beginning of the maintenance period . terms under our professional service agreements are generally 50 % due in advance and the balance on completion of the services . the company maintains an allowance for bad debt estimated by considering a number of factors , including the length of time the amounts are past due , the company 's previous loss history , the customer 's current ability to pay its obligations . property and equipment property and equipment is stated at cost , net of accumulated depreciation . depreciation is computed using the straight-line method based upon the estimated useful lives of the assets , generally three to seven years . maintenance and repairs that do not materially add to the value of the equipment nor appreciably prolong its life are charged to expense as incurred . when assets are retired or otherwise disposed of , the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in the consolidated statements of operations . f-10 silversun technologies , inc. and subsidiary notes to consolidated financial statements december 31 , 2017 and 2016 note 2 โ summary of significant accounting policies ( continued ) income taxes deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and story_separator_special_tag this annual report on form 10-k and other reports filed by silversun technologies , inc. ( the โ company โ ) from time to time with the u.s. securities and exchange commission ( the โ sec โ ) contain or may contain forward-looking statements and information that are based upon beliefs of , and information currently available to , the company 's management as well as estimates and assumptions made by company 's management . readers are cautioned not to place undue reliance on these forward-looking statements , which are only predictions and speak only as of the date hereof . when used in the filings , the words โ anticipate , โ โ believe , โ โ estimate , โ โ expect , โ โ future , โ โ intend , โ โ plan , โ or the negative of these terms and similar expressions as they relate to the company or the company 's management identify forward-looking statements . such statements reflect the current view of the company with respect to future events and are subject to risks , uncertainties , assumptions , and other factors , including the risks contained in the โ risk factors โ section of the annual report on form 10-k , relating to the company 's industry , the company 's operations and results of operations , and any businesses that the company may acquire . should one or more of these risks or uncertainties materialize , or should the underlying assumptions prove incorrect , actual results may differ significantly from those anticipated , believed , estimated , expected , intended , or planned . although the company believes that the expectations reflected in the forward-looking statements are reasonable , the company 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 , the company does not intend to update any of the forward-looking statements to conform these statements to actual results . our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states ( โ gaap โ ) . these accounting principles require us to make certain estimates , judgments and assumptions . we believe that the estimates , judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates , judgments and assumptions are made . these estimates , judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented . our consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap and does not require management 's judgment in its application . there are also areas in which management 's judgment in selecting any available alternative would not produce a materially different result . the following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report . story_separator_special_tag served to fundamentally strengthen our company 's operating platform and materially expand our footprint to nearly every u.s. state . story_separator_special_tag in addition to developing new products , obtaining new customers and increasing sales to existing customers , management plans to increase its business and profitability by entering into collaboration agreements , buying assets , and acquiring companies in the business software and information technology consulting market with solid revenue streams and established customer bases that generate positive cash flow . on may 6 , 2014 , swk acquired certain assets of esc , inc. pursuant to an asset purchase agreement for a promissory note in the aggregate principal amount of $ 350,000 ( the โ esc note โ ) . the esc note matures on april 1 , 2019. monthly payments are $ 6,135 including interest at 2 % per year . at december 31 , 2017 and december 31 , 2016 , the outstanding balance was $ 102,742 and $ 173,535 respectively . on march 11 , 2015 swk entered into an asset purchase agreement with 2000 soft , inc. d/b/a atr , a california corporation , and karen espinoza mcgarrigle in her individual capacity as shareholder . swk acquired certain assets of atr ( as defined in the purchase agreement ) . in consideration for the acquired assets , the company issued a promissory note in the aggregate principal amount of $ 175,000 and paid cash of $ 80,000. at december 31 , 2017 and december 31 , 2016 , the outstanding balance was $ 14,987 and $ 74,194 respectively . on july 6 , 2015 , swk acquired certain assets of productivetech inc. ( pti ) pursuant to an asset purchase agreement cash of $ 500,000 and a promissory note for $ 600,000 ( the โ pti note โ ) . the pti note is due in 60 months from the closing date and bears