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we use words such as “ anticipate , ” “ estimate , ” “ plan , ” “ project , ” “ continuing , ” “ ongoing , ” “ expect , ” “ believe , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” “ predict , ” and similar expressions to identify forward-looking statements . although we believe the expectations expressed in these forward-looking statements are based on reasonable assumptions within the bound of our knowledge of our business , our actual results could differ materially from those discussed in these statements . factors that could contribute to such differences include , but are not limited to , those discussed in the risk factors ” section of this annual report . we undertake no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future . except as required by applicable law , including the securities laws of the united states , we do not intend to update any of the forward-looking statements to conform these statements to actual results . readers are urged to carefully review and consider the various disclosures made throughout the entirety of this annual report , which attempt to advise interested parties of the risks and factors that may affect our business , financial condition , results of operations , and prospects . overview gbs enterprises incorporated , a nevada corporation ( the “ company , ” “ gbs , ” “ gbsx , ” “ we , ” “ us , ” “ our ” or similar terms ) , through its subsidiaries , is a global provider of technology solutions for businesses and government agencies . we focus on developing and delivering solutions that help our customers to maximize value and reduce cost in the development , deployment and management of the applications used in the course of conducting their business ( “ business applications ” ) . our customers include corporate and government it departments , solutions integrators ( “ sis ” ) and independent software vendors ( “ isvs ” ) . our corporate customers are from a variety of industries , including insurance , financial services , pharmaceuticals , healthcare , manufacturing , logistics , and education . the install-base of our software products spans more than 5,000,000 users in 38 countries on four continents . we principally market and sell our products and services directly in the united states , canada , united kingdom , germany , austria , switzerland , the nordics and india ; and indirectly through local distributors and resellers representing australia , south america and regionally in europe . while our products and services remain in use and demand , over the last several years , the market itself has been undergoing a paradigm shift . new technologies , especially in the areas of cloud computing and mobile applications , have grown in popularity due to the potential cost savings and operational efficiencies they can offer . as organizations make investments in these new technologies , they are faced with highly complex and costly projects to migrate ( “ migration ” ) or replace their existing systems that do n't operate in the cloud or on mobile devices ( “ modernization ” ) – this includes their existing email and business applications that run on lotus notes and domino . to adopt on this market trend we have invested in technology , resources and structures . these investments in our strategic offerings and focus areas have heavily influenced our business results for the fiscal year ended march 31 , 2012 . 28 strategic offerings and focus areas as it departments face continuous budget reductions and constant pressure for higher performance and efficiency , cios are focusing on modern technologies to support their need for increased scalability , flexibility and lower costs . gbs has identified this demand as a strategic growth opportunity for the company and has placed a significant focus on expanding its cloud computing and modernizing/migrating technology offerings . the strategic opportunities are served by gbs with two distinct offerings : ¨ group live - cloud automation platform / cloud platform-as-a-service ( paas ) software and services ¨ transformer - lotus notes modernization/migration services and technology accelerators cloud computing gbs cloud computing activities are focused on cloud automation solutions and therefore the company has made key acquisitions and r & d investments to create an award winning cloud platform-as-a-service offering . under the group live banner , the gbs paas offering has been sold to a variety of enterprise customers , which use the paas software to host internal corporate clouds ( private cloud ) and applications as-a-service to their various internal user groups . group live has also be sold and implemented by a number of independent software vendors ( isvs ) , which are leveraging the platform to deliver their own software-as-a-service ( saas ) applications to their respective customer bases . both of these customer groups enjoy the comprehensive nature of this platform agnostic paas solution and its exceptional change management capabilities enabling resource flexibility , business agility , scalability and ease-of-use beyond that which is generally available in the market today . application modernization and migration gbs 's application modernization and migration activities are focused on the ibm lotus notes applications and the offering spans from expert services and accelerator technologies to modernize , web enable and migrate lotus applications ; and thus ultimately take the lotus applications from legacy to the future . the foundation of the transformer suite software offering is gbs 's significant r & d investment in a set of methodologies and key technology accelerators to automate the conversion of traditional notes based client-server applications , into the ibm xpages framework which enables domino applications to be run and accessed via the lotus client , a web browser or on a mobile device . story_separator_special_tag the increase of service revenue from $ 14,858,272 to $ 20,526,325 resulted from the service driven acquisitions of pavone ag in april 2011 and idc global , inc. in july 2011. cost of goods sold for the fiscal year ended march 31 , 2012 , our cost of goods sold increased to $ 18,047,203 from $ 14,082,494 over the fiscal year ended march 31 , 2011. cost of goods sold consists of cost for services , cost for third-party products and cost for software licenses . within cost of goods sold was a decrease of $ 497,638 for costs related to the lower volume of third party product licenses aforementioned , and an increase of $ 4,462,347 for the associated costs within the services division of revenue . salaried personnel and operating costs , balanced against capitalized work have increased by $ 3,700,000 resulting from the addition of our subsidiaries in fiscal year ended march 31 , 2012 and our investments to develop the strategic product areas . depreciation included in the category , increased by $ 1,500,000 due to the significant fixed assets acquired mainly with the addition of idc global . operating expenses for the fiscal year ended march 31 , 2012 , our operating expenses increased to $ 24,149,212 from $ 15,918,290 for the fiscal year ended march 31 , 2011. operating expenses consist of selling expenses , administrative expenses and general expenses . for the fiscal year ended march 31 , 2012 , our selling expenses increased to $ 16,671,489 from $ 10,610,545 for the fiscal year ended march 31 , 2011. selling expenses consist of costs for the sales , marketing and service units and has increased in relation to the additional companies acquired and in support of the overall increased sales generated . build up and additional marketing expenses were incurred in anticipation of , and as part of , our go to market sales strategy for new technology . $ 3,600,000 of that increase resulted from new acquisitions ; $ 2,300,000 has been expended to prepare the organization for the market entry of their strategic product lines . for the fiscal year ended march 31 , 2012 , our administrative expenses increased to $ 6,647,636 from $ 3,853,532 for the fiscal year ended march 31 , 2011. administrative expenses consist of costs for the management and administration units . most significant increases included in these expenses include additional audit and related accounting for our added business entities , increased insurance and occupancy costs for our new locations , and additional consultancy costs to support our regulatory compliance . $ 700,000 of that increase resulted from new acquisitions ; $ 1,500,000 are directly associated with gbs enterprises inc. for the fiscal year ended march 31 , 2012 , our general expenses decreased to $ 830,087 from $ 1,454,213 for the fiscal year ended march 31 , 2011 in response to newly administered budgeting procedures . 32 other income ( expense ) for the fiscal year ended march 31 , 2012 , other income of $ 2,393,821 was decreased to other expense of $ 15,910,392. bad debts changes in this category increased for the write off of receivables primarily in our entities no longer functioning due to obsolete technology . income from a settlement received in the previous fiscal year also was a contributing factor to the change . income taxes ( expense ) as a result of the change in the majority ownership of group business software in 2011 and based on the current legal situation , management has determined it is more likely than not that the tax losses carried forward for the fiscal year ended march 31 , 2011 will not be available as a deduction to determine taxable income . therefore , the deferred tax assets from the losses carried forward for group business software ag in an amount of $ 3,691,000 were written off in the fiscal year ended march 31 , 2011 and included in income tax expense . for the fiscal year ended march 31 , 2012 a statutory tax range from 23 % to 34 % has been applied resulting in an expected income tax recovery of $ 7,986,000. reduced by price allocations from consolidation of $ 2,798,000 , permanent differences of $ 533,000 and other items as mentioned in note 27. the total amount of income tax expense has been $ 2,553,000. liquidity & capital resources at march 31 , 2012 , we had $ 1,502,977 in cash and cash equivalents , compared to $ 8,530,864 at march 31 , 2011. in principal , the company 's cash flow depends on the timely and successful market entry of its strategic offerings . the dependency accounts for revenue generated from direct customers engagements , as well as for revenue generated through the partner channel network . especially for strategic offerings for paradigm shifting technologies , the management 's budget plan is based on a series of assumptions regarding market acceptance , readiness and pricing . while management 's assumptions are based on market research and customer surveys , assumptions bear the risk of being incorrect and may result in a delay in customer projects and consequently a delay or a reduction in the related strategic offering invoicing . in case these delays have an impact on the company 's liquidity and therefore its ability to support its operations with the necessary cash flow , the company depends on its ability to generate cash flow from other resources , such as debt financing from related or independent resources or as equity financing from existing shareholders or through the stock market . the company believes it has sufficient capital to fund its operations for the next 12 months . the company is in constant contact with internal and external sources for financing , and it is management 's belief that if these internal and external sources for funding will provide sufficient funds to support the working capital needs of the company , the company will be able to provide sufficient cash flow to support its strategic offerings .
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results of operations fiscal year ended march 31 , 2012 compared to fiscal year ended march 31 , 2011 assets total assets decreased from $ 76,865,929 at march 31 , 2011 to $ 70,449,961 at march 31 , 2012. total assets consists of total current assets and total non-current assets . at march 31 , 2012 , our total current assets were $ 8,634,975 , compared to $ 17,875,353 at march 31 , 2011. total current assets consist of : cash and cash equivalents ; accounts receivable ; inventories ; prepaid expenses ; other receivables and assets held for sale . ¨ cash and cash equivalents decreased from $ 8,530,864 at march 31 , 2011 to $ 1,502,977 at march 31 , 2012 as a result of our investments in the strategic technology areas such as application migration and modernization , cloud technology and the associated costs necessary to build and implement the go to market strategy . ¨ accounts receivable decreased from $ 5,698,321 at march 31 , 2011 to $ 4,936,887 at march 31 , 2012 from increased collections resulting from personnel added to focus efforts on improvement of cash flow . ¨ inventories increased from $ 0 at march 31 , 2011 to $ 236,712 at march 31 , 2012 from the purchase of pavone ag , and related work in progress and products immediately available for purchase within this business entity . ¨ prepaid expenses decreased from $ 1,423,281 at march 31 , 2011 to $ 459,363 at march 31 , 2012 due to the reclassification of prepaid license payments to a vendor into intangible assets .
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references in this management 's discussion and analysis of financial condition and results of operations to “ us , ” “ we , ” “ our , ” and similar terms refer to gaucho group holdings , inc. , a delaware corporation , and its subsidiaries . this discussion includes forward-looking statements , as that term is defined in the federal securities laws , based upon current expectations that involve risks and uncertainties , such as plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors . words such as “ anticipate , ” “ estimate , ” “ plan , ” “ continuing , ” “ ongoing , ” “ expect , ” “ believe , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” and similar expressions are used to identify forward-looking statements . we caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties , risks and other influences , many of which are beyond our control , which may influence the accuracy of the statements and the projections upon which the statements are based . see “ special note - forward-looking statements. ” our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed in “ risk factors ” and elsewhere in this prospectus . any one or more of these uncertainties , risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate . our actual results , performance and achievements could differ materially from those expressed or implied in these forward-looking statements . we undertake no obligation to publicly update or revise any forward-looking statements , whether from new information , future events or otherwise . a 15:1 reverse stock split of the company 's common stock was effected on february 16 , 2021 ( the “ reverse stock split ” ) . all share and per share information has been retroactively adjusted to give effect to the reverse stock split for all periods presented , unless otherwise indicated . special note regarding emerging growth company status and smaller reporting company status currently we qualify as both an “ emerging growth company ” and as a “ smaller reporting company ” ( as defined in rule 12b-2 of the exchange act ) . we are allowed and have elected to comply with the smaller reporting company rules which allows us to omit certain information , including three years of year-to-year comparisons and tabular disclosure of contractual obligations , from this management 's discussion and analysis of financial condition and results of operations . however , we have provided all information for the periods presented that we believe to be appropriate and necessary . overview gaucho group holdings , inc. ( “ ggh ” or the “ company ” ) positions its e-commerce leather goods , accessories , and fashion brand , gaucho – buenos aires , as one of luxury , creating a platform for the global consumer to access their piece of argentine style and high-end products . with a concentration on leather goods , ready-to-wear and accessories , this is the luxury brand in which argentina finds its contemporary expression . by the end of the first quarter of 2021 , the company anticipates launching gaucho casa , a home & living line of luxury textiles and home accessories , which will be marketed and sold on the gaucho – buenos aires e-commerce platform . gaucho casa challenges traditional lifestyle collections with its luxury textiles and home accessories rooted in the singular spirit of the gaucho aesthetic . ggh seeks to grow its direct-to-consumer online products to global markets in the united states , asia , the united kingdom , europe , and argentina . we intend to focus on e-commerce and scalability of the gaucho – buenos aires and gaucho casa brands , as real estate in argentina is politically sensitive . ggh 's goal is to become recognized as the lvmh ( “ louis vuitton moët hennessy ” ) of south america 's leading luxury brands . through one of its wholly owned subsidiaries , ggh also owns and operates legacy investments in the boutique hotel , hospitality and luxury vineyard property markets . this includes a golf , tennis and wellness resort , as well as an award winning , wine production company concentrating on malbecs and malbec blends . utilizing these wines as its ambassador , ggh seeks to further develop its legacy real estate , which includes developing residential vineyard lots located within its resort . until may 31 , 2020 , the company 's senior management was based at its corporate office in new york city . due to covid-19 , we have terminated the corporate office lease and senior management works remotely . ggh 's local operations are managed by professional staff with substantial hotel , hospitality and resort experience in buenos aires and san rafael , argentina . 49 recent developments and trends we temporarily closed our hotel , restaurant , winery operations , and golf and tennis operations . recently , we have been able to reopen the algodon mansion as of november 11 , 2020 with covid-19 measures implemented . we have also been able to reopen our winery and golf and tennis facilities recently with covid-19 measures implemented . also due to covid-19 , construction on homes was temporarily halted from march to september but has resumed . story_separator_special_tag in january 2021 , wine enthusiast rated and reviewed our algodon 2012 pima red blend mendoza and awarded it 91 points . investment in foreign real estate requires consideration of certain risks typically not associated with investing in the united states . such risks include , trade balances and imbalances and related economic policies , unfavorable currency exchange rate fluctuations , imposition of exchange control regulation by the united states or foreign governments , united states and foreign withholding taxes , limitations on the removal of funds or other assets , policies of governments with respect to possible nationalization of their industries , political difficulties , including expropriation of assets , confiscatory taxation and economic or political instability in foreign nations or changes in laws which affect foreign investors . see also risk factors for more information . over the past nine months , ggh has been the process of pivoting operations to focus primarily on e-commerce sales of our gaucho—buenos aires brand , in addition to our wines which also serve as ambassador to our 4,138-acre wine and real estate development . we believe that the change in focus and ongoing restructuring of our argentine operations can have a positive impact and overall improvement on our business . our goal for 2021 is to focus on actions that can result in immediate revenues , such as e-commerce sales , continued deeding of lots and real estate sales and greater distribution of our wines by supporting our importer and their network partners . we began our big push of e-commerce sales through our launch of the gaucho—buenos aires brand at new york fashion week on september 12 , 2019 to create momentum through the holiday season and bring in revenue . in november 2020 , we hired a communications agency , skoog co. , to provide exposure to all of our brands . skoog co. specializes in brand strategy , communications , media relations , and social and digital content development , and their goals for us is to create a wholistic marketing campaign to drive awareness and sales for gaucho – buenos aires , gaucho casa , algodon fine wines , as well as our real estate business segments . in the fourth quarter of 2020 we micro tested u.s. markets and focus groups to gauge demand and iron out early details of our digital marketing strategy . we continue to test campaigns with micro audiences in the first quarter of 2021 , in anticipation of a larger roll out of campaigns after the offering closes . in the third quarter of 2021 , we anticipate launching a popup shop in los angeles for the summer season , assuming our production schedule is on track to receive our products here in the u.s. with popup shops , we can for example , work with local public relations ( “ pr ” ) companies to get the word out , as these opportunities are typically promoted via direct mail , pr and digital marketing efforts , as well as word of mouth and strategic geographic positioning . see page 57 below for more information on popup shops . in 2021 , we expect that our gaucho brand sales will grow to represent a majority of our revenue , with our wine and real estate business making up the remainder . financings in 2020 and 2019 , we raised , net of repayments , approximately $ 4,687,000 and $ 5,700,000 , respectively of new capital through the issuance of debt and equity . we used the net proceeds from the closings of these private placement offerings for general working capital and capital expenditures . on february 19 , 2021 , the company closed on an underwritten public offering of 1,333,334 units at $ 6.00 per unit for approximate gross proceeds of $ 8 million , before deducting underwriting discounts and commissions and estimated offering expenses . we used the net proceeds for general working capital and capital expenditures . initiatives we have implemented a number of initiatives designed to expand revenues and control costs . revenue enhancement initiatives include expanding marketing , investment in additional winery capacity and developing new real estate development revenue sources . our goal for 2021 is to focus on actions that can result in immediate revenues , such as e-commerce sales , continued deeding of lots and real estate sales and greater distribution of our wines by supporting our importer and their network partners . 51 cost reduction initiatives include investment in equipment that will decrease our reliance on subcontractors , plus outsourcing and restructuring of certain functions . further , we have begun to reduce operational expenses by approximately $ 800,000 per year by reducing administrative costs including non-renewal of the lease in august 2020 for our new york headquarters and reduction in workforce hours and marketing expenses . some of these significant savings will be immediate , others will be unfolding throughout time . our goal is ultimately to reduce expenses of between $ 1-2 million in 2021. our goal is to become more self-sufficient and less dependent on outside financing . story_separator_special_tag justify '' > general and administrative expenses general and administrative expenses were approximately $ 4,814,000 and $ 6,429,000 from operations for the years ended december 31 , 2020 and 2019 , respectively , representing a decrease of approximately $ 1,615,000 or 25 % . the decrease results primarily from the decreases of approximately $ 261,000 in professional fees , approximately $ 292,000 in travel expenses , approximately $ 483,000 resulting from the impact of the decline in the value of the argentine peso vis-à-vis the u.s. dollar , and approximately $ 592,000 in exchange rate gains . depreciation and amortization expense depreciation and amortization expense were approximately $ 170,000 and $ 196,000 during the years ended december 31 , 2020 and 2019 , respectively , representing a decrease of approximately $ 26,000 or 13 % .
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consolidated results of operations year ended december 31 , 2020 compared to the year ended december 31 , 2019 the following table represents selected items in our consolidated statements of operations for the years ended december 31 , 2020 and 2019 , respectively : replace_table_token_7_th overview we reported net losses of approximately $ 5.8 million and $ 7.0 million for the years ended december 31 , 2020 and 2019 , respectively . the increase in net loss is primarily the result of the decrease in revenues as described below . revenues revenues from operations were approximately $ 636,000 and $ 1,284,000 during the years ended december 31 , 2020 and 2019 , respectively , reflecting a decrease of approximately $ 648,000 or 50 % . decreases in revenues are primarily due to approximately $ 329,000 resulting from the impact of the decline in the value of the argentine peso vis-à-vis the u.s. dollar and decreases in hotel and restaurant revenues of approximately $ 321,000 resulting from closures as a result of the covid-19 pandemic . the average exchange rate of the argentina peso increased from 48.1676 for the year ended december 31 , 2019 to 73.5358 for the year ended december 31 , 2020 , which represents a decrease in the average worth of the argentine peso from us $ 0.02 to $ 0.01 . 52 total sales from argentina were approximately ars $ 42.7 million during the year ended december 31 , 2020 as compared to approximately ars $ 58.1 million during the year ended december 31 , 2019 , reflecting a net decrease of approximately ars $ 15.4 million or 27 % . hotel room and event revenues were approximately ars $ 16.8 million and ars $ 35.7 million during years ended december 31 , 2020 and 2019 , respectively , representing a decrease of approximately ars $ 18.9 million , or 53 % resulting from closures as a result of the covid-19 pandemic . restaurant revenues were approximately ars $ 8.9
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2014‑15 , “ presentation of financial statements—going concern ( subtopic 205‑40 ) ” ( “ asu 2014‑ 15 ” ) , which provides story_separator_special_tag the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the company 's selected financial data and the company 's financial statements and the accompanying notes included herein . the following discussion may contain “ forward‑looking statements ” within the meaning of the securities act and the exchange act . when used in this form 10‑k , the words “ estimate , ” “ anticipate , ” “ expect , ” “ believe , ” “ should ” and similar expressions are intended to be forward‑looking statements . although the company believes that its plans , intentions and expectations reflected in such forward‑looking statements are reasonable , it can give no assurance that such plans , intentions or expectations will be achieved . prospective investors are cautioned that any such forward‑looking statements are not guarantees of future performance and involve risks and uncertainties , and that actual results may differ materially from those contemplated by such forward‑looking statements . important factors currently known to management that could cause actual results to differ materially from those in forward‑looking statements are set forth under the heading “ risk factors ” in item 1a and elsewhere in this form 10‑k . capitalized or defined terms included in this item 7 have the meanings set forth in item 1 of this form 10‑k . business overview the company is engaged in the healthcare management business , and is focused on meeting needs in areas of healthcare that are fast growing , highly complex and high cost , with an emphasis on special population management . the company provides services to health plans and other mcos , employers , labor unions , various military and governmental agencies , tpas , consultants and brokers . the company 's business is divided into three segments , based on the services it provides and or the customers that it serves . see item 1— “ business ” for more information on the company 's business segments . the following tables summarize , for the periods indicated , revenues and covered lives for healthcare by product classification and customer type ( in thousands ) : replace_table_token_5_th 32 replace_table_token_6_th ( 1 ) includes revenues of $ 51.4 million from eap services provided on a risk basis to health plans and employers with 11.0 million covered lives . ( 2 ) includes revenues of $ 244.0 million from eap services provided on a risk basis to federal governmental entities with 3.6 million covered lives . during 2016 , pharmacy management paid 24.0 million adjusted commercial network claims in its pbm business , 72.6 million adjusted pba claims and 0.1 million specialty dispensing claims . adjusted claim totals apply a multiple of three for each 90‑day and traditional mail claim . as of december 31 , 2016 , pharmacy management had a generic dispensing rate of 84.9 percent within its commercial pbm business and served 1.7 million commercial pbm members , 12.5 million members in its medical pharmacy management programs , and 26 states and the district of columbia in its pba business . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . the company considers the following to be its critical accounting policies and estimates : managed care and other revenue managed care revenue . managed care revenue , inclusive of revenue from the company 's risk , eap and aso contracts , is recognized over the applicable coverage period on a per member basis for covered members . the company is paid a per member fee for all enrolled members , and this fee is recorded as revenue in the month in which members are entitled to service . the company adjusts its revenue for retroactive membership terminations , additions and other changes , when such adjustments are identified , with the exception of retroactivity that can be reasonably estimated . the impact of retroactive rate amendments is generally recorded in the accounting period in which terms to the amendment are finalized , and that the amendment is executed . any fees paid prior to the month of service are recorded as deferred revenue . managed care revenues approximated $ 2.6 billion , $ 2.7 billion and $ 2.3 billion for the years ended december 31 , 2014 , 2015 and 2016 , respectively . fee‑for‑service , fixed fee and cost‑plus contracts . the company has certain contracts with customers under which the company recognizes revenue as services are performed and as costs are incurred . this includes revenues received in relation to the patient protection and affordable care act health insurer fee ( “ hif fee ” ) billed on a cost reimbursement basis . revenues from these contracts approximated $ 290.9 million , $ 342.0 million and $ 503.2 million for the years ended december 31 , 2014 , 2015 and 2016 , respectively . rebate revenue . the company administers a rebate program for certain clients through which the company coordinates the achievement , calculation and collection of rebates and administrative fees from pharmaceutical manufacturers on behalf of clients . each period , the company estimates the total rebates earned based on actual volumes of pharmaceutical purchases by the company 's clients , as well as historical and or anticipated sharing percentages . the company earns fees based upon the volume of rebates generated for its clients . the company does not record as rebate revenue any rebates that are passed through to its clients . story_separator_special_tag factors that affect estimated completion factors include benefit changes , enrollment changes , shifts in product mix , seasonality influences , provider reimbursement changes , changes in claims inventory levels , the speed of claims processing and changes in paid claim levels . completion factors are applied to claims paid through the financial statement date to estimate the ultimate claim expense incurred for the current period . actuarial estimates of claim liabilities are then determined by subtracting the actual paid claims from the estimate of the ultimate incurred claims . for the most recent incurred months ( generally the most recent two months ) , the percentage of claims paid for claims incurred in those months is generally low . this makes the completion factor methodology less reliable for such months . therefore , incurred claims for any month with a completion factor that is less than 70 percent are generally not projected from historical completion and payment patterns ; rather they are projected by estimating claims expense based on recent monthly estimated cost incurred per member per month times membership , taking into account seasonality influences , benefit changes and healthcare trend levels , collectively considered to be “ trend factors. ” medical claims payable balances are continually monitored and reviewed . if it is determined that the company 's assumptions in estimating such liabilities are significantly different than actual results , the company 's results of operations and financial position could be impacted in future periods . adjustments of prior period estimates may result in additional cost of care or a reduction of cost of care in the period an adjustment is made . further , due to the considerable variability of healthcare costs , adjustments to claim liabilities occur each period and are sometimes significant as compared to the net income recorded in that period . prior period development is recognized immediately upon the actuary 's judgment that a portion of the prior period liability is no longer needed or that additional liability should have been accrued . the following table presents the components of the change in medical claims payable for the years ended december 31 , 2014 , 2015 and 2016 ( in thousands ) : replace_table_token_7_th ( 1 ) for any given period , a portion of unpaid medical claims payable could be covered by reinvestment liability ( discussed below ) and may not impact the company 's results of operations for such periods . ( 2 ) medical claims payable is offset by customer withholds from capitation payments in situations in which the customer has the contractual requirement to pay providers for care incurred . ( 3 ) favorable development in 2014 , 2015 and 2016 was $ 8.8 million , $ 22.5 million and $ 10.3 million , respectively , and was mainly related to lower medical trends and faster claims completion than originally assumed . actuarial standards of practice require that the claim liabilities be adequate under moderately adverse circumstances . adverse circumstances are situations in which the actual claims experience could be higher than the otherwise estimated value of such claims . in many situations , the claims paid amount experienced will be less than the estimate that satisfies the actuarial standards of practice . any prior period favorable cost of care development related to a lack of moderately adverse conditions is excluded from “ cost of care—prior years ” adjustments , as a similar provision for moderately adverse conditions is established for current year cost of care liabilities and therefore does not generally impact net income . 35 care trend factors and completion factors can have a significant impact on the medical claims payable liability . the following example provides the estimated impact to the company 's december 31 , 2016 unpaid medical claims payable liability assuming hypothetical changes in care trend factors and completion factors : replace_table_token_8_th approximately 70 percent of ibnr dollars is based on care trend factors . ( 1 ) assumes a change in the care trend factor for any month that a completion factor is not used to estimate incurred claims ( which is generally any month that is less than 70 percent complete ) . ( 2 ) assumes a change in the completion factor for any month for which completion factors are used to estimate ibnr ( which is generally any month that is 70 percent or more complete ) . due to the existence of risk sharing and reinvestment provisions in certain customer contracts , a change in the estimate for medical claims payable does not necessarily result in an equivalent impact on cost of care . the company believes that the amount of medical claims payable is adequate to cover its ultimate liability for unpaid claims as of december 31 , 2016 ; however , actual claims payments may differ from established estimates . other medical liabilities consist primarily of amounts payable to pharmacies for claims that have been adjudicated by the company but not yet paid . other medical liabilities also include “ reinvestment ” payables under certain managed healthcare contracts with medicaid customers and “ profit share ” payables under certain risk‑based contracts . under a contract with reinvestment features , if the cost of care is less than certain minimum amounts specified in the contract ( usually as a percentage of revenue ) , the company is required to “ reinvest ” such difference in behavioral healthcare programs when and as specified by the customer or to pay the difference to the customer for their use in funding such programs . under a contract with profit share provisions , if the cost of care is below certain specified levels , the company will “ share ” the cost savings with the customer at the percentages set forth in the contract . in addition , certain contracts include provisions to provide the company additional funding if the cost of care is above the specified levels .
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results of operations the accounting policies of the company 's segments are the same as those described in note 1— “ general. ” the company evaluates performance of its segments based on profit or loss from operations before stock compensation expense , depreciation and amortization , interest expense , interest and other income , changes in the fair value of contingent consideration recorded in relation to acquisitions , gain on sale of assets , special charges or benefits , and income taxes ( “ segment profit ” ) . management uses segment profit information for internal reporting and control purposes and considers it important in making decisions regarding the allocation of capital and other resources , risk 38 assessment and employee compensation , among other matters . healthcare subcontracts with pharmacy management to provide pharmacy benefits management services for certain of healthcare 's customers . in addition , pharmacy management provides pharmacy benefits management for the company 's employees covered under its medical plan . as such , revenue , cost of goods sold and direct service costs and other related to these arrangements are eliminated . the company 's segments are defined above . the following tables summarize , for the periods indicated , operating results by business segment ( in thousands ) : replace_table_token_11_th replace_table_token_12_th replace_table_token_13_th ( 1 ) stock compensation expense , changes in the fair value of contingent consideration recorded in relation to the acquisitions and impairment of intangible assets are included in direct service costs and other operating expenses ; however , these amounts are excluded from the computation of segment profit . ( 2 ) the non‑controlling interest portion of alphacare of new york , inc. 's ( “ alphacare ” ) segment profit ( loss ) is excluded from the computation of segment profit . 39 ( 3 ) effective january 1 , 2016 , the company implemented changes related to the allocation of corporate operational and support functions . these changes were applied retrospectively .
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the standard effectively replaced previously existing revenue recognition guidance ( topic 605 ) and requires entities to recognize revenue to depict the transfer of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services as well as requires additional disclosure about the nature , amount , timing and uncertainty of revenues and cash flows arising from customer contracts , including significant judgments and changes in judgments . story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and the related notes included elsewhere in this annual report . in addition to historical information , this discussion contains forward-looking statements that involve risks , uncertainties and assumptions that could cause actual results to differ materially from management 's expectations . factors that could cause such differences are discussed in the sections entitled “ special note regarding forward-looking statements ” and “ item 1a . risk factors. ” we assume no obligation to update any of these forward-looking statements . executive summary we are a leading global provider of digital platform engineering and software development services offering specialized technological solutions to many of the world 's leading organizations . our customers depend on us to solve their complex technical challenges and rely on our expertise in core engineering , advanced technology , digital design and intelligent enterprise development . we continuously explore opportunities in new industries to expand our core industry client base in software and technology , financial services , business information and media , travel and consumer , retail and distribution and life sciences and healthcare . our teams of developers , architects , consultants , strategists , engineers , designers , and product experts have the capabilities and skill sets to deliver business results . our global delivery model and centralized support functions , combined with the benefits of scale from the shared use of fixed-cost resources , enhance our productivity levels and enable us to better manage the efficiency of our global operations . 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 customers 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 grow as a recognized brand in software development and end-to-end digital transformation services for our customers . 26 overview of 2018 and financial highlights the following table presents a summary of our results of operations for the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_6_th the key highlights of our consolidated results for 2018 were as follows : we recorded revenues of $ 1.8 billion , or a 27.1 % increase from $ 1.5 billion in the previous year , positively impacted by $ 2.0 million or 0.2 % due to changes in certain foreign currency exchange rates as compared to the corresponding period in the previous year . income from operations grew 42.1 % to $ 245.8 million from $ 172.9 million in 2017 . expressed as a percentage of revenues , income from operations was 13.3 % compared to 11.9 % last year . the increase as a percentage of revenues was primarily driven by an improvement in selling , general and administrative expenses as a percentage of revenues partially offset by an increase in cost of revenues as a percentage of revenues as compared to the same period last year . our effective tax rate was 3.8 % compared to 58.3 % last year . the provision for income taxes for 2018 was favorably impacted by the recognition of $ 26.0 million of net deferred tax assets resulting from the implementation of changes to our tax structure in response to u.s. tax reform . in 2017 , our effective tax rate had increased principally due to the provisional $ 74.6 million charge related to u.s. tax reform . net income increased 230.2 % to $ 240.3 million compared to $ 72.8 million in 2017 . expressed as a percentage of revenues , net income increased 8.0 % compared to last year , which was largely driven by the improved effective tax rate as well as the improvement in income from operations as a percentage of revenues . diluted earnings per share increased 221.2 % to $ 4.24 for the year ended december 31 , 2018 from $ 1.32 in 2017 . cash provided by operations increased $ 99.4 million , or 51.5 % , to $ 292.2 million during 2018 as compared to last year . the operating results in any period are not necessarily indicative of the results that may be expected for any future period . 27 critical accounting policies we prepare our consolidated financial statements in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) , which require us to make judgments , estimates and assumptions that affect : ( i ) the reported amounts of assets and liabilities , ( ii ) the disclosure of contingent assets and liabilities at the end of each reporting period and ( iii ) the reported amounts of revenues and expenses during each reporting period . we evaluate these estimates and assumptions based on historical experience , knowledge and assessment of current business and other conditions , and expectations regarding the future based on available information and reasonable assumptions , which together form a basis for making judgments about matters not readily apparent from other sources . since the use of estimates is an integral component of the financial reporting process , actual results could differ from those estimates . some of our accounting policies require higher degrees of judgment than others in their application . story_separator_special_tag we deferred amounts billed to our customers for revenues not yet earned . such amounts were anticipated to be recorded as revenues when services were performed in subsequent periods . unbilled revenues was recorded when services had been provided but billed subsequent to the period end in accordance with the contract terms . the majority of our revenues ( 90.3 % of revenues in 2017 and 88.2 % in 2016 ) were generated under time-and-material contracts whereby revenues were recognized as services were performed with the corresponding cost of providing those services reflected as cost of revenues . the majority of such revenues were billed using hourly , daily or monthly rates as actual time was incurred on the project . revenues from fixed-price contracts ( 8.3 % of revenues in 2017 and 10.4 % in 2016 ) included fixed-price maintenance and support arrangements , which may have exceeded one year in duration and revenues from maintenance and support arrangements were generally recognized ratably over the expected service period . fixed-price contracts also included application development arrangements and revenues from these arrangements were primarily determined using the proportional performance method . in cases where final acceptance of the product , system , or solution was specified by the customer , and the acceptance criteria were not objectively determinable to have been met as the services were provided , revenues were deferred until all acceptance criteria had been met . in the absence of a sufficient basis to measure progress towards completion , revenue was recognized upon receipt of final acceptance from the customer . assumptions , risks and uncertainties inherent in the estimates used in the application of the proportional performance method of accounting could have affected the amount of revenues , receivables and deferred revenues at each reporting period . business combinations — we account for our business combinations using the acquisition accounting method , which requires us to determine the fair value of net assets acquired and the related goodwill and other intangible assets in accordance with the fasb asc topic 805 , “ business combinations. ” we identify and attribute fair values and estimated lives to the intangible assets acquired and allocate the total cost of an acquisition to the underlying net assets based on their respective estimated fair values . determining the fair value of assets acquired and liabilities assumed requires management 's judgment and involves the use of significant estimates , including projections of future cash inflows and outflows , discount rates , asset lives and market multiples . there are different valuation models for each component , the selection of which requires considerable judgment . these determinations will affect the amount of amortization expense recognized in future periods . we base our fair value estimates on assumptions we believe are reasonable , but recognize that the assumptions are inherently uncertain . the acquired assets typically include customer relationships , trade names , non-competition agreements , and assembled workforce and as a result , a substantial portion of the purchase price is allocated to goodwill and other intangible assets . if the initial accounting for the business combination has not been completed by the end of the reporting period in which the business combination occurs , provisional amounts are reported to present information about facts and circumstances that existed as of the acquisition date . once the measurement period ends , which in no case extends beyond one year from the acquisition date , revisions of the accounting for the business combination are recorded in earnings . 29 goodwill and other intangible assets — we assess goodwill for impairment on an annual basis as of october 31 , and more frequently if events or changes in circumstances indicate that the fair value of a reporting unit has been reduced below its carrying value . when conducting our annual goodwill impairment assessment , we use a two-step process . the first step is to perform an optional qualitative evaluation as to whether it is more likely than not that the fair value of a reporting unit is less than its carrying value using an assessment of relevant events and circumstances . in performing this assessment , we are required to make assumptions and judgments including , but not limited to , an evaluation of macroeconomic conditions as they relate to our business , industry and market trends , as well as the overall future financial performance of a reporting unit and future opportunities in the markets in which it operates . if we determine that it is not more likely than not that the fair value of our reporting unit is less than its carrying value , we are not required to perform any additional tests in assessing goodwill for impairment . however , if we conclude otherwise or elect not to perform the qualitative assessment , we perform a second step consisting of a quantitative assessment of goodwill impairment . this quantitative assessment requires us to estimate impairment by comparing the fair value of a reporting unit with its carrying amount . an impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit 's fair value ; however , the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit . historically , a significant portion of the purchase consideration related to our acquisitions was allocated to customer relationships . in valuing customer relationships , we typically utilize the multi-period excess earnings method , a form of the income approach . the principle behind this method is that the value of the intangible asset is equal to the present value of the after-tax cash flows attributable to the intangible asset only . we amortize our intangible assets that have finite lives on a straight-line basis or , if reliably determinable , the pattern in which the economic benefit of the asset is expected to be consumed utilizing expected discounted future cash flows . amortization is recorded over the estimated useful lives that predominantly range from five to ten years .
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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 . replace_table_token_7_th ( 1 ) included $ 27,245 , $ 20,868 and $ 16,619 of stock-based compensation expense for the years ended december 31 , 2018 , 2017 and 2016 , respectively . ( 2 ) included $ 31,943 , $ 31,539 and $ 32,625 of stock-based compensation expense for the years ended december 31 , 2018 , 2017 and 2016 , respectively . revenues we continue to expand our presence in multiple geographies and verticals , both organically and through strategic acquisitions . during the year ended december 31 , 2018 , our total revenues grew 27.1 % over the previous year to $ 1.8 billion . this growth resulted from our ability to retain existing customers and increase the level of services we provide to them and our ability to produce revenues from new customer relationships . customer concentration continued to decrease with revenues from our top five , top ten and top twenty clients declining as a percentage of total revenues for the year ended december 31 , 2018 as compared to the previous year . revenue has been positively impacted from the acquisition of continuum innovation llc and think limited , which contributed 1.8 % and 0.1 % , respectively to our revenue growth , and by the fluctuations in foreign currency that increased our revenue growth by 0.2 % during the year ended december 31 , 2018 as compared to the previous year . we discuss below the breakdown of our revenues by vertical , customer location , service arrangement type , and customer concentration .
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( 14 ) consists of ( i ) 8,762 shares , ( ii ) 8,250 restricted shares , and ( iii ) vested options to purchase 1,459 shares of common stock . ( 15 ) consists of ( i ) 1,489 shares , ( ii ) 3,250 restricted shares , and ( iii ) vested options to purchase 2,063 shares of common stock . ( 16 ) consists of ( i ) 3,250 restricted shares , ( ii ) vested options to purchase 750 shares of common stock , and ( iii ) 41,865 shares held by alpha venture capital partners , l.p mr. dockery is the president of the general partner of alpha venture capital partners , l.p. and therefore may be deemed to beneficially own the shares beneficially owned by alpha venture capital partners , l.p. ( 17 ) consists of ( i ) 3,250 restricted shares , and ( ii ) vested options to purchase 750 shares of common stock . ( 18 ) consists of ( i ) 3,250 restricted shares , ( ii ) 3,521 shares , and ( iii ) vested options to purchase 750 shares of common stock . information regarding our equity compensation plans is contained in part ii , item 5 . 83 item 13. certain relationships , related transactions , and director independence related party transactions we describe below all transactions and series of similar transactions , other than compensation arrangements , during the last three fiscal years , to which we were a party or will be a party , in which : the amounts involved exceeded or will exceed $ 120,000 ; and any of our directors , executive officers or holders of more than 5 % of our capital stock , or any member of the immediate family of the foregoing persons , had or will have a direct or indirect material interest . services agreements in january 2013 , luoxis entered into a services agreement with ampio whereby ampio provides corporate overhead services and a shared facility with luoxis in exchange for $ 15,000 per month . the amount can be modified in writing upon the consent of both parties . the agreement may be terminated at any time by either party . in january 2014 , vyrix entered into a services agreement with ampio whereby ampio provides corporate overhead services to vyrix in exchange for $ 7,000 per month . the amount can be modified in writing upon the consent of both parties . the agreement may be terminated at any time by either party . both agreements were assigned to us upon the closing of the merger . in july 2015 , the prior service agreements were canceled and aytu entered into agreements with ampio whereby aytu agreed to pay ampio $ 30,000 per month for shared overhead which includes costs related to the shared facility , corporate staff , and other miscellaneous overhead expenses . this agreement will be in effect until it is terminated in writing by both parties . this agreement was amended periodically to reflect the amount of resources used from ampio , the final amount was $ 4,000 for the month of june 2017. this agreement was cancelled in june 2017 and ampio is no longer considered a related party . sponsored research agreement in june 2013 , luoxis entered into a sponsored research agreement with trllc , an entity controlled by ampio 's director and chief scientific officer , dr. bar-or . the agreement , which was amended in september 2013 and provides for luoxis to pay $ 6,000 per month to trllc in consideration for services related to research and development of luoxis ' redoxsys system . in march 2014 story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this annual report . some of the information contained in this discussion and analysis , 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 “ risk factors ” section of this 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 . story_separator_special_tag estimated offering expenses payable by aytu , but excluding the exercise of any warrants . the company also granted the representative of the underwriters a 45-day option to purchase up to an additional 43,013 shares and or 43,013 additional warrants . the shares of common stock were immediately separable from the warrants and were issued separately . the warrants are exercisable immediately upon issuance , expire five years after the date of issuance and have an exercise price of $ 37.20 per share . on november 2 , 2016 , we completed the public offering . in connection with the closing , the underwriters purchased a portion of their 45-day option and purchased an additional 14,263 additional warrants at closing . our net cash proceeds from the offering , after deducting the placement agent fees and the offering expenses , was $ 7.6 million . on february 28 , 2017 , we consummated our warrant tender offer to exercise , at a temporarily reduced exercise price of $ 15.00 per share , ( i ) outstanding warrants to purchase 86,667 shares of our common stock with an exercise price of $ 120.00 per share , which were originally issued to investors in our may 2016 financing ( the “ may 2016 warrants ” ) , and ( ii ) outstanding warrants to purchase 301,013 shares of our common stock with an exercise price of $ 37.20 story_separator_special_tag we have recognized approximately $ 3.2 million in revenue from natesto , prostascint , primsol , mioxsys and fiera sales during fiscal 2017. we have incurred accumulated net losses since our inception , and at june 30 , 2017 , we had an accumulated deficit of $ 69.1 million . our net loss was $ 22.5 million for fiscal 2017 and we used $ 13.8 million in cash from operations during that year . significant accounting policies and estimates information regarding our significant accounting policies and estimates is contained in note 2 to the financial statements . newly issued accounting pronouncements information regarding the recently issued accounting standards ( adopted and not adopted as of june 30 , 2017 ) is contained in note 2 to the financial statements . results of operations—june 30 , 2017 compared to june 30 , 2016 results of operations for the year ended june 30 , 2017 ( “ fiscal 2017 ” ) and the year ended june 30 , 2016 ( “ fiscal 2016 ” ) reflected losses of approximately $ 22.5 million and $ 28.2 million , respectively . revenue product and service revenue the total product and service revenue recognized during 2017 was $ 3.2 million , related to the sales of our products natesto , prostascint , and primsol , the mioxsys and redoxsys systems , as well as products in the fiera line . the product and service revenue in fiscal 2016 was $ 2.1 million , which was from the prostascint and primsol product lines , as well as the redoxsys and mioxsys systems . the increase in product revenue of over 57 % from fiscal 2016 to 2017 is due to our acquisitions and ensuing sales of the natesto and fiera products , which occurred late in fiscal 2016 and late fiscal 2017 , respectively , and expanded marketing of our commercial products . 70 as is customary in the pharmaceutical industry , our gross product sales are subject to a variety of deductions in arriving at reported net product sales . provisions for these deductions are recorded concurrently with the recognition of gross product sales revenue and include discounts , chargebacks , distributor fees , processing fees , as well as allowances for returns and medicaid rebates . provision balances relating to estimated amounts payable to direct customers are netted against accounts receivable and balances relating to indirect customers are included in accounts payable and accrued liabilities . the provisions recorded to reduce gross product sales and net product sales are as follows : replace_table_token_3_th license revenue during fiscal 2017 and fiscal 2016 , we recognized $ 0 and $ 512,000 , respectively , in license revenue . in 2012 , we received a payment of $ 500,000 for our license agreement of our former product candidate zertane with a korean pharmaceutical company . this payment was deferred and was being recognized over 10 years . in 2014 , we received a payment of $ 250,000 for our license agreement of zertane with a canadian-based supplier . this payment was deferred and was being recognized over seven years . at june 30 , 2016 , aytu determined that the zertane asset has no value as aytu does not have the resources to complete the necessary clinical trials and bring it to market before the patents expire . therefore , the remaining unamortized deferred revenue of $ 426,000 which was outstanding as of the date it was determined not to proceed with the clinical trials was recognized as of june 30 , 2016. expenses cost of sales the cost of sales of $ 1.4 million and $ 1.0 million recognized for fiscal 2017 and fiscal 2016 , respectively , are related to the natesto , prostascint and primsol products , the mioxsys and redoxsys systems , as well as products in the fiera line . we expect to see cost of sales to continue to increase in the year ending june 30 , 2018 ( “ fiscal 2018 ” ) as we expect our sales of our current products to continue to grow . research and development research and development costs consist of clinical trials and sponsored research , labor , stock-based compensation , sponsored research – related party and consultants and other . these costs relate solely to research and development without an allocation of general and administrative expenses and are summarized as follows : replace_table_token_4_th comparison of years ended june 30 , 2017 and 2016 research and development expenses decreased $ 5.0 million , or 78.7 % , in fiscal 2017 compared to fiscal 2016. this was due primarily to placing the contract for our manufacturing tech transfer on hold for our prostascint product , as well as shifting our focus to our existing commercialized products . we expect that the research and development expenses will decrease in fiscal 2018 as compared to fiscal 2017 due to the fact that we will continue to focus on our existing products . 71 general and administrative general and administrative expenses consist of personnel costs for employees in executive , business development and operational functions and director fees ; stock-based compensation ; patents and intellectual property ; professional fees including legal , auditing , accounting , investor relations , shareholder expense and printing and filing of sec reports ; occupancy , travel and other including rent , governmental and regulatory compliance , insurance , and professional subscriptions .
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overview we are a commercial-stage specialty pharmaceutical company concentrating on developing and commercializing products with an initial focus on urological diseases and conditions . we are currently focused on addressing significant medical needs in the areas of hypogonadism , male infertility , urological cancers and female personal care . through a multi-step reverse triangular merger , on april 16 , 2015 , vyrix pharmaceuticals , inc. ( “ vyrix ” ) and luoxis diagnostics , inc. ( “ luoxis ” ) merged with and into our company ( herein referred to as the merger ) and we abandoned our pre-merger business plans to solely pursue the specialty healthcare market , including the business of vyrix and luoxis . in the merger , we acquired the redoxsys , mioxsys and zertane products . on june 8 , 2015 , we reincorporated as a domestic delaware corporation under delaware general corporate law and changed our name from rosewind corporation to aytu bioscience , inc. , and effected a reverse stock split in which each common stock holder received one share of common stock for every 12.174 shares outstanding . on june 30 , 2016 , we effected another reverse stock split in which each common stock holder received one share of common stock for each 12 shares . additionally , on august 25 , 2017 we completed another reverse split in which each common stockholder received one share of common stock for each 20 shares then owned . all share and per share amounts in this report have been adjusted to reflect the effect of these two reverse stock splits ( herein referred to collectively as the reverse stock splits ) .
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our business consists of leasing antenna space on multi-tenant communication sites to wireless service providers . this business model launched in december 2011 pursuant to the acquisition of communications infrastructure group , llc ( “ cig , llc ” ) described below . we were incorporated in the state of nevada in february 2008 and are headquartered in atlanta , georgia . all of our operations are located in the united states . we participate in the local tower development industry and conduct our operations principally through subsidiaries of cig wireless . our wholly-owned subsidiaries are “ cig , llc ” , “ cig properties , llc ” , “ cig services , llc ” , “ cig towers , llc ” , “ cig bts towers , llc ” , “ cig ga holding , llc ” , “ cig dt holding , llc ” , and “ cig comp tower , llc ” . on october 7 , 2011 , we acquired all membership interests in cig services , llc ( “ cig services ” ) , from communications infrastructure group llc , ( “ cig , llc ” ) . the membership interests of cig services were acquired by us for a nominal amount . cig services was formed by cig , llc to provide comprehensive management and support services for the operation , administration and management of wireless towers . on october 7 , 2011 , we , through our subsidiary , cig services , have entered into seven tower management agreements ( each , a “ tower management agreement ” ) with various related parties whereby we are to maintain , market , operate , manage and administer certain tower , rooftop or other telecommunication sites owned or managed by the related parties ( the “ tower sites ” ) . we have acted as the exclusive agent of the various third parties and managed the tower sites in accordance with all outstanding tower site leases , easements , other applicable agreements , and applicable law and industry standards . we received a monthly fee from the related parties for the performance of the tower site management services . each tower management agreement is governed under the laws of the state of georgia . on june 30 , 2012 , four of these tower management agreements terminated in connection with the june 30 , 2012 restructuring pursuant to which the various related parties received class a membership interests in cig , llc . we continue to receive the monthly fees related to the remaining three agreements that are still in effect as of september 30 , 2012. on december 5 , 2011 , we completed the acquisition of cig , llc for 750,000 shares of common stock . pursuant to the acquisition , we acquired all assets and assumed all liabilities of cig , llc . on september 7 , 2012 , we completed the acquisition of nineteen communication towers and related assets and rights from towers of texas , ltd. , a privately held company , for a purchase price of $ 3.6 million in cash . the acquisition expands our portfolio of assets and our presence in the texas region . 19 on september 7 , 2012 , we , through our subsidiary cig comp tower , llc , closed a new multi-draw term loan credit facility with macquarie bank limited ( “ macquarie ” ) . the macquarie credit facility may be drawn upon by the borrower , as guaranteed by our subsidiary cig properties , llc . macquarie is serving as the administrative agent , collateral agent and the initial issuing lender under the credit facility . as of september 30 , 2012 , we had a credit facility commitment of $ 15 million on which we have withdrawn $ 10 million as of september 30 , 2012. this multi-draw term loan credit facility may be expanded up to $ 150 million . as of september 30 , 2012 , we own 66 towers and we have presence in 15 states . we currently own 67 wireless communications towers that are online and in commercial service . our primary goal is to grow our business through the leasing of antenna space on our existing towers in addition to acquiring and constructing new towers . site leasing revenues are primarily generated from wireless service providers through our long- term leasing contracts . our tenant leases are generally for an initial term that ranges between 5 and 10 years with 3-5 renewal options of five years each . these lease contracts normally include rent escalation rates which range between 3-4 % per year , including the renewal periods . we construct towers under build-to-suit arrangements which allow us to build towers in a location chosen by the wireless provider . we retain ownership of the towers built and the right to co-locate additional tenants . tenant leases are generally paid on a monthly or annual basis . site leasing revenue is recorded monthly on a straight-line basis over the current term of the related lease agreements . annual payments are recorded as deferred revenue and recognized as revenue ratably over 12 months . monthly rental amounts received in advance are recorded as well in deferred revenue and recognized as revenue in the appropriate period . the tower business is not seasonal . however , the availability of towers for acquisition on the market varies from time-to-time . our company , like all of our competitors , is bound to the tower build plans of the various carriers , which are subject to numerous variables outside our control , including the general economy , carrier cash flow , regulatory issues , and consolidation of the wireless industry . we deploy our working capital for the acquisition of third party towers on the open market or for the construction costs of bts towers . we rely , to a large extent , on the wireless carriers build and search ring development plans . possible consolidation in the industry plays a significant role in carrier builds and lease ups . story_separator_special_tag as of september 30 , 2012 , the balance of our cash and cash equivalents was $ 2.9 million . we believe that this balance will be sufficient to meet our cash requirements to operate our business over the next twelve months . however , this balance is not sufficient enough to provide the funds required to grow our business and execute on our plan for acquiring and building new communication towers . our plan is to use the funds available through the credit facility and raise capital to support our business plan . however , there is no certainty that we will be successful at raising capital , nor is there certainty around the amount of funds that may be raised . in addition , the success of our efforts will be subject to the performance of the market and investor sentiment regarding the macro and micro conditions under which we operate including stock market volatility . cash flows from operating activities our net cash used in operating activities was $ 4.6 million during the period of december 1 , 2011 to september 30 , 2012 which mainly consisted of major expenditures around accounting , advisory and legal costs incurred with the establishment and restructuring of our business and corporate structure in addition to transaction costs associated with the acquisition of cig , llc and towers of texas . the predecessor 's net cash used during the two months ended november 30 , 2011 and the fiscal year ended september 30 , 2011 was $ 0.9 million and $ 1.2 million , respectively . 24 cash flows from investing activities our cash used in investing activities was $ 4.3 million during the period of december 1 , 2011 to september 30 , 2012 which mainly consisted of $ 1.5 million related to payments for the construction of communication towers and purchase of software and equipment and $ 2.5 million spent the acquisition of communication towers of the towers of texas acquisition presented net of the cash acquired from the acquisition of cig , llc of $ 1.0 million . the cig , llc acquisition was consummated as a non-cash transaction through the issuance of 750,000 of common shares of cig wireless . in addition , there was an increase in restricted cash resulting from the reserve interest account required in accordance with the terms of our credit facility as well as preferred stock subscriptions for which preferred shares were in the process of being issued as of september 30 , 2012. the predecessor entity 's net cash provided by investing activities for the two months ended november 30 , 2011 was $ 0.1 million , consisting of the proceeds from sale of one communication tower of $ 0.4 million partially offset by $ 0.3 million spent on construction of communication towers . for the year ended september 30 , 2011 , the predecessor entity 's net cash used in investing activities was $ 0.4 million consisting of $ 5.2 million spent on the construction of towers partially offset by the proceeds of approximately $ 4.8 million from the sale of communication towers . cash flows from financing activities our net cash provided by financing activities for the period of december 1 , 2011 to september 30 , 2012 was $ 11.7 million mainly consisting of the following : a ) net proceeds of $ 9.2 million obtained through the credit facility entered into on september 7 , 2012 , b ) $ 0.4 million and $ 0.3 million obtained through the issuance of 232,450 shares and 114,290 shares of common stock and series b preferred stock , respectively , c ) proceeds from related parties borrowings of $ 2.7 million of which $ 1.7 million were proceeds from convertible debt , partially offset by d ) distributions to related party investors of $ 0.2 million , e ) payments for debt issuance costs of $ 0.2 million incurred in connection with the credit facility , and f ) payments of $ 0.1 million for equity issuance costs for conversion of debt and net advances to related parties of $ 0.4 million . the predecessor entity 's net cash provided by financing activities for the two months ended november 30 , 2011 was $ 1.6 million mainly consisting of net advance from related parties . for the year ended september 30 , 2011 , the predecessor 's net cash used in financing activities was $ 4.4 consisting of distributions to related party investors of $ 2.0 million and net advances to related parties of $ 2.6 million partially offset by contributions from related party investors of $ 0.3 million . non-cash investing and financing activities the following table represents our non-cash investing and financing activities for the successor period from december 1 , 2011 to september 30 , 2012 , the predecessor period from october 1 , 2011 to november 30 , 2011 and the fiscal year ended september 30 , 2011. replace_table_token_3_th 25 on december 23 , 2011 , 1,000,000 shares of series a 4 % convertible redeemable preferred stock , par value $ 0.00001 per share , along with the accrued dividends of $ 16,301 were converted into 1,008,110 shares of common stock . we originally issued the preferred shares on october 7 , 2011 at $ 2.00 per share which resulted in aggregate proceeds of $ 2,000,000. these proceeds are not presented in the table of cash flows above as the period presented for the successor entity starts from december 1 , 2011. on december 5 , 2011 , we acquired cig , llc from bac berlin atlantic holding gmbh & co. kg for 750,000 common shares issued at a fair value of $ 0.10 per share which was the price per share of the last issuance of common equity transaction for cash we completed during the fiscal year 2009. during the period of december 1 , 2012 to september 30 , 2012 , we established an asset retirement obligation of $ 0.2 million in connection with the towers that were constructed and capitalized during the period and the towers purchased through asset
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results of operations the following table represents a comparison of our results of operations for the year ended september 30 , 2012 to the year ended september 30 , 2011. to provide a meaningful presentation and comparison of our results of operations , we combined the period from december 1 , 2011 to september 30 , 2012 ( successor ) with the period from october 1 , 2011 to november 30 , 2011 ( predecessor ) to provide the full year ended september 30 , 2012 results of operations as compared to the year ended september 30 , 2011 . 21 replace_table_token_1_th revenues for the fiscal year ended september 30 , 2012 , total revenue was approximately $ 1.8 million , which was a decrease of $ 0.2 million from $ 2.0 million as compared to the same period in the previous year . the decrease was due to the decline of $ 0.4 million in service revenues and origination fees due to our new business strategy implemented in fiscal year 2012 partially offset by an increase in rent revenue of $ 0.2 million during the same period as compared to the previous year . the new business strategy focuses more on building our portfolio of communication towers and expanding our presence geographically across the country . site-related costs for the fiscal year ended september 30 , 2012 , site-related costs were approximately $ 1.3 million , which was a decrease of 0.6 million from $ 1.9 million in the same period in the previous year .
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our md & a should be read in conjunction with the consolidated financial statements and related notes included in item 8 , “ financial statements and supplementary data , ” of this annual report on form 10 k. story_separator_special_tag balances are daily average balances . the yields set forth below include the effect of deferred loan fees , deferred origination costs , and discounts and premiums that are amortized or accreted to interest income or expense . we do not accrue interest on loans that are on non-accrual status ; however , the balance of these loans is included in the total average balance , which has the effect of reducing average loan yields . replace_table_token_16_th ( 1 ) amount is net of deferred loan fees , loan discounts and loans in process , and includes deferred origination costs , loan premiums and loans receivable held for sale . ( 2 ) includes non‑accrual interest of $ 162 thousand , reflecting interest recoveries on non‑accrual loans that were paid off for the year ended december 31 , 2020 . ( 3 ) includes non-accrual interest of $ 567 thousand , reflecting interest recoveries on non-accrual loans that were paid off , and deferred cost amortization of $ 254 thousand for the year ended december 31 , 2019 . ( 4 ) includes non-accrual interest of $ 40 thousand , reflecting interest recoveries on non-accrual loans that were paid off , and deferred cost amortization of $ 503 thousand for the year ended december 31 , 2018 . ( 5 ) net interest rate spread represents the difference between the yield on average interest‑earning assets and the cost of average interest‑bearing liabilities . ( 6 ) net interest rate margin represents net interest income as a percentage of average interest‑earning assets . changes in our net interest income are a function of changes in both rates and volumes of interest earning assets and interest bearing liabilities . the following table sets forth information regarding changes in our interest income and expense for the years indicated . information is provided in each category with respect to ( i ) changes attributable to changes in volume ( changes in volume multiplied by prior rate ) , ( ii ) changes attributable to changes in rate ( changes in rate multiplied by prior volume ) , and ( iii ) the total change . the changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate . 27 year ended december 31 , 2020 compared to year ended december 31 , 2019 year ended december 31 , 2019 compared to year ended december 31 , 2018 increase ( decrease ) in net interest income increase ( decrease ) in net interest income due to volume due to rate total due to volume due to rate total ( in thousands ) interest‑earning assets : interest‑earning deposits and other short‑term investments $ 315 $ ( 551 ) $ ( 236 ) $ 84 $ 61 $ 145 securities ( 72 ) ( 34 ) ( 106 ) ( 66 ) 12 ( 54 ) loans receivable , net 1,794 ( 623 ) 1,171 347 1,219 1,566 fhlb stock 33 ( 65 ) ( 32 ) - ( 47 ) ( 47 ) total interest‑earning assets 2,070 ( 1,273 ) 797 365 1,245 1,610 interest‑bearing liabilities : money market deposits 166 ( 48 ) 118 ( 107 ) 9 ( 98 ) passbook deposits 58 ( 62 ) ( 4 ) 16 94 110 now and other demand deposits 7 1 8 ( 1 ) ( 19 ) ( 20 ) certificate accounts ( 370 ) ( 865 ) ( 1,235 ) 266 929 1,195 total deposits ( 139 ) ( 974 ) ( 1,113 ) 174 1,013 1,187 fhlb advances 740 ( 423 ) 317 51 221 272 junior subordinated debentures ( 44 ) ( 71 ) ( 115 ) ( 10 ) 8 ( 2 ) total interest‑bearing liabilities 557 ( 1,468 ) ( 911 ) 215 1,242 1,457 change in net interest income $ 1,513 $ 195 $ 1,708 $ 150 $ 3 $ 153 28 loan loss provision/recapture during the year ended december 31 , 2020 , we recorded a loan loss provision of $ 29 thousand due to economic uncertainties related to the covid-19 pandemic . in addition , we recorded loan loss recoveries of $ 4 thousand during the year ended december 31 , 2020. for the year ended december 31 , 2019 , we recorded a net loan loss provision recapture of $ 7 thousand , which was comprised of a loan loss provision recapture of $ 348 thousand in the first quarter due to payoffs of non-accrual loans , offset by loan loss provisions of $ 47 thousand in the third quarter and $ 294 thousand in the fourth quarter due to growth in the loan portfolio . loan loss recoveries of $ 260 thousand were recorded during 2019. see “ allowance for loan losses ” for additional information . non‑interest income for the year ended december 31 , 2020 , non-interest income totaled $ 1.0 million compared to $ 1.1 million for the prior year . the decrease of $ 27 thousand in non-interest income was primarily due to a decrease of $ 71 thousand in service charges on deposits and a decrease of $ 30 thousand in grant income from the u.s. department of the treasury 's community development financial institution ( “ cdfi ” ) fund , offset by an increase of $ 72 thousand in gains generated from sales of loans during 2020 compared to 2019. non‑interest expense for the year ended december 31 , 2020 , non-interest expense totaled $ 14.2 million , compared to $ 12.1 million for the same period a year ago . the increase of $ 2.1 million in non-interest expense was primarily due to increases of $ 1.2 million in professional services expense and $ 1.0 million in compensation and benefits expense . story_separator_special_tag of the multi-family loans originated in 2019 , we allocated $ 87.9 million , or 85 % , to loans held for investment and $ 15.2 million , or 15 % , to loans held for sale . in addition , we transferred net loans of $ 1.5 million to loans held for sale from loans held for investment . broadway did not participate in the small business administration 's ( “ sba ” ) paycheck protection program ( “ ppp ” ) because the bank has not historically offered sba loans . allowance for loan losses we record a provision for loan losses as a charge to earnings when necessary in order to maintain the alll at a level sufficient , in management 's judgment , to absorb probable incurred losses in the loan portfolio . at least quarterly we assess the overall quality of the loan portfolio and general economic trends in the local market . the determination of the appropriate level for the allowance is based on that review , considering such factors as historical loss experience for each type of loan , the size and composition of our loan portfolio , the levels and composition of our loan delinquencies , non‑performing loans and net loan charge‑offs , the value of underlying collateral on problem loans , regulatory policies , general economic conditions , and other factors related to the collectability of loans in the portfolio . as of december 31 , 2020 , the bank had no delinquencies , deferrals or modifications . our alll was $ 3.2 million or 0.88 % of our gross loans receivable held for investment at december 31 , 2020 compared to $ 3.2 million , or 0.79 % of our gross loans receivable held for investment at december 31 , 2019. during the year ended december 31 , 2020 , we recorded a loan loss provision of $ 29 thousand and recorded loan loss recoveries of $ 4 thousand . for the year ended december 31 , 2019 , we recorded a net loan loss provision recapture of $ 7 thousand , which was comprised of a loan loss provision recapture of $ 348 thousand in the first quarter due to payoffs of non-accrual loans , offset by loan loss provisions of $ 47 thousand in the third quarter and $ 294 thousand in the fourth quarter due to growth in the loan portfolio . in addition , we recorded loan loss recoveries of $ 260 thousand during 2019 . 30 as of december 31 , 2020 , we had no loan delinquencies compared to total loan delinquencies of $ 18 thousand at december 31 , 2019. our non-performing loans ( “ npls ” ) consist of delinquent loans that are 90 days or more past due and other loans , including troubled debt restructurings that do not qualify for accrual status . at december 31 , 2020 , npls totaled $ 787 thousand compared to $ 424 thousand at december 31 , 2019. the increase of $ 363 thousand in npls was primarily due to an addition of a church loan of $ 554 thousand to non-accrual status during the second quarter of 2020 , offset by a sale of $ 123 thousand and repayments of $ 68 thousand . in connection with our review of the adequacy of our alll , we track the amount and percentage of our npls that are paying currently , but nonetheless must be classified as npl for reasons unrelated to payments , such as lack of current financial information and an insufficient period of satisfactory performance . as of december 31 , 2020 , all $ 787 thousand of npls were current in their payments . when reviewing the adequacy of the alll , we also consider the impact of charge‑offs , including the changes and trends in loan charge‑offs . there were no loan charge‑offs during 2020 and 2019. in determining charge‑offs , we update our estimates of collateral values on npls by obtaining new appraisals at least every nine months . if the estimated fair value of the loan collateral less estimated selling costs is less than the recorded investment in the loan , a charge‑off for the difference is recorded to reduce the loan to its estimated fair value , less estimated selling costs . therefore , any losses inherent in our total npls are recognized periodically through charge‑offs . the impact of updating these estimates of collateral value and recognizing any required charge‑offs is to increase charge‑offs and reduce the alll required on these loans . due to prior charge‑offs and increases in collateral values , the average recorded investment in npls was only 35 % of estimated fair value less estimated selling costs as of december 31 , 2020. loan loss recoveries totaled $ 4 thousand during 2020 and $ 260 thousand during 2019. recoveries during 2020 and 2019 primarily resulted from the payoffs of non‑accrual loans which had been previously partially charged off . impaired loans at december 31 , 2020 were $ 4.7 million , compared to $ 5.3 million at december 31 , 2019. the decrease of $ 611 thousand in impaired loans was primarily due to payoffs and repayments . specific reserves for impaired loans were $ 141 thousand or 2.98 % of the aggregate impaired loan amount at december 31 , 2020 compared to $ 147 thousand , or 2.74 % of the aggregate impaired loan amount at december 31 , 2019. excluding specific reserves for impaired loans , our coverage ratio ( general allowance as a percentage of total non‑impaired loans ) was 0.85 % at december 31 , 2020 compared to 0.76 % at december 31 , 2019. the increase in the coverage ratio during 2020 was primarily due to an increase in unallocated reserves due to the covid-19 pandemic and a decrease in the loan portfolio balance .
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overview total assets increased by $ 43.0 million to $ 483.4 million at december 31 , 2020 from $ 440.4 million at december 31 , 2019. the growth in total assets was primarily comprised of an increase of $ 80.5 million in interest-bearing cash in other banks offset by a decrease of $ 37.7 million in net loans receivable held for investment . the bank had no reo as of december 31 , 2019. total liabilities increased by $ 43.0 million to $ 434.5 million at december 31 , 2020 from $ 391.5 million at december 31 , 2019. the increase in total liabilities during 2020 resulted primarily from increases of $ 26.5 million in fhlb advances and $ 17.9 million in total deposits , offset by a decrease of $ 1.0 million in junior subordinated debentures . we recorded a net loss of $ 642 thousand for the year ended december 31 , 2020 compared to a net loss of $ 206 thousand for the year ended december 31 , 2019. the loss during the year ended december 31 , 2020 was primarily due to an increase in professional service fees of $ 1.2 million , of which $ 960 thousand pertained to expenses related to the city first merger and $ 243 thousand related to costs incurred to respond to actions by a former stockholder . in addition , compensation expense increased by $ 1.0 million compared to the same period of 2019 primarily due to $ 580 thousand accrued for bonuses to key employees . these items were partially offset by higher net interest income before loan loss provision of $ 1.7 million compared to the same period of 2019 due to growth in the average loan portfolio , and decreases in the cost of funds .