interest at a rate of two and one half ( 2.5 % ) percent . the monthly payments including interest are $ 10,645. at december 31 , 2017 and december 31 , 2016 , the outstanding balance was $ 319,249 and $ 437,403 respectively . on october 1 , 2015 swk entered into an asset purchase agreement ( the โ macabe purchase agreement โ ) with the macabe associates , inc. , ( โ macabe โ ) , a washington corporation and mary abdian and john nicholson in their individual capacity as shareholders . swk acquired certain assets and liabilities of macabe ( as defined in the macabe purchase agreement ) . in consideration for the acquired assets , the company paid $ 21,423 in cash . as additional consideration , the company paid $ 5,500 cash after twelve months from closing and paid $ 5,500 cash twenty-four months from closing on the net-to-swk revenues for software and maintenance sales if certain estimates are met for a total of $ 11,000 and was recorded as part of the contingent consideration included in the purchase price . additionally , the company will pay 35 % of the net margin on software maintenance renewals for former macabe customers for the first twelve months , and then 30 % , 25 % and 20 % of the net margin on software maintenance renewals for the following three years . the company will also pay 50 % the first year , and 40 % , 30 % and 20 % the three years after on the net margin on easy solution maintenance , new software & license to existing macabe customers and easy solutions software and maintenance sales to new customers . on any former macabe customers migrating to netsuite , x3 or acumatica , the company will pay 50 % of the net margin of the sale after applicable costs and commissions for the three years period after the acquisition . the company estimated this contingent consideration to be approximately $ 417,971 at acquisition and which is included in the purchase price . certain payments were made in each of these contingent consideration components , resulting in a remaining balance of $ 105,635 as of december 31 , 2017. on october 19 , 2015 , swk acquired certain assets of oates & company , llc ( oates ) pursuant to an asset purchase agreement ( the โ oates purchase agreement โ ) cash of $ 125,000 and a promissory note for $ 175,000 ( the โ oates note โ ) . the oates note is due in three years from the closing date and bears interest at a rate of two ( 2 % ) percent . the monthly payments including interest are $ 5,012. at december 31 , 2017 and december 31 , 2016 , the outstanding balance was $ 49,494 and $ 108,018 respectively . 23 on july 21 , 2016 , swk entered into a revolving demand note ( the โ revolving demand note โ ) by and between swk ( the โ borrower โ ) and m & t bank ( โ lender โ ) , a commercial lender . the lender has agreed to loan swk up to a principal amount of one million dollars . the interest rate on the revolving demand note shall be a variable rate , equal to the โ prime rate โ , plus ninety-five one-hundredths percent ( 0.95 % ) per annum . there is a minimum interest rate floor of four percent ( 4 % ) . the revolving demand note is secured by all of the borrower 's assets pursuant to a security agreement . furthermore , on july 21 , 2016 , the company and mr. mark meller , individually , entered into unlimited guaranty agreements ( the โ guaranty agreements โ ) with the lender . under the guaranty agreements , the company and mr. meller personally , jointly and severally guaranteed the liabilities of the borrower due and owing under the terms of the revolving demand note .
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overview silversun technologies , inc. is involved in the acquisition and build-out of technology and software companies engaged in providing transformational business management applications and professional consulting services to small and medium size companies , primarily in the manufacturing , distribution and service industries . we are executing a business strategy centered on the design and development of our own proprietary business management solutions , which now includes our mapadocยฎ electronic data interchange ( edi ) solution and other proprietary solutions and enhancements ; as well as on the acquisition of application resellers and software publishers of unique and proprietary solutions in the extensive and expanding , but highly fragmented , business solutions marketplace . our core strength is rooted in our ability to discover and identify the driving forces of change that are affecting โ or will affect โ businesses in a wide range of industries . we invest valuable time and resources to fully understand how technology is transforming the business management landscape and what current or emerging innovations are deserving of a clients ' attention . by leveraging this knowledge and foresight , our growing list of clients are empowered with the means to more effectively manage their businesses ; to capitalize on real-time insight drawn from their data resources ; and to materially profit from enhanced operational functionality , process flexibility and expedited process execution . a key tactical strategy for our company is developing smart , proprietary business management applications that effectively and efficiently integrate with existing business management systems ; and in publishing proprietary solutions for niche markets that address unique manufacturing and distribution challenges and needs . in this regard , through our wholly-owned subsidiary , swk technologies , inc. ( โ swk โ ) , we publish proprietary edi software , branded as mapadoc .