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we made this determination as a result of our assessment that they do not have sufficient resources to carry out their principal activities without additional subordinated financial support . in order to determine the primary beneficiary of fabrus , we evaluated story_separator_special_tag this annual report on form 10-k contains certain forward-looking statements within the meaning of the private securities litigation reform act of 1995 ( pslra ) , section 27a of the securities act of 1933 , as amended ( the securities act ) , and section 21e of the securities exchange act of 1934 , as amended , ( the exchange act ) , about our expectations , beliefs , or intentions regarding our product development efforts , business , financial condition , results of operations , strategies , or prospects . you can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters . rather , forward-looking statements relate to anticipated or expected events , activities , trends , or results as of the date they are made . because forward-looking statements relate to matters that have not yet occurred , these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements . many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements . these factors include those contained in item 1a risk factors of this annual report on form 10-k. we do not undertake any obligation to update forward-looking statements . we intend that all forward-looking statements be subject to the safe harbor provisions of pslra . these forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance . overview we are a multi-national pharmaceutical and diagnostics company that seeks to establish industry-leading positions in large and rapidly growing medical markets by leveraging our discovery , development and commercialization expertise and our novel and proprietary technologies . our current focus is on conditions with major unmet medical needs . we are developing a range of solutions to diagnose , treat and prevent various conditions , including molecular diagnostics tests , point-of-care tests , and proprietary pharmaceuticals and vaccines . we plan to commercialize these solutions on a global basis in large and high growth markets , including emerging markets . we have already established emerging markets pharmaceutical platforms in chile and mexico , which are generating revenue and which we expect to generate positive cash flow and facilitate future market entry for our products currently in development . we also recently acquired a specialty active pharmaceutical ingredients ( apis ) manufacturer in israel , which is currently generating revenue and positive cash flow , and which we expect will play a valuable role in the development of our pipeline of peptoids and other molecules for our proprietary molecular diagnostic and therapeutic products . we continue to actively explore opportunities to acquire complementary pharmaceuticals , compounds , technologies , and businesses . during the year ended december 31 , 2011 , we completed a number of strategic transactions including : in january 2011 , we acquired all of the outstanding stock of curna , inc. ( curna ) , a privately held therapeutics company , in exchange for $ 10.6 million in cash . curna is engaged in the discovery of new drugs for the treatment of a wide variety of illnesses , including cancer , heart disease , metabolic disorders and a range of genetic anomalies . in march 2011 , we received $ 104.8 million in net proceeds from the issuance of 29,397,029 shares of our common stock in an underwritten public offering at a price of $ 3.75 per share . we initially issued 27,000,000 shares of our common stock on march 14 , 2011 , and on march 15 , 2011 , the underwriters exercised a portion of their overallotment option and we issued an additional 2,397,029 shares of our common stock . in august 2011 , we made a $ 2.0 million investment in neovasc inc. ( neovasc ) , a medical technology company based in vancouver , canada . neovasc is developing unique devices to treat cardiovascular diseases and is also a leading supplier of tissue components for the manufacturer of replacement heart valves . we received 2 million neovasc common shares , and two-year warrants to purchase an additional one million shares for $ 1.25 a share . we have also entered into an agreement with neovasc to provide strategic advisory services to neovasc as it continues to develop and commercialize its novel cardiac devices . in september 2011 , we announced that we entered into an agreement with optos , inc. , a subsidiary of optos plc ( collectively optos ) to sell our ophthalmic instrumentation business . upon closing of the transaction in october 2011 , we received $ 17.5 million of cash and we will be eligible to receive royalties up to $ 22.5 million on future sales . as a result of this sale , we recast certain information to classify the results of operations of the instrumentation business , assets , and liabilities as discontinued operations . 46 in october 2011 , we acquired claros diagnostics , inc. ( claros ) a privately held woburn , massachusetts based company that has developed a novel microfluidics-based test system consisting of a disposable test cassette and a desktop analyzer . used together , they provide high performance quantitative blood test results quickly and permit the transition of immunoassays and other tests from the centralized reference laboratory to the physician 's office or hospital nurses station . story_separator_special_tag other operating expenses were $ 2.1 million for the year ended december 31 , 2010 , compared to $ 0.5 million for the year ended december 31 , 2009. the increase in other operating expenses is a result of increased intangible asset amortization related to our acquisitions of opko chile and exakta-opko . other income and expenses . other expense was $ 0.8 million for the year ended december 31 , 2010 , compared to $ 1.9 million for the year ended december 31 , 2009. other expenses primarily consist of interest expense incurred on our $ 12.0 million line of credit with the frost group , partially offset by interest earned on our cash and cash equivalents . on june 2 , 2010 , we repaid all amounts outstanding on the line of credit including $ 12.0 million in principal and $ 4.1 million in interest . discontinued operations . loss from discontinued operations was $ 6.3 million for the year ended december 31 , 2010 compared to $ 5.7 million for the year ended december 31 , 2009. loss from discontinued operations increased during 2010 from 2009 as a result of increased selling , general and administrative expenses primarily related to a legal settlement and recording increased allowance for doubtful accounts . partially offsetting this increase was the reduction of other operating expenses related to the $ 1.1 million impairment of goodwill recorded during 2009 . 49 liquidity and capital resources at december 31 , 2011 , we had cash and cash equivalents of approximately $ 71.5 million compared to $ 18.0 million on december 31 , 2010. cash used in operations during 2011 primarily reflects expenses related to selling , general and administrative activities related to our corporate operations , research and development activities as well as our operations in chile and mexico . cash used in investing activities primarily reflects $ 28.2 million used to acquire curna , claros and finetech , partially offset by the $ 17.5 million received from the sale of our ophthalmic instrumentation business to optos . the proceeds from our underwritten public offering in march 2011 resulting in approximately $ 104.8 million in net proceeds , more than offsets the cash used in operations and investing activities . since our inception , we have not generated sufficient gross margins to offset our operating and other expenses and our primary source of cash has been from the public and private placement of stock and credit facilities available to us . in december 2011 , we acquired finetech and paid $ 10.5 million in cash , including a $ 0.5 million working capital surplus adjustment , and $ 17.7 million in shares of our common stock . in addition , the merger agreement provides for the payment of additional consideration upon and subject to the achievement of certain sales milestones . in november 2011 , our board of directors declared a cash dividend to all series d preferred stockholders as of november 3 , 2011. the total cash dividend paid was approximately $ 4.7 million . in october 2011 , we acquired claros and paid $ 10.0 million in cash , subject to certain set-offs and deductions , and $ 22.4 million in shares of our common stock . in addition , the merger agreement provides for the payment of up to an additional $ 19.125 million in shares of our common stock upon and subject to the achievement of certain milestones . in september 2011 , we entered into an agreement to sell our ophthalmic instrumentation business to optos . upon closing on october 11 , 2011 , we received $ 17.5 million in cash and optos acquired our worldwide activities for the development and commercialization of ophthalmic diagnostic imaging systems . optos agreed to pay us up to $ 22.5 million in royalties on future sales . in june 2011 , we repurchased 2,398,740 shares of our common stock for an aggregate purchase price of $ 7.8 million through a privately negotiated transaction with an early investor in acuity pharmaceuticals , inc. , a predecessor company of ours . in august 2011 , we made a $ 2.0 million investment in neovasc , a canadian entity developing devices to treat cardiovascular disease and a leading provider of tissue components for replacement heart valves . in march 2011 , we received $ 104.8 million in net proceeds from the issuance of 29,397,029 shares of our common stock in an underwritten public offering at a price of $ 3.75 per share . we initially issued 27,000,000 shares of our common stock on march 14 , 2011 and on march 15 , 2011 , the underwriters exercised a portion of their overallotment and we issued an additional 2,397,029 shares of our common stock . in january 2011 , we acquired all of the outstanding stock of curna in exchange for $ 10.0 million in cash , plus $ 0.6 million in liabilities , of which $ 0.5 million was paid at closing . in addition to the cash consideration , we have agreed to pay to the curna sellers a portion of any consideration we receive in connection with certain license , partnership or collaboration agreements we may enter into with third parties in the future relating to the curna technology , including , license fees , upfront payments , royalties and milestone payments . as a result , we recorded $ 0.6 million as contingent consideration for the future consideration . as of december 31 , 2011 , we have outstanding lines of credit in the aggregate amount of $ 17.2 million with nine financial institutions in chile , of which , $ 8.4 million is unused . the average interest rate on these lines of credit is approximately 6 % . these lines of credit are short-term and are generally due within three months . these lines of credit are used primarily as a source of working capital for inventory purchases . the highest balance at any time during the year ended december 31 , 2011 was $ 14.8 million .
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results of operations for the years ended december 31 , 2011 and december 31 , 2010 revenue . revenue for the year ended december 31 , 2011 was $ 28.0 million compared to $ 28.5 million for the year ended december 31 , 2010. revenue from our pharmaceutical products increased during 2011 compared to 2010. revenue generated by our pharmaceutical business in chile and mexico increased by $ 6.1 million as we increased the number of customers in each country . offsetting the increase in pharmaceutical product sales was decreased license revenue . in december 2010 , we outlicensed our nk-1 development program to tesaro , inc. ( tesaro ) for an upfront cash payment of $ 6.0 million , future milestone payments of up to $ 115.0 million , 1.5 million shares of tesaro series o preferred stock ( tesaro preferred stock ) , and royalty payments on future sales . we recorded the tesaro preferred stock at fair value and recognized $ 6.7 million as license revenue , including $ 6.0 million in cash . gross margin . gross margin for the year ended december 31 , 2011 was $ 10.7 million compared to $ 15.0 million for the year ended december 31 , 2010. gross margin decreased during 2011 from gross margin in 2010. license revenue included $ 6.7 million related to tesaro , with no associated cost of revenue during 2010 , partially offset by increased gross margin generated by our pharmaceutical business through our operations in chile and mexico . selling , general and administrative expense . selling , general and administrative expense in the year ended december 31 , 2011 was $ 19.2 million as compared to $ 18.1 million during the year ended december 31 , 2010. selling , general and administrative expense increased primarily as a result of expenses related to our pharmaceutical businesses in chile and mexico .
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our strategy is to do what we do bestto discover unique antisense drugs and develop these drugs to key clinical value inflection points . we discover and conduct early development of new drugs and , at the key clinical value inflection points , outlicense our drugs to partners . we maximize the value of the drugs we discover by putting them in the hands of leading pharmaceutical companies with late-stage development , commercialization and marketing expertise , such as biogen idec , bristol-myers squibb , genzyme , a sanofi company , glaxosmithkline , or gsk , and eli lilly and company . for instance , our partner , genzyme , plans to commercialize our lead product , kynamro , following planned regulatory approval in 2012. we also work with a consortium of smaller companies that can exploit our drugs and technologies in areas that are outside of our core focus . as a result of our unique strategy , we can keep our organization small and focused . our strong financial position is a result of the successful execution of our business strategy as well as our inventive and focused research and development capabilities . our flagship product , kynamro ( formerly mipomersen ) , is moving closer to the market for patients with severe forms of fh , at high cardiovascular risk , who can not reduce their low-density lipoprotein cholesterol , or ldl-c , sufficiently with currently available lipid-lowering therapies . in july 2011 , genzyme submitted a marketing application in europe for kynamro for patients with homozygous familial hypercholesterolemia , or hofh , and severe heterozygous familial hypercholesterolemia , or severe hefh , and plans to submit the u.s. application for marketing approval for patients with hofh in the first quarter of 2012. genzyme plans to request priority review , if granted , in the united states and based on estimated approval times , genzyme is preparing to launch kynamro in the united states and europe in 2012. genzyme is also preparing to commercialize kynamro in other major markets . to maximize the value of our drugs and technologies , we have a multifaceted partnering strategy . we form traditional partnering alliances that enable us to discover and conduct early development of new drugs , outlicense our drugs to partners , such as genzyme and eli lilly and company , and build a broad base of license fees , milestone payments and royalty income . we also form preferred partner transactions that provide us with a vested partner , such as biogen idec and gsk , early in the development of a drug . in this way , we benefit in the short term from upfront option fees and development milestone payments while we maintain control over the early development of the drug . we benefit in the long term by having a knowledgeable and committed partner to license the drug at clinical proof-of-concept and by receiving regulatory milestone payments and royalties as our partner moves the drug to the market . in all of our partnerships , we benefit from the expertise our partners bring to our drugs . we also work with a consortium of smaller companies that can exploit our drugs and technologies . we call these smaller companies our satellite companies . in this way , we benefit from the disease-specific expertise of our satellite company partners , who are advancing drugs in our pipeline in areas that are outside of our core focus . in addition , we can maintain our broad rna technology leadership through collaborations with companies such as alnylam pharmaceuticals , inc. , or alnylam , and regulus therapeutics inc. , or regulus , a company we jointly own focused on microrna therapeutics . all of these different types of relationships are part of our unique business model and create near and long-term shareholder value . the clinical successes of the drugs in our pipeline continue to create new partnering opportunities . for example , in january 2012 , we formed a new strategic alliance with biogen idec to develop and commercialize isis-smn rx to treat spinal muscular atrophy . we received a $ 29 million upfront payment and are eligible to receive up to $ 270 million in payments and double-digit royalties on sales from isis-smn rx . since 2007 , our partnerships have generated an aggregate of more than $ 880 million in payments from upfront and licensing fees , equity purchase payments , milestone payments and research and development funding . in addition , for our current partnered programs we have the potential to earn more than $ 3.5 billion in future milestone payments . we also will share in the future commercial success of our inventions and drugs resulting from these partnerships through earn out , profit sharing , or royalty arrangements . our strong financial position is a result of the successful execution of our business strategy as well as our inventive and focused research and development capabilities . we protect our proprietary technologies and products through our substantial patent estate . as an innovator in rna-targeting drug discovery and development , we design and execute our patent strategy to provide us with extensive protection for our drugs and our technology . with our ongoing research and development , we continue to add to our substantial patent estate . the patents not only protect our key assetsour technology and our drugsthey also form the basis for lucrative licensing and partnering arrangements . to date , we have generated over $ 400 million from our intellectual property sale and licensing program that helps support our internal drug discovery and development programs . 49 business segments prior to 2011 , we reported our results in two separate segments : drug discovery and development and regulus . beginning in 2011 , we no longer consider regulus as an operating segment because our chief decision making officer no longer reviews regulus ' operating results for purposes of making resource allocations . story_separator_special_tag we estimate the period of time over which we will complete the activities for which we are responsible and use that period of time as our period of performance for purposes of revenue recognition and amortize revenue over such period . if our collaborators ask us to continue performing work in a collaboration beyond the initial period of performance , we extend our amortization period to correspond to the new extended period of performance . the revenue we recognize could be materially different if different estimates prevail . we have made estimates of our continuing obligations on several agreements . adjustments to performance periods and related adjustments to revenue amortization periods have had a material impact on our revenue on only one occasion . when alnylam terminated the companies ' ssrnai research program in november 2010 , we recognized as revenue $ 4.9 million , which was the remaining deferred revenue from the upfront fee that we were amortizing into revenue over the research term . as part of our genzyme strategic alliance , in february 2008 genzyme made a $ 150 million equity investment in us by purchasing five million shares of our common stock at $ 30 per share . the price genzyme paid for our common stock represented a significant premium over the fair value of our stock . we accounted for this premium as deferred revenue and are amortizing it along with the $ 175 million licensing fee that we received in june 2008 ratably into revenue until june 2012 , which represents the end of our performance obligation based on the current research and development plan . our collaborations often include contractual milestones , which typically relate to the achievement of pre-specified development , regulatory and commercialization events . these three categories of milestone events reflect the three stages of the life-cycle of our drugs , which we describe in more detail in the following paragraph . prior to the first stage in the life-cycle of our drugs , we perform a significant amount of work using our proprietary antisense technology to design chemical compounds that interact with specific genes that are good targets for drug discovery . from these research efforts , we hope to identify a development candidate . the designation of a development candidate is the first stage in the life-cycle of our drugs . a development candidate is a chemical compound that has demonstrated the necessary safety and efficacy in preclinical animal studies to warrant further study in humans . during the first step of the development stage , we or our partners study our drugs in ind-enabling studies , which are animal studies intended to support an investigational new drug , or ind , application and or the foreign equivalent . an approved ind allows us or our partners to study our development candidate in humans . if the regulatory agency approves the ind , we or our partners initiate phase 1 clinical trials in which we typically enroll a small number of healthy volunteers to ensure the development candidate is safe for use in patients . if we or our partners determine that a development candidate is safe based on the phase 1 data , we or our partners initiate phase 2 studies that are generally larger scale studies in patients with the primary intent of determining the efficacy of the development candidate . the final step in the development stage is phase 3 studies to gather the necessary safety and efficacy data to request marketing approval from the fda and or foreign equivalents . the phase 3 studies typically involve large numbers of patients and can take up to several years to complete . if the data gathered during the trials demonstrates acceptable safety and efficacy results , we or our partner will submit an application to the fda and or its foreign equivalents for marketing approval . this stage of the drug 's life-cycle is the regulatory stage . if a drug achieves marketing 51 approval , it moves into the commercialization stage , during which our partner will market and sell the drug to patients . although our partner will ultimately be responsible for marketing and selling the drug , our efforts to discover and develop a drug that is safe , effective and reliable contributes significantly to our partner 's ability to successfully sell the drug . the fda and its foreign equivalents have the authority to impose significant restrictions on an approved drug through the product label and on advertising , promotional and distribution activities . therefore , our efforts designing and executing the necessary animal and human studies are critical to obtaining claims in the product label from the regulatory agencies that would allow our partner to successfully commercialize our drug . further , the patent protection afforded our drugs as a result of our initial patent applications and related prosecution activities in the united states and foreign jurisdictions are critical to our partner 's ability to sell our drugs without competition from generic drugs . the potential sales volume of an approved drug is dependent on several factors including the size of the patient population , market penetration of the drug , and the price charged for the drug . generally , the milestone events contained in our partnership agreements coincide with the progression of our drugs from development , to regulatory approval and then to commercialization . the process of successfully discovering a new development candidate , having it approved and ultimately sold for a profit is highly uncertain . as such , the milestone payments we may earn from our partners involve a significant degree of risk to achieve . therefore , as a drug progresses through the stages of its life-cycle , the value of the drug generally increases . development milestones in our partnerships may include the following types of events : · designation of a development candidate .
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results of operations years ended december 31 , 2011 and december 31 , 2010 revenue total revenue for the year ended december 31 , 2011 was $ 99.1 million compared to $ 108.5 million for 2010. our revenue fluctuates based on the nature and timing of payments under agreements with our partners , including license fees , milestone-related payments and other payments . for example , revenue in 2011 included $ 17.7 million in revenue from gsk , compared to $ 10.3 million in 2010 , primarily due to the timing of milestone payments . this increase in revenue was offset by less revenue from bristol-myers squibb and alnylam compared to 2010 because we were no longer amortizing the upfront fees . revenue in 2011 also included $ 5.8 million of commercial revenue for drug substance that we sold to genzyme to support the commercial launch of kynamro . research and development revenue under collaborative agreements research and development revenue under collaborative agreements for the year ended december 31 , 2011 was $ 96.2 million compared to $ 102.9 million for 2010. lower revenue in 2011 compared to 2010 was primarily due to the timing of milestone payments and less amortization of upfront fees . milestones earned from gsk in 2011 included a $ 5 million milestone in the second quarter of 2011 for the initiation of a phase 1 study for isis-ttr rx and a $ 5 million milestone in the fourth quarter of 2011 for designating isis-aat rx as a development candidate . licensing and royalty revenue our revenue from licensing activities and royalties for the year ended december 31 , 2011 was $ 2.9 million compared to $ 5.6 million for 2010. the decrease primarily related to $ 1.9 million of sublicense revenue we earned from regulus in the second quarter of 2010 related to its strategic alliance with sanofi .
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in august 2014 , the fasb issued an amendment ( asu 2014-14 ) to its guidance on “ receivables – troubled debt story_separator_special_tag general greene county bancorp , inc. ( the “ company ” ) is the holding company for the bank of greene county ( the “ bank ” ) , a community-based bank offering a variety of financial services to meet the needs of the communities it serves . the bank of greene county is a federally chartered savings bank . the bank of greene county 's principal business is attracting deposits from customers within its market area and investing those funds primarily in loans , with excess funds used to invest in securities . at june 30 , 2019 , the bank of greene county operated 15 full-service branches , an administration office , a lending center , and an operations center in new york 's hudson valley region . in june 2004 , greene county commercial bank ( “ gccb ” ) was opened for the limited purpose of providing financial services to local municipalities . gccb is a subsidiary of the bank of greene county , and is a new york state-chartered commercial bank . greene county bancorp , inc. 's stock is traded on the nasdaq capital market under the symbol “ gcbc. ” greene county bancorp , mhc is a mutual holding company that owns 54.0 % of the company 's outstanding common stock . in june 2011 , greene property holdings , ltd. was formed as a new york corporation that has elected under the internal revenue code to be a real estate investment trust . greene properties holding , ltd. is a subsidiary of the bank of greene county . certain mortgages and notes held by the bank of greene county were transferred to and are beneficially owned by greene property holdings , ltd. the bank of greene county continues to service these loans . in december 2014 , greene risk management , inc. was formed as a nevada corporation that is operating as a pooled captive insurance company . the purpose of this company is to provide additional insurance coverage for the company and its subsidiaries related to the operations of the company for which insurance may not be economically feasible . overview of the company 's activities and risks greene county bancorp , inc. 's results of operations depend primarily on its net interest income , which is the difference between the income earned on greene county bancorp , inc. 's loan and securities portfolios and its cost of funds , consisting of the interest paid on deposits and borrowings . results of operations are also affected by greene county bancorp , inc. 's provision for loan losses , noninterest income and noninterest expense . noninterest income consists primarily of fees and service charges . greene county bancorp , inc. 's noninterest expense consists principally of compensation and employee benefits , occupancy , equipment and data processing , and other operating expenses . results of operations are also significantly affected by general economic and competitive conditions , changes in interest rates , as well as government policies and actions of regulatory authorities . additionally , future changes in applicable law , regulations or government policies may materially affect greene county bancorp , inc. critical accounting policies greene county bancorp , inc. 's critical accounting policies relate to the allowance for loan losses and the evaluation of securities for other-than-temporary impairment . the allowance for loan losses is based on management 's estimation of an amount that is intended to absorb losses in the existing portfolio . the allowance for loan losses is established through a provision for loan losses based on management 's evaluation of the risk inherent in the loan portfolio , the composition of the portfolio , specific impaired loans and current economic conditions . such evaluation , which includes a review of all loans for which full collectability may not be reasonably assured , considers among other matters , the estimated net realizable value or the fair value of the underlying collateral , economic conditions , historical loan loss experience , management 's estimate of probable credit losses and other factors that warrant recognition in providing for the allowance of loan losses . however , this evaluation involves a high degree of complexity and requires management to make subjective judgments that often require assumptions or estimates about highly uncertain matters . this critical accounting policy and its application are periodically reviewed with the audit committee and the board of directors . securities are evaluated for other-than-temporary impairment by performing periodic reviews of individual securities in the investment portfolio . greene county bancorp , inc. makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security , on which there is an unrealized loss , is impaired on an other-than-temporary basis . the company considers many factors , including the severity and duration of the impairment ; the intent and ability of the company to hold the equity security for a period of time sufficient for a recovery in value ; recent events specific to the issuer or industry ; and for debt securities , the intent to sell the security , the likelihood to be required to sell the security before it recovers the entire amortized cost , external credit ratings and recent downgrades . the company is required to record other-than-temporary impairment charges through earnings , if it has the intent to sell , or will more likely than not be required to sell an impaired debt security before a recovery of its amortized cost basis . in addition , the company is required to record other-than-temporary impairment charges through earnings for the amount of credit losses , regardless of the intent or requirement to sell . credit loss is measured as the difference between the present value of an impaired debt security 's cash flows and its amortized cost basis . story_separator_special_tag replace_table_token_4_th 27 index loans net loans receivable increased $ 81.3 million , or 11.5 % , to $ 785.7 million at june 30 , 2019 from $ 704.4 million at june 30 , 2018. the loan growth experienced during the year consisted primarily of $ 45.7 million in commercial real estate loans , $ 18.9 million in commercial loans , $ 9.6 million in multi-family real estate loans , and $ 12.0 million in residential real estate loans , partially offset by a $ 5.6 million decrease in construction loans . the company continues to experience loan growth as a result of continued growth in customer base within its newest markets in ulster and columbia counties , and its relationships with other financial institutions in originating loan participations . we believe that the continued low interest rate environment and strong customer satisfaction from personal service continued to enhance loan growth . if long term rates begin to rise , the company anticipates some slowdown in new loan demand as well as refinancing activities . the bank of greene county continues to use a conservative underwriting policy in regard to all loan originations , and does not engage in sub-prime lending or other exotic loan products . a significant decline in home values , however , in the company 's markets could have a negative effect on the consolidated results of operations , as any such decline in home values would likely lead to a decrease in residential real estate loans and new home equity loan originations and increased delinquencies and defaults in both the consumer home equity loan and the residential real estate loan portfolios and result in increased losses in these portfolios . updated appraisals are obtained on loans when there is a reason to believe that there has been a change in the borrower 's ability to repay the loan principal and interest , generally , when a loan is in a delinquent status . additionally , if an existing loan is to be modified or refinanced , generally , an appraisal is ordered to ensure continued collateral adequacy . loan portfolio composition set forth below is selected information concerning the composition of the bank of greene county 's loan portfolio in dollar amounts and in percentages ( before deductions for deferred fees and costs , unearned discounts and allowances for losses ) as of the dates indicated . replace_table_token_5_th ( 1 ) includes direct automobile loans ( on both new and used automobiles ) and personal loans . 28 index loan maturity schedule the following table sets forth certain information as of june 30 , 2019 regarding the amount of loans maturing or re-pricing in the bank of greene county 's portfolio . adjustable-rate loans are included in the period in which interest rates are next scheduled to adjust rather than the period in which they contractually mature , and fixed-rate loans are included in the period in which the final contractual repayment is due . lines of credit with no specified maturity date are included in the category “ within one year. ” replace_table_token_6_th the total amount of the above loans that mature or are due after june 30 , 2020 that have fixed interest rates is $ 372.6 million while the total amount of loans that mature or are due after such date that have adjustable interest rates is $ 238.0 million . the interest rate risk implications of the bank of greene county 's substantial preponderance of fixed-rate loans is discussed in detail above within the section management of interest rate risk . potential problem loans management closely monitors the quality of the loan portfolio and has established a loan review process designed to help grade the quality and profitability of the company 's loan portfolio . the credit quality grade helps management make a consistent assessment of each loan relationship 's credit risk . consistent with regulatory guidelines , the bank of greene county provides for the classification of loans and other assets considered being of lesser quality . such ratings coincide with the “ substandard ” , “ doubtful ” and “ loss ” classifications used by federal regulators in their examination of financial institutions . assets that do not currently expose the insured financial institutions to sufficient risk to warrant classification in one of the aforementioned categories but otherwise possess weaknesses are designated “ special mention. ” for further discussion regarding how management determines when a loan should be classified see part ii , item 8 financial statements and supplemental data , note 4 , loans of this report . at june 30 , 2019 , the bank of greene county had $ 6.7 million of loans classified as substandard , and $ 10.4 million of loans designated as special mention . no loans were classified as either doubtful or loss at june 30 , 2019. nonaccrual loans and nonperforming assets loans are reviewed on a regular basis to assess collectability of all principal and interest payments due . management determines that a loan is impaired or nonperforming when it is probable at least a portion of the principal or interest will not be collected in accordance with contractual terms of the note . when a loan is determined to be impaired , the measurement of the loan is based on present value of estimated future cash flows , except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral . generally , management places loans on nonaccrual status once the loans have become 90 days or more delinquent or sooner if there is a significant reason for management to believe the collectability is questionable and , therefore , interest on the loan will no longer be recognized on an accrual basis . the company identifies impaired loans and measures the impairment in accordance with fasb asc subtopic “ receivables – loan impairment.
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summary of significant accounting policies of this report . unaudited quarterly financial data the following table sets forth a summary of selected financial data at and for the years ended june 30 , 2019 and 2018 and quarter ends within those years . replace_table_token_21_th 40 index item
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the company story_separator_special_tag financial condition and results of operations the following discussion and analysis of our financial condition and results of operations should be read together with part ii , item 6 . — “ selected financial data ” and the audited consolidated financial statements and the notes thereto included in item 8. in addition to historical consolidated financial information , this discussion contains forward-looking statements that reflect our plans , estimates , and beliefs and involve numerous risks and uncertainties , including but not limited to those described in item 1a . risk factors of this form 10-k. actual results may differ materially from those contained in any forward-looking statements . you should carefully read “ special note regarding forward-looking statements ” in this form 10-k. our company we market and distribute over 150,000 food and food-related products to customers across the united states from approximately 73 distribution facilities to over 150,000 customer locations in the “ food-away-from-home ” industry . we offer our customers a broad assortment of products including our proprietary-branded products , nationally-branded products , and products bearing our customers ' brands . our product assortment ranges from “ center-of-the-plate ” items ( such as beef , pork , poultry , and seafood ) , frozen foods , and groceries to candy , snacks , and beverages . we also sell disposables , cleaning and kitchen supplies , and related products used by our customers . in addition to the products we offer to our customers , we provide value-added services by allowing our customers to benefit from our industry knowledge , scale , and expertise in the areas of product selection and procurement , menu development , and operational strategy . we have three reportable segments : performance foodservice , pfg customized , and vistar . our performance foodservice segment distributes a broad line of national brands , customer brands , and our proprietary-branded food and food-related products , or “ performance brands. ” performance foodservice sells to independent , or “ street , ” and multi-unit , or “ chain , ” restaurants and other institutions such as schools , healthcare facilities , and business and industry locations . our pfg customized segment has provided longstanding service to some of the most recognizable family and casual dining restaurant chains and recently expanded service into fast casual and quick service restaurant chains . our vistar segment specializes in distributing candy , snacks , beverages , and other items nationally to the vending , office coffee service , theater , retail , hospitality , and other channels . we believe that there are substantial synergies across our segments . cross-segment synergies include procurement , operational best practices such as the use of new productivity technologies , and supply chain and network optimization , as well as shared corporate functions such as accounting , treasury , tax , legal , information systems , and human resources . the company 's fiscal year ends on the saturday nearest to june 30 th . this resulted in a 52-week year for fiscal 2018 and fiscal 2017 and a 53-week year for fiscal 2016. references to “ fiscal 2018 ” are to the 52-week period ended june 30 , 2018 , references to “ fiscal 2017 ” are to the 52-week period ended july 1 , 2017 , and references to “ fiscal 2016 ” are to the 53-week period ended july 2 , 2016. recent trends and initiatives our case volume has grown in each quarter over the comparable prior fiscal year quarter , starting in the second quarter of fiscal 2010 and continuing through the most recent quarter . we believe that we gained industry share during fiscal 2018 given that we have grown our sales more rapidly than the industry growth rate forecasted by technomic , a research and consulting firm serving the food and food related industry . our net income increased 106.3 % and adjusted ebitda increased 9.2 % from fiscal 2017 to fiscal 2018 , primarily driven by case growth and improved gross margin . case volume grew 3.0 % in fiscal 2018 compared to fiscal 2017. gross profit dollars rose 7.9 % in fiscal 2018 versus the prior year , which was faster than case growth , primarily as a result of shifting our channel mix toward higher gross margin customers and shifting our product mix toward sales of performance brands . our operating expenses in fiscal 2018 compared to fiscal 2017 rose 6.6 % as a result of increases in variable operational and selling expenses associated with the increase in case volume , as well as an increase in fuel expense and investments in selling , warehouse , and delivery personnel . key factors affecting our business we believe that our performance is principally affected by the following key factors : changing demographic and macroeconomic trends . the share of consumer spending captured by the food-away-from-home industry increased steadily for several decades and paused during the recession that began in 2008. following the recession , the share has again increased as a result of increasing employment , rising disposable income , increases in the number of restaurants , and favorable demographic trends , such as smaller household sizes , an increasing number of dual income households , and an aging population base that spends more per capita at foodservice establishments . the 27 foodservice distribution industry is also sensitive to national and regional economic conditions , such as changes in consumer spending , changes in consumer confidence , and changes in the p rices of certain goods . food distribution market structure . the food distribution market consists of a wide spectrum of companies ranging from businesses selling a single category of product ( e.g. , produce ) to large national and regional broadline distributors with many distribution centers and thousands of products across all categories . we believe our scale enables us to invest in our performance brands , to benefit from economies of scale in purchasing and procurement , and to drive supply chain efficiencies that enhance our customers ' satisfaction and profitability . story_separator_special_tag the following table reconciles ebitda and adjusted ebitda to net income for the periods presented : replace_table_token_6_th ( 1 ) includes a $ 9.4 million loss on extinguishment and $ 5.5 million of accelerated amortization of original issuance discount and deferred financing costs during fiscal 2016 . ( 2 ) includes adjustments for non-cash charges arising from stock-based compensation , interest rate swap hedge ineffectiveness , and gain/loss on disposal of assets . stock-based compensation cost was $ 21.6 million , $ 17.3 million and $ 17.2 million for fiscal 2018 , fiscal 2017 and fiscal 2016 , respectively . in addition , this includes an increase ( decrease ) in the last-in , first-out ( “ lifo ” ) reserve of $ 0.3 million , $ 2.6 million and $ ( 1.5 ) million for fiscal 2018 , fiscal 2017 , and fiscal 2016 , respectively . ( 3 ) includes professional fees and other costs related to completed and abandoned acquisitions , costs of integrating certain of our facilities , facility closing costs , advisory fees and offering fees . ( 4 ) consists primarily of an expense related to our withdrawal from a purchasing cooperative of which we were a member , pre-acquisition worker 's compensation claims related to an insurance company that went into liquidation , and amounts received from business interruption insurance because of a weather-related event . ( 5 ) consists primarily of professional fees and related expenses associated with productivity initiatives . ( 6 ) consists primarily of amounts related to fuel collar derivatives , certain financing transactions , lease amendments , and franchise tax expense and other adjustments permitted by our credit agreement . story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:6pt ; text-indent:4.54 % ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > gross profit increased $ 114.8 million , or 5.7 % , for fiscal 2017 compared to fiscal 2016. the increase in gross profit was the result of growth in cases sold and a higher gross profit per case , which in turn was the result of selling an improved mix of channels and products , partially offset by the 53 rd week in fiscal 2016. within performance foodservice , case growth to independent customers positively affected gross profit per case . independent customers typically receive more services from us , cost more to serve , and pay a higher gross profit per case than other customers . also , in fiscal 2017 , performance foodservice grew our performance brand sales , which have higher gross profit per case compared to the other brands we sell . see “ —segment results—performance foodservice ” below for additional discussion . the company estimates that the gross profit for the extra week in fiscal 2016 was approximately $ 40.1 million . operating expenses operating expenses increased $ 106.0 million , or 5.9 % , for fiscal 2017 compared to fiscal 2016. the increase in operating expenses was primarily driven by the increase in case volume and the resulting impact on variable operational and selling expenses , as well as investments associated with expansion of geographies served in the dollar store channel , transition of business within pfg customized and the opening of our automated retail facility within the vistar segment . additionally , operating expenses increased for fiscal year 2017 as a result of an $ 8.4 million increase in insurance expense primarily related to workers compensation and professional and legal fees including settlements of $ 3.0 million . the increase was partially offset by the 53 rd week in fiscal 2016. operating expenses for the extra week is fiscal 2016 were approximately $ 35.3 million . depreciation and amortization of intangible assets increased from $ 118.6 million in fiscal 2016 to $ 126.1 million in fiscal 2017 , an increase of 6.3 % . depreciation of fixed assets increased as a result of larger capital outlays to support our growth , as well as recent acquisitions . this increase was partially offset by decreases in amortization since certain intangibles are now fully amortized compared to the prior year . net income net income increased by $ 28.0 million , or 41.0 % , to $ 96.3 million for fiscal 2017 compared to fiscal 2016. the increase in net income was attributable to an $ 8.8 million increase in operating profit , a $ 29.0 million decrease in interest expense , and a $ 5.4 million decrease in other expense , partially offset by a $ 15.2 million increase in income tax expense . the company estimates that net income for the extra week in fiscal 2016 was approximately $ 2.1 million . the increase in operating profit was a result of the increase in gross profit discussed above , partially offset by the increase in operating expenses . the decrease in interest expense was primarily the result of lower average interest rates during fiscal 2017 compared to fiscal 2016 and a $ 9.4 million loss on extinguishment of debt and $ 5.5 million of accelerated amortization of original issuance discount and deferred financing costs in fiscal 2016. the $ 5.4 million decrease in other expense related primarily to a $ 4.7 million decrease in expense related to settlements on our derivatives and a $ 2.0 million increase in income from hedge ineffectiveness in fiscal 2017 compared to fiscal 2016. these increases were partially offset by a $ 1.2 million decrease in non-cash income primarily related to the change in fair value of our derivatives for fiscal 2017 compared to fiscal 2016. the increase in income tax expense was primarily a result of the increase in income before taxes , partially offset by a decrease in the effective tax rate .
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consolidated results of operations fiscal year ended june 30 , 2018 compared to fiscal year ended july 1 , 2017 net sales net sales growth is primarily a function of case growth , pricing ( which is primarily based on product inflation/deflation ) , and a changing mix of customers , channels , and product categories sold . net sales increased $ 858.1 million , or 5.1 % , in fiscal 2018 compared to fiscal 2017. the increase in net sales was primarily attributable to sales growth in vistar , particularly in the theater and retail channels , case growth in performance foodservice , particularly in the independent channel , and recent acquisitions . case volume increased 3.0 % in fiscal 2018 compared to fiscal 2017 . 30 gross profit gross profit increased $ 168.0 million , or 7.9 % , for fiscal 2018 compared to fiscal 2017. gross profit as a percentage of net sales was 13.0 % for fiscal 2018 compared to 12.7 % for fiscal 2017. the increase in gross profit was the result of growth in cases sold and a higher gross profit per case , which in turn was the result of selling an improved mix of channels and products . within performance foodservice , case growth to independent customers positively affected gross profit per case . independent customers typically receive more services from us , cost more to serve , and pay a higher gross profit per case than other customers . also , in fiscal 2018 , performance foodservice grew our performance brand sales , which have higher gross profit per case compared to the other brands we sell . see “ —segment results—performance foodservice ” below for additional discussion .