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the carrying amounts of equity method investments are reflected in investments in the consolidated statements of financial condition story_separator_special_tag the following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes as of december 31 , 2016 and 2015 and for the years ended december 31 , 2016 , 2015 and 2014 included in this form 10-k. overview we are an asset management firm offering yield solutions to retail and institutional investors . we focus on credit-related investment strategies , primarily originating senior secured loans to private middle market companies in the u.s. that have revenues between $ 50 million and $ 1 billion . we generally hold these loans to maturity . our national direct origination franchise , with over 85 people , provides capital to the middle market in the u.s. over the past 15 years , we have provided capital to over 350 companies across 35 industries in north america . we manage two permanent capital vehicles , both of which are bdcs , as well as long-dated private funds and smas , focusing on senior secured credit . permanent capital vehicles : mcc and sic , have a total aum of $ 2.5 billion as of december 31 , 2016 . long-dated private funds and smas : mof ii , mof iii , mcof , aspect and smas , have a total aum of $ 2.8 billion as of december 31 , 2016 . as of december 31 , 2016 , we had over $ 5.3 billion of aum in two business development companies , mcc and sic , as well as private investment vehicles . our year over year aum growth as of december 31 , 2016 was 12 % and was driven in large part by the growth of our long-dated private funds and smas . our compounded annual aum growth rate from december 31 , 2010 through december 31 , 2016 was 32 % and our compounded annual fee earning aum growth rate of 23 % , both of which have been driven in large part by the growth in our permanent capital vehicles . since september 2015 , we received over $ 1.5 billion of new institutional capital commitments , bringing aum to over $ 5.3 billion . typically the investment periods of our institutional commitments range from 18 to 24 months and we expect our fee earning aum to increase as capital commitments included in aum are invested . in general , our institutional investors do not have the right to withdraw capital commitments and , to date , we have not experienced any withdrawals of capital commitments . for a description of the risk factor associated with capital commitments , see โ risk factors โ third-party investors in our private funds may not satisfy their contractual obligation to fund capital calls when requested , which could adversely affect a fund 's operations and performance. โ direct origination , careful structuring and active monitoring of the loan portfolios we manage are important success factors in our business , which can be adversely affected by difficult market and political conditions , such as the turmoil in the global capital markets from 2007 to 2009. since our inception in 2006 , we have adhered to a disciplined investment process that employs these principles with the goal of delivering strong risk-adjusted investment returns while protecting investor capital . we believe that our ability to directly originate , structure and lead deals enables us to consistently lend at higher yields with better terms . in addition , the loans we manage generally have a contractual maturity of between three and seven years and are typically floating rate , which we believe positions our business well for rising interest rates . our senior management team has , on average , over 20 years of experience in credit , including originating , underwriting , principal investing and loan structuring . we have made significant investments in our corporate infrastructure and have over 85 employees , including over 45 investment , origination and credit management professionals , and over 40 operations , accounting , legal , compliance and marketing professionals , each with extensive experience in their respective disciplines . the significant majority of our revenue is derived from management fees , which include base management fees earned on all of our investment products as well as part i incentive fees earned from our permanent capital vehicles and from certain of our long-dated private funds . our base management fees are generally calculated based upon fee earning assets and paid quarterly in cash . our part i incentive fees are typically calculated based upon net investment income , subject to a hurdle rate , and are also paid quarterly in cash . we also generally earn performance fees from our long-dated private funds and smas . typically , these performance fees are 15.0 % to 20.0 % of the total return above a hurdle rate . these performance fees are accrued quarterly and paid after return of all invested capital and an amount sufficient to achieve the hurdle rate of return . 