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these amounts at times may exceed federally insured limits . the company has not experienced any credit losses in these accounts and does not believe it is exposed to any significant credit risk on these funds . the company has no foreign exchange contracts , option contracts or other foreign exchange hedging arrangements . the company also is subject to credit risk from its accounts receivable related to its product sales story_separator_special_tag overview we are in the business of discovering , developing , manufacturing and commercializing small molecule drugs for patients with serious diseases . over the last two years , we have obtained approval for , and initiated commercial sales of , our first two products : incivek ( telaprevir ) , which we market in the united states and canada for the treatment of adults with genotype 1 hepatitis c virus , or hcv , infection ; and kalydeco ( ivacaftor ) , which we market in the united states , canada and europe for the treatment of patients six years of age and older with cystic fibrosis , or cf , who have a specific genetic mutation that is referred to as the g551d mutation . we receive royalties from sales in europe and other countries of telaprevir , which is marketed as incivo , by our collaborator , janssen pharmaceutica , n.v. we invest in scientific innovation to create transformative medicines for patients with serious diseases , with a focus on specialty markets . our strategy is to make focused investments to invent and develop innovative drugs , while we continue to market incivek and kalydeco to eligible patients to generate revenues and maintain a strong financial position . each of our products has achieved rapid acceptance for the treatment of patients in the united states , and our total revenues have increased from $ 143.4 million in 2010 to $ 1.5 billion in 2012. our 2012 total revenues included incivek net product revenues of $ 1.2 billion and kalydeco net product revenues of $ 171.6 million . as of december 31 , 2012 , we had cash , cash equivalents and marketable securities of $ 1.3 billion . we expect that our total net product revenues will decline in 2013. our net product revenues from sales of incivek declined over the course of 2012 , and we expect this trend to continue due to reduced demand for current therapies for hcv infection , as it appears that new competitive therapies will reach the market over the next several years . we expect that kalydeco product revenues will increase in 2013 as compared to 2012 , as we secure reimbursement for kalydeco in additional international markets . in the future , we expect that our ability to increase net product revenues will be dependent upon increasing kalydeco sales and introducing one or more of our late-stage development products to the market . in the near term , we plan to focus most of our drug development investment on the following key programs : cystic fibrosis - our goal is to develop treatment regimens that will provide benefits to as many patients with cf as possible and to maximize those benefits . we are conducting three phase 3 label-expansion clinical trials and a proof-of-concept clinical trial of ivacaftor monotherapy in people with certain mutations in their cystic fibrosis transmembrane conductance regulator , or cftr , gene that were not studied in prior phase 3 clinical trials . in february 2013 , we initiated an international pivotal phase 3 development program to evaluate combinations of ivacaftor and our investigational cf corrector vx-809 for patients with the most prevalent genetic mutation that causes cf . hcv - we are investigating all-oral , interferon-free treatment regimens that are 12 weeks or less in duration with a goal of providing a high viral cure rate and improved tolerability , in order to be commercially competitive in the hcv market of the future . we plan to conduct multiple phase 2 clinical trials to evaluate all-oral combination treatment regimens that include our hcv nucleotide analogue vx-135 together with molecules that have potentially complimentary mechanisms , such as ribavirin , or rbv , hcv protease inhibitors , hcv ns5a inhibitors and non-nucleoside hcv polymerase inhibitors . autoimmune diseases - we are evaluating our jak3 inhibitor , vx-509 , in a phase 2 clinical trial that is expected to enroll approximately 350 patients with rheumatoid arthritis . we may seek collaborators for some of our drug candidates in order to diversify risk , broaden or accelerate or otherwise benefit a development program in an effort to fully-realize the value of a drug candidate . we plan to continue investing in our research programs and supporting scientific innovation in order to identify and develop transformative medicines . we believe that pursuing research in diverse areas allows us to balance the risks inherent in drug development and may provide the drug candidates that will form our pipeline in future years . we have later-stage research programs in the areas of cystic fibrosis , huntington 's disease , multiple sclerosis and cancer . discovery and development of a new pharmaceutical product is a difficult and lengthy process that requires significant financial resources along with extensive technical and regulatory expertise and can take 10 to 15 years or more . potential drug candidates are subjected to rigorous evaluations , driven in part by stringent regulatory considerations , designed to 54 generate information concerning efficacy , side-effects , proper dosage levels and a variety of other physical and chemical characteristics that are important in determining whether a drug candidate should be approved for marketing as a pharmaceutical product . most chemical compounds that are investigated as potential drug candidates never progress into development , and most drug candidates that do advance into development never receive marketing approval . story_separator_special_tag we expect that a number of new therapies for hcv infection will become available to patients over the next several years . the most advanced drug candidates , gilead 's gs-7977 and janssen 's tmc435 , may be approved for administration in combination with pegylated-interferon , or peg-ifn , and rbv , as soon as late 2013 or 2014. the top-line results reported by gilead and janssen from recently completed phase 3 clinical trials suggest that the safety and efficacy profiles of gs-7977 and tmc435 will position them , if approved , to potentially take a significant portion of the market for hcv therapies . we plan to compete in the hcv infection market as it shifts away from current treatment regimens , including our incivek triple-combination therapy , to regimens that incorporate new drugs with improved safety , efficacy and or tolerability , by pursuing development of all-oral regimens incorporating one or more of our drug candidates , particularly our hcv nucleotide analogue vx-135 . a number of pharmaceutical companies are investigating combination regimens that incorporate one or more of an hcv protease inhibitor , an hcv nucleotide analogue , an hcv non-nucleotide polymerase inhibitor or an ns5a inhibitor . clinical trials of these investigational combination regimens are being conducted in a wide variety of patient populations , including treatment-naïve and treatment-failure patients , and across all hcv genotypes , which respond differently to different combinations of molecules employing different mechanisms . in the future , we expect that the market for any specific hcv treatment regimen , including incivek triple-combination therapy , could be affected by the introduction of new competitive drugs or drug combinations , sales from currently approved drugs , adverse information regarding the safety characteristics or efficacy of the regimen , significant new information regarding potential treatment regimens being evaluated in clinical trials , and enrollment by patients in clinical trials being conducted by us or our competitors . while it is possible that a portion of patients with hcv infection would continue to benefit from treatment regimens that include peg-ifn , we expect that treatment regimens that include the administration of peg-ifn by injection will command a relatively small portion of the overall market . we are evaluating potential all-oral treatment regimens in planned and ongoing phase 2 clinical trials in order to determine which regimen or regimens appear likely to provide benefits to patients and to take forward into phase 3 clinical development . some of our competitors ' potential all-oral treatment regimens are more advanced , including all-oral treatment regimens that are being evaluated in phase 3 clinical trials by gilead and abbvie , inc. while the development and regulatory timelines for drug candidates for the treatment of hcv infection are subject to risk and uncertainty , and the development of a number of hcv infection drug candidates , including bristol-myers squibb 's bms-986094 and one of our two hcv nucleotide analogues , als-2158 , ended in 2012 , we believe that ( i ) substantial additional clinical data regarding potential all-oral treatment regimens will become available in 2013 and ( ii ) it is possible that one or more all-oral treatment regimens for genotype 1 hcv infection could be commercially available as soon as late 2014. as a result , if we are successful in developing all-oral treatment regimens that include vx-135 and or vx-222 , independently or with a collaborator , it is likely 56 that our all-oral treatment regimens would compete directly with one or more previously approved all-oral treatment regimens . drug supply in order to generate revenues from our approved products , we must manufacture , or have manufactured , our products in accordance with our specifications and regulatory requirements and in sufficient quantities to satisfy demand . we rely on an international network of third parties to manufacture and distribute our products and for supplies of compounds for clinical trials , and we expect that we will continue to rely on third parties to provide these manufacturing services for the foreseeable future . third-party contract manufacturers , including some in china , supply us with raw materials , and contract manufacturers in the european union and the united states convert these raw materials into drug substance and convert the drug substance into final dosage form . establishing and managing this global supply chain requires a significant financial commitment and the creation and maintenance of numerous third-party relationships . although we believe we effectively manage the business relationships with companies in our supply chain , we do not have complete control over their activities . we require a supply of incivek for commercial sale in the united states and canada . we attempt to manage our incivek inventory levels based on forecasted demand , which has had variable results due to the rapidly evolving nature of the hcv market , which resulted in decreased demand for incivek . we currently believe that we have sufficient supply to meet forecasted demand for incivek . in addition , we have significant quantities of materials that we do not expect to utilize . we require a supply of ivacaftor for commercial sale ( as kalydeco ) and for use in our clinical trials . we obtain ivacaftor to meet our commercial and clinical supply needs through a third-party manufacturing network . our supply chain includes sole source suppliers . a disruption in the commercial supply of kalydeco for patients would have a significant impact on patients , our business and our product revenues . a disruption in the clinical supply of ivacaftor could delay the completion of clinical trials and impact timelines for filing an snda or nda . accordingly , we are in the process of establishing secondary sources for our kalydeco supply needs to reduce the risk of a supply disruption .
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results of operations replace_table_token_9_th net income ( loss ) attributable to vertex net loss attributable to vertex was $ ( 107.0 ) million in 2012 compared to net income attributable to vertex of $ 29.6 million in 2011. the net loss attributable to vertex in 2012 as compared to the net income attributable to vertex in 2011 was due to increased operating expenses partially offset by increased revenues . our increased revenues in 2012 as compared to 2011 were due to increase d incivek net product revenues , increased incivo royalty revenues and kalydeco net product revenues for which there were no comparable revenues in 2011 , partially offset by decrease d collaborative revenues . our operating costs and expenses increased in 2012 as compared to 2011 , principally due to increased research and development expenses , increased sales , general and administrative expenses and increased cost of product revenues . in 2012 , net income ( loss ) attributable to vertex was negatively affected by an aggregate of $ 133.2 million in lower of cost or market charges for excess and obsolete incivek inventories and an increase in the fair value of contingent milestone payments and royalties payable by us to alios of $ 115.0 million . in 2011 , net income attributable to vertex was negatively affected by an impairment charge that had a net effect of $ 73.1 million and an increase in the fair value of contingent milestone payments and royalties payable by us to alios of $ 70.0 million . in 2010 , prior to the obtaining marketing approval for our first product in 2011 , we had net loss attributable to vertex of $ ( 754.6 ) million .
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63 in accordance with the accounting for uncertain tax positions , the following is a tabular reconciliation of the total amount of unrecognized tax benefits at the beginning and end of the years presented : replace_table_token_44_th included in the above balances at december 31 , 2015 and 2014 is $ 3.7 million and $ 14.6 million of tax benefits that , if recognized , would affect lp 's effective tax rate . lp accrued interest of $ 0.2 million and paid interest of $ 4.8 million during 2015 and accrued interest of $ 1.0 million during 2014 . in total lp has recognized a liability of $ 0.1 million and $ 4.7 million for accrued interest related to its uncertain tax positions as of december 31 , 2015 story_separator_special_tag overview general our products are used primarily in new home construction , repair and remodeling , and outdoor structures . we also market and sell our products in light industrial and commercial construction and we have a modest export business . our manufacturing facilities are primarily located in the u.s. and canada , but we also operate two facilities in chile and one facility in brazil . to serve these markets , we operate in four segments : north america oriented strand board ( osb ) ; siding ; engineered wood products ( ewp ) ; and south america . osb is the most significant segment , accounting for 43 % of continuing sales in 2015 , 44 % in 2014 and 51 % in 2013 . osb is sold as a commodity for which sales prices fluctuate daily based on market factors over which we have little or no control . we can not predict whether the prices of our products will remain at current levels , increase or decrease in the future . factors affecting our results revenues and operating costs . we derive our revenues from sales of our products . the unit volumes of products sold and the prices at which sales are made determine the amount of our revenues . these volumes and prices are affected by the overall level of demand for , and supply of , products of the type we sell and comparable or substitute products , and by competitive conditions . our operating results reflect the relationship between the amount of our revenues and our costs of production and other operating costs and expenses . our costs of production are affected by , among other factors , costs of raw materials ( primarily wood fiber and various petroleum-based resins ) and energy costs , which in turn are affected by the overall market supply of and demand for these manufacturing inputs . demand for building products demand for our products correlates to a significant degree to the level of residential construction activity in north america , which historically has been characterized by significant cyclicality . demand for our products correlates to a significant degree to the level of new home construction activity in north america , which historically has been characterized by significant cyclicality . the u.s. census bureau reported that actual single and multi-family housing starts in 2015 were about 11 % higher than 2014 , which were about 9 % higher than such housing starts in 2013 . we believe that the level of building continues to be impacted by delayed household formations due to the sluggish economy , lack of available labor and a more restrictive mortgage market . while near-term residential construction is constrained in the u.s. , positive long-term fundamentals exist . increased immigration , the changing age distribution of the population , the high number of adults living with their parents and historically low interest rates are expected to lead to more household formations . the chart below , which is based on data published by u.s. census bureau , provides a graphical summary of new housing starts for single and multi-family in the u.s. showing actual and rolling five and ten year averages for housing starts . 20 according to fea ( forest economic advisors , llc ) for 2015 , 58 % of the demand for osb is driven by new home construction , followed by 21 % repair and remodeling , 11 % industrial and 9 % non-residential . over the next 5 years , fea projects that home construction will account for 67 % of the total demand , followed by 16 % repair and remodeling , 9 % industrial and 8 % non-residential . supply of building products osb is a commodity product , and it is , along with all of our products , subject to competition from manufacturers worldwide . product supply is influenced primarily by fluctuations in available manufacturing capacity and imports . according to fea , total north american osb annual production capacity is projected to increase by approximately 2.0 billion square feet in the period from 2016 to 2020 while plywood production capacity is projected to decrease by 0.2 billion square feet for the same period . according to fea , osb accounted for approximately 66 % of north american structural panel production capacity in 2015 , with plywood accounting for the remainder . putting demand and supply together as noted above , demand for building products is influenced by the general economy , demographics and need for housing . in the case of osb , generally , lower demand coupled with higher production capacity will result in lower pricing . the chart below , as calculated by fea ( as of december 2015 ) including indefinitely curtailed mills , shows the demand capacity ratio ( demand divided by supply ) for osb from 2011 through 2015 as well as fea 's forecast through 2020 based upon estimated future demand and supply . 21 product pricing historical prices for our products have been volatile , and we , like other participants in the building products industry , have limited influence over the timing and extent of price changes for our products . story_separator_special_tag the key assumptions in estimating these cash flows relate to future production volumes , pricing of commodity or specialty products and future estimates of expenses to be incurred as reflected in our long-range internal planning models . our assumptions regarding pricing are based upon the average pricing over the commodity cycle ( generally five years ) due to the inherent volatility of commodity product pricing , and reflect our assessment of information gathered from industry research firms , research reports published by investment analysts and other published forecasts . our assumptions regarding expenses reflect our expectation that we will continue to reduce production costs to offset inflationary impacts . when impairment is indicated for assets held and used in our operations , the book values of the affected assets are written down to their estimated fair value , which is generally based upon discounted future cash flows associated with the affected assets . when impairment is indicated for assets to be disposed of , the book values of the affected assets are written down to their estimated fair value , less estimated selling costs . consequently , a determination to dispose of particular assets can require us to estimate the net sales proceeds expected to be realized upon such disposition , which may be less than the estimated undiscounted future net cash flows associated with such assets prior to such determination , and thus require an impairment charge . in situations where we have experience in selling assets of a similar nature , we may estimate net sales proceeds on the basis of that experience . in other situations , we hire independent appraisers to estimate net sales proceeds . due to the numerous variables associated with our judgments and assumptions relating to the valuation of assets in these circumstances , and the effects of changes in circumstances affecting these valuations , both the precision and reliability of the resulting estimates of the related impairment charges are subject to substantial uncertainties and , as additional information becomes known , we may change our estimates significantly . income taxes . the determination of the provision for income taxes , and the resulting current and deferred tax assets and liabilities , involves significant management judgment , and is based upon information and estimates available to management at the time of such determination . the final income tax liability to any taxing jurisdiction with respect to any calendar year will ultimately be determined long after our financial statements have been published for that year . we maintain reserves for known estimated tax exposures in federal , state and international jurisdictions ; however , actual results may differ materially from our estimates . 23 judgment is also applied in determining whether deferred tax assets will be realized in full or in part . when we consider it to be more likely than not that all or some portion of a deferred tax asset will not be realized , a valuation allowance is established for the amount of the deferred tax asset that is estimated not to be realizable . as of december 31 , 2015 , we had established valuation allowances against certain deferred tax assets , primarily related to state and foreign carryovers of net operating losses , credits and capital losses . we have not established valuation allowances against other deferred tax assets based upon positive evidence such as recent earnings history , generally improving economic conditions and deferred tax liabilities which we anticipate to reverse within the carry forward period . accordingly , changes in facts or circumstances affecting the likelihood of realizing a deferred tax asset could result in the need to record additional valuation allowances . pension plans . most of our u.s. employees and many of our canadian employees participate in defined benefit pension plans sponsored by lp . we account for the consequences of our sponsorship of these plans in accordance with accounting principles generally accepted in the u.s. , which require us to make actuarial assumptions that are used to calculate the related assets , liabilities and expenses recorded in our financial statements . while we believe we have a reasonable basis for these assumptions , which include assumptions regarding long-term rates of return on plan assets , life expectancies , rates of increase in salary levels , rates at which future values should be discounted to determine present values and other matters , the amounts of our pension related assets , liabilities and expenses recorded in our financial statements would differ if we used other assumptions . see further discussion related to pension plans below under the heading “ defined benefit pension plans ” and in note 13 of the notes to the consolidated financial statements included in item 8 of this report . warranty obligations . customers are provided with a limited warranty against certain defects associated with our products for periods of up to fifty years . we estimate the costs to be incurred under these warranties and record a liability in the amount of such costs at the time product revenue is recognized . factors that affect our warranty liability include the historical and anticipated rates of warranty claims and the cost of resolving such . we periodically assess the adequacy of our recorded warranty liability for each product and adjust the amounts as necessary . while we believe we have a reasonable basis for these assumptions , actual warranty costs in the future could differ from our estimates . non-gaap financial measures in evaluating our business , we utilize several non-gaap financial measures . a non-gaap financial measure is generally defined by the sec as one that purports to measure historical or future financial performance , financial position or cash flows , but excludes or includes amounts that would not be so excluded or included under applicable gaap guidance . in this report on form 10-k , we disclose earnings ( loss ) from continuing operations before interest expense , taxes , depreciation and amortization ( “ ebitda from continuing operations ” ) which is a non-gaap financial measure .
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results of operations we reported a net loss of $ 88.1 million ( $ ( 0.62 ) per diluted share ) in 2015 , which was comprised of a loss from continuing operations of $ 86.0 million ( $ ( 0.60 ) per diluted share ) and a loss from discontinued operations of $ 2.1 million ( $ 0.02 per diluted share ) . this compares to a net loss of $ 75.4 million ( $ 0.53 per diluted share ) in 2014 , which was comprised of loss from continuing operations of $ 73.4 million ( $ 0.52 per diluted share ) and a loss from discontinued operations of $ 2.0 million ( $ 0.01 per diluted share ) . we reported net income of $ 177.1 million ( $ 1.23 per diluted share ) in 2013 , which was comprised of income from continuing operations of $ 177.4 million ( $ 1.23 per diluted share ) and a loss from discontinued operations of $ 0.3 million ( $ 0.00 per diluted share ) . net sales in 2015 were $ 1.89 billion , a decrease of 2 % from 2014 net sales of $ 1.93 billion . net sales in 2014 as compared to 2013 were lower by 7 % . sales in 2015 were negatively impacted by decreases in osb selling prices relative to both 2014 and 2013 . our results of operations for each of our segments are discussed below , as are results of operations for the “ other ” category which comprises other products that are not individually significant . see note 25 of the notes to the consolidated financial statements included in item 8 of this report for further information regarding our segments . osb our osb segment manufactures and distributes osb structural panel products in north america and certain export markets . osb is an innovative , affordable and environmentally smart product made from wood strands arranged in layers and bonded with resin .
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these products serve markets including commercial building ventilation and hvac , pool and spa , irrigation , dewatering , agriculture , and general commercial equipment . industrial systems segment produces integral motors , generators , alternators and switchgear for industrial applications , along with aftermarket parts and kits to support such products . these products serve markets including agriculture , marine , mining , oil and gas , food and beverage , data centers , healthcare , prime and standby power , and general industrial equipment . climate solutions segment produces small motors , electronic variable speed controls and air moving solutions serving markets including residential and light commercial hvac , water heaters and commercial refrigeration . power transmission solutions segment produces , sells and services belt and chain drives , helical and worm gearing , mounted and unmounted bearings , couplings , modular plastic belts , conveying chains and components , hydraulic pump drives , large open gearing and specialty mechanical products serving markets including e-commerce , alternative energy , beverage , bulk handling , metals , special machinery , energy , aerospace and general industrial . components of profit and loss net sales . we sell our products to a variety of manufacturers , distributors and end users . our customers consist of a large cross-section of businesses , ranging from fortune 100 companies to small businesses . a number of our products are sold to oems , who incorporate our products , such as electric motors , into products they manufacture , and many of our products are built to the requirements of our customers . the majority of our sales are derived from direct sales to customers by sales personnel employed by the company , however , a significant portion of our sales are derived from sales made by manufacturer 's representatives , who are paid exclusively on commission . our product sales are made via purchase order , long-term contract , and , in some instances , one-time purchases . many of our products have broad customer bases , with the levels of concentration of revenues varying from business unit to business unit . our level of net sales for any given period is dependent upon a number of factors , including ( i ) the demand for our products ; ( ii ) the strength of the economy generally and the end markets in which we compete ; ( iii ) our customers ' perceptions of our product quality at any given time ; ( iv ) our ability to timely meet customer demands ; ( v ) the selling price of our products ; and ( vi ) the weather . as a result , our total revenue has tended to experience quarterly variations and our total revenue for any particular quarter may not be indicative of future results . 33 we use the term “ organic sales '' to refer to sales from existing operations excluding ( i ) sales from acquired businesses recorded prior to the first anniversary of the acquisition ( “ acquisition sales ” ) , ( ii ) less the amount of sales attributable to any businesses divested/to be exited ( `` business to be exited '' ) , and ( iii ) the impact of foreign currency translation . the impact of foreign currency translation is determined by translating the respective period 's organic sales using the same currency exchange rates that were in effect during the prior year periods . we use the term “ organic sales growth ” to refer to the increase in our sales between periods that is attributable to organic sales . we use the term “ acquisition growth ” to refer to the increase in our sales between periods that is attributable to acquisition sales . gross profit . our gross profit is impacted by our levels of net sales and cost of sales . our cost of sales consists of costs for , among other things ( i ) raw materials , including copper , steel and aluminum ; ( ii ) components such as castings , bars , tools , bearings and electronics ; ( iii ) wages and related personnel expenses for fabrication , assembly and logistics personnel ; ( iv ) manufacturing facilities , including depreciation on our manufacturing facilities and equipment , insurance and utilities ; and ( v ) shipping . the majority of our cost of sales consists of raw materials and components . the price we pay for commodities and components can be subject to commodity price fluctuations . we attempt to mitigate portions of the commodity price fluctuations through fixed-price agreements with suppliers and our hedging strategies . when we experience commodity price increases , we have tended to announce price increases to our customers who purchase via purchase order , with such increases generally taking effect a period of time after the public announcements . for those sales we make under long-term arrangements , we tend to include material price formulas that specify quarterly or semi-annual price adjustments based on a variety of factors , including commodity prices . outside of general economic cyclicality , our business units experience different levels of variation in sales from quarter to quarter based on factors specific to each business . for example , a portion of our climate solutions segment manufactures products that are used in air conditioning applications . as a result , our sales for that business tend to be lower in the first and fourth quarters and higher in the second and third quarters . in contrast , our commercial systems segment , industrial systems segment and power transmission solutions segment have a broad customer base and a variety of applications , thereby helping to mitigate large quarter-to-quarter fluctuations outside of general economic conditions . operating expenses . our operating expenses consist primarily of ( i ) general and administrative expenses ; ( ii ) sales and marketing expenses ; ( iii ) general engineering and research and development expenses ; and ( iv ) handling costs incurred in conjunction with distribution activities . story_separator_special_tag factors deriving from the covid-19 response that have or may negatively impact sales and operating profit in the future include , but are not limited to : limitations on the ability of our suppliers to manufacture , or procure from manufacturers , components and raw materials used in our products , or to meet delivery requirements and commitments ; limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local , state , or federal orders requiring employees to remain at home ; inconsistent criteria in certain international jurisdictions for establishing the essentiality of our business ; limitations on the ability of carriers to deliver our products to customers ; limitations on the ability of our customers to conduct their business and purchase our products and services ; reductions in demands of our customers ; and limitations on the ability of our customers to pay us on a timely basis . we have taken actions to manage costs including an organization wide reduction in force and voluntary early retirement program . we will continue to assess the actual and expected impacts of covid-19 and consider making further changes to our cost structure as the implications of covid-19 continue to evolve . rexnord transaction on february 15 , 2021 , we entered into definitive agreements with rexnord corporation ( “ rexnord ” ) , land newco , inc. , a wholly owned indirect subsidiary of rexnord ( “ land ” ) , and phoenix 2021 , inc. , our wholly owned subsidiary ( “ merger sub ” ) , with respect to a reverse morris trust transaction ( the “ rexnord transaction ” ) pursuant to which , and subject to the terms and conditions of those definitive agreements discussed below , ( 1 ) rexnord will transfer ( or cause to be transferred ) to land substantially all of the assets , and land will assume substantially all of the liabilities , of rexnord 's process & motion control business ( “ pmc business ” ) ( the “ reorganization ” ) , ( 2 ) after which , all of the issued and outstanding shares of common stock , $ 0.01 par value per share , of land ( “ land common stock ” ) held by a subsidiary of rexnord will be distributed in a series of distributions to rexnord 's stockholders ( the “ distributions ” , and the final distribution of land common stock from rexnord to rexnord 's stockholders , which is to be made pro rata for no consideration , the “ spin-off ” ) and ( 3 ) immediately after the spin-off , merger sub will merge with and into land ( the “ merger ” ) and all shares of land common stock ( other than those held by rexnord , land , the company , merger sub or their respective subsidiaries ) will be converted into the right to receive shares of our common stock , $ 0.01 par value per share ( “ company common stock ” ) , as calculated and subject to adjustment as set forth in the merger agreement ( as defined below ) . when the merger is completed , land ( which at that time will hold the pmc business ) will be our wholly owned subsidiary . the definitive agreements we entered into in connection with the rexnord transaction include an agreement and plan of merger , by and among rexnord , land , merger sub and us ( the “ merger agreement ” ) , a separation and distribution agreement , by and among rexnord , land and us and certain ancillary agreements . in connection with the rexnord transaction , the merger agreement provides that we shall , to the extent required by the merger agreement , in certain circumstances in which additional shares of company common stock are issued at closing to holders of land common stock , declare a special dividend to our stockholders immediately prior to the consummation of the merger ( the “ company special dividend ” ) . the existence and magnitude of the dividend will depend on whether and to what extent we are able to count certain overlapping shareholders of us and rexnord in satisfying the tax requirements applicable to a reverse morris trust transaction . in the event that the company special dividend is required to be paid , it could range in amount between zero and approximately $ 2.0 billion . in connection with the rexnord transaction , we have entered into certain financing arrangements , which are described below under “ liquidity and capital resources ” . closing of the rexnord transaction is subject to various closing conditions , including the receipt of the approval of our and rexnord 's shareholders , the receipt of regulatory approvals and other customary closing conditions . the rexnord transaction is described more fully in our current report on form 8-k filed with the sec on february 19 , 2021 and this description is qualified in its entirety by the description set forth therein . 36 outlook . in the first quarter of fiscal 2021 , we are forecasting a mid-single digit sales growth . we expect to see positive impact from our new products . in the first quarter of 2021 , we expect diluted earnings per share to be $ 1.32 to $ 1.52. our fiscal 2021 diluted earnings per share guidance is based on an effective tax rate of 21 % . story_separator_special_tag $ 575.4 million , a 14.3 % decrease compared to fiscal 2018 net sales of $ 671.1 million . the decrease consisted of negative organic sales of 11.4 % , negative foreign currency translation of 2.1 % and a negative 0.8 % impact from the businesses divested/to be exited . the organic sales decrease was driven by delays in power generation projects due to end market overcapacity and the oil & gas downturn , weak north american and china industrial demand due to trade uncertainty and the impact of 80/20 account pruning .
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results of operations the following table sets forth selected information for the years indicated : replace_table_token_8_th 37 fiscal year 2020 compared to fiscal year 2019 net sales for fiscal 2020 were $ 2.9 billion , a 10.2 % decrease as compared to fiscal 2019 net sales of $ 3.2 billion . the decrease consisted of negative organic sales of 8.4 % , negative foreign currency translation of 0.4 % and a negative 1.4 % impact from the businesses divested/to be exited . gross profit decreased $ 52.0 million or 6.0 % as compared to the prior year . the decrease from the prior year was driven primarily due to lower sales volumes , partially offset by productivity improvements and simplification programs . operating expenses were $ 512.9 million which was a $ 31.4 million decrease from fiscal 2019. the decrease was primarily driven by lower variable selling costs and lower employee related wage and benefit costs . the company recognized goodwill and other asset impairments of $ 15.8 million , a $ 5.8 million increase from the prior year . net sales for the commercial systems segment for fiscal 2020 were $ 820.2 million , a 9.4 % decrease compared to fiscal 2019 net sales of $ 905.3 million . the decrease consisted of negative organic sales of 6.9 % and a negative 2.6 % impact from the businesses divested/to be exited partially offset by a positive 0.1 % foreign currency translation . the organic sales decrease was primarily driven by decline in market demand as well as covid related pressures on production along with ongoing intentional account pruning actions . gross profit decreased $ 22.8 million or 9.6 % primarily due to lower sales volumes partially offset by simplification programs and selective pricing on lower margin accounts .
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any remainder of the redemption distribution is delivered on the next business day to the extent of remaining whole creation units received if the transfer agent receives the fee applicable to the extension story_separator_special_tag this information should be read in conjunction with the financial statements and notes included in item 8 of part ii of this report . the discussion and analysis which follows may contain trend analysis and other forward-looking statements . see `` cautionary statement concerning forward-looking information '' above . you should not place undue reliance on any forward-looking statements . except as expressly required by the federal securities laws , the fund and the managing owner undertake no obligation to publicly update or revise any forward-looking statements or the risks , uncertainties or other factors described in this report , as a result of new information , future events or changed circumstances or for any other reason after the date of this report . overview/introduction invesco capital management llc ( “ invesco ” ) has served as the managing owner ( the “ managing owner ” ) , commodity pool operator and a commodity trading advisor of the fund since february 23 , 2015. the managing owner is registered with the commodity futures trading commission ( the “ cftc ” ) as a commodity pool operator and a commodity trading advisor , and it is a member firm of the national futures association ( “ nfa ” ) . the fund seeks to track changes , whether positive or negative , in the level of the deutsche bank g10 currency future harvest index–excess return ( the “ index ” ) over time , plus the excess , if any , of the sum of the fund 's interest income from its holdings of united states treasury obligations ( “ treasury income ” ) , dividends from its holdings in money market mutual funds ( affiliated or otherwise ) ( “ money market income ” ) and dividends or distributions of capital gains from its holdings of t-bill etfs ( as defined below ) ( “ t-bill etf income ” ) over the expenses of the fund . the index is designed to reflect the return from investing on a 2:1 leveraged basis in long currency futures positions for certain currencies associated with relatively high yielding interest rates and in short currency futures positions for certain currencies associated with relatively low yielding interest rates . 22 the fund may invest directly in united states treasury obligations . the fund may also gain exposure to united states treasury obligations through investments in exchange-traded funds ( affiliated or otherwise ) that track indexes that measure the performance of united states treasury obligations with a maximum remaining maturity of up to 12 months ( “ t-bill etfs ” ) . the fund holds as collateral united states treasury obligations , money market mutual funds and t-bill etfs ( affiliated or otherwise ) , if any , for margin and or cash management purposes . while the fund 's performance reflects the appreciation and depreciation of those holdings , the fund 's performance , whether positive or negative , is driven primarily by its strategy of trading futures contracts with the aim of seeking to track the index . the managing owner may determine to invest in other futures contracts if at any time it is impractical or inefficient to gain full or partial exposure to an index currency through the use of index contracts . these other futures contracts may or may not be based on an index currency . when they are not , the managing owner may seek to select futures contracts that it reasonably believes tend to exhibit trading prices that correlate with an index contract . the index is designed to exploit the trend that currencies associated with relatively high interest rates , on average , tend to rise in value relative to currencies associated with relatively low interest rates . this trend is consistent with economic theory regarding the correct price of a currency future , known as the interest rate parity formula or the covered interest arbitrage formula , and can be seen in the historical trading patterns of currency futures . the fund holds a portfolio of futures contracts ( for investment purposes ) on the eligible index currencies ( as defined below ) and united states treasury obligations for deposit with morgan stanley & co. llc , the fund 's commodity broker ( the “ commodity broker ” ) , as margin and united states treasury securities , cash , money market mutual funds and t-bill etfs , if any , on deposit with the bank of new york mellon ( the “ custodian ” ) for cash management purposes . the theoretical or “ fair market ” price of a currency futures contract is derived from the spot fx rate , interest rates of the two currencies and time to expiry of the currency futures contract and represents an equilibrium relationship among the interest rates , spot markets and futures markets associated with the currencies in question . if an equilibrium relationship does not exist between two currencies , arbitrage opportunities arise and the exploitation of these opportunities by arbitrageurs will tend to drive currency futures prices toward equilibrium . application of the interest rate parity formula under circumstances in which currencies are not in an equilibrium relationship predicts that if the currency future is based on a rate ranging from a high yielding currency to a low yielding currency , the fair market price of the currency future will be below the spot rate . the longer the time to the expiry of the currency future the greater the amount the fair market price of the currency future will be below the spot rate . if the spot rate stays approximately the same then , as you move closer to the expiry of the currency future , the fair market price will increase . story_separator_special_tag the counterparty for futures contracts traded on united states and on most foreign futures exchanges is the clearing house associated with the particular exchange . in general , clearing houses are backed by their corporate members who may be required to share in the financial burden resulting from the nonperformance by one of their members and , as such , is designed to disperse and mitigate the credit risk posed by any one member . in cases where the clearing house is not backed by the clearing members ( i.e. , some foreign exchanges ) , it may be backed by a consortium of banks or other financial institutions . there can be no assurance that any counterparty , clearing member or clearinghouse will meet its obligations to the fund . the commodity broker , when acting as the fund 's futures commission merchant in accepting orders for the purchase or sale of domestic futures contracts , is required by cftc regulations to separately account for and segregate as belonging to the fund all assets of the fund relating to domestic futures trading . the commodity broker is not allowed to commingle such assets with other assets of the commodity broker . in addition , cftc regulations also require the commodity broker to hold in a secure account assets of the fund related to foreign futures trading . while these legal requirements are designed to protect the customers of futures commission merchants , a failure by the commodity broker to comply with those requirements would be likely to have a material adverse effect on the fund in the event that the commodity broker became insolvent or suffered other financial distress . liquidity the fund 's entire source of capital is derived from the fund 's offering of shares to authorized participants . the fund in turn allocates its net assets to currency futures trading . a significant portion of the nav is held in united states treasury obligations , which may be used as margin for the fund 's trading in currency futures contracts and united states treasury obligations , money market mutual funds , cash and t-bill etfs , if any , which may be used for cash management purposes . the percentage that united states treasury obligations bear to the total net assets will vary from period to period as the market values of the fund 's currency futures change . a portion of the fund 's united states treasury obligations is held for deposit with the commodity broker to meet margin requirements . all remaining cash , money market mutual funds , t-bill etfs , if any , and united states treasury obligations are on deposit with the custodian . interest earned on the fund 's interest-bearing funds and dividends from the fund 's holdings of 24 money market mutual funds are paid to the fund . any dividends or distributions of capital gains received from the fund 's holdings of t-bill etfs , if any , are paid to the fund . the fund 's foreign currency futures contracts may be subject to periods of illiquidity because of market conditions , regulatory considerations or for other reasons . for example , u.s. futures exchanges and some foreign exchanges have regulations that limit the amount of fluctuation in futures contract prices that may occur during a single business day . these limits are generally referred to as “ daily price fluctuation limits ” or “ daily limits , ” and the maximum or minimum price of a contract on any given day as a result of these limits is referred to as a “ limit price. ” once a limit price has been reached in a particular contract , it is usually the case that no trades may be made at a different price than specified in the limit . the duration of limit prices generally varies . limit prices may have the effect of precluding the fund from trading in a particular contract or requiring the fund to liquidate contracts at disadvantageous times or prices . either of those outcomes could adversely affect the fund 's ability to pursue its investment objective or achieve favorable performance . because the fund trades futures contracts , its capital is at risk due to changes in the value of futures contracts ( market risk ) or the inability of counterparties ( including the commodity broker and or exchange clearinghouses ) to perform under the terms of the contracts ( credit risk ) . on any business day , an authorized participant may place an order with the transfer agent to redeem one or more blocks of 100,000 shares ( “ creation units ” ) . redemption orders must be placed by 1:00 p.m. , eastern time . the day on which the managing owner receives a valid redemption order is the redemption order date . the day on which a redemption order is settled is the redemption order settlement date . as provided below , the redemption order settlement date may occur up to two business days after the redemption order date . redemption orders are irrevocable . the redemption procedures allow authorized participants to redeem creation units . individual shareholders may not redeem directly from the fund . instead , individual shareholders may only redeem shares in integral multiples of 100,000 and only through an authorized participant . unless otherwise agreed to by the managing owner and the authorized participant as provided in the next sentence , by placing a redemption order , an authorized participant agrees to deliver the creation units to be redeemed through dtc 's book-entry system to the fund no later than the redemption order settlement date as of 2:45 p.m. , eastern time , on the business day immediately following the redemption order date . upon submission of a redemption order , the authorized participant may request the managing owner to agree to a redemption order settlement date up to two business days after the redemption order date .
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results of operations for the years ended december 31 , 2020 and 2019 the following graphs illustrate the percentage changes in ( i ) the market price of the shares ( as reflected by the line “ market ” ) , ( ii ) the fund 's nav ( as reflected by the line “ nav ” ) , and ( iii ) the closing levels of the index ( as reflected by the line “ db g10 currency future harvest index er ” ) . whenever the treasury income , money market income or t-bill etf income , if any , earned by the fund exceeds fund expenses , the price of the shares generally exceeds the levels of the index primarily because the share price reflects treasury income , money market income and t-bill etf income , if any , from the fund 's collateral holdings whereas the index does not consider such income . there can be no assurance that the price of the shares or the fund 's nav will exceed the index levels . no representation is being made that the index will or is likely to achieve closing levels consistent with or similar to those set forth herein . similarly , no representation is being made that the fund will generate profits or losses similar to the fund 's past performance or changes in the index closing levels . 26 comparison of market , nav and db g10 currency future harvest index er for the years ended december 31 , 2020 and 2019 neither the past performance of the fund nor the prior index levels and changes , positive or negative , should be taken as an indication of the fund 's future performance . neither the past performance of the fund nor the prior index levels and changes , positive or negative , should be taken as an indication of the fund 's future performance .
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goodwill from these transactions was $ 649.1 million . in addition , for acquisitions completed prior to january 1 , 2009 , we made contingent purchase price payments ( earn-outs ) of $ 79.2 million , which were included in goodwill . approximately $ 89.7 million of the goodwill recorded in these acquisitions story_separator_special_tag executive summary we are a strategic holding company . we provide professional services to clients through multiple agencies around the world . on a global , pan-regional and local basis , our agencies provide these services in the following disciplines : advertising , customer relationship management , or crm , public relations and specialty communications . our business model was built and continues to evolve around our clients . while our agencies operate under different names and frame their ideas in different disciplines , we organize our services around our clients . the fundamental premise of our business is that our clients ' specific requirements should be the central focus in how we deliver our services and allocate our resources . this client-centric business model results in multiple agencies collaborating in formal and informal virtual networks that cut across internal organizational structures to deliver consistent brand messages for a specific client and execute against each of our clients ' specific marketing requirements . we continually seek to grow our business with our existing clients by maintaining our client-centric approach , as well as expanding our existing business relationships into new markets and with new clients . in addition , we pursue selective acquisitions of complementary companies with strong entrepreneurial management teams that typically currently serve or have the ability to serve our existing client base . as a leading global advertising , marketing and corporate communications company , we operate in all major markets around the world . we have a large and diverse client base . our largest client accounted for 2.6 % of our 2011 revenue and no other client accounted for more than 2.1 % of our 2011 revenue . our top 100 clients accounted for approximately 50 % of our 2011 revenue . our business is spread across a significant number of industry sectors with no one industry comprising more than 16 % of our 2011 revenue . although our revenue is generally balanced between the united states and international markets and we have a large and diverse client base , we are not immune to general economic downturns . 8 in 2011 , our revenue increased 10.6 % compared to 2010 . the increase reflects strong operating performance by our agencies , positive impact from foreign currency translation and an improvement in business conditions in our industry over 2010 . revenue increased across all our disciplines and geographic areas driven by strong operating performance in most of the developed markets we operate in and continued growth in the emerging markets in asia and latin america . our business and financial performance are impacted by global economic conditions . in 2011 , the united states experienced modest economic growth and the major economies of asia and latin america continued to expand . however , europe continued to experience economic difficulty and the economic conditions in europe continue to be negatively affected by the ongoing european sovereign debt crisis . if the economic conditions worsen , the downturn may expand beyond europe and could cause reductions in client spending levels and adversely affect our results of operations and financial position . we will continue to closely monitor economic conditions , client spending and other factors , and in response to reductions in client spending , if necessary , we will take actions available to us to align our cost structure and manage working capital . there can be no assurance whether , or to what extent , our efforts to mitigate any impact of future economic conditions , reductions in client spending patterns , changes in client creditworthiness and other developments will be effective . in the near term , barring unforeseen events and excluding foreign exchange impacts , as a result of increases in client spending and new business activities we expect our 2012 revenue to increase modestly in excess of average nominal gdp growth in our major markets . we expect to continue to identify acquisition opportunities that will build on the core capabilities of our strategic business platforms , expand our operations in the emerging markets and enhance our capabilities to leverage new technologies that are being used by marketers today . certain business trends have had a positive impact on our business and industry . these trends include our clients increasingly expanding the focus of their brand strategies from national markets to pan-regional and global markets and integrating traditional and non-traditional marketing channels , as well as utilizing new communications technologies and emerging digital platforms . additionally , in an effort to gain greater efficiency and effectiveness from their total marketing budgets , clients are increasingly requiring greater coordination of marketing activities and concentrating these activities with a smaller number of service providers . we believe these trends have benefited our business in the past and over the medium and long term will continue to provide a competitive advantage to us . effective february 1 , 2011 , we acquired a controlling interest in the clemenger group , our affiliate in australia and new zealand increasing our equity ownership to 73.7 % from 46.7 % . in connection with this transaction , we recorded a non-cash gain of $ 123.4 million in the first quarter of 2011 resulting from the remeasurement of the carrying value of our equity interest to the acquisition date fair value . this acquisition has and will continue to help us to further develop our combined businesses throughout the asia pacific region and further enhance our global capabilities . we have an objective of improving ebita margins to 2007 levels for the full year 2012. in connection with this objective , during 2011 we reviewed our businesses with a focus on enhancing our strategic position , improving our operations and rebalancing our workforce . story_separator_special_tag these estimates and assumptions affect the reported amounts of assets and liabilities including valuation allowances for receivables and deferred tax assets , accruals for incentive compensation and the disclosure of contingent liabilities at the date of the financial statements , as well as the reported amounts of revenue and expense during the reporting period . a fair value approach is used in testing goodwill for impairment and when evaluating our cost-method investments to determine if an other-than-temporary impairment has occurred . acquisitions and goodwill : we have made and expect to continue to make selective acquisitions . in making acquisitions , the valuation of potential acquisitions is based on various factors , including specialized know-how , reputation , competitive position , geographic coverage and service offerings of the target businesses , as well as our experience and judgment . business combinations are accounted for using the acquisition method and , accordingly , the identifiable assets acquired , the liabilities assumed and any noncontrolling interest in the acquired business are recorded at their acquisition date fair values . in circumstances where control is obtained and less than 100 % of an entity is acquired , we record 100 % of the goodwill acquired . acquisition-related costs , including advisory , legal , accounting , valuation and other costs , are expensed as incurred . any liability for contingent purchase price obligations ( earn-outs ) is recorded at the acquisition date fair value . subsequent changes in the fair value of the earn-out liability are recorded in our results of operations . the results of operations of acquired businesses are included in our results of operations from the acquisition date . in 2011 , we completed twelve acquisitions of new subsidiaries and made additional investments in businesses in which we had an existing minority ownership interest . goodwill from these transactions was $ 649.1 million . in addition , for acquisitions completed prior to january 1 , 2009 , we made contingent purchase price payments ( earn-outs ) of $ 79.2 million , which were included in goodwill . a summary of our contingent purchase price obligations for acquisitions completed prior to january 1 , 2009 is contained in the “ liquidity and capital resources ” section of this md & a . the amount of contingent purchase price obligations is based on 10 future performance . contingent purchase price obligations for acquisitions completed prior to january 1 , 2009 are accrued , in accordance with u.s. gaap , when the contingency is resolved and payment is certain . our acquisition strategy is focused on acquiring the expertise of an assembled workforce in order to continue to build upon the core capabilities of our various strategic business platforms and agency brands through the expansion of their geographic reach and or their service capabilities to better serve our clients . additional key factors we consider include the competitive position and specialized know-how of the acquisition targets . accordingly , as is typical in most service businesses , a substantial portion of the intangible asset value we acquire is the know-how of the people , which is treated as part of goodwill and is not valued separately . for each acquisition , we undertake a detailed review to identify other intangible assets and a valuation is performed for all such identified assets . a significant portion of the identifiable intangible assets acquired is derived from customer relationships , including the related customer contracts , as well as trade names . in valuing these identified intangible assets , we typically use an income approach and consider comparable market participant measurements . we evaluate goodwill for impairment at least annually at the end of the second quarter of the year . we identified our regional reporting units as components of our operating segments , which are our five agency networks . the regional reporting units of each agency network are responsible for the agencies in their region . they report to the segment managers and facilitate the administrative and logistical requirements of our client-centric strategy for delivering services to clients in their regions . we have concluded that for each of our operating segments , their regional reporting units have similar economic characteristics and should be aggregated for purposes of testing goodwill for impairment at the operating segment level . our conclusion was based on a detailed analysis of the aggregation criteria set forth in fasb asc topic 280 , segment reporting , and the guidance set forth in fasb asc topic 350 , intangibles - goodwill and other . consistent with our fundamental business strategy , the agencies within our regional reporting units serve similar clients in similar industries , and in many cases the same clients . in addition , the agencies within our regional reporting units have similar economic characteristics , including similar costs and long-term profit contribution . the main economic components of each agency are employee compensation and related costs and direct service costs and office and general costs , which include rent and occupancy costs , technology costs that are generally limited to personal computers , servers and off-the-shelf software and other overhead expenses . finally , the expected benefits of our acquisitions are typically shared across multiple agencies and regions as they work together to integrate the acquired agency into our client service strategy . estimates and assumptions - goodwill impairment review : we use the following valuation methodologies to determine the fair value of our reporting units : ( 1 ) the income approach , which utilizes discounted expected future cash flows , ( 2 ) comparative market participant multiples for ebitda ( earnings before interest , taxes , depreciation and amortization ) , and ( 3 ) when available , consideration of recent and similar purchase acquisition transactions . in applying the income approach , we use estimates to derive the expected discounted cash flows ( “ dcf ” ) for each reporting unit that serves as the basis of our valuation .
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results of operations - 2010 compared to 2009 : replace_table_token_11_th ebita , which we define as earnings before interest , taxes and amortization of intangible assets , and ebita margin , which we define as ebita divided by revenue , are non-gaap measures . we use ebita and ebita margin as additional operating performance measures which exclude the non-cash amortization expense of acquired intangible assets . the table above reconciles ebita and ebita margin to the u.s. gaap financial measure of operating income for the periods presented . we believe that ebita and ebita margin are useful measures to evaluate the performance of our businesses . non-gaap financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with u.s. gaap . non-gaap financial measures reported by us may not be comparable to similarly titled amounts reported by other companies . revenue : revenue in 2010 increased 7.0 % to $ 12,542.5 million from $ 11,720.7 million in 2009 . organic growth increased revenue by $ 749.1 million , foreign exchange impacts increased revenue by $ 17.1 million and acquisitions , net of dispositions , increased revenue by $ 55.6 million . the components of 2010 revenue change in the united states ( “ domestic ” ) and the remainder of the world ( “ international ” ) were ( in millions ) : replace_table_token_12_th 18 the components and percentages are calculated as follows : the foreign exchange impact is calculated by first converting the current period 's local currency revenue using the average exchange rates from the equivalent prior period to arrive at a constant currency revenue ( in this case $ 12,525.4 million for the total column in the table for the year ) .
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% from 2018. gross margin for the year ended december 31 , 2019 was 18.7 % , compared to 18.0 % for the year ended december 31 , 2018. we recorded a net loss of $ 7,188,727 in 2019 compared to a net loss of $ 5,694,699 in 2018 , an increase of net loss of $ 1,494,028 or 26.2 % . the current subsidy standard is provided for in the circular on further improving the subsidy policies for the promotion and application of new energy vehicles , which was jointly promulgated by the ministry of finance , the ministry of science and technology , the ministry of industry and information technology and the national development and reform commission in 2019. the current subsidy standard reduces the amount of national subsidies and cancels local subsidies , resulting in a significant reduction in the total subsidy amount as compared to 2018. we believe the new subsidy standard presents both challenges and opportunities to the company . in the past few years , although the government had a strong support policy for new energy vehicles , the unstable subsidy policy and the unpredictable timing of receiving such subsidies have exerted tremendous pressure on the company 's cash flow . currently , in order to adapt to the new subsidy standard , the affiliate company is making full use of geely 's resources and developing new models with goals to be independent of the government 's subsidies and have strong competitiveness at the same time . on january 13 , 2020 , the affiliate company hosted a launch ceremony to celebrate the release of its first production electric vehicle : the maple model 30x ( or maple 30x ) at its jiangsu subsidiary . on april 13 , 2020 , the maple 30x was revealed in an online brand launch ceremony and was available for immediate pre-order . through the equity transfer of the affiliate company , although our share of the affiliate company decreased to 22 % , we believe our 22 % share of income from the affiliate company will exceed our 50 % share of income before the equity transfer . we are working on developing new business partners and clients for our products to reduce our dependence on existing customers and is focusing our new business development efforts on ev parts and intelligent transportation products . on march 4 , 2019 , in order to build a logistics network composed of suppliers , manufacturers , warehouses , distribution centers and channel providers , meeting the needs of improving production and operation efficiency , the company participated in the formation of zhejiang kandi supply chain management co. , ltd. ( “ supply chain company ” ) . kandi vehicles has a 10 % ownership interest in supply chain company , the remaining 90 % is owned by unrelated other parties . through centralized purchasing from supply chain company , the company can reduce the purchasing cost by 3 % to 5 % . the covid-19 will affect the company 's business performance in 2020. however , , the extent to which the covid-19 impacts our operations will depend on future developments , which are highly uncertain and can not be predicted with confidence , including the duration of the outbreak , new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact , among others . the company originally planned to export 2,000 to 5,000 units electric vehicles to the u.s. in 2020 , but due to the covid-19 pandemic in the first half of 2020 , the plan should be adjusted according to the situation of covid-19 control in the u.s. 20 story_separator_special_tag 6pt ; border-bottom : black 1.5pt solid '' > 23 gross profit for the year ended december 31 , 2019 was $ 25,430,909 , as compared to $ 20,247,445 for the year ended december 31 , 2018 , representing an increase of $ 5,183,464 or 25.6 % from 2018. the increases were primarily attributable to the increased sales in 2019 as compared to that in 2018. our gross margin for the year ended december 31 , 2019 , was 18.7 % , compared to 18.0 % for the year ended december 31 , 2018. the increase in our gross margin as compared to 2018 was mainly due to due to the increased selling price of the charging and exchanging equipment and the increased proportion of the high-margin battery processing business in 2019. research and development research and development expenses , including materials , labor , equipment depreciation , design , testing , inspection , and other related expenses totaled $ 6,207,747 for the year ended december 31 , 2019 , compared to $ 10,084,378 for the year ended december 31 , 2018 , representing a decrease of $ 3,876,631 , or 38.4 % , from 2018. this decrease was primarily due to the completion of r & d works related to the development of ev model k23 at hainan facility in the third quarter of 2018. for the year ended december 31 , 2019 and 2018 , approximately 0 % and 66.2 % of our research and development expenses were spent on the research and development of ev product model at hainan facility , respectively . sales and marketing selling and distribution expenses were $ 4,070,001 for the year ended december 31 , 2019 , compared to $ 3,189,022 for the year ended december 31 , 2018 , representing an increase of $ 880,979 , or 27.6 % from 2018. this increase compare to 2018 was primarily attributable to the increasing labor and advertising expenses in connection with the expansion the u.s. electric vehicle market of $ 2 million offset by the decreasing after sales service fee in 2019. general and administrative expenses general and administrative expenses were $ 14,243,625 for the year ended december 31 , 2019 , compared to $ 8,612,393 for the year ended december 31 , 2018 , representing an increase of $ 5,631,232 or 65.4 % from 2018. for the year ended story_separator_special_tag we have a 22 % ownership interest in the affiliate company , which has an applicable corporate income tax rate of 25 % . each of the affiliate company 's subsidiaries has an applicable corporate income tax rate of 25 % as well . our actual effective income tax rate for 2019 was a tax benefit of 8.78 % on a reported loss before taxes of approximately $ 7.9 million , compared to a tax expense of 374.30 % on a reported income before taxes of approximately $ 2.1 million for 2018. net income ( loss ) we recorded net loss of $ 7,188,727 for the year ended december 31 , 2019 , compared to net loss of $ 5,694,699 for the year ended december 31 , 2018 , an increase of net loss of $ 1,494,028 from the year ended december 31 , 2018. the increase in net loss compared to 2018 was primarily attributable to the increased operation cost and decreased government grants of hainan facility . 25 liquidity and capital resources cash flow replace_table_token_8_th for the year ended december 31 , 2019 , cash used in operating activities was $ 29,886,272 , as compared to cash provided in operating activities was $ 13,587,621 for the year ended december 31 , 2018. our operating cash inflows include cash received primarily from sales of our ev parts and off-road vehicles . these cash inflows are offset largely by cash paid primarily to our suppliers for production materials and parts used in our manufacturing process , operation expenses , employee compensation , and interest expenses of our financings . the major operating activities that provided cash for the year ended december 31 , 2019 were an increase of accounts payable of $ 10,440,338. the major operating activity that used cash for year ended december 31 , 2019 was an increase of accounts receivable of $ 40,123,966. for the year ended december 31 , 2019 , cash provided in investing activities was $ 31,252,624 , as compared to cash used from investing activities of $ 947,441 for the year ended december 31 , 2018. the major investing activities that provided cash for the year ended december 31 , 2019 were an increase of cash received from equity sale in the affiliate company of $ 31,850,822. the major investing activities that used cash for the year ended december 31 , 2019 were $ 526,336 used for the purchases of property , plant and equipment . for the year ended december 31 , 2019 , cash used in financing activities was $ 6,980,649 , as compared to cash used in financing activities of $ 5,297,724 for the year ended december 31 , 2018. the major financing activities that provided cash for the year ended december 31 , 2019 were proceeds from short-term bank loans of $ 34,746,352. the major financing activities that used cash for year ended december 31 , 2019 were repayments of short-term bank loans of $ 38,944,869. working capital we had a working capital of $ 63,698,697 at december 31 , 2019 , an increase of $ 61,171,786 from a working capital of $ 2,526,911 as of december 31 , 2018. after two years of negotiation , on march 9 , 2020 , a real estate repurchase agreement was entered into by and between between kandi vehicles and jinhua economic and technological development zone that will enable kandi vehicles to optimize its production efficiency , lower operating costs , and generate a substantial cash inflow of rmb 525 million ( usd 75.6 million ) and will get no less than rmb 500 million ( usd 71.9 million ) subsidies based on kandi vehicle 's financial contribution to the local department of finance within the next eight years by monetizing one of its largest assets . 26 contractual obligations and off-balance sheet arrangements short-term and long-term loans : for the discussion of guarantees for bank loans , please refer to note 17 - short-term and long-term loans under item 8 notes to consolidated financial statements . notes payable : for the discussion of guarantees for bank loans , please refer to note 18 - notes payable under item 8 notes to consolidated financial statements . guarantees and pledged collateral for third party bank loans for the discussion of guarantees for bank loans , please refer to note 24 - commitments and contingencies under item 8 notes to consolidated financial statements . critical accounting policies and related estimates that could have a material effect on our consolidated financial statements this section should be read together with the summary of significant accounting policies in the attached consolidated financial statements included in this annual report . estimates affecting accounts receivable and inventories the preparation of our consolidated financial statements requires management to make estimates and assumptions that affect our reporting of assets and liabilities ( and contingent assets and liabilities ) . these estimates are particularly significant where they affect the reported net realizable value of our accounts receivable and inventories . accounts receivable are recognized and carried at net realizable value . an allowance for doubtful accounts is recorded for periods in which the company determines a loss is probable , based on its assessment of specific factors , such as troubled collections , historical experience , accounts aging , ongoing business relations and other factors . accounts are written off after exhaustive collection efforts . if accounts receivable are to be provided for , or written off , they are recognized in the consolidated statement of operations within the operating expenses line item . if accounts receivable previously written off is recovered in a later period or when facts subsequently become available to indicate that the amount provided as an allowance for doubtful accounts was incorrect , an adjustment is made to restate allowance for doubtful accounts . as of december 31 , 2019 and december 31 , 2018 , credit terms with the company 's customers were typically 180 to 360 days after delivery .
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results of operations comparison of years ended december 31 , 2019 and 2018 the following table sets forth the amounts and the percentage relationship to revenues of certain items in our consolidated statements of operations for the years ended december 31 , 2019 and 2018 : replace_table_token_4_th 21 revenues for the year ended december 31 , 2019 , we had net revenues of $ 135,741,336 compared to net revenues of $ 112,438,828 for the year ended december 31 , 2018 , representing an increase of $ 23,302,508 , or 20.7 % , from 2018. compared to 2018 , the increase in revenue was primarily due to the increase in sales of ev parts and off-road vehicles . the following table summarizes our revenues by product type for the years ended december 31 , 2019 and 2018 : replace_table_token_5_th ev parts during the year ended december 31 , 2019 , our revenue from the sale of ev parts was $ 110,675,908 , representing an increase of $ 11,576,596 or 11.7 % from $ 99,099,312 for the year ended december 31 , 2018. the increase was mainly due to the sales from r ental market battery maintenance and developing new clients in 2019. our revenue for the year ended december 31 , 2019 primarily consisted of revenue from the sales of battery packs , body parts , ev controllers , air conditioning units and other auto parts for use in the manufacturing of ev products . these sales accounted for 81.5 % of total sales . during the years ended december 31 , 2019 and 2018 , our revenues from the sale of ev parts to the affiliate company accounted approximately 11.7 % and 43.3 % of our total net revenue for the year , respectively . the decrease is mainly due to the affiliate company 's temporary declining sales , which was caused by its product adjustments .
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this guidance must be applied prospectively and will become effective for valvoline on october 1 , 2020 , with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after january 1 , 2017. valvoline 's annual evaluation of goodwill for impairment is performed as of july 1. as this guidance simplifies the process for measuring impairment , management does not expect there will be an impact on the consolidated financial statements given the company 's historical excess fair value of its reporting units . in march story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and the accompanying notes to consolidated financial statements included in item 8 of part ii of this annual report on form 10-k. business overview valvoline is a worldwide producer , marketer and supplier of engine and automotive maintenance products and services . in the united states and canada , valvoline 's products and services are sold to retailers with over 30,000 retail outlets , to installer customers with over 12,000 locations , and through 1,127 valvoline branded franchised and company-owned stores . valvoline also has a strong international presence with products sold in approximately 140 countries . valvoline serves its customer base through an extensive sales force and technical support organization , allowing valvoline to leverage its technology portfolio and customer relationships globally , while meeting customer demands locally . this combination of scale and strong local presence is critical to the company 's success . valvoline is one of the most recognized and respected premium consumer brands in the global automotive lubricant industry , known for high quality products and superior levels of service . established in 1866 , valvoline 's heritage spans over 150 years , during which it has developed powerful name recognition across multiple product and service channels . valvoline also has a history of leading innovation with revolutionary products such as all climate , durablend , and maxlife . in addition to the iconic valvoline-branded passenger car motor oils and other automotive lubricant products , valvoline provides a wide array of lubricants used in heavy duty equipment , as well as automotive chemicals and fluids designed to improve engine performance and lifespan . valvoline 's premium branded product offerings enhance its high quality reputation and provide customers with solutions that address a wide variety of needs . valvoline 's fiscal year ends on september 30 of each year , and valvoline has three reportable segments : core north america , quick lubes , and international , with certain corporate and non-operational items included in unallocated and other to reconcile to consolidated results . refer to item 1 included in part i of this annual report on form 10-k for a description of valvoline 's reportable segments . 2017 overview separation from ashland on may 12 , 2017 , ashland completed the distribution of 170 million shares of common stock of valvoline to ashland stockholders ( the “ distribution ” ) through a pro rata dividend on shares of ashland common stock outstanding at the close of business on the record date of may 5 , 2017. based on the shares of ashland common stock outstanding as of may 5 , 2017 , each share of ashland common stock received 2.745338 shares of valvoline common stock in the distribution , marking the completion of valvoline 's separation from ashland . effective upon the distribution , ashland no longer owned any shares of valvoline common stock , and valvoline was no longer a controlled and consolidated subsidiary of ashland . valvoline incurred certain costs related to the separation from ashland , which are recorded within separation costs in the consolidated statements of comprehensive income included in item 8 of part ii of this annual report on form 10-k. during the years ended september 30 , 2017 and 2016 , valvoline recognized separation costs of $ 32 million and $ 6 million , respectively , which were primarily related to nonrecurring expenses , including legal , consulting , accounting , and other professional fees , including a success fee related to completing the distribution , as well as employee costs and expenses to separate information technology platforms . valvoline expects to incur nominal costs related to the separation from ashland in fiscal 2018. quick lubes acquisitions during the year ended september 30 , 2017 , valvoline acquired 43 company-owned stores within the quick lubes reportable segment , including 28 stores related to the acquisition of the business assets from time-it lube llc and time-it lube of texas , lp ( “ time-it lube ” ) in the second fiscal quarter of 2017. refer to note 4 of the notes to consolidated financial statements in item 8 of part ii of this annual report on form 10-k for additional information on the acquisitions completed during fiscal 2017 . 28 pension de-risking actions during the fourth fiscal quarter of 2017 , the company took a number of actions to reduce the risk and volatility associated with the u.s. qualified pension plan that was transferred from ashland to valvoline in fiscal 2016 prior to valvoline 's ipo . valvoline made a discretionary contribution of $ 394 million to the u.s. qualified pension plan funded by the net proceeds from the issuance of 4.375 % senior unsecured notes due 2025 ( the “ 2025 notes ” ) with an aggregate principal amount of $ 400 million as described further in note 11 of the notes to consolidated financial statements included in item 8 of part ii of this annual report on form 10-k. in addition , valvoline purchased a non-participating annuity contract using plan assets for an insurer to pay and administer future pension benefits for approximately 6,000 participants within the qualified u.s. pension plan . as a result , valvoline transferred $ 585 million of pension benefit obligations in exchange for a similar amount of plan assets . story_separator_special_tag for further information on the actuarial assumptions and plan assets referenced above , see “ critical accounting policies-employee benefit obligations ” within this item 7 and note 12 of the notes to consolidated financial statements included in item 8 of part ii of this annual report on form 10-k. management uses free cash flow as an additional non-gaap metric of cash flow generation . by deducting capital expenditures and adding discretionary contributions to pension plans , management is able to provide a better indication of the ongoing cash being generated that is ultimately available for both debt and equity holders as well as other investment opportunities . unlike cash flow from operating activities , free cash flow includes the impact of capital expenditures , providing a more complete picture of cash generation . free cash flow has certain limitations , including that it does not reflect adjustments for certain non-discretionary cash flows , such as allocated costs and mandatory debt repayments . the amount of mandatory versus discretionary expenditures can vary significantly between periods . valvoline 's results of operations are presented based on valvoline 's management structure and internal accounting practices . the structure and practices are specific to valvoline ; therefore , valvoline 's financial results , ebitda , adjusted ebitda and free cash flow are not necessarily comparable with similar information for other comparable companies . ebitda , adjusted ebitda and free cash flow each have limitations as analytical tools and should not be considered in isolation from , or as an alternative to , or more meaningful than , net income and cash flows from operating activities as determined in accordance with u.s. gaap . because of these limitations , you should rely primarily on net income and cash flows from operating activities as determined in accordance with u.s. gaap and use ebitda , adjusted ebitda , and free cash flow only as supplements . in evaluating ebitda , adjusted ebitda , and free cash flow , you should be aware that in the future valvoline may incur expenses similar to those for which adjustments are made in calculating ebitda , adjusted ebitda , and free cash flow . valvoline 's presentation of ebitda , adjusted ebitda , and free cash flow should not be construed as a basis to infer that valvoline 's future results will be unaffected by unusual or nonrecurring items . 30 the following table reconciles ebitda and adjusted ebitda to net income for the three annual periods presented . replace_table_token_7_th ( a ) includes recurring net periodic pension and other postretirement cost/income , which consists of service cost , interest cost , expected return on plan assets and amortization of prior service credit . fiscal 2017 included income of $ 68 million , fiscal 2016 included income of $ 7 million , and the impact in fiscal 2015 was less than $ 1 million . net periodic pension and other postretirement income is disclosed in further detail in note 14 of the notes to consolidated financial statements included in item 8 of part ii of this annual report on form 10-k. ebitda and adjusted ebitda the increase in adjusted ebitda of $ 60 million in 2017 was primarily due to an increase in pension and other postretirement non-service income of $ 53 million in 2017 , solid performance by the reportable segments led by quick lubes , and offset by investments in the company 's stand-alone public company infrastructure . the increase in adjusted ebitda of $ 36 million from 2015 to 2016 is primarily attributed to strong performance of the reportable segments , notably the mix and volume gains in core north america and quick lubes as well as improved raw materials cost , partially offset by international primarily due to the negative impact of foreign currency exchange . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; '' > 2017 compared to 2016 total operating expense decreased $ 78 million , or 22 % , during 2017 as compared to 2016. key drivers of this decrease were : a decrease of $ 114 million related to pension and other postretirement plan non-service income and remeasurement adjustments . specifically , during 2017 , remeasurement gains of $ 66 million were recognized along with pension and other postretirement plan non-service income of $ 70 million . this compared to remeasurement gains of $ 11 million and non-service income of $ 11 million in 2016 ; a $ 16 million benefit for a reduction in amounts due to ashland under the tax matters agreement as a result of ashland 's utilization of valvoline tax attributes in the ashland group income tax returns ; and a $ 5 million benefit related to a change in estimate for insurance reserves . these decreases were partially offset by increased separation costs of $ 26 million and approximately $ 3 million in costs from acquisitions . additionally , overall spend compared to the prior year increased primarily as a result of establishing valvoline as a stand-alone public company . the spend for people and professional assistance necessary to operate independently more than offset a decrease in allocated corporate costs from the company 's former parent . 2016 compared to 2015 operating expense decreased $ 21 million , or 6 % , during 2016 as compared to 2015. key drivers of this decrease were : a decrease of $ 44 million related to the pension and other postretirement costs . specifically , during 2016 , remeasurement gains of $ 11 million were recognized along with pension and other postretirement plan non-service income of $ 11 million . this compared to remeasurement losses of $ 28 million and non-service income of $ 6 million in 2015 ; 33 a decrease in spending of $ 6 million due to the divestiture of car care products ; and a decrease of $ 5 million due to favorable currency exchange impacts .
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results of operations consolidated review a comparative analysis of the consolidated statements of comprehensive income by caption is provided as follows for the years ended september 30 , 2017 , 2016 and 2015. replace_table_token_8_th 31 the following table provides a reconciliation of the change in sales between fiscal years 2017 and 2016 and between fiscal years 2016 and 2015. replace_table_token_9_th 2017 compared to 2016 sales increased $ 155 million , or 8 % , to $ 2,084 million in 2017. the primary drivers of this increase were higher volume levels and higher product pricing , which increased sales by $ 57 million , or 3 % and $ 37 million , or 2 % , respectively . favorable changes in product mix with increases in the percentage of sales for premium lubricants in core north america and quick lubes and favorable foreign currency exchange increased sales by $ 29 million , or 2 % , and $ 2 million , respectively . during 2017 , lubricant gallons sold increased 3 % to 179.7 million . acquisitions within the quick lubes reportable segment increased sales by $ 30 million , or 2 % during 2017 . 2016 compared to 2015 sales decreased $ 38 million , or 2 % , to $ 1,929 million in 2016. lower product pricing and unfavorable foreign currency exchange decreased sales by $ 94 million , or 5 % , and $ 31 million , or 2 % , respectively . unfavorable foreign currency exchange was due to the u.s. dollar strengthening compared to various foreign currencies , primarily the australian dollar , euro and the chinese yuan . higher volume levels and changes in product mix increased sales by approximately $ 68 million , or 3 % , and approximately $ 29 million , respectively . during 2016 , lubricant gallons sold increased 4 % to 174.5 million .
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we are currently evaluating the impact , if any , the story_separator_special_tag overview the following is a discussion of our operating results and the primary trends that affect our business . certain of these trends and other statements made herein may be `` forward-looking '' within the meaning of the private securities litigation reform act of 1995. such statements are included herein because we believe that an understanding of these trends is important to understand our results for fiscal 2008 , as well as our future prospects . this summary is not intended to be exhaustive , nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this form 10-k , including in the remainder of `` management 's discussion and analysis of financial condition and results of operations '' or the consolidated financial statements and related notes . the discussion and analysis herein may be understood more fully by reference to the consolidated financial statements and notes to the consolidated financial statements . additionally , readers should refer to our cautionary statement on page 1 herein as well as `` risk factors '' set forth in item 1a . all references to `` we , '' `` us , '' `` our , '' `` thq , '' or the `` company '' in the following discussion and analysis mean thq inc. and its subsidiaries . overview of fiscal 2008 results net sales in fiscal 2008 were $ 1,030.5 million , up from $ 1,026.9 million . year-over-year growth in the wwe franchise was due to strong sales of wwe smackdown vs. raw 2008 , which shipped six million units in fiscal 2008 , and the strong performance of our owned intellectual properties , mx vs. atv untamed , frontlines : fuel of war and drawn to life , was largely offset by weakness in our kids games and under-performance of the juiced 2 : hot import nights , stuntman : ignition and conan titles relative to our expectations . despite higher sales in fiscal 2008 , our operating margin was ( 9 ) % as compared to 8 % in fiscal 2007. the decline in operating margin was primarily due to higher sales returns and allowances , accelerated amortization of software development , write-offs related to the cancellation of projects in development , higher product development expenses and higher selling and marketing expenses as a percentage of net sales in fiscal 2008 as compared to fiscal 2007. our net loss from continuing operations for fiscal 2008 was $ 36.8 million , or $ 0.55 per diluted share , compared to net income from continuing operations of $ 65.0 million , or $ 0.96 per diluted share , for fiscal 2007. our net loss for fiscal 2008 was $ 35.3 million , or $ 0.53 per diluted share , and included a $ 1.5 million gain on sale of discontinued operations . cash used in operations was $ 9.7 million during fiscal 2008 , as compared to cash provided by operations of $ 64.0 million in fiscal 2007. the increase in cash used was primarily a result of our fiscal 2008 net loss as compared to fiscal 2007 net income and an increase in accounts receivable due to higher net sales and the timing of product releases in the three months ended march 31 , 2008 as compared to the same period last fiscal year , partially offset by higher non-cash amortization of licenses and software development in fiscal 2008 as compared to fiscal 2007. trends affecting our business we operate in one business segment : video game development , publishing and distribution . we derive revenue principally from sales of packaged interactive software games designed for play on video game consoles , handheld devices and personal computers . the significant trends that affect our business include the following : products . in order to increase revenues while facing higher development costs , we believe it is increasingly important in our industry to have a robust and diversified product portfolio . the success of our product portfolio relative to our competition is a principle driver of our continued success . in recent years , we have focused our efforts on growing both our owned intellectual properties and our licensed brands . as a result of these efforts , we believe we can continue to grow our revenues at or above the video game software market growth rate . 25 development costs . the current generation consoles have increased functionality ( e.g . realistic environments and artificial intelligence ) over their legacy counterparts . the increased functionality delivers a more exciting gaming experience but adds complexity to the development of video games for these new consoles . this complexity increases the overall cost to develop these games and accordingly , during fiscal 2009 , we expect our average software development costs to increase as we develop more games for these new consoles . online gaming . online gaming is growing rapidly in popularity . according to the npd report , `` online gaming 2007 : the virtual landscape , '' 62 % of gamers report playing games online . with technology advances over the past few years , gamers can play online via pc , console and handheld systems . in fiscal 2008 , we launched frontlines : fuel of war , which had online capability . mmo gaming has become popular , especially in asia . in fiscal 2009 , we plan to launch company of heroes online in the chinese market , which marks our first entry into the free-to-play , pay for download model of video games . platform market segmentation . in fiscal 2008 , our industry continued to transition from the legacy consoles to the current generation consoles , microsoft xbox 360 , sony playstation 3 ( `` ps3 '' ) and nintendo wii . additionally , the nintendo ds and sony psp handhelds continued to grow . with the current generation of console systems and current handheld platforms , we believe segmenting our market will be extremely important . story_separator_special_tag the recoverability of capitalized license costs is evaluated based on the expected performance of the specific products in which the licensed trademark or copyright is to be used . as many of our licenses extend for multiple products over multiple years , we also assess the recoverability of capitalized license costs based on certain qualitative factors such as the success of other products and or entertainment vehicles utilizing the intellectual property , whether there are any future planned theatrical releases or television series based on the intellectual property and the rights holder 's continued promotion and exploitation of the intellectual property . prior to the related product 's release , we expense , as part of cost of saleslicense amortization and royalties , capitalized license costs when we estimate such amounts are not recoverable . licenses are expensed to cost of saleslicense amortization and royalties at the higher of ( i ) the contractual royalty rate based on actual net product sales related to such license , or ( ii ) an effective rate based upon total projected revenue related to such license . when , in management 's estimate , future cash flows will not be sufficient to recover previously capitalized costs , we expense these capitalized costs to cost 27 of saleslicense amortization and royalties . if actual revenues or revised forecasted revenues fall below the initial forecasted revenue for a particular license , the charge to cost of saleslicense amortization and royalties expense may be larger than anticipated in any given quarter . as of march 31 , 2008 , the net carrying value of our licenses was $ 86.8 million . if we were required to write off licenses , due to changes in market conditions or product acceptance , our results of operations could be materially adversely affected . software development . we utilize both internal development teams and third-party software developers to develop our software . we account for software development costs in accordance with financial accounting standards board ( `` fasb '' ) statement of financial accounting standard ( `` sfas '' ) no . 86 , `` accounting for the costs of computer software to be sold , leased , or otherwise marketed '' ( `` fas 86 '' ) . we capitalize software development costs once technological feasibility is established and we determine that such costs are recoverable against future revenues . for products where proven game engine technology exists , this may occur early in the development cycle . we capitalize the milestone payments made to third-party software developers and the direct payroll and overhead costs for our internal development teams . we evaluate technological feasibility on a product-by-product basis . amounts related to software development for which technological feasibility is not yet met are charged as incurred to product development expense in our consolidated statements of operations . on a quarterly basis , we compare our unamortized software development costs to net realizable value , on a product-by-product basis . the amount by which any unamortized software development costs exceed their net realizable value is charged to cost of salessoftware amortization and royalties . the net realizable value is the estimated future net revenues from the product , reduced by the estimated future direct costs associated with the product such as completion costs , cost of sales and advertising . commencing upon product release , capitalized software development costs are amortized to cost of salessoftware amortization and royalties based on the ratio of current gross revenues to total projected gross revenues . if actual gross revenues , or revised projected gross revenues , fall below the initial projections , the charge to cost of salessoftware amortization and royalties may be larger than anticipated in any given quarter . in fiscal 2008 , we recorded approximately $ 35.4 million of accelerated amortization due to the underperformance of certain previously released games and approximately $ 23.9 million of additional amortization expense related to the cancellation of certain games . as of march 31 , 2008 , the net carrying value of our software development was $ 181.2 million . the milestone payments made to our third-party developers during their development of our games are typically considered non-refundable advances against the total compensation they can earn based upon the sales performance of the products . any additional compensation earned beyond the milestone payments is expensed to cost of salessoftware amortization and royalties as earned . goodwill and other intangible assets . we perform our annual review for goodwill impairment on the first day of our fourth fiscal quarter , or more frequently if indicators of potential impairment exist . we performed an annual review of goodwill impairment in each of the fiscal years ended march 31 , 2008 , 2007 and 2006 and found no impairment . our impairment review process is based on a discounted future cash flow approach that uses our estimates of revenue for our reporting unit , driven by anticipated success of our products and product release schedules , and estimated costs as well as appropriate discount rates . these estimates are consistent with the plans and estimates that we use to manage the underlying business . all identifiable intangible assets with finite lives will continue to be amortized over their estimated useful lives and assessed for impairment under sfas no . 144 , `` accounting for the impairment or disposal of long-lived assets . '' based on these judgments and assumptions , we determine whether we need to take an impairment charge to reduce the value of the goodwill and indefinite-lived intangible assets stated on our balance sheets to reflect their estimated fair values . judgments and assumptions about future values are complex and often subjective . they can be affected by a variety of factors , including , but not limited to , significant negative industry or economic trends , significant changes in the manner or use of the acquired assets or the strategy 28 of our overall business and significant underperformance relative to expected historical or projected future operating results .