44 we also receive incentive fees related to realized capital gains in our permanent capital vehicles and certain of our long-dated private funds that we refer to as part ii incentive fees . part ii incentive fees are payable annually and are calculated at the end of each applicable year by subtracting ( i ) the sum of cumulative realized capital losses and unrealized capital depreciation from ( ii ) cumulative aggregate realized capital gains . if the amount calculated is positive , then the part ii incentive fee for such year is equal to 20 % of such amount , less the aggregate amount of part ii incentive fees paid in all prior years . if such amount is negative , then no part ii incentive fee will be payable for such year . as our investment strategy is focused on generating yield from senior secured credit , historically we have not generated part ii incentive fees . story_separator_special_tag from and after the time that the substantial ownership requirement is no longer satisfied , the class b common stock will entitle medley group llc , without regard to the number of shares of class b common stock held by it , to a number of votes that is equal to the aggregate number of llc units held by all non-managing members of medley llc that do not themselves hold shares of class b common stock and entitle each other holder of class b common stock , without regard to the number of shares of class b common stock held by such other holder , to a number of votes that is equal to the number of llc units held by such holder . at the completion of our ipo , our pre-ipo owners were comprised of all of the non-managing members of medley llc . however , medley llc may in the future admit additional non-managing members that would not constitute pre-ipo owners . if at any time the ratio at which llc units are exchangeable for shares of our class a common stock changes from one-for-one as set forth in the exchange agreement , the number of votes to which class b common stockholders are entitled will be adjusted accordingly . holders of shares of our class b common stock will vote together with holders of our class a common stock as a single class on all matters on which stockholders are entitled to vote generally , except as otherwise required by law . other than medley management inc. , holders of llc units , including our pre-ipo owners , are , subject to limited exceptions , prohibited from transferring any llc units held by them upon consummation of our ipo , or any shares of class a common stock received upon exchange of such llc units , until the third anniversary of our ipo without our consent . thereafter and prior to the fourth and fifth anniversaries of our ipo , such holders may not transfer more than 33 1/3 % and 66 2/3 % , respectively , of the number of llc units held by them upon consummation of our ipo , together with the number of any shares of class a common stock received by them upon exchange therefor , without our consent . while this agreement could be amended or waived by us , our pre-ipo owners have advised us that they do not intend to seek any waivers of these restrictions . the diagram below depicts our organizational structure ( excluding those operating subsidiaries with no material operations or assets ) as of march 15 , 2017 : 46 ( 1 ) the class b common stock provides medley group llc with a number of votes that is equal to 10 times the aggregate number of llc units held by all non-managing members of medley llc . from and after the time that the substantial ownership requirement is no longer satisfied , the class b common stock will provide medley group llc with a number of votes that is equal to the aggregate number of llc units held by all non-managing members of medley llc that do not themselves hold shares of class b common stock . ( 2 ) if our pre-ipo owners exchanged all of their llc units for shares of class a common stock , they would hold 80.07 % of the outstanding shares of class a common stock , entitling them to an equivalent percentage of economic interests and voting power in medley management inc. , medley group llc would hold no voting power or economic interests in medley management inc. and medley management inc. would hold 100 % of outstanding llc units and 100 % of the voting power in medley llc . ( 3 ) strategic capital advisory services , llc owns 20 % of sic advisors llc and is entitled to receive distributions of up to 20 % of the gross cash proceeds received by sic advisors llc from the management and incentive fees payable by sierra 47 income corporation to sic advisors llc , net of certain expenses , as well as 20 % of the returns of the investments held at sic advisors llc . ( 4 ) medley llc holds 96.5 % of the class b economic interests in each of mcof management llc , and medley ( aspect ) management llc . ( 5 ) pursuant to the master investment agreement among medley llc , medley seed funding i llc , medley seed funding ii llc , medley seed funding iii llc , db med investor i llc and db med investor ii llc , dated june 3 , 2016 , medley llc holds 100 % of the outstanding common interest and db med investor i llc holds 100 % of the outstanding preferred interest in this entity . ( 6 ) as of march 1 , 2017 , certain employees , former employees and former members of medley llc hold approximately 40 % of the limited liability company interests in mof ii gp llc , the entity that serves as general partner of mof ii , entitling the holders to share the performance fees earned from mof ii . ( 7 ) medley gp holdings llc holds 96.5 % of the class b economic interests in each of mcof gp llc , and medley ( aspect ) gp llc . trends affecting our business we believe that our disciplined investment philosophy contributes to the stability of our firm 's performance . our results of operations , including the fair value of our aum , are affected by a variety of factors , including conditions in the global financial markets as well as economic and political environments , particularly in the u.s. during the first half of fiscal year 2016 , economic conditions continued to be unpredictable and volatile as it was during fiscal year 2015. however , during the second half of fiscal year 2016 , broad economic markets showed stability and loan volumes across the lending spectrum improved .
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results of operations the following table and discussion sets forth information regarding our consolidated results of operations for the years ended december 31 , 2016 , 2015 and 2014. the consolidated financial statements of medley have been prepared on substantially the same basis for all historical periods presented ; however , for the year ended december 31 , 2014 , our results of operations included the impact of our consolidated funds . effective january 1 , 2015 , we deconsolidated our consolidated funds as a result of the early adoption of asu 2015-02 , consolidation ( topic 810 ) - amendments to the consolidation analysis . for the year ended december 31 , 2014 , we consolidated funds where through our management contract and other interests we were deemed to have the power , through voting or similar rights , to direct the activities of the legal entity that most significantly impact the entity 's economic performance . as previously described , the consolidation of these funds had the impact of increasing interest and other income of consolidated funds , interest and other expenses of consolidated funds and net investment gains ( losses ) of consolidated funds , but had no net effect on the net income attributable to our consolidated results for the year ended december 31 , 2014 . 59 replace_table_token_12_th we refer to โ standalone financial information โ or information presented on a โ standalone basis โ as information derived from our consolidated statements of operations for the period prior to january 1 , 2015 that has been adjusted to eliminate the effects of the consolidated funds on our consolidated statements of operations . for the year ended december 31 , 2014 , revenues from management fees , performance fees and investment income on a standalone basis were greater than those presented on a consolidated basis in accordance with u.s. gaap because certain revenues recognized from consolidated funds were eliminated in consolidation .
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the company very strongly disagrees with all of the allegations and intends to vigorously contest both lawsuits . the company believes that , at all times , its actions have been consistent with the terms , conditions , and context of the settlement agreement , as well as applicable law . at this time , the lawsuits are in their early stages and the company is unable to estimate potential damage exposures , if there are any , related to the lawsuits . in july 2017 , an owner of several vehicles that he was renting through the company 's platform filed for arbitration seeking damages for losses associated with renting his vehicles , specifically losses associated with a claimed stolen vehicle , storage fees , damage/repair fees , an insurance deductible , and purported loss of income due to his inability to rent the stolen/damaged vehicles . in december 2017 , the owner also filed a lawsuit in the superior court of california , county of los angeles , reasserting the same claims . the company believes this action is without merit and is vigorously defending itself , while also exploring whether the dispute can be settled in an expeditious manner . the company moved to compel the owner to arbitrate his claims and to stay his superior court case . that motion was heard on june 19 , 2018 and the court granted the motion to compel arbitration . as of january 29 , 2019 , the arbitrator issued a decision to award nothing to the owner . the arbitrator upheld the enforceability of the company 's terms of service and made clear that they precluded damages sought by the owner and dismissed the owner 's tort claims as unmeritorious . f- 12 the company is involved in claims and litigation from time to time in the normal course of business . at december 31 , 2018 , the company believes there are no pending matters , except as noted above , that are expected to have a material adverse effect on the business of the company , its financial condition , results of operations or cash flows . agreements in november 2017 , the company entered into a 180-day agreement with a third-party broker/dealer to assist in raising funds under a private placement . for their services , they were to receive five percent ( 5 % ) of the gross proceeds under the placement as a success fee defined by the agreement , non-callable warrants equal to ten percent ( 10 % ) of the aggregate number of shares of common stock , or in the case of non-convertible securities , the aggregate number of shares of common stock issuable as if the non-convertible securities were convertible into common stock at the public stock price on the date of closing if the company is public or valuation per share on the date of closing if the company is private ( excluding warrants ) sold to potential investors in the placement . the warrants were to entitle the holder to purchase securities of the company at the same terms as issued under the