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results of operations comparison of fiscal 2008 to fiscal 2007 our net loss from continuing operations for fiscal 2008 was $ 36.8 million , or $ 0.55 per diluted share , compared to net income from continuing operations of $ 65.0 million , or $ 0.96 per diluted share , for fiscal 2007. our net loss for fiscal 2008 was $ 35.3 million , or $ 0.53 per diluted share , and included a $ 1.5 million gain on sale of discontinued operations . net sales we derive revenue principally from sales of packaged interactive software games designed for play on video game consoles , handheld devices and personal computers . we also derive revenue through downloads by mobile phone users of our wireless content . in fiscal 2008 , we deferred revenue for one of our titles , frontlines : fuel of war , on both pc and xbox 360. we will recognize revenue from the sale of this title over an estimated service period of six months , beginning the month after shipment . at march 31 , 2008 the deferred revenue related to this game was $ 30.9 million and is included within accrued and other current liabilities in our consolidated balance sheet . at march 31 , 2008 the deferred costs related to this game were $ 20.7 million and are included within software development and prepaid expenses and other current assets in our consolidated balance sheet . the following table details our net sales by territory for fiscal 2008 and fiscal 2007 ( in thousands ) : replace_table_token_9_th net sales increased by $ 3.6 million in fiscal 2008 as compared to fiscal 2007 , from $ 1,026.9 million to $ 1,030.5 million . worldwide net sales in fiscal 2008 were primarily driven by sales of wwe smackdown vs. raw ! 2008 , ratatouille and sales of our catalog titles .
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vernon has enjoyed a long career in the industrial engineering industry , with broad experience in strategic planning , operations management , marketing , sales and new product development . he has travelled extensively , visiting over 65 countries worldwide , and has established businesses and manufacturing operations in many emerging markets . since april 2008 , mr. vernon has served as group chief executive officer of spirax-sarco a multi-national industrial engineering company headquartered in the uk , comprising more than 50 operating companies located in 35 countries around the world with revenues exceeding $ 1 billion . mr. vernon joined spirax-sarco in 2003 as president of the group 's usa operating company before being appointed to their board of story_separator_special_tag forward looking statements certain statements made in this annual report on form 10-k are “ forward-looking statements ” regarding the plans and objectives of management for future operations and market trends and expectations . such statements involve known and unknown risks , uncertainties and other factors that may cause our actual results , performance or achievements to be materially different from any future results , performance or achievements expressed or implied by such forward-looking statements . the forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties . our plans and objectives are based , in part , on assumptions involving the continued expansion of our business . assumptions relating to the foregoing involve judgments with respect to , among other things , future economic , competitive and market conditions and future business decisions , all of which are difficult or impossible to predict accurately and many of which are beyond our control . although we believe that our assumptions underlying the forward-looking statements are reasonable , any of the assumptions could prove inaccurate and , therefore , there can be no assurance that the forward-looking statements included in this report will prove to be accurate . in light of the significant uncertainties inherent in the forward-looking statements included herein , the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved . we undertake no obligation to revise or update publicly any forward-looking statements for any reason . overview we are a nevada corporation , formerly named blue moose media , inc. in october , 2011 , we changed our name to liqtech international , inc. we have for more than a decade developed and manufactured products of re-crystallized silicon carbide . among these , we have been specializing in three business areas : ceramic membranes for liquid filtration , diesel particulate filters for the control of soot exhaust particles from diesel engines and kiln furniture for the refractory industry . we are a cleantech company that provides state-of-the-art technologies for gas and liquid purification by manufacturing ceramic silicon carbide filters . using nanotechnology , we develop proprietary products using patented silicon carbide technology . our products are based on unique silicon carbide membranes which facilitate new applications and improve existing technologies . reverse acquisition on august 24 , 2011 , pursuant to the merger agreement by and among blue moose , bmd sub and liqtech usa , bmd sub was merged with and into liqtech usa and , as a result of the merger , liqtech usa became a wholly owned subsidiary of blue moose . pursuant to the merger , ( a ) each of the 17,444.75 outstanding shares of the common stock of liqtech usa was exchanged for 1,000 shares of our common stock , for a total of 17,444,750 shares of our common stock resulting in 21,600,000 shares of our common stock being outstanding immediately following the merger and ( b ) warrants to acquire up to 6,500 shares of liqtech usa 's common stock at a price of $ 1,500 per share , were by their terms , converted into warrants to acquire up to 6,500,000 shares of our common stock at a price of $ 1.50 per share . liqtech usa owns all of the outstanding equity interests in liqtech denmark , liqtech int . dk ( formerly known as cometas ) and liqtech delaware . in june and july 2011 , liqtech usa entered into agreements to acquire ( i ) all of the outstanding equity interests in liqtech denmark and ( ii ) all of the outstanding equity interests in liqtech int . dk and liqtech delaware not owned by liqtech denmark , directly from the holders of such equity interests ( the “ liqtech acquisition agreements ” ) . in exchange for such equity interests , liqtech usa agreed to pay to such holders in the aggregate ( i ) $ 4,637,315 in cash , ( ii ) promissory notes in the principal amounts of dkk 19,500,000 ( which was equal to $ 3,765,351 based upon the currency exchange rate of $ 1.00 = dkk 5.1788 as of august 22 , 2011 ) and ( iii ) 9,308,333 shares of liqtech usa 's common stock . prior to completion of the merger , liqtech usa completed a private placement offering of 63 units at $ 100,000 per unit , each such unit consisting of 40 shares of liqtech usa 's common stock and 20 warrants to purchase liqtech usa common stock , and received $ 4,800,000 in cash and a promissory note for $ 1,500,000 payable on september 7 , 2011. thereafter , in august 2011 , liqtech usa closed the transactions contemplated by the liqtech acquisition agreements . as a result of the merger , blue moose changed its management and reconstituted its board of directors . as of the effective time of the merger , gordon tattarsall , the president , the chief financial officer and the sole director of blue moose , resigned as president and chief financial officer . as blue moose 's sole director , mr. tattersall appointed aldo petersen as a director of blue moose . story_separator_special_tag at december 31 , 2012 , we had cash of $ 3,873,338 and working capital of $ 8,069,595 and at december 31 , 2011 we had cash of $ 1,033,057 and working capital of $ 1,878,203. at december 31 , 2012 , our working capital increased by $ 6,191,392. total current assets were $ 11,826,816 and $ 11,416,893 at december 31 , 2012 and 2011 , respectively and total current liabilities were $ 3,757,221 and $ 9,538,690 at december 31 , 2012 and 2011 , respectively . lines of credit , note payable and note payable related party alone represented a decrease in debt for 2012 of $ 4,847,515 and contributed to the increased working capital at december 31 , 2012. on march 2 , 2012 , we completed a registered public offering of our common stock . as part of the initial closing , we issued 2,511,500 shares of our common stock in a registered direct placement of our shares at a per share price of $ 3.25. the net proceeds to us from the initial closing were approximately $ 7.1 million . we intend to use the net proceeds from the offering for the development and marketing of our products , the engineering , development and testing of our membranes , and the opening of local sales offices in certain countries outside of the u.s. and denmark . pending application of such proceeds , we expect to invest the proceeds in short-term , interest-bearing , investment-grade marketable securities or money market obligations . the notes payable to related parties at december 31 , 2011 represented promissory notes issued by liqtech usa to the previous shareholders of liqtech denmark as part of liqtech usa 's acquisition of the outstanding equity interests in liqtech denmark , liqtech int . dk ( formerly known as cometas ) and liqtech delaware in accordance with the terms of the liqtech acquisition agreements . the promissory notes were paid off in june 2012. liqtech denmark international has a dkk 6,000,000 ( approximately $ 1,060,239 and $ 1,044,277 at december 31 , 2012 and 2011 , respectively ) standby line of credit with sydbank a/s . outstanding borrowings are due on demand . interest is calculated based on cibor plus a margin of 3 percentage points and is payable quarterly . as of december 31 , 2012 , the interest on this line of credit was at 3.81 % . this line of credit is guaranteed by liqtech delaware . this line of credit is also secured by certain of our receivables , inventory and equipment . there was $ 0 and $ 882,081 outstanding as of december 31 , 2012 and december 31 , 2011 , respectively . at december 31 , 2012 , there was $ 1,060,239 available under this credit line . 27 liqtech denmark international has a dkk 3,000,000 ( approximately $ 530,120 and $ 522,139 at december 31 , 2012 and 2011 , respectively ) standby line of credit with sydbank a/s , subject to certain borrowing base limitations . outstanding borrowing is due on demand . interest is calculated based on cibor plus a margin of 3 percentage points and is payable quarterly . as of december 31 , 2012 , the interest on this line of credit was at 3.81 % . this line of credit is guaranteed by liqtech delaware . this line of credit is also secured by certain of our receivables , inventory and equipment . there was $ 0 and $ 377,933 outstanding as of december 31 , 2012 and december 31 , 2011 , respectively . as of december 31 , 2012 , there was $ 530,120 available under this credit line . in general , lines of credit in denmark are due on demand . we do not believe that any of our lines of credit will be called but , if they were called , we believe that we could refinance with other lenders in denmark with similar terms . we believe that our cash flow together with currently available funds from our existing lines of credit and other potential sources of funds will be sufficient to fund our anticipated working capital needs and capital spending requirements for the foreseeable future . however , if we were to incur any unanticipated expenditures or the negative trend of our operating cash flow does continue , such circumstances could put a substantial burden on our cash resources . we may also need additional funds for possible future strategic acquisitions of businesses , products or technologies complementary to our business . if additional funds are required , we may raise such funds from time to time through public or private sales of equity or debt securities . financing may not be available on acceptable terms , or at all , and our failure to raise capital when needed could materially adversely impact our growth plans and our financial condition and results of operations . additional equity financing may be dilutive to holders of our common stock , and debt financing , if available , may involve significant cash payment obligations and covenants that restrict our ability to operate our business . cash flows year ended december 31 , 2012 compared to year ended december 31 , 2011 cash provided ( used ) by operating activities is net income ( losses ) adjusted for certain non-cash items and changes in assets and liabilities . cash used by operating activities for the year ended december 31 , 2012 was $ 478,077 , representing a decrease of $ 483,225 , compared to cash provided by operating activities of $ 5,148 for the year ended december 31 , 2011. the $ 483,225 in cash used by operating activities for the year ended december 31 , 2012 was mainly due to the net loss of $ 2,773,890 , the increases of $ 1,161,098 in inventory and the decrease of $ 2,405,123 in accounts receivable and a decrease of $ 737,729 in accounts payables .
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results of operations results of operations for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 the following table sets forth our revenues , expenses and net income for the year ended december 31 , 2012 and 2011. replace_table_token_3_th revenues net sales for the year ended december 31 , 2012 were $ 16,921,838 compared to $ 21,192,177 for the same period in 2011 , representing a decrease of $ 4,270,339 , or 20.2 % . the decrease in sales consist of a decrease in sales of dpfs of $ 5,029,813 and an increase in sales of liquid filters and kiln furniture of $ 483,439 and $ 276,035 , respectively . the decrease in demand for our dpfs is mainly due to a postponement in use of mandates in the u.s. market and the completion of the low emission zone mandate in london , which contributed to our net sales for the year ended december 31 , 2011 but did not have the same effect in 2012. the increase in demand for our liquid filters and kiln furniture is due to an increase in worldwide sales of those products . gross profit gross profit for the year ended december 31 , 2012 was $ 2,704,125 compared to $ 5,027,811 for same period in 2011 , representing a decrease of $ 2,323,686 , or 46.2 % . the decrease in gross profit was due to a decrease in sales and lower gross margin for the year ended december 31 , 2012 compared to the same period in 2011. included in the gross profit is depreciation of $ 1,510,846 and $ 1,379,667 for the years ended december 31 , 2012 and 2011 , respectively .
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we acquired silicon image , inc. ( `` silicon image '' ) in march 2015. silicon image was engaged in setting industry standards including the hdmi® , dvi® , mhl® and wirelesshd® standards . plan of merger and reorganization terminated on november 3 , 2016 , we entered into an agreement and plan of merger ( the “ merger agreement ” ) with canyon bridge acquisition company , inc. , a delaware corporation ( “ parent ” ) , and canyon bridge merger sub , inc. , a delaware corporation and wholly owned subsidiary of parent ( “ merger sub ” ) , providing for the merger of merger sub with and into the company ( the “ merger ” ) , with the company surviving the merger as a wholly owned subsidiary of parent . the closing of the merger was subject to certain closing conditions . these closing conditions included clearance by the committee on foreign investment in the united states ( “ cfius ” ) under the defense production act of 1950 , as amended . on september 13 , 2017 , the president of the united states issued an order ( the “ order ” ) prohibiting the merger . as a result of the issuance of the order , clearance by cfius was not obtained , the merger can not be consummated , and we have terminated the merger agreement in accordance with its terms . neither the company nor parent will incur any termination fees in connection with the termination of the merger agreement . critical accounting policies and use of estimates critical accounting policies are those that are both most important to the portrayal of a company 's financial condition and results , and that require management 's most difficult , subjective , and complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . we base our estimates and judgments on historical experience , knowledge of current conditions , and our beliefs of what could occur in the future considering available information . while we believe that our estimates , assumptions , and judgments are reasonable , they are based on information available when made , and actual results may differ from these estimates under different assumptions or conditions . we evaluate our estimates and judgments on an ongoing basis . we believe the following accounting policies and the related estimates are critical in the portrayal of our financial condition and results of operations , and require management 's most difficult , subjective , or complex judgments . see `` note 1 - nature of operations and significant accounting policies '' under part ii , item 8 of this report for further information on the significant accounting policies and methods used in the preparation of the consolidated financial statements . revenue recognition and deferred income product revenue we sell our products though several channels : directly to end customers , through a network of independent manufacturers ' representatives , and indirectly through a network of independent sell-in and sell-through distributors . distributors provide periodic data regarding the product , price , quantity , and end customer when products are resold , as well as the quantities of our products they still have in stock . revenue from sales to original equipment manufacturers ( `` oems '' ) and sell-in distributors is generally recognized upon shipment . reserves for sell-in stock rotations , where applicable , are estimated based primarily on historical experience and provided for at the time of shipment . revenue from sales by our sell-through distributors is recognized at the time of reported resale . under both types of revenue recognition , persuasive evidence of an arrangement exists , the price is fixed or determinable , title has transferred , collection of resulting receivables is reasonably assured , and there are no remaining customer acceptance requirements and no remaining significant performance obligations . 28 orders from our sell-through distributors are initially recorded at published list prices ; however , for a majority of our sales , the final selling price is determined at the time of resale and in accordance with a distributor price agreement . for this reason , we do not recognize revenue until products are resold by sell-through distributors to an end customer . in certain circumstances , we allow sell-through distributors to return unsold products . at times , we protect our sell-through distributors against reductions in published list prices . at the time of shipment to sell-through distributors , we ( a ) record accounts receivable at published list price since there is a legally enforceable obligation from the distributor to pay us currently for product delivered , ( b ) relieve inventory for the carrying value of goods shipped since legal title has passed to the distributor , and ( c ) record deferred revenue and deferred cost of sales in deferred income and allowances on sales to sell-through distributors in the liability section of our consolidated balance sheets . revenue and cost of sales to sell-through distributors are deferred until either the product is resold by the distributor or , in certain cases , return privileges terminate , at which time revenue and cost of product revenue are reflected in net loss in our consolidated statements of operations , and accounts receivable , net is adjusted to reflect the final selling price . licensing and services revenue our licensing and services revenue is comprised of revenue from our intellectual property ( `` ip '' ) core licensing activity , patent monetization activities , and royalty and adopter fee revenue from our standards activities . these activities are complementary to our product sales and help us monetize our ip and accelerate market adoption curves associated with our technology and standards . from time to time we enter into patent sale and licensing agreements to monetize and license a broad portfolio of our patented inventions . such licensing agreements may include upfront license fees and ongoing royalties . story_separator_special_tag the implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill . fair value of the reporting unit is determined using a discounted cash flow analysis . if the fair value of the reporting unit exceeds its carrying value , no further impairment analysis is needed accounting for income taxes our provision for income tax is comprised of our current tax liability and changes in deferred tax assets and liabilities . deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse . valuation allowances are provided to reduce deferred tax assets to an amount that in management 's judgment is more-likely-than-not to be recoverable against future taxable income . u.s. tax reform required a deemed repatriation of foreign earnings as of december 30 , 2017 and no future u.s. taxes will be due on these earnings because of enactment of a 100 % dividends received deduction . foreign earnings may be subject to withholding taxes if they are distributed and repatriated to lattice in the united states . our income tax calculations are based on application of the respective u.s. federal , state or foreign tax law . our tax filings , however , are subject to audit by the relevant tax authorities . accordingly , we recognize tax liabilities based upon our estimate of whether , and the extent to which , additional taxes will be due when such estimates are more-likely-than-not to be sustained . an uncertain income tax position will not be recognized if it has less than a 50 % likelihood of being sustained . to the extent the final tax liabilities are different than the amounts originally accrued , the increases or decreases as well as any interest or penalties are recorded as income tax expense or benefit in the consolidated statements of operations . in assessing the ability to realize deferred tax assets , we evaluate both positive and negative evidence that may exist and consider whether it is more-likely-than-not that some portion or all of the deferred tax assets will be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . 30 story_separator_special_tag compared to fiscal 2016 mainly as a result of the royalty sharing formula not being finalized . the decrease related to hdmi was partially offset by a patent sale transaction of $ 18 million in fiscal 2017. licensing and services revenue decreased by 1 % in fiscal 2016 primarily due to slightly reduced license and adopter fees at licensed end customers . licensing and services revenue was first recognized in fiscal 2015 following the acquisition of silicon image in march 2015. previously , we did not have licensing and services revenue . revenue from this end market is expected to fluctuate , sometimes significantly , from period to period as a result of the timing of completion of ip license arrangements , ip sales , patent sales , and settlement of royalty audits . based on our assessment of the implementation of accounting standards update ( asu ) no . 2014-09 , revenue from contracts with customers ( topic 606 ) , we anticipate that , until an hdmi royalty sharing agreement is reached , the new standard will allow us to recognize certain licensing revenues which are not recognizable under current gaap due to the fixed and determinable revenue recognition criteria not being met . once an hdmi royalty sharing agreement is reached , we will not be able to recognize hdmi royalty revenues related to prior periods under the new standard that we would have been able to recognize under current gaap . we estimate that the effect on 2018 licensing revenues under the new standard will be an increase of $ 5 million to $ 10 million if a royalty sharing agreement is not reached in 2018 , and a decrease of $ 5 million to $ 10 million if a royalty sharing agreement is reached in 2018. revenue by geography we assign revenue to geographies based on customer ship-to address at the point where revenue is recognized . in the case of sell-in distributors and oem customers , revenue is typically recognized , and geography is assigned , when products are shipped to our distributor or oem customer . in the case of sell-through distributors , revenue is recognized when resale to the end customer occurs and geography is assigned based on the end customer location on the resale reports provided by the distributor . both foreign and domestic sales are denominated in u.s. dollars . the composition of our revenue by geography , based on ship-to location , is presented in the following table : replace_table_token_6_th revenue in asia decreased 9 % in fiscal 2017 and decreased 1 % in fiscal 2016. in fiscal 2017 , revenue decreased in asia primarily due to a significant decrease in communications and computing end market revenue from a major telecommunications customer whose business was affected by government regulations , and by conversion of materials from 200mm to 300mm wafers . additionally , the mobile and consumer end market saw a significant decrease in volume for a major north american mobile handset provider . the production volume for this mobile handset peaked in the fourth quarter of fiscal 2016 , and the associated revenue stream has declined in subsequent quarters as the end product completes its lifecycle . this was coupled with decreased revenue from dtv and home theater related devices .
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results of operations key elements of our consolidated statements of operations are presented in the following table : replace_table_token_3_th * lattice acquired silicon image on march 10 , 2015. results of operations for the year ended january 2 , 2016 ( fiscal 2015 ) include the financial results of the silicon image business for the approximately 10-month period from march 11 , 2015 through january 2 , 2016. revenue replace_table_token_4_th revenue decreased $ 41.1 million , or 10 % , in fiscal 2017 compared to fiscal 2016 , primarily driven by lower revenue from consumer mobile handsets and reductions from digital television ( `` dtv '' ) and home theater related devices . this was coupled with a decline from the line item reduction caused by the obsoleting of tin leaded assembly material in one of the complex programmable logic devices ( `` cpld '' ) in the industrial and communications markets , for which shipments predominately occurred in fiscal 2016 but did not recur in fiscal 2017. these decreases were partially offset by a broad market increase in programmable logic device revenue in the industrial and automotive end market , and the production ramp of a server reference design being widely adopted in the computing market . additionally , we saw growth in our xo2/xo3 and ec5 product families , revenue from a patent sale transaction , and modest growth in the 60ghz wireless silicon products .
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the us federal corporate tax rate from 35 % to 21 % , resulting in a remeasurement of deferred tax assets and liabilities . on december 22 , 2017 , the sec staff issued staff accounting bulletin no . 118 ( sab 118 ) to address the application of u.s. gaap in situations when a registrant does not have the necessary information available , prepared , or analyzed ( including computations ) in reasonable detail to complete the accounting for certain income tax effects of the tax reform act . the company has not fully completed the accounting for the tax effects of enactment of the act ; however , as described below , we have made a reasonable estimate story_separator_special_tag overview we are a global company that designs , manufactures and sells precision and specialty motion control components and systems used in a broad range of industries . our target markets include vehicle , medical , aerospace & defense ( a & d ) , and electronics/industrial . we are headquartered in amherst , ny , and have operations in the united states , canada , mexico , europe and asia . we are known worldwide for our expertise in electro-magnetic , mechanical and electronic motion technology . we sell component and integrated motion control solutions to end customers and original equipment manufacturers ( oems ) through our own direct sales force and authorized manufacturers ' representatives and distributors . our products include brush and brushless dc motors , brushless servo and torque motors , coreless dc motors , integrated brushless motor-drives , gearmotors , gearing , modular digital servo drives , motion controllers , incremental and absolute optical encoders , and other motion control-related products . financial overview highlights for our fiscal year ended december 31 , 2017 , include : · revenue was $ 252,012 in 2017 compared with $ 245,893 in 2016. growth in medical and industrial/electronics markets were partially offset by softness in the vehicle market . sales to u.s. customers were 53 % of total sales for the year compared with 54 % for 2016 , with the balance of sales to customers primarily in europe , canada and asia . · gross profit was $ 75,679 for 2017 , a 3.7 % increase from $ 73,004 million in 2016. as a percentage of revenue , gross margin improved 30 basis points to 30.0 % primarily due to product mix . · operating income was $ 18,800 , or 7.5 % of revenue for 2017 compared with $ 18,883 or 7.7 % of revenue , for 2016 . · income before income taxes increased by 26 % , to $ 16,136 , or 6.4 % of revenue for 2017 compared with $ 12,803 or 5.2 % of revenue for 2016 . · net income was $ 8,036 , or $ 0.87 per diluted share , compared with $ 9,078 million , or $ 1.00 per diluted share , for 2016 . · bookings were $ 271,941 for 2017 compared with $ 250,369 million for 2016. backlog as of december 31 , 2017 was $ 100,708 , an increase from $ 78,602 million at year end 2016 . · cash from operations increased by $ 11,104 to $ 25,407 during 2017 from $ 14,303 in 2016 . · our debt , net of cash , decreased by $ 18,371 to $ 37,565 at december 31 , 2017 from year end 2016 . · we declared and paid a dividend of $ 0.025 per share pursuant to our quarterly dividend program during each quarter of 2017. dividends to shareholders for 2017 were $ 0.10 per diluted share , or a dividend payout ratio of 11 % , when compared with the earnings per share of $ 0.87. the company 's 2017 sales were 2 % higher than in the prior year . our market position in our medical , industrial/electronics and aerospace and defense markets continue to grow with the addition of heidrive to our company portfolio in 2016. while several applications within our vehicle market were relatively stable , the softness in the off road vehicle industry reduced successes in other markets . we continue to make excellent progress in our strategic market based multi-product development solutions , which are being well received by our customers during the early stages of the product release cycle . earnings were $ 1,042 lower in 2017 compared to the prior year , a reflection of the impact of the tax cuts and jobs act enacted in the fourth quarter of 2017. income before income taxes increased by $ 3,333 to $ 16,136 in 2017 , a 26 % change . the increase is a reflection of increased sales and gross margin growth , focus on cost control , and the reduction in interest expense related to our debt refinance in the fourth quarter of 2016. we continue to take a long-term view of our business and believe that our infrastructure changes and the collaborative organization we are building to advance our multi-product solutions offering is working . we are confident that our strategy to be a unique , customer-focused , leading supplier of complete precision motion solutions to our target markets will enable us to take market share and gain greater scale over the next five years . our strategy our growth strategy is focused on becoming the motion solution leader in our selected target markets by further developing our 19 products and services platform to utilize multiple allied motion technologies to create increased value solutions for our customers . our strategy further defines allied motion as being a technology/know-how driven company and to be successful , we continue to invest in our areas of excellence . we have set growth targets for our company and we will align and focus our resources to meet those targets . first and foremost , we invest in our people as we believe that attracting and retaining the right people is the most important element in our strategy . story_separator_special_tag the allowance is based on historical experience and judgments based on current economic and customer specific factors . significant judgments are made by management in connection with establishing the company 's customers ' ability to pay at the time of shipment . despite this assessment , from time to time , the company 's customers are unable to meet their payment obligations . the company continues to monitor customers ' credit worthiness , and use judgment in establishing the estimated amounts of customer receivables which may not be collected . a significant change in the liquidity or financial position of the company 's customers could have a material adverse impact on the collectability of accounts receivable and future operating results . see note 1 , business and summary of significant accounting policies accounts receivable , of our consolidated financial statements for information regarding trade accounts receivable and the allowance for doubtful accounts . inventory valuation inventories include material , direct labor and related manufacturing overhead , and are stated at the lower of cost or net realizable value determined on a first-in , first-out basis . we record inventory when we take delivery and title to the product according to the terms of each supply agreement . the company monitors and forecasts expected inventory needs based on sales forecasts . inventory is written down or written off when it becomes obsolete or when it is deemed excess . these determinations involve the exercise of significant judgment by management . if actual market conditions are significantly different from those projected by management , the recorded reserve may be adjusted , and such adjustments may have a significant impact on the company 's results of operations . demand for the company 's products can fluctuate significantly , and in the past the company has recorded substantial charges for inventory obsolescence . see note 1 , business and summary of significant accounting policies - inventories , of our consolidated financial statements for information regarding inventory valuation as well as excess and obsolete inventory provisions . income taxes the tax cuts and jobs act of 2017 was enacted in the united states on december 22 , 2017. the provisions of the act significantly revise the u.s. corporate income tax rules and requires companies to record a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and reduces the us federal corporate tax rate from 35 % to 21 % . as of december 31 , 2017 , the company has not fully completed the accounting for the tax effects of enactment of the act , however a reasonable estimate of the tax effects has been recorded in 2017. the amounts are provisional and subject to 21 change as the determination of the impact of the income tax effects will require additional analysis of historical records , annual data , further interpretation of regulatory guidance that may be issued and actions the company may take as a result of the act . the company records deferred tax assets and liabilities for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts recorded in the consolidated financial statements , and for operating loss and tax credit carryforwards . realization of the recorded deferred tax assets is dependent upon the company generating sufficient taxable income in the appropriate tax jurisdiction in future years to obtain benefit from the reversal of net deductible temporary differences and from tax credit and operating loss carryforwards . we regularly assess our ability to realize our deferred tax assets . assessments of the realization of deferred tax assets require that management consider all available evidence , both positive and negative , and make significant judgments about many factors , including the amount and likelihood of future taxable income . a valuation allowance is provided to the extent that management deems it more likely than not that the net deferred tax assets will not be realized . the amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed . see note 1 , business and summary of significant accounting policies income taxes , of our consolidated financial statements for information on how we record current and deferred income taxes , valuation allowances and the realization of uncertain tax positions . see note 8 , income taxes , of our consolidated financial statements for information regarding income tax expense as well as the valuation of our deferred income taxes . goodwill as of december 31 , 2017 , we had $ 29,531 of goodwill related to various business acquisitions . we perform impairment tests on goodwill on an annual basis during the fourth quarter of each fiscal year , or on an interim basis if events or circumstances indicate that it is more likely than not that impairment has occurred . goodwill is potentially impaired if the carrying value of the reporting unit that contains the goodwill exceeds its estimated fair value . goodwill is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary . if it is determined , based on qualitative factors , that the fair value of the reporting unit may be more likely than not less than carrying amount , or if significant adverse changes in the company 's future financial performance occur that could materially impact fair value , a quantitative goodwill impairment test would be required . the fair value of our reporting unit is generally determined using a combination of an income approach , which estimates fair value based upon future discounted cash flows and a market approach which uses published market prices for analysis . we completed our annual goodwill impairment test in the fourth quarter of 2017 and concluded no impairment of goodwill exists , as our goodwill reporting unit had a calculated fair value in excess of carrying value of greater than 25 % .
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summary of significant accounting policies of the notes to consolidated financial statements contained in item 8 of this report for additional information about these recently issued accounting standards and their potential impact on our financial condition or results of operations . 23 operating results year 2017 compared to 2016 replace_table_token_5_th net income and adjusted net income : net income decreased in 2017 primarily as the result of fourth quarter adjustments to the provision for income taxes of $ 3,133 resulting from the enactment of the tax cuts and jobs act . adjusted net income for the year ended december 31 , 2017 , was $ 11,316. adjusted diluted earnings per share for 2017 was $ 1.22. adjusted net income and adjusted diluted earnings per share are non-gaap measurements . adjusted net income for 2017 excludes $ 3,133 of tax provision resulting from the tax cuts and jobs act and $ 213 ( $ 145 net of tax ) of business development costs . 2016 excludes $ 428 ( $ 291 net of tax ) of business development costs and $ 823 ( $ 560 net of tax ) of income from insurance recoveries related to a fire at one of our international locations . see information included in non gaap measures below for a reconciliation of net income to adjusted net income . ebitda and adjusted ebitda : ebitda was $ 28,884 for 2017 compared to $ 29,001 for 2016. adjusted ebitda was $ 31,123 and $ 30,499 for 2017 and 2016 , respectively . ebitda and adjusted ebitda are non-gaap measurements . ebitda consists of income before interest expense , provision for income taxes , and depreciation and amortization . adjusted ebitda also excludes stock compensation expense and certain other items . refer to information included in non - gaap measures below for a reconciliation of net income to ebitda and adjusted ebitda .
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the total fair value of shares vested was $ 0.6 million , $ 0.6 million , and $ 0.8 million during 2014 , 2013 , and 2012. our share-based compensation cost charged against income was $ 0.8 million , $ 0.8 million , and $ 1.0 million during 2014 , 2013 , and 2012 , respectively , and is included in corporate , general and administration expenses . the total income tax benefit recognized for share-based compensation was $ story_separator_special_tag forward-looking statements this report contains forward-looking statements that involve risks and uncertainties . when used in this discussion , we intend the words anticipate , believe , plan , estimate , expect , strive , future , intend , will and similar expressions as they relate to us to identify such forward-looking statements . our actual results could differ materially from the results anticipated in these forward- 15 looking statements as a result of certain factors set forth under risk factors , management 's discussion and analysis of financial condition and results of operations , quantitative and qualitative disclosures about market risk and elsewhere in this form 10-k. risks and uncertainties that could cause actual results to differ include , without limitation , general economic conditions , competition , loss of key personnel , pricing , brand reputation , acquisitions , new initiatives we undertake , security and information systems , legal liability for website content , merchandise supply problems , failure of third parties to provide adequate service , reliance on centralized customer service , overstocks and merchandise returns , our reliance on a centralized fulfillment center , increases in postage and shipping costs , e-commerce trends , future internet related taxes , our founder 's control of us , litigation , fluctuations in quarterly operating results , consumer trends , customer interest in our products , the effect of government regulation and programs and other risks and uncertainties included in our filings with the securities and exchange commission . we caution you that no forward-looking statement is a guarantee of future performance , and you should not place undue reliance on these forward-looking statements which reflect our views only as of the date of this report . we undertake no obligation to update any forward-looking information . you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and related notes included elsewhere in this document . this section is designed to provide information that will assist readers in understanding our consolidated financial statements , changes in certain items in those statements from year to year , the primary factors that caused those changes and how certain accounting principles , policies and estimates affect the consolidated financial statements . overview and outlook during 2014 , the information reviewed by our chief operating decision makers ( codms ) has evolved with changes in our organization and new initiatives . these changes include our planned tax-free spin-off of gaiam tv , and the migration of our legacy catalog business to a mobile-and social-centric digital model . as of december 31 , 2014 , we now have two reportable business segments which are aligned based on their products or services : gaiam brand and gaiam tv . gaiam brand segment gaiam is a leader in the markets for yoga , fitness and wellness products and media content . gaiam brands include gaiam , focused on yoga and fitness ; gaiam restore , focused on wellness ; spri focused on fitness ; and our eco-travel business . we develop and market fitness and yoga accessories , apparel , and media under gaiam 's brands . these products are sold primarily through major national retailers in the united states , canada , europe , and other countries , with placement in over 38,000 retail doors worldwide . we also sell our products through our website and catalogs . our products and services are targeted to all levels of yoga and fitness enthusiasts , including professionals . we believe that consumers are attracted to our products because of their design , functional characteristics , and our unique brand heritage . our accessories include yoga mats , bags , straps and blocks , media content including digital media and apps , restorative and massage accessories such as rollers , resistance cords and balance balls , and various other offerings . our comprehensive line of apparel includes pants , shorts , tops and jackets designed around yoga . through our business activities , we seek to position our brand as a trusted source for products that are relevant to our consumers ' active lifestyles . our broad distribution network includes retail , online , and digital channels . our business is vertically integrated from product design and content creation through product development and sourcing , to customer service and distribution . this efficient supply chain enables us to provide quality products at competitive prices for all of our brands . we seek to drive sustainable and profitable growth in this segment by leveraging our brands ' leading market positions and heritage to expand our product offering and distribution channels . we believe that growth in yoga participation , greater awareness of health and wellness , and the success of our retail and online partners is increasing consumer interest in our brands and products , and creates new opportunities for us to expand our offering . recent examples of our brand extension include the 2012 launch of gaiam restore and spri dynamic recovery brands , our at-home rehabilitative and restorative products , and the 2013 launch of our spri cross train line of high-intensity fitness accessories . we anticipate launching a yoga apparel line in the spring of 2015. we recently launched or updated certain websites , evolving our e-commerce experience to focus on engaging customers through digital content , and social and mobile marketing across various devices . story_separator_special_tag as a result of the above factors , loss from continuing operations was $ 20.1 million before minority interest , or $ 0.90 per share net of minority interest , during 2013 compared to a loss from continuing operations of $ 19.2 million , or $ 0.86 per share , during 2012. income from discontinued operations . during 2013 , we sold gve and discontinued our drtv operations . accordingly , we reclassified and now report the financial results for these businesses as discontinued operations . income from discontinued operations decreased $ 8.6 million during 2013 from $ 6.6 million during 2012 , primarily due to the discontinuance and asset write-off of drtv . net income ( loss ) attributable to gaiam , inc. net loss attributable to gaiam , inc. was $ 22.8 million , or $ 0.99 per share , during 2013 compared to a loss of $ 12.9 million , or $ 0.57 per share , during 2012. quarterly and seasonal fluctuations the following tables set forth our unaudited results of operations for each of the quarters in 2014 and 2013. during 2013 , we sold our non-gaiam-branded entertainment media distribution operations and discontinued our drtv operations . we now report these businesses as discontinued operations , and , accordingly , we have reclassified their results of operations for all periods presented to reflect them as such . in our opinion , this unaudited financial information includes all adjustments , consisting solely of normal recurring accruals and adjustments , necessary for a fair presentation of the results of operations for the quarters presented . you should read this financial information in conjunction with our consolidated financial statements and related notes included elsewhere in this form 10-k. the results of operations for any quarter are not necessarily indicative of future results of operations . replace_table_token_3_th 19 replace_table_token_4_th ( a ) we reported gains on the sale of our rgse stock during 2014 and 2013 , the carrying value for which had previously been reduced to zero through the recognition of our portion of rgse 's net losses . ( b ) we recorded a charge of $ 11.0 million to exit certain businesses , to restructure certain operations , and a net loss of $ 2.0 million after selling gve and closing drtv in the fourth quarter . we also recorded a $ 23.2 million valuation allowance for our deferred tax assets in the fourth quarter of 2013. quarterly fluctuations in our revenue and operating results are due to a number of factors , including changes in market conditions , the timing of new product introductions and mailings to customers , advertising , acquisitions ( including costs of acquisitions and expenses related to integration of acquisitions ) , divestitures , competition , pricing of products by vendors and expenditures on our systems and infrastructure . the impact on revenue and operating results due to the timing and extent of these factors can be significant . our sales are also affected by seasonal influences . on an aggregate basis , we generate our strongest revenue in the fourth quarter due to increased holiday spending and retailer fitness purchases . critical accounting policies we prepare our consolidated financial statements in conformity with accounting principles generally accepted in the united states , which require us to make judgments , estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes . note 2 to the consolidated financial statements in item 8 of this form 10-k summarizes the significant accounting policies and methods used in the preparation of our consolidated financial statements . we believe the following to be critical accounting policies whose application has a material impact on our financial presentation , and involve a higher degree of complexity , as they require us to make judgments and estimates about matters that are inherently uncertain . allowances for doubtful accounts and product returns we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we make estimates of the collectability of our accounts receivable by analyzing historical bad debts , specific customer creditworthiness , and current economic trends . if the financial condition of our customers were to deteriorate such that their ability to make payments to us was impaired , additional allowances could be required . we record allowances for product returns to be received in future periods at the time we recognize the original sale . we base the amounts of the returns allowances upon historical experience and future expectations . inventory inventory consists primarily of finished goods held for sale and is stated at the lower of cost ( first-in , first-out method ) or market . we identify the inventory items to be written down for obsolescence based on the item 's current sales status and condition . we write down discontinued or slow moving inventories based on an estimate of the markdown required to sell off the inventory . 20 goodwill and other intangibles goodwill represents the excess of the purchase consideration over the estimated fair value of assets acquired less liabilities assumed in a business acquisition . our other intangibles consist of customer related assets . we review goodwill for impairment annually or more frequently if impairment indicators arise on a goodwill reporting unit level . we have the option of first assessing qualitative factors to determine whether events and circumstances indicate that it is more likely than not that the fair value of a goodwill reporting unit is less than its carrying amount . if it is determined that the fair value for a goodwill reporting unit is more likely than not greater than the carrying amount for that goodwill reporting unit , then the two-step impairment test is unnecessary . if it is determined that the two-step impairment test is necessary , then for step one , we compare the estimated fair value of a goodwill reporting unit with its carrying amount , including goodwill .
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results of operations year ended december 31 , 2014 compared to year ended december 31 , 2013 net revenue . net revenue increased $ 11.2 million , or 7.2 % , to $ 166.7 million during 2014 from $ 155.5 million during 2013. net revenue in our gaiam brand segment increased $ 7.0 million , or 4.7 % , to $ 156.8 million during 2014 from $ 149.8 million during 2013 , due to the addition of a new major customer account and growth in our gaiam restore and spri product lines . growth in the gaiam brand segment was moderated by a few factors . first , revenues from our largest customer declined as the result of a data breach at the customer 's stores . second , we made a strategic decision early in the year to reduce catalog circulation and focus our direct-to-consumer operations on a consumer engagement digital strategy . third , the continued contraction in the physical dvd market reduced our media sales . finally , we decided during the year to not renew a license we held to manufacture fitness accessories under a third-party brand . this decision resulted in lower revenues , but allowed us to focus more on our gaiam and spri brands . our eco-travel business , which is part of the gaiam brand segment , grew during the year as a result of improved economic conditions . net revenue in our gaiam tv segment increased $ 4.3 million , or 75.4 % , to $ 9.9 million during 2014 from $ 5.7 million during 2013 due primarily to subscriber growth at gaiam tv and revenues from my yoga online , which was acquired during the fourth quarter of 2013. cost of goods sold .
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unless the context otherwise requires , the terms “ the company ” , “ our ” , “ we ” , “ us ” , and “ earthstone ” refer to earthstone energy , inc. and its consolidated subsidiaries . the following discussion contains “ forward-looking statements ” that reflect our future plans , estimates , beliefs and expected performance . we caution that assumptions , expectations , projections , intentions or beliefs about future events may , and often do , vary from actual results and the differences can be material . some of the key factors that could cause actual results to vary from our expectations include changes in oil and natural gas prices , the timing of planned capital expenditures , availability of acquisitions , joint ventures and dispositions , uncertainties in estimating proved reserves and forecasting production results , potential failure to achieve production from development projects , operational factors affecting the commencement or maintenance of producing wells , the condition of the capital and financial markets generally , as well as our ability to access them , and uncertainties regarding environmental regulations or litigation and other legal or regulatory developments affecting our business , as well as those factors discussed below and elsewhere in this report , all of which are difficult to predict . in light of these risks , uncertainties and assumptions , the forward-looking events discussed may not occur . see “ cautionary statement regarding forward-looking statements ” and item 1a . risk factors . executive overview strategy and 2016 outlook we are a growth-oriented independent oil and gas company engaged in the development and acquisition of oil and gas reserves through an active and diversified program that includes the acquisition , drilling and development of undeveloped leases , asset and corporate acquisitions , and exploration activities , with its current primary assets located in the eagle ford trend of south texas and in the williston basin of north dakota . as further discussed in this report , future growth in assets , earnings , cash flows and share values will be dependent upon our ability to acquire , discover and develop commercial quantities of oil and natural gas reserves that can be produced at a profit , and assemble an oil and natural gas reserve base with a market value exceeding its acquisition , development and production costs . our strategy includes a combination of acquisition , development and exploration activities , typically in more than one basin . historically , we have shifted our emphasis among these basic activities to take advantage of changing market conditions and to facilitate profitable growth . the majority of our efforts are currently focused on developing our acreage positions in the eagle ford trend of south texas and in the williston basin of north dakota . in addition , it is essential that , over time , our personnel expand our current projects and or generate additional projects so that we have the potential to economically replace our production and increase our proved reserves . the significant declines in oil and natural gas prices since september 2014 have adversely impacted our business and the industry as a whole . in spite of the severe price declines we achieved certain goals in 2015 which included : · converting a large portion of our acreage to held by production ( “ hbp ” ) status , while improving our lease expiration profile to minimize near-term lease expirations ; · lowering our operating costs and general and administrative costs , on a unit of production basis ; · increasing efficiencies and significantly decreasing our drilling and completion costs , generally beyond reductions in the prevailing in the industry ; and · securing a significant corporate acquisition , which when closed will facilitate our entry into the permian basin and will add current production and drilling inventory on leases that are largely hbp . at december 31 , 2015 , 60 % of our operated eagle ford and substantially all our bakken acreage is held-by-production . of the approximately 8,000 remaining total net undeveloped acres prospective for the eagle ford , upper eagle ford , austin chalk and possibly other objectives , only 2,400 net acres could expire in 2016. we anticipate that our current and future drilling plans , along with the selected lease extensions , will address the majority of the lease expirations . 42 for 2016 , it is our intent t o conduct our operations within our available cash flows . to that end , we have temporarily suspended drilling and completion operations and , in relation to general and administrative costs , we reduced our head count and salaries . generally , base salaries h ave been reduced 10 % and we have reduced certain benefits . further , we do not intend to pay cash bonuses during 2016. our actions are in direct response to continuing poor commodity prices . while we have made appropriate adjustments , we have also maintain ed a positive corporate culture and retained an outstanding staff . while conducting operations within available cash flow , we will continue to pursue our business strategy . following is a brief outline of our current plans : · pursue attractive asset or corporate acquisitions ; · maintain and expand our acreage positions and drilling inventory ; · pending adequate commodity prices continue the development of our acreage positions in the eagle ford trend of south texas and in the williston basin of north dakota ; and · generate additional exploration and development projects ; and obtain additional capital as available and needed , or utilize our common stock for acquisitions . commodity prices : the upstream oil and natural gas business is cyclical and we are currently operating in a sustained lower commodity price environment . story_separator_special_tag additionally , in late 2014 , as result of the exchange we added significant oil production from legacy earthstone assets located in north dakota and montana ; these states have higher severance tax rates than texas where our operated eagle ford wells are located . re-engineering and workovers re-engineering and workover expenses include the costs to restore or enhance production in current producing zones as well as costs of significant non-recurring operations which include major surface repairs . these costs increased $ 0.2 million or 23 % for the year ended december 31 , 2015 relative to the comparable period in 2014. we continually evaluate these projects and weigh the advantages of the projects while seeking to control current and future expenditures . general and administrative expenses general and administrative expenses ( “ g & a ” ) , primarily consist of employee remuneration , professional and consulting fees and other overhead expenses . g & a expenses increased by $ 2.4 million or 31 % from $ 7.9 million to $ 10.3 million for the year ended december 31 , 2015 relative to the comparable period in 2014. the increase was due to increased personnel costs and reporting requirements resulting from the exchange completed in late 2014 and the growth of the company . also contributing to the increase are costs incurred , which must be expensed under gaap , related to finding and completing property and corporate acquisitions . depreciation , depletion and amortization and impairment expense replace_table_token_19_th 46 depreciation , depletion and amortization ( “ dd & a ” ) increased in the year ended december 31 , 2015 by $ 12.8 million , or 70 % compared to 2014 , due to property additions related primarily to drilling and completion expenditures and increased production during the year ended december 31 , 2015 , as compared t o the same period in 2014. on a unit-of-production basis , dd & a increased by only 4 % despite significant capital additions to $ 21.73 per boe during 2015 from $ 20.88 per boe during 2014. impairment as a result of large commodity price declines and in spite of our operating achievements , we recognized $ 138.1 million of noncash asset impairments in 2015 that have negatively impacted our results of operations and equity . the 2015 impairments consisted of $ 42.6 million on unproved properties , $ 94.0 million on proved properties and $ 1.5 of goodwill . the impaired unproved properties consisted mainly of acreage throughout milam and grayson counties in texas as well as our eagle ford property in fayette and gonzales counties in texas . the impairment on proved properties resulted from capitalized costs in excess of the fair market value for our eagle ford properties in fayette and gonzales counties in texas as well as our non-operated eagle ford property in la salle county , texas . we also had impairments on the legacy earthstone assets in montana , wyoming , north dakota and south texas . during the year ended december 31 , 2014 , we incurred property impairment charges of $ 19.4 million , which consisted of $ 2.5 million on unproved properties and $ 16.9 million on proved properties . the impaired unproved properties consisted of acreage throughout milam county , texas . the impairment on proved properties primarily resulted from capitalized costs in excess of the fair market value for our non-operated eagle ford property and our grayson county , texas property . interest expense interest expense includes commitment fees , amortization of deferred financing costs , and interest on outstanding indebtedness . interest expense increased from $ 0.6 million for the year ended december 31 , 2014 to $ 0.8 million for the year ended december 31 , 2015. the $ 0.2 million increase in interest expense was due to higher amortization of deferred financing costs and increased fees due to a larger credit facility . income tax expense during the year ended december 31 , 2015 , we recorded a net income tax benefit of $ 26.4 million as a result of our pre-tax net loss . our effective tax rate for the year ended december 31 , 2015 , was approximately 18.5 % which was less than the u.s. federal statutory tax rate primarily due to the addition of a valuation allowance in 2015. the impairments recorded during 2015 reduced the book value of our properties below our tax basis requiring us to record a net deferred tax asset . because the future realization of this deferred tax asset can not be assured , we recorded a valuation allowance against our deferred tax asset . as a result of the exchange , all historical financial information contained in this report is that of ovr and its subsidiaries . ovr , is a partnership for federal income tax purposes and is not subject to federal income taxes or state or local income taxes that follow the federal treatment , and therefore ovr does not pay or accrue for such taxes . pursuant to the exchange , oak valley has become a subsidiary of earthstone , a taxable entity ; as such we recorded tax expense during the year ended december 31 , 2014. net gain on derivative contracts during the year ended december 31 , 2015 , we recorded a net gain on derivative contracts of $ 6.4 million , consisting of net realized gains on settlements of $ 6.3 million and unrealized mark-to-market gains of $ 0.1 million . during the year ended december 31 , 2014 , we recorded a net gain on derivative contracts of $ 4.4 million , consisting of net realized gains on settlements of $ 0.8 million and unrealized mark-to-market gains of $ 3.6 million .
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results of operations year ended december 31 , 2015 , compared to the year ended december 31 , 2014 sales and other operating revenues the quantities of oil , natural gas , and natural gas liquids produced and sold , the average sales price per unit sold and our related revenues , exclusive of settlements related to derivative contracts for the years ended december 31 , 2015 and 2014 , are presented below : replace_table_token_14_th 43 replace_table_token_15_th ( 1 ) barrels of oil equivalent have been calculated on the basis of six thousand cubic feet ( mcf ) of natural gas equals one barrel of oil equivalent ( boe ) . this ratio does not assume price equivalency and , given price differentials , the price per barrel of oil equivalent for natural gas may differ significantly from the price for a barrel of oil . ( 2 ) amounts exclude the impact of cash paid/received on settled derivative contracts as we did not elect to apply hedge accounting . our derivatives for 2015 and 2014 have been marked-to-market through our consolidated statements of operations as other income/expense : which means that all our realized gains/losses on these derivatives are reported in other income/expense . for further information see the net gain on derivative contracts discussed below . sale of oil for the year ended december 31 , 2015 , oil revenues increased by $ 5.1 million or 15 % relative to the comparable period in 2014. of the increase , $ 22.1 million was attributable to increased volume , which was offset by $ 17.0 million attributable to a decrease in our realized price .
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in addition , the company has contractual arrangements whereby it provides distributors with protection against price reductions initiated by the company after product is sold by the company to the distributor and prior to resale by the distributor . the company records a reduction of revenue during each period , and records a story_separator_special_tag overview vishay intertechnology , inc. is a global manufacturer and supplier of semiconductors and passive components , including power mosfets , power integrated circuits , transistors , diodes , optoelectronic components , resistors , capacitors , and inductors . discrete semiconductors and passive components manufactured by vishay are used in virtually all types of electronic products , including those in the industrial , computing , automotive , consumer electronic products , telecommunications , power supplies , military/aerospace , and medical industries . we operate in five product segments , mosfets , diodes , optoelectronic components , resistors & inductors , and capacitors . since 1985 , we have pursued a business strategy of growth through focused research and development and acquisitions . through this strategy , we have grown to become one of the world 's largest manufacturers of discrete semiconductors and passive components . we expect to continue our strategy of acquisitions while also maintaining a prudent capital structure . we are focused on enhancing stockholder value and improving earnings per share . in addition to our growth plan , we also have opportunistically repurchased our stock . in 2014 , our board of directors instituted a quarterly dividend payment program and declared the first cash dividend in the history of vishay . in december 2015 , we amended our credit facility to increase our ability to repurchase shares of stock or pay cash dividends . on august 2 , 2017 , our board of directors approved a stock repurchase plan , authorizing us to repurchase , in the aggregate , up to $ 150 million of our outstanding common stock . the stock repurchase plan will expire on june 1 , 2018. the stock repurchase plan does not obligate us to acquire any particular amount of common stock , and it may be terminated or suspended at any time at the company 's direction in accordance with the plan . the company repurchased 2,250,236 shares of stock for $ 39.9 million since the inception of this plan . additionally , we repurchased 1,752,454 shares of stock for $ 23.2 million pursuant to our stock repurchase plan that began in may 2016 and expired on may 2 , 2017. as part of the amendment and restatement of the revolving credit facility in december 2015 , we completed an evaluation of our anticipated domestic cash needs over the next several years and our most efficient use of liquidity , with consideration of the amount of cash that can be repatriated to the u.s. efficiently with lesser withholding taxes in foreign jurisdictions . as a result of that evaluation , during the fourth quarter of 2015 , we recognized income tax expense of $ 164.0 million , including u.s. federal and state income taxes , incremental foreign income taxes , and withholding taxes payable to foreign jurisdictions , on $ 300 million of foreign earnings which we expect to repatriate to the u.s. over the next several years . we repatriated $ 38 million and $ 46 million to the u.s. pursuant to this plan in 2017 and 2016 , respectively . this 2015 repatriation program was expected to occur over a multiple-year period in the most tax-efficient manner , considering u.s. tax laws and the impact of withholding taxes in foreign jurisdictions , and was designed to be adaptable to the extent necessary or prudent , based on changes in law , tax rates , or other regulations . as a result of the tax cuts and jobs act ( `` tcja '' ) , and as further described below , we have terminated the 2015 cash repatriation plan and replaced it as described below . our business and operating results have been and will continue to be impacted by worldwide economic conditions . our revenues are dependent on end markets that are impacted by consumer and industrial demand , and our operating results can be adversely affected by reduced demand in those global markets . for several years , we implemented aggressive cost reduction programs . we continue to monitor the current economic environment and its potential effects on our customers and the end markets that we serve . additionally , we continue to closely monitor our costs , inventory , and capital resources to respond to changing conditions and to ensure we have the management , business processes , and resources to meet our future needs . in the first fiscal quarter of 2016 , we substantially completed the implementation of targeted cost reduction programs that began in the fourth fiscal quarter of 2013. in the fourth fiscal quarter of 2017 , we substantially completed the cost reduction programs initiated in 2015 and the extended mosfets enhanced competitiveness program , which we announced in november 2016. our cost reduction programs are more fully described in note 4 to the consolidated financial statements and in `` cost management '' below . see additional information regarding our competitive strengths and key challenges as disclosed in part 1. the tcja represents the first significant change in u.s. tax law in over 30 years . as permitted by sec staff accounting bulletin no . 118 , the net tax expense recorded in our financial statements for the fourth fiscal quarter of 2017 due to the enactment of the tcja is considered `` provisional , '' based on reasonable estimates . the net tax expense recorded was $ 234.9 million . we are continuing to collect and analyze detailed information that could impact this amount , and may record adjustments to refine those estimates during the measurement period defined in sab no . 118 , as additional analysis is completed . story_separator_special_tag we also monitor changes in our inventory turnover and our or publicly available average selling prices ( `` asp '' ) . gross profit margin is computed as gross profit as a percentage of net revenues . gross profit is generally net revenues less costs of products sold , but also deducts certain other period costs , particularly losses on purchase commitments and inventory write-downs . losses on purchase commitments and inventory write-downs have the impact of reducing gross profit margin in the period of the charge , but result in improved gross profit margins in subsequent periods by reducing costs of products sold as inventory is used . gross profit margin is clearly a function of net revenues , but also reflects our cost management programs and our ability to contain fixed costs . operating margin is computed as gross profit less operating expenses as a percentage of net revenues . we evaluate business segment performance on segment operating margin . only dedicated , direct selling , general , and administrative expenses of the segments are included in the calculation of segment operating income . segment operating margin is computed as operating income less items such as restructuring and severance costs , asset write-downs , goodwill and indefinite-lived intangible asset impairments , inventory write-downs , gain or losses on purchase commitments , global operations , sales and marketing , information systems , finance and administrative groups , and other items , expressed as a percentage of net revenues . we believe that evaluating segment performance excluding such items is meaningful because it provides insight with respect to intrinsic operating results of the segment . operating margin is clearly a function of net revenues , but also reflects our cost management programs and our ability to contain fixed costs . end-of-period backlog is one indicator of future revenues . we include in our backlog only open orders that we expect to ship in the next twelve months . if demand falls below customers ' forecasts , or if customers do not control their inventory effectively , they may cancel or reschedule the shipments that are included in our backlog , in many instances without the payment of any penalty . therefore , the backlog is not necessarily indicative of the results to be expected for future periods . an important indicator of demand in our industry is the book-to-bill ratio , which is the ratio of the amount of product ordered during a period as compared with the product that we ship during that period . a book-to-bill ratio that is greater than one indicates that our backlog is building and that we are likely to see increasing revenues in future periods . conversely , a book-to-bill ratio that is less than one is an indicator of declining demand and may foretell declining revenues . we focus on our inventory turnover as a measure of how well we are managing our inventory . we define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory ( computed using each fiscal quarter-end balance ) for this same period . a higher level of inventory turnover reflects more efficient use of our capital . pricing in our industry can be volatile . using our and publicly available data , we analyze trends and changes in average selling prices to evaluate likely future pricing . the erosion of average selling prices of established products is typical for semiconductor products . we attempt to offset this deterioration with ongoing cost reduction activities and new product introductions . our specialty passive components are more resistant to average selling price erosion . all pricing is subject to governing market conditions . 33 the quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business . the following table shows net revenues , gross profit margin , operating margin , end-of-period backlog , book-to-bill ratio , inventory turnover , and changes in asp for our business as a whole during the five fiscal quarters beginning with the fourth fiscal quarter of 2016 through the fourth fiscal quarter of 2017 ( dollars in thousands ) : replace_table_token_7_th _ ( 1 ) operating margin for the fourth fiscal quarter of 2016 and the first , second , third , and fourth fiscal quarters of 2017 includes $ 7.1 million , $ 1.5 million , $ 0.5 million , $ 3.2 million and $ 6.1 million , respectively , of restructuring and severance expenses ( see note 4 to our consolidated financial statements ) . operating margin for the fourth fiscal quarter of 2016 includes $ 79.3 million of pension settlement charges ( see note 11 to our consolidated financial statements ) . see `` financial metrics by segment '' below for net revenues , book-to-bill ratio , and gross profit margin broken out by segment . revenues for the fourth fiscal quarter of 2017 decreased slightly versus the third fiscal quarter of 2017 , but increased significantly versus the prior year quarter . the continued strong demand further increased the backlog and the book-to-bill ratio . distributors continue to drive the high order rate . we keep increasing manufacturing capacities and output of our key product lines , but the high order rates have increased product delivery leadtimes and even caused some shortages of supply . many of our product lines are operating at or near capacity . sequentially , average selling prices were virtually stable , reflective of the strong business environment . gross profit margin decreased versus the prior fiscal quarter , but increased versus the fourth fiscal quarter of 2016. the fluctuations are primarily volume-driven with decreasing average selling prices burdening each period .
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results of operations statement of operations ' captions as a percentage of net revenues and the effective tax rates were as follows : replace_table_token_10_th net revenues net revenues were as follows ( dollars in thousands ) : replace_table_token_11_th changes in net revenues were attributable to the following : replace_table_token_12_th we experienced a substantial , broad-based increase in demand for our products in 2017. demand for our products in 2016 increased compared to 2015. the increases in demand resulted in increases in net revenues compared to the prior year periods . we deduct , from the sales that we record to distributors , allowances for future credits that we expect to provide for returns , scrapped product , and price adjustments under various programs made available to the distributors . we make deductions corresponding to particular sales in the period in which the sales are made , although the corresponding credits may not be issued until future periods . we estimate the deductions based on sales levels to distributors , inventory levels at the distributors , current and projected market trends and conditions , recent and historical activity under the relevant programs , changes in program policies , and open requests for credits . we recorded deductions from gross sales under our distributor incentive programs of $ 89.0 million , $ 86.9 million , and $ 83.1 million , for the years ended december 31 , 2017 , 2016 , and 2015 , respectively , or , as a percentage of gross sales , 3.3 % , 3.6 % , and 3.5 % , respectively . actual credits issued under the programs for the years ended december 31 , 2017 , 2016 , and 2015 were approximately $ 87.4 million , $ 85.3 million , and $ 84.0 million , respectively . increases and decreases in these incentives are largely attributable to the then-current business climate .
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included in this analysis are assumptions , at a dealership level , regarding the cash flows directly attributable to the f-10 group 1 automotive , inc. and subsidiaries notes to consolidated financial statements — ( continued ) franchise rights , revenue growth rates , future gross margins and future sg & a expenses . using an estimated wacc , estimated residual values at the end of story_separator_special_tag you should read the following discussion in conjunction with part i , including the matters set forth in “ item 1a . risk factors , ” and our consolidated financial statements and notes thereto included elsewhere in this form 10-k. overview we are a leading operator in the automotive retail industry . as of december 31 , 2012 , we owned and operated 142 franchises , representing 31 brands of automobiles , at 111 dealership locations and 28 collision service centers in the u.s. and 15 franchises at ten dealerships and three collision centers in the u.k. through our dealerships , we sell new and used cars and light trucks ; arrange related vehicle financing ; service and insurance contracts ; provide automotive maintenance and repair services ; and sell vehicle parts . our operations are primarily located in major metropolitan areas in alabama , california , florida , georgia , kansas , louisiana , maryland , massachusetts , mississippi , new hampshire , new jersey , new york , oklahoma , south carolina , and texas in the u.s. and in the towns of brighton , chelmsford , chingford , farnborough , hailsham , harold wood , hindhead , southend , stanstead , and worthing in the u.k. as of december 31 , 2012 , our u.s. retail network consisted of the following two regions ( with the number of dealerships they comprised ) : ( a ) the east ( 45 dealerships in alabama , florida , georgia , louisiana , maryland , massachusetts , mississippi , new hampshire , new jersey , new york , and south carolina ) and ( b ) the west ( 66 dealerships in california , kansas , oklahoma , and texas ) . each region is managed by a regional vice president who reports directly to our chief executive officer and is responsible for the overall performance of their regions , as well as for overseeing the market directors and dealership general managers that report to them . each region is also managed by a regional chief financial officer who reports directly to our chief financial officer . our dealerships in the u.k. are also managed locally with direct reporting responsibilities to our corporate management team . we typically seek to acquire large , profitable , well-established and well-managed dealerships that are leaders in their respective market areas . from january 1 , 2008 , through december 31 , 2012 , we have purchased 41 franchises with expected annual revenues at the time of acquisition of $ 1.6 billion and been granted nine new franchises by our manufacturers , with expected annual revenues at the time of acquisition of $ 119.7 million . in 2012 alone , we acquired one domestic , eight import , and seven luxury franchises with expected annual revenues at the time of acquisition of $ 715.0 million . we make disposition decisions based principally on the rate of return on our capital investment , the location of the dealership , our ability to leverage our cost structure , the brand , and existing real estate obligations . from january 1 , 2008 through december 31 , 2012 , we disposed of or terminated 41 franchises with annual revenues of approximately $ 503.6 million . specifically , during 2012 , we disposed of three luxury and three import franchises with annual revenues of approximately $ 127.9 million . in the following discussion and analysis , we report certain performance measures of our newly acquired and disposed dealerships separately from those of our existing dealerships . our operating results reflect the combined performance of each of our interrelated business activities , which include the sale of new vehicles , used vehicles , finance and insurance products , and parts , as well as service and collision repair services . historically , each of these activities has been directly or indirectly impacted by a variety of supply/demand factors , including vehicle inventories , consumer confidence , consumer discretionary spending , availability and affordability of consumer credit , manufacturer incentives , weather patterns , fuel prices , and interest rates . for example , during periods of sustained economic downturn or significant supply/demand imbalances , new vehicle sales may be negatively impacted as consumers tend to shift their purchases to used vehicles . some consumers may even delay their purchasing decisions altogether , electing instead to repair their existing vehicles . in such cases , however , we believe the new vehicle sales impact on our overall business is mitigated by our ability to offer other products and services , such as used vehicles and parts , service and collision repair services , as well as our ability to reduce our costs in response to lower sales . we generally experience higher volumes of vehicle sales and service in the second and third calendar quarters of each year . this seasonality is generally attributable to consumer buying trends and the timing of manufacturer new vehicle model introductions . in addition , in some regions of the u.s. , vehicle purchases decline during the winter months due to inclement weather . as a result , our revenues and operating income are typically lower in the first and fourth quarters and higher in the second and third quarters . other factors unrelated to seasonality , such as changes in economic condition and manufacturer incentive programs , may exaggerate seasonal or cause counter-seasonal fluctuations in our revenues and operating income . according to industry experts , the annual new unit sales for 2012 increased 1.7 million units , or 13.3 % , to 14.5 million units , compared to 12.8 million units in 2011 . story_separator_special_tag our used vehicle retail sales revenues increased 24.0 % for the twelve months ended december 31 , 2012 as compared to 2011. this growth primarily reflects an increase in the used vehicle unit sales of 21.1 % for the year ended december 31 , 2012 as compared to 2011. the improving economic environment that has benefited new vehicle sales also supported improved used vehicle demand . used vehicle gross margins declined for the twelve months ended december 31 , 2012 , due to a decrease in gross profit per unit sold coupled with an increase in the sales price per unit . our parts and service sales increased by 8.1 % , for the year ended december 31 , 2012 , as compared to the same period in 2011 , primarily driven by increases in our customer-pay parts and service business and in our collision business , as well as in our wholesale parts business . our parts and service margins for 2012 increased to 52.4 % , up 10 basis points from 2011 , primarily as a result of an increase in internal work generated by increased new and used retail vehicle sales volumes . our consolidated finance and insurance income per retail unit sold increased to $ 1,215 for the twelve months of 2012 , as compared to $ 1,135 in 2011 , primarily driven by increases in income per contract from our finance , insurance , and other product offerings , as well as an increase in penetration rates for finance and vehicle service contracts . our total gross margin decreased 90 basis points to 14.9 % for the twelve months ended december 31 , 2012 , primarily due to the shift in business mix towards the lower margin new and used vehicle businesses . 33 our consolidated sg & a expenses increased in absolute dollars for the twelve months ended december 31 , 2012 , as compared to 2011 , primarily as a result of the correlation to vehicle sales volumes , as well as dealership acquisitions . however , sg & a as a percentage of gross profit declined 60 basis points to 75.9 % , for the year ended december 31 , 2012 from the same period in 2011 , reflecting ongoing cost control and the leverage on our cost structure that higher revenues and gross profits provide . for the twelve months ended december 31 , 2012 , floorplan interest expense increased 14.8 % , as compared to 2011 , primarily due to higher weighted average borrowings as our import brand inventories returned to more normalized levels following the march 2011 natural disasters in japan and recent acquisitions . other interest expense increased 11.1 % for the year ended december 31 , 2012 , largely due to an increase in real estate related borrowings . the combination of all of these factors , including $ 7.3 million of asset impairments , resulted in an operating margin of 3.1 % for the twelve months ended december 31 , 2012 , which reflects a 10 basis-point decrease from 2011. we address these items further , and other variances between the periods presented , in the “ results of operations ” section below . recent accounting pronouncements refer to note 2 of our consolidated financial statements , “ summary of significant accounting polices and estimates , ” for a discussion of those most recent pronouncements that impact us . critical accounting policies and accounting estimates the preparation of our financial statements in conformity with generally accepted accounting ( “ gaap ” ) principles requires management to make certain estimates and assumptions . these estimates and assumptions affect the reported amounts of assets and liabilities , the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period . we analyze our estimates based on our historical experience and various other assumptions that we believe to be reasonable under the circumstances . however , actual results could differ from such estimates . the following is a discussion of our critical accounting estimates and policies . we have identified below what we believe to be the most pervasive accounting policies and estimates that are of particular importance to the portrayal of our financial position , results of operations and cash flows . see note 2 to our consolidated financial statements , “ summary or significant accounting policies and estimates , ” for further discussion of all our significant accounting policies and estimates . inventories . we carry new , used and demonstrator vehicle inventories , as well as parts and accessories inventories , at the lower of cost ( determined on a first-in , first-out basis for parts and accessories ) or market in the consolidated balance sheets . vehicle inventory cost consists of the amount paid to acquire the inventory , plus the cost of reconditioning , cost of equipment added and transportation cost . additionally , we receive interest assistance from some of our automobile manufacturers . this assistance is accounted for as a vehicle purchase price discount and is reflected as a reduction to the inventory cost on our consolidated balance sheets and as a reduction to cost of sales in our statements of operations as the vehicles are sold . at december 31 , 2012 and 2011 , inventory cost had been reduced by $ 7.8 million and $ 5.5 million , respectively , for interest assistance received from manufacturers . new vehicle cost of sales was reduced by $ 33.9 million , $ 26.1 million , and $ 24.0 million for interest assistance received related to vehicles sold for the years ended december 31 , 2012 , 2011 , and 2010 , respectively .
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results of operations the “ same store ” amounts presented below include the results of dealerships for the identical months in each period presented in the comparison , commencing with the first full month in which the dealership was owned by us and , in the case of dispositions , ending with the last full month it was owned by us . for example , for a dealership acquired in june 2011 , the results from this dealership will appear in our same store comparison beginning in 2012 for the period july 2012 through december 2012 , when comparing to july 2011 through december 2011 results . depending on the periods being compared , the dealerships included in same store will vary . for this reason , the 2011 same store results that are compared to 2012 differ from those used in the comparison to 2010 . same store results also include the activities of our corporate headquarters . the following table summarizes our combined same store results for the year ended december 31 , 2012 as compared to 2011 and for the year ended december 31 , 2011 compared to 2010 . 37 total same store data ( dollars in thousands , except per unit amounts ) replace_table_token_10_th the discussion that follows provides explanation for the variances noted above . in addition , each table presents by primary income statement line item comparative financial and non-financial data of our same store locations , those locations acquired or disposed of ( “ transactions ” ) during the periods and the consolidated company for the years ended december 31 , 2012 , 2011 , and 2010 .