placement , except that the exercise price of the warrants would be 110 % of the lesser of ( a ) the price at which securities ( excluding the value of any warrants ) are issued or ( b ) the exercise price of any warrants issued to entities funding the placement . the agreement also called for $ 20,000 due upon execution of the agreement and non-accountable expense cash fees equal to three percent ( 3 % ) of the gross proceeds due and payable immediately upon the closing of the placement . the compensation terms of this agreement were modified on june 22 , 2018 prior to the ipo such that 15,445 warrants were issued with a five-year term and exercise price of $ 2.80 . the company valued the warrants similar to stock options in note 5 which was recorded as a discount on the related debt , accordingly , the company recorded $ 46,600 of interest expense related to the accretion of the discount upon conversion of the 2018 convertible notes . see note 4 for 2018 convertible notes related to this agreement . other in november 2017 , the company entered into a lease in los angeles , california commencing april 1 , 2018 , with the ability to occupy the facility in january 2018. the lease term is 39 months from the commencement date . annual base rent is as follows : 2019 - $ 342,480 , 2020 - $ 356,145 , 2021 - $ 183,489 , respectively . the lease required a deposit of $ 90,000 . per the lease agreement , the monthly rate will range from $ 27,708 to $ 31,167 a month . the company also rents office furniture and incurs ancillary fees for building services and shared expenses . rent expense for the years ended december 31 , 2018 and 2017 was $ 321,681 and $ 161,293 , respectively . note 4 โ debt and liabilities accrued liabilities a summary of accrued liabilities for the years ended december 31 , 2018 and 2017 is as follows : replace_table_token_10_th 2016 convertible notes payable from june 2016 to september 2016 , the company issued convertible promissory notes ( the โ 2016 convertible notes โ ) to related parties and third parties with the story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewherein this annual report , including information with respect to our plans and strategy for our business , include forward-looking statements that involve risks and uncertainties . story_separator_special_tag we recognize gaap reportable revenue primarily from a transaction fee and an insurance fee when a car is rented on our platform when ( a ) persuasive evidence that an agreement exists which occurs when the rental contract is signed electronically between the two parties involved ; ( b ) the services have been delivered ; ( c ) the prices are fixed and determinable and not subject to refund or adjustment ; and ( d ) collection of the amounts due is reasonably assured which occurs simultaneously when the booking is accepted and the credit card or account on file is charged . the company defers revenue where the earnings process is not yet complete . cost of revenues primarily include direct fees paid for driver insurance , merchant processing fees , and motor vehicle record fees incurred for paid driver applications . general and administrative costs include all corporate and administrative functions that support our business . these costs also include stock-based compensation expense , consulting costs , and other costs that are not included in cost of revenues . research and development costs are related to activities such as user experience and user interphase development , database development and maintenance and any technology related expense that improves and maintains the functionality of our existing platform . other income/expense includes non-operating income and expenses including interest income and expense . story_separator_special_tag 31 , 2018 resulted in cash outflows of $ 6,515,069 which were due primarily to the loss for the period of $ 11,243,903 , partially offset by non-cash charges including $ 2,280,842 in stock-based compensation and 1,515,191 from amortization of debt discount . operating activities for the year ended december 31 , 2017 resulted in cash outflows of $ 2,517,530 , which was due primarily to the loss for the period , partially offset by non-cash charges including $ 336,681 in stock-based compensation . investing activities for the year ended december 31 , 2018 resulted in cash outflows of $ 197,676 consisting of purchases of property and equipment and investment in internally developed software , reduced by the return of our prior lease deposit . investing activities for the year ended december 31 , 2017 resulted in cash outflows of $ 142,979 consisting of net outflows related to our insurance deposit and a deposit under our prior lease . net cash provided by financing activities for the year ended december 31 , 2018 totaled $ 13,263,672 and primarily consisted of net proceeds of $ 11,340,000 related to the june 2018 ipo , $ 2,778,579 in net proceeds from convertible debt , less offering costs of $ 569,665 