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nonetheless , the company has revised the presentation of the balance sheet at december 31 , 2018 to reflect the reclassification of all previously recorded held-to-maturity investments as available-for-sale . the effect on the balance sheet as of december 31 , 2018 is to reclassify $ 2,986,156 from held-to-maturity securities to investments in debt and equity securities , at fair value . in addition , total current assets at december 31 , 2018 were increased by $ 1,989,923 as a result of this reclassification . there was no impact to the statement of operations for 2018 as a result . the company will continue to revise its previously-issued financial statements on a prospective basis for this classification error as well as the related disclosures of the fair value of financial instruments . f- 25 20. subsequent events effective january 13 , 2020 , the company agreed with two preferred stockholders to purchase outstanding class b convertible preferred stock ( the “ preferred stock ” ) for cash and common stock . such preferred stockholders tendered to the company a total of 2,500 shares of series iii preferred stock and 5,000 shares of series iv preferred stock . a total of $ 75,000 and 7,500 shares of common stock were issued as consideration therefor . in accordance with the terms of the agreements , the preferred stockholders agreed to waive all unpaid dividends in arrears associated with their preferred stock , which resulted in a waiver of a total of $ 149,795 in unpaid dividends in arrears . subsequent to december 31 , 2019 , the world health organization ( who ) declared the novel coronavirus outbreak a public health emergency . on march 11 th , 2020 , the who director-general declared that covid-19 be characterized as a pandemic . since that time , the situation surrounding the pandemic and the effects on the world economy , public health across the globe and u.s. businesses has been , and continues to be , a fluid situation . the company is continuing to monitor the situation , including our outsourcing of products from china , the availability of materials and other resources used in production in the united states , the availability of necessary transportation of products from our vendors and to our customers , available labor force needed to continue operations , and the ability to meet the demand requirements of our existing customers . these factors , and numerous other factors which are not yet known , present challenges and uncertainties which the company can not quantify at this time . it is possible that these factors may have a materially adverse impact to the company . selected quarterly financial data - unaudited the selected quarterly financial data for the periods ended december 31 , 2019 , and 2018 , have been derived from the company 's unaudited financial statements and include all adjustments , consisting only of normal recurring adjustments , necessary for a fair presentation of the results of the interim periods . certain quarterly amounts may differ from full year totals due to rounding . replace_table_token_29_th f- 26 replace_table_token_30_th f- 27 item 9. changes in and disagreements with accountants on accounting and financial disclosure . there were no reportable disagreements with accountants on accounting and financial disclosures . item 9a . controls and procedures . disclosure controls and procedures pursuant to rule 13a-15 ( b ) under the securities exchange act of 1934 ( the `` exchange act `` ) , management , with the participation of our president , chairman , and chief executive officer , thomas j. shaw ( the “ ceo ” ) , and our vice president and chief financial officer , john w. fort iii ( the “ cfo ” ) , acting in their capacities as our principal executive and financial officers , evaluated the effectiveness of our disclosure controls and procedures , as defined in rule 13a-15 ( e ) under the exchange act . the term disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by us in our periodic reports is : i ) recorded , processed , summarized , and reported within the time periods specified in the securities and exchange commission 's ( the “ sec ” ) rules and forms ; and ii ) accumulated and communicated to our management , including our principal executive and principal financial officers , as appropriate to allow timely decisions regarding required disclosure . based upon this evaluation , the ceo and cfo concluded that , as of december 31 , 2019 , our disclosure controls and procedures were effective . management 's annual report on internal control over financial reporting management is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in rule 13a-15 ( f ) under the exchange act . the term internal control over financial reporting means a process designed by , or under the supervision of , our principal executive and principal financial officers and effected by our board of directors , management and other personnel , 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 and includes those policies and procedures that : ( i ) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of assets ; ( ii ) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles , and that our receipts and expendituresare being made only in accordance with authorizations of management and directors ; and ( iii ) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition , use , or disposition of our assets that could have a material effect on our financial statements . story_separator_special_tag management used the internal control - integrated framework ( 2013 ) issued by the committee of sponsoring organizations of the treadway commission to evaluate the effectiveness of our internal control over financial reporting as required by paragraph ( c ) of rule 13a-15 under the exchange act . management , with the participation of our ceo and cfo , concluded that our internal control over story_separator_special_tag forward-looking statement warning certain statements included by reference in this filing containing the words “ could , ” “ may , ” “ believes , ” “ anticipates , ” “ intends , ” “ expects , ” and similar such words constitute forward-looking statements within the meaning of the private securities litigation reform act . any forward-looking statements involve known and unknown risks , uncertainties , and other factors that may cause our actual results , performance , or achievements to be materially different from any future results , performance , or achievements expressed or implied by such forward-looking statements . such factors include , among others , global pandemics , potential tariffs , our ability to maintain liquidity , our maintenance of patent protection , litigation , our ability to maintain favorable third party manufacturing and supplier arrangements and relationships , foreign trade risk , our ability to quickly increase capacity in response to an increase in demand , our ability to access the market , our ability to maintain or decrease production costs , our ability to continue to finance research and development as well as operations and expansion of production , the impact of larger market players , specifically bd , in providing devices to the safety market , and other factors referenced in item 1a . risk factors . given these uncertainties , undue reliance should not be placed on forward-looking statements . overview we have been manufacturing and marketing our products since 1997. vanishpoint ® syringes comprised 85.6 % of our sales in 2019. we also manufacture and market the easypoint ® needle , blood collection tube holder , iv safety catheter , and vanishpoint ® blood collection set . we currently provide other safety medical products in addition to safety products utilizing retractable technology . one such product is the patient safe ® syringe , which is uniquely designed to reduce the risk of bloodstream infections associated with catheter hub contamination . in the second quarter of 2016 , we began selling the easypoint ® needle . easypoint ® needles made up 7.2 % of revenues in 2019. the easypoint ® is a retractable needle that can be used with luer lock syringes , luer slip syringes , and prefilled syringes to give injections . the easypoint ® needle can also be used to aspirate fluids and collect blood . historically , unit sales have increased in the latter part of the year due , in part , to the demand for syringes during the flu season . our products have been and continue to be distributed nationally and internationally through numerous distributors . although we have made limited progress in some areas , such as the alternate care market , our volumes are not as high as they should be given the nature and quality of our products and the federal and state legislation requiring the use of safe needle devices . the alternate care market is composed of facilities that provide long-term nursing and out-patient surgery , emergency care , physician services , health clinics , and retail pharmacies . we continue to pursue various strategies to have better access to the hospital market , as well as other markets , including attempting to gain access to the market through our sales efforts , our innovative technology , introduction of new products , and , when necessary , litigation . the further consolidated appropriations act , 2020 , signed into law on december 20 , 2019 , has permanently repealed the 2.3 % medical device excise tax . prior to the repeal , the tax was on a 4-year moratorium . as a result of the repeal and the prior moratorium , sales of taxable medical devices after december 31 , 2015 , are not subject to the tax . product purchases from our chinese manufacturers have enabled us to increase manufacturing capacity with little capital outlay and have provided a competitive manufacturing cost . in 2019 , our chinese manufacturers produced approximately 82.6 % of our products . as of march 23 , 2020 , we believe we have sufficient inventory to fulfill demand despite having experienced a temporary disruption in our supply of products from china due to the recent coronavirus ( covid-19 ) precautions in that country . our suppliers in china have resumed production and shipments of products from china have been received . in the event that we become unable to purchase products from our chinese manufacturers , we would need to find an alternate manufacturer for the blood collection set , iv 11 catheter , patient safe ® syringe , 0.5ml insulin syringe , 0.5ml autodisable syringe , and 2ml , 5ml , and 10ml syringes and we would increase domestic production for the 1ml and 3ml syringes . in 1995 , we entered into a license agreement with thomas j. shaw for the exclusive right to manufacture , market , and distribute products utilizing his patented automated retraction technology and other patented technology . this technology is the subject of various patents and patent applications owned by mr. shaw . the license agreement generally provides for quarterly payments of a 5 % royalty fee on gross sales of products subject to the license and he receives fifty percent ( 50 % ) of the royalties paid to the company by certain sublicensees of the technology subject to the license . with increased volumes , our manufacturing unit costs have generally tended to decline . factors that could affect our unit costs include increases in costs by third party
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results of operations the following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties . our actual future results could differ materially from our historical results of operations and those discussed in the forward-looking statements . all period references are to our fiscal years ended december 2019 and 2018. dollar amounts have been rounded for ease of reading . comparison of year ended december 31 , 2019 and year ended december 31 , 2018 domestic sales accounted for 76.6 % and 86.1 % of the revenues in 2019 and 2018 , respectively . domestic revenues increased 11.3 % principally due to increased volumes , including sales of vanishpoint ® products . domestic unit sales increased 4.9 % . domestic unit sales were 67.9 % of total unit sales for 2019. international revenues , excluding product licensing fees , increased from $ 4.6 million in 2018 to $ 9.7 million in 2019 , primarily due to higher unit sales . overall unit sales increased 25 % . our international orders may be subject to significant fluctuation over time . such orders may fluctuate due to health initiatives at various times as well as economic conditions . cost of manufactured product increased $ 4.1 million principally due to an increase in units sold . royalty expense increased $ 506 thousand due to increased gross sales . gross profit margins increased from 30.7 % in 2018 to 33.8 % in 2019 principally due to an overall increase in sales . operating expenses decreased 5.5 % from the prior year due to cost cutting measures in the fourth quarter of 2018. these decreases were partially offset by increases in other operating costs . the loss from operations was $ 1.3 million in 2018 compared to income from operations of $ 3.0 million in 2019. cash flow from operations was $ 2.2 million in 2019 due to our net income for the year .
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” cash generated from operations is expected to fluctuate in the future . changes in cash for investing activities are primarily attributable to acquisitions and dispositions of properties . nnn typically uses proceeds from its credit facility to fund the acquisition of its properties . nnn 's financing activities for the year ended december 31 , 2015 , included the following significant transactions : $ 395,436,000 in net proceeds from the issuance of the 4.00 % notes payable in october , $ 150,000,000 in repayment of the 6.15 % notes payable in december , $ 7,182,000 in net proceeds from the issuance of 196,584 shares of common stock in connection with the dividend reinvestment and stock purchase plan ( “ drip ” ) , $ 321,067,000 in net proceeds from the issuance of 8,573,533 shares of common stock in connection with the at-the-market ( `` atm '' ) equity program , $ 19,047,000 in dividends paid to holders of the depositary shares of nnn 's series d preferred stock , $ 16,387,000 in dividends paid to holders of the depositary shares of nnn 's series e preferred stock , and $ 228,699,000 in dividends paid to common stockholders . financing strategy . nnn 's financing objective is to manage its capital structure effectively in order to provide sufficient capital to execute its operating strategy while servicing its debt requirements , maintaining its investment grade credit rating , staggering debt maturities and providing value to nnn 's stockholders . nnn generally utilizes debt and equity security offerings , bank borrowings , proceeds from the disposition of certain properties , and to a lesser extent , internally generated funds to meet its capital needs . nnn typically funds its short-term liquidity requirements , including investments in additional properties , with cash from its credit facility . as of december 31 , 2015 , there was no outstanding balance and $ 650,000,000 was available for future borrowings under the credit facility . as of december 31 , 2015 , nnn 's ratio of total debt to total gross assets ( before accumulated depreciation and amortization ) was approximately 33 percent and the ratio of secured indebtedness to total gross assets was less than one percent . the ratio of total debt to total market capitalization was approximately 25 percent . certain financial agreements to which nnn is a party contain covenants that limit nnn 's ability to incur additional debt under certain circumstances . the organizational documents of nnn do not limit the absolute amount or percentage of indebtedness that nnn may incur . additionally , nnn may change its financing strategy . 28 contractual obligations and commercial commitments . the information in the following table summarizes nnn 's contractual obligations and commercial commitments outstanding as of december 31 , 2015 . the table presents principal cash flows by year-end of the expected maturity for debt obligations and commercial commitments outstanding as of december 31 , 2015 . replace_table_token_18_th ( 1 ) includes only principal amounts outstanding under mortgages payable and notes payable and excludes unamortized mortgage premiums and note discounts and note costs . ( 2 ) excludes $ 20,113 of accrued interest payable . in addition to the contractual obligations outlined above , nnn has committed to fund construction commitments on leased properties . the improvements are estimated to be completed within 12 months . these construction commitments , at december 31 , 2015 , are outlined in the table below ( dollars in thousands ) : number of properties 27 total commitment ( 1 ) $ 116,394 amount funded $ 87,406 remaining commitment $ 28,988 ( 1 ) includes land , construction costs , tenant improvements and lease costs . as of december 31 , 2015 , nnn did not have any other material contractual cash obligations , such as purchase obligations , financing lease obligations or other long-term liabilities other than those reflected in the table . in addition to items reflected in the table , nnn has issued preferred stock with cumulative preferential cash distributions , as described below under “ dividends. ” management anticipates satisfying these obligations with a combination of nnn 's cash provided from operations , current capital resources on hand , its credit facility , debt or equity financings and asset dispositions . generally the properties are leased under long-term net leases . therefore , management anticipates that capital demands to meet obligations with respect to these properties will be modest for the foreseeable future and can be met with funds from operations and working capital . certain of the properties are subject to leases under which nnn retains responsibility for specific costs and expenses associated with the property . management anticipates the costs associated with the vacant properties or those properties that become vacant will also be met with funds from operations and working capital . nnn may be required to borrow under its credit facility or use other sources of capital in the event of significant capital expenditures . the lost revenues and increased property expenses resulting from vacant properties or uncollectibility of lease revenues could have a material adverse effect on the liquidity and results of operations if nnn is unable to release the properties at comparable rental rates and in a timely manner . as of december 31 , 2015 , nnn owned 21 vacant , un-leased properties which accounted for approximately one percent of total properties . additionally , as of january 31 , 2016 , less than one percent of the total gross leasable area of the property portfolio was leased to tenants that have filed a voluntary petition for bankruptcy under chapter 11 of the u.s. bankruptcy code . as a result , these tenants have the right to reject or affirm their leases with nnn . dividends . nnn has made an election to be taxed as a reit under sections 856 through 860 of the code , as amended , and related regulations and intends story_separator_special_tag ” cash generated from operations is expected to fluctuate in the future . changes in cash for investing activities are primarily attributable to acquisitions and dispositions of properties . nnn typically uses proceeds from its credit facility to fund the acquisition of its properties . nnn 's financing activities for the year ended december 31 , 2015 , included the following significant transactions : $ 395,436,000 in net proceeds from the issuance of the 4.00 % notes payable in october , $ 150,000,000 in repayment of the 6.15 % notes payable in december , $ 7,182,000 in net proceeds from the issuance of 196,584 shares of common stock in connection with the dividend reinvestment and stock purchase plan ( “ drip ” ) , $ 321,067,000 in net proceeds from the issuance of 8,573,533 shares of common stock in connection with the at-the-market ( `` atm '' ) equity program , $ 19,047,000 in dividends paid to holders of the depositary shares of nnn 's series d preferred stock , $ 16,387,000 in dividends paid to holders of the depositary shares of nnn 's series e preferred stock , and $ 228,699,000 in dividends paid to common stockholders . financing strategy . nnn 's financing objective is to manage its capital structure effectively in order to provide sufficient capital to execute its operating strategy while servicing its debt requirements , maintaining its investment grade credit rating , staggering debt maturities and providing value to nnn 's stockholders . nnn generally utilizes debt and equity security offerings , bank borrowings , proceeds from the disposition of certain properties , and to a lesser extent , internally generated funds to meet its capital needs . nnn typically funds its short-term liquidity requirements , including investments in additional properties , with cash from its credit facility . as of december 31 , 2015 , there was no outstanding balance and $ 650,000,000 was available for future borrowings under the credit facility . as of december 31 , 2015 , nnn 's ratio of total debt to total gross assets ( before accumulated depreciation and amortization ) was approximately 33 percent and the ratio of secured indebtedness to total gross assets was less than one percent . the ratio of total debt to total market capitalization was approximately 25 percent . certain financial agreements to which nnn is a party contain covenants that limit nnn 's ability to incur additional debt under certain circumstances . the organizational documents of nnn do not limit the absolute amount or percentage of indebtedness that nnn may incur . additionally , nnn may change its financing strategy . 28 contractual obligations and commercial commitments . the information in the following table summarizes nnn 's contractual obligations and commercial commitments outstanding as of december 31 , 2015 . the table presents principal cash flows by year-end of the expected maturity for debt obligations and commercial commitments outstanding as of december 31 , 2015 . replace_table_token_18_th ( 1 ) includes only principal amounts outstanding under mortgages payable and notes payable and excludes unamortized mortgage premiums and note discounts and note costs . ( 2 ) excludes $ 20,113 of accrued interest payable . in addition to the contractual obligations outlined above , nnn has committed to fund construction commitments on leased properties . the improvements are estimated to be completed within 12 months . these construction commitments , at december 31 , 2015 , are outlined in the table below ( dollars in thousands ) : number of properties 27 total commitment ( 1 ) $ 116,394 amount funded $ 87,406 remaining commitment $ 28,988 ( 1 ) includes land , construction costs , tenant improvements and lease costs . as of december 31 , 2015 , nnn did not have any other material contractual cash obligations , such as purchase obligations , financing lease obligations or other long-term liabilities other than those reflected in the table . in addition to items reflected in the table , nnn has issued preferred stock with cumulative preferential cash distributions , as described below under “ dividends. ” management anticipates satisfying these obligations with a combination of nnn 's cash provided from operations , current capital resources on hand , its credit facility , debt or equity financings and asset dispositions . generally the properties are leased under long-term net leases . therefore , management anticipates that capital demands to meet obligations with respect to these properties will be modest for the foreseeable future and can be met with funds from operations and working capital . certain of the properties are subject to leases under which nnn retains responsibility for specific costs and expenses associated with the property . management anticipates the costs associated with the vacant properties or those properties that become vacant will also be met with funds from operations and working capital . nnn may be required to borrow under its credit facility or use other sources of capital in the event of significant capital expenditures . the lost revenues and increased property expenses resulting from vacant properties or uncollectibility of lease revenues could have a material adverse effect on the liquidity and results of operations if nnn is unable to release the properties at comparable rental rates and in a timely manner . as of december 31 , 2015 , nnn owned 21 vacant , un-leased properties which accounted for approximately one percent of total properties . additionally , as of january 31 , 2016 , less than one percent of the total gross leasable area of the property portfolio was leased to tenants that have filed a voluntary petition for bankruptcy under chapter 11 of the u.s. bankruptcy code . as a result , these tenants have the right to reject or affirm their leases with nnn . dividends . nnn has made an election to be taxed as a reit under sections 856 through 860 of the code , as amended , and related regulations and intends
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results of operations property analysis general . the following table summarizes the property portfolio as of december 31 : replace_table_token_8_th the following table summarizes the lease expirations , assuming none of the tenants exercise renewal options , of the property portfolio for each of the next 10 years and then thereafter in the aggregate as of december 31 , 2015 : replace_table_token_9_th ( 1 ) based on the annualized base rent for all leases in place as of december 31 , 2015 . ( 2 ) approximate square feet . the following table summarizes the diversification of the property portfolio based on the top 10 lines of trade : replace_table_token_10_th ( 1 ) based on annualized base rent for all leases in place as of december 31 of the respective year . 22 the following table summarizes the diversification of the property portfolio by state as of december 31 , 2015 : replace_table_token_11_th ( 1 ) based on annualized base rent for all leases in place as of december 31 , 2015 . property acquisitions . the following table summarizes the property acquisitions for each of the years ended december 31 ( dollars in thousands ) : replace_table_token_12_th ( 1 ) includes dollars invested in projects under construction or tenant improvements for each respective year . nnn typically funds property acquisitions either through borrowings under nnn 's unsecured revolving credit facility ( the `` credit facility '' ) or by issuing its debt or equity securities in the capital markets . property dispositions . the following table summarizes the properties sold by nnn for each of the years ended december 31 ( dollars in thousands ) : replace_table_token_13_th ( 1 ) amounts include deferred gains on previously sold properties . nnn typically uses the proceeds from a property disposition to either pay down the credit facility or reinvest in real estate . 23 analysis of revenue from continuing operations general .
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note 6 – business combinations during fiscal 2012 , the company made the following acquisitions : in june 2012 , the company acquired substantially all of the assets of rocky mountain salvage , ltd. , a metals recycler in hinton , alberta , which expanded mrb 's presence in western canada . 55 / schnitzer steel industries , inc. form 10-k 2012 the acquisition completed in fiscal 2012 was not material to the company 's financial position or results of operations . pro forma operating results for the fiscal 2012 acquisition is not presented , story_separator_special_tag this section includes a discussion of our operations for the three years ended august 31 , 2012 , 2011 and 2010 . the following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition . the discussion should be read in conjunction with the consolidated financial statements and the related notes thereto in part ii , item 8 of this report and the selected financial data contained in part ii , item 6 of this report . business we are one of the nation 's largest recyclers of ferrous and nonferrous scrap metal , a leading recycler of used and salvaged vehicles and a manufacturer of finished steel products . we operate in three reporting segments : the metals recycling business ( “ mrb ” ) , the auto parts business ( “ apb ” ) and the steel manufacturing business ( “ smb ” ) which collectively provide an end-of-life cycle solution for a variety of products through our integrated businesses . we use operating income ( loss ) to measure our segment performance . restructuring charges are not allocated to the segment operating income ( loss ) because we do not include this information in our measurement of the segments ' performance . corporate expense consists primarily of unallocated expense for management and administrative services that benefit all three reporting segments . as a result of this unallocated expense , the operating income ( loss ) of each reporting segment does not reflect the operating income ( loss ) the reporting segment would report as a stand-alone business . for further information regarding our reporting segments , including financial information about geographic areas , see note 21 – segment information in the notes to the consolidated financial statements in part ii , item 8 of this report . mrb buys , collects , processes , recycles , sells and brokers ferrous scrap metal ( containing iron ) to foreign and domestic steel producers , including smb , and nonferrous scrap metal ( not containing iron ) to both foreign and domestic markets . mrb processes mixed and large pieces of scrap metal into smaller pieces by crushing , sorting , shearing , shredding and torching , resulting in scrap metal pieces of a size , density and metal content required by customers to meet their production needs . apb procures used and salvaged vehicles and sells serviceable used auto parts from these vehicles through its self-service auto parts stores . the remaining portions of the vehicles , primarily autobodies and major parts containing ferrous and nonferrous materials , are sold to metal recyclers , including mrb where geographically feasible . smb operates a steel mini-mill that produces a wide range of finished steel products . mrb is the sole supplier for smb 's scrap metal requirements , which smb purchases at rates that approximate export market prices for shipments from the west coast of the u.s. smb uses its mini-mill near portland , oregon to melt recycled metal and other raw materials to produce finished steel products . smb also maintains a mill depot in southern california . our results of operations depend in large part on the demand and prices for recycled metal in foreign and domestic markets and on the supply of raw materials , including end-of-life vehicles , available to be processed at our facilities . our deep water port facilities on both the east and west coasts of the u.s. ( in everett , massachusetts ; providence , rhode island ; oakland , california ; portland , oregon ; and tacoma , washington ) and access to public deep water port facilities ( in kapolei , hawaii and salinas , puerto rico ) allow us to efficiently meet the global demand for ferrous recycled metal by shipping bulk cargoes to steel manufacturers located in europe , asia , central america and africa . our exports of nonferrous processed recycled metal are shipped in containers through various public docks to specialty steelmakers , foundries , aluminum sheet and ingot manufacturers , copper refineries and smelters , brass and bronze ingot manufacturers and wire and cable producers globally . we also transport both ferrous and nonferrous metals by truck and rail in order to transfer scrap metal between our facilities for further processing , to load shipments at our export facilities and to meet regional domestic demand . key economic factors and trends affecting the industries in which we operate we sell recycled metals to the global steel industry for the production of finished steel . our financial results largely depend on supply of raw materials in the u.s. and demand for recycled metal in foreign and domestic markets and for finished steel products in the western u.s. fluctuating or volatile supply and demand conditions affect market prices for and volumes of recycled ferrous and nonferrous metal in global markets and for steel products in the western u.s. and can have a significant impact on the results of operations for all three reporting segments . in fiscal 2012 , our markets were significantly impacted by the european sovereign debt crisis which escalated in the fall of 2011 and led to a slowdown of economic activity globally . macroeconomic uncertainty resulted in deteriorating market conditions for global steel manufacturers and volatile pricing swings with an overall downward trend in commodity prices and export selling prices of recycled materials . the persistently low economic growth in the u.s. story_separator_special_tag consolidated operating income in fiscal 2012 included restructuring charges of $ 5 million , consisting of severance , contract termination and other exit costs in connection with initiatives designed to extract greater synergies from the significant acquisitions and technology investments made in recent years , achieve further integration between mrb and apb , realign our organization to support future growth and decrease operating expenses by streamlining functions and reducing organizational layers . these initiatives are expected to lower annual operating costs by $ 25 million , comprising approximately $ 18 million of selling , general and administrative expense and $ 7 million of cost of goods sold , and be substantially complete by the end of fiscal 2013. we expect that total pre-tax charges pursuant to these restructuring initiatives will be approximately $ 12 million . approximately half of the remaining $ 7 million of total restructuring charges is expected to be incurred in the first quarter of fiscal 2013 , with the balance expected to be incurred by the end of fiscal 2013. we expect that the vast majority of the restructuring charges will require us to make cash payments . following is a summary of the restructuring charges incurred in the fourth quarter of fiscal 2012 by major type of cost and the total charges expected to be incurred pursuant to these restructuring initiatives ( in thousands ) : replace_table_token_12_th we do not include restructuring charges in the measurement of the performance of our operating segments . fiscal 2011 compared with fiscal 2010 the increase in consolidated operating income was primarily due to higher average net selling prices and higher sales volumes as a result of continuing strong export market conditions , increased availability of raw materials , increased yield from higher production and enhanced shredding and sorting technologies , and incremental operating income from acquisitions . consolidated operating income reflected an increase of $ 47 million in consolidated selling , general and administrative ( “ sg & a ” ) expense for fiscal 2011 , primarily due to an $ 18 million increase in compensation expenses mainly related to increased headcount 27 / schnitzer steel industries , inc. form 10-k 2012 from acquisitions and a $ 12 million increase in professional and other third party services , including transaction costs associated with acquisitions completed in fiscal 2011. in fiscal 2011 , sg & a expense was reduced by $ 6 million for favorable customer contract settlements , compared to a reduction of $ 3 million in fiscal 2010. in addition , sg & a expense was lower in fiscal 2010 as it included $ 9 million in benefits from favorable legal settlements and environmental cost reimbursements . interest expense interest expense was $ 12 million , $ 8 million and $ 2 million for fiscal 2012 , 2011 and 2010 , respectively . the increase from fiscal 2011 to fiscal 2012 was due to increased average borrowings primarily related to our acquisitions in fiscal 2011 and higher average interest rates under our bank credit facilities compared to the prior year . the increase from fiscal 2010 to fiscal 2011 was the result of higher outstanding debt due to acquisitions and higher average interest rates under our bank credit facilities . for more information about our outstanding debt balances , see note 10 – long-term debt in the notes to the consolidated financial statements in part ii , item 8 of this report . other income , net other income , net was $ 1 million , $ 3 million and $ 2 million for fiscal 2012 , 2011 and 2010 , respectively . other income , net decreased in fiscal 2012 primarily due to $ 3 million of transaction gains recognized in the prior year relating to foreign currency forward contracts in connection with the acquisition of a business in canada . income tax expense income tax expense was $ 14 million , $ 57 million and $ 41 million for fiscal 2012 , 2011 and 2010 , respectively . fiscal 2012 compared with fiscal 2011 our effective tax rate for fiscal 2012 was 32.7 % compared to 31.6 % for fiscal 2011. in fiscal 2012 , the effective tax rate differed from the u.s. federal statutory rate of 35 % primarily due to state tax benefits and research and development credits , partially offset by the adverse impact of foreign subsidiaries ' results taxed at different tax rates . in fiscal 2011 , the effective tax rate benefited from certain adjustments recorded in the period , including a recognition of research and development credits , a reduction in a reserve for unrecognized state income tax benefits and the correction of a prior period error that resulted in an increase to net income of $ 3 million . fiscal 2011 compared with fiscal 2010 our effective tax rate for fiscal 2011 was 31.6 % compared to 32.6 % for fiscal 2010 . the effective tax rate differed from the u.s. federal statutory rate of 35 % , primarily due to the lower tax rate for foreign income and domestic production activities deductions . the fiscal 2011 effective tax rate also benefited from certain adjustments recorded in the period , including a recognition of research and development credits and a reduction in a reserve for unrecognized state income tax benefits . in addition , during the fourth quarter of fiscal 2011 , we recorded an adjustment to correct an error that originated in a prior period pertaining to deferred tax liabilities related to our investment in a subsidiary . the correction of this error resulted in a reduction of income tax expense and an increase to net income of $ 3 million for the year ended august 31 , 2011. see note 18 - income taxes in the notes to the consolidated financial statements in part ii , item 8 of this report for further discussion . 28 / schnitzer steel industries , inc. form 10-k 2012 financial results by reporting segment we operate our business across three reporting segments : mrb , apb and smb .
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executive overview of financial results we generated revenues of $ 3.3 billion in fiscal 2012 , a decrease of 3 % from the $ 3.5 billion of consolidated revenues in the prior year . the decrease was primarily due to lower volumes of ferrous sales as a result of soft global demand for recycled metal and constrained supply of raw materials . operating income for fiscal 2012 decreased by $ 132 million , or 71 % , to $ 54 million , including restructuring charges of $ 5 million , when compared with the prior year due to the deterioration in market conditions caused mainly by the escalation in the european sovereign debt crisis in the fall of 2011. this led to a slowdown of economic activity and resulted in weakening global demand and periods of volatile prices with an overall downward trend in export selling prices for recycled metals . this , combined with the constrained supply of raw materials and the adverse effect of average inventory costing on cost of goods sold during periods of sharp declines in selling prices that occurred in fiscal 2012 , led to a compression in operating margins . this contrasted with the prior fiscal year , which benefited from a stronger market environment and rising prices for recycled metals . net income attributable to ssi decreased by $ 91 million , or 77 % , to $ 27 million when compared with the prior year . diluted net income attributable to ssi was $ 0.99 per share for fiscal 2012 , including the adverse effect of $ 0.12 per share related to restructuring charges , compared to diluted net income attributable to ssi of $ 4.23 per share in fiscal 2011. the following items summarize our consolidated financial performance for fiscal 2012 : 24 / schnitzer steel industries , inc. form 10-k 2012 revenues of $ 3.3 billion , compared to $ 3.5
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we analyze the progress of clinical trials , including levels of patient enrollment , invoices received and contracted costs when evaluating the adequacy of the amount expensed and the related prepaid asset and accrued liability . significant judgments and estimates must be made and used in determining the accrued balance and expense in any accounting period . we review and accrue cro expenses and clinical trial study expenses based on work performed and rely upon estimates of those costs applicable to the stage of completion of a study . accrued cro costs are subject to revisions as such trials progress to completion . revisions are charged to expense in the period in which the facts that give rise to the revision become known . with respect to clinical site costs , the financial terms of these agreements are subject to negotiation and vary from contract to contract . payments under these contracts may be uneven , and depend on factors such as the achievement of certain events , the successful recruitment of patients , the completion of portions of the clinical trial or similar conditions . the objective of our policy is to match the recording of expenses in our financial statements to the actual services received and efforts expended . as such , expense accruals related to clinical site costs are recognized based on our estimate of the degree of completion of the event or events specified in the specific clinical study or trial contract . in-process research and development all acquired research and development projects are recorded at their fair value as of the date acquisition . the fair values are assessed as of the balance sheet date to ascertain if there has been any impairment of the recorded value . if there is an impairment , the asset is written down to its current fair value by the recording of an expense . impairment is tested on an annual basis , and consists of a comparison of the fair value of the in-process research and development with its carrying amount . f- 9 income taxes income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases , operating losses and tax credit carryforwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date . if the likelihood of realizing the deferred tax assets or liability is less than “ more likely than not , ” a valuation allowance is then created . we , and our subsidiaries , file income tax returns in the u.s. federal jurisdiction and in various states . we have tax net operating loss carryforwards that are subject to examination for a number of years beyond the year in which they were generated for tax purposes . since a portion of these net operating loss carryforwards may be utilized in the future , many of these net operating loss carryforwards will remain subject to examination . we recognize interest and penalties related to uncertain income tax positions in income tax expense . stock - based compensation we recognize all share-based payments to employees and to non-employee directors as compensation for service on our board of directors as compensation expense in the consolidated financial statements based on the fair values of such payments . stock-based compensation expense recognized each period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period . forfeitures are estimated at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from those estimates . for share-based payments to consultants and other third-parties , compensation expense is determined at the “ measurement date . ” the expense is recognized over the vesting period of the award . until the measurement date is reached , the total amount of compensation expense remains uncertain . we record compensation expense based on the fair value of the award at the reporting date . the awards to consultants and other third-parties are then revalued , or the total compensation is recalculated based on the then current fair value , at each subsequent reporting date . the company did not grant any consultant options during the year ended december 31 , 2011. basic and diluted net ( loss ) income per common share basic net income ( loss ) per common share is calculated by dividing net income ( loss ) applicable to common shares by the weighted-average number of common shares outstanding for the period . diluted net loss per common share is the same as basic net income ( loss ) per common share , since potentially dilutive securities from stock options , stock warrants and convertible preferred stock would have an antidilutive story_separator_special_tag the following discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future . forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties , and our results could differ materially from the results anticipated by our forward-looking statements as a result of many known or unknown factors , including , but not limited to , those factors discussed in “ item 1a . risk factors. story_separator_special_tag even if these trials show that our drug candidates are effective in treating certain indications , there is no guarantee that we will be able to record commercial sales of any of our drug candidates in the near future . in addition , we expect losses to continue as we continue to fund in-licensing and development of new drug candidates . as we continue our development efforts , we may enter into additional third-party collaborative agreements and may incur additional expenses , such as licensing fees and milestone payments . in addition , we may need to establish the commercial infrastructure required to manufacture , market and sell our drug candidates following approval , if any , by the fda , which would result in us incurring additional expenses . as a result , our quarterly results may fluctuate and a quarter-by-quarter comparison of our operating results may not be a meaningful indication of our future performance . 36 story_separator_special_tag black 1pt solid '' > 38 on may 20 , 2011 , t & r filed an answer to the arbitration demand in which t & r asserted counterclaims against the hedrin jv for alleged breaches by the hedrin jv of the hedrin license and for declaratory relief that the hedrin license was properly terminated by t & r . in addition , t & r impleaded an individual ( who is not associated with the company ) , nordic biotech venture fund ii k/s ( an investment fund ) and the company , demanding arbitration against them based on alleged breaches of the hedrin license and other related claims . the company has recently been removed by the arbitrator as a party to the arbitration . t & r is seeking damages of approximately $ 20,000,000. the hedrin jv and t & r held a mediation session in order to avoid the arbitration process . the mediation process did not produce a result . nordic has recently made an additional capital contribution to the hedrin jv in order to fund the arbitration . as a result of that capital contribution the company now owns a 13 % interest in the hedrin jv . the arbitration process is ongoing . swisspharma contract llc settlement in october 2009 , the company entered into a settlement agreement and mutual release with swiss pharma contract ltd ( “ swiss pharma ” ) pursuant to which the company agreed to pay swiss pharma $ 200,000 and issue to swiss pharma an interest free promissory note due on october 27 , 2011 in the principal amount of $ 250,000 in full satisfaction of a september 5 , 2008 arbitration award . in november 2011 , the company renegotiated the $ 250,000 promissory note due october 27 , 2011 in which the amount of the promissory note was reduced to $ 200,000 and the maturity date was extended to february 15 , 2012. this amount was paid on february 14 , 2012 in full settlement of this