and repayments on notes payable totaling $ 350,000. net cash provided by financing activities for the year ended december 31 , 2017 totaled $ 2,358,291 and primarily included $ 2,164,029 from the sale of common stock , $ 350,000 from notes payable and $ 300,000 from the sale of preferred stock . critical accounting policies , judgments and estimates use of estimates the preparation of financial statements in conformity with u.s. gaap requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities , and the reported amount of revenues and expenses during the reporting period . actual results could materially differ from these estimates . it is reasonably possible that changes in estimates will occur in the near term . the company 's most significant estimates and judgments involve recognition of revenue , insurance reserves , the measurement of the company 's stock-based compensation , including the estimation of the underlying deemed fair value of common stock in periods prior to the date of the company 's ipo , the estimation of the fair value of market-based awards , the valuation of warrants , allowance for doubtful accounts , estimates for future contingent customer incentive obligations , and the fair value of financial instruments . stock based compensation the company accounts for stock options issued to employees under asc 718 , compensation โ stock compensation . under asc 718 , share-based compensation cost to employees is measured at the grant date , based on the estimated fair value of the award , and is recognized as expense over the employee 's requisite vesting period . the fair value of each stock option or warrant award is estimated on the date of grant using the black-scholes option valuation model . - 22 - the company measures compensation expense for its non-employee stock-based compensation under asc 505 , equity . the fair value of the option issued or committed to be issued is used to measure the transaction , as this is more reliable than the fair value of the services received . the fair value is measured at the value of the company 's common stock or equity award on the date that the commitment for performance by the counterparty has been reached or the counterparty 's performance is complete . the fair value of the equity instrument is charged directly to stock-based compensation expense and credited to additional paid-in capital . revenue recognition the company recognizes revenue primarily from a transaction fee and an insurance fee when a car is rented on the company 's platform when ( a ) persuasive evidence that an agreement exists which occurs when the rental contract is signed electronically between the two parties involved ; ( b ) the services have been delivered ; ( c ) the prices are fixed and determinable and not subject to refund or adjustment ; and ( d ) collection of the amounts due is reasonably assured which occurs simultaneously when the booking is accepted and the credit card on file is charged .
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results of operations december 31 , 2018 compared to december 31 , 2017 revenues and gross profit . gross profit of $ 4,645,000 , or approximately 47.5 % , was realized on revenues totaling $ 9,777,079 for the year ended december 31 , 2018 as compared to gross profit of $ 311,326 , or approximately 9.7 % , realized on revenues totaling $ 3,223,874 for the year ended december 31 , 2017. the increase in revenues of $ 6,553,205 , or approximately 203.3 % , was due to the growth of our business , which resulted from the expansion of our sales team , increased marketing spend and brand awareness . operating expenses . operating expenses , consisting of general and administrative , sales and marketing , and research and development expenses , increased by $ 9,425,387 to $ 13,803,663 for the year ended december 31 , 2018 , as compared to operating expenses of $ 4,378,276 for the year ended december 31 , 2017. the increase in operating expenses was related to the scaling of our business across all functional areas . our general and administrative expenses increased by $ 5,781,147 to $ 7,600,735 , primarily as a result of our new headquarters office space in downtown los angeles where all our operations are currently housed , salaries , legal , operations and support functions . our sales and marketing expenses increased by $ 2,916,552 to $ 4,788,201 which is primarily attributable to an increase in digital advertising , a dramatic increase to the sales team and addition of customer relationship management systems . the remaining difference is attributable to growth in the technology team by $ 727,688 to $ 1,414,727 related to the enhancement and maintenance of our digital marketplace technology platform . loss from operations . our loss from operations for the year ended december 31 , 2018 was $ 9,158,663 as compared to a loss from operations of $ 4,066,950 for the year ended december 31 , 2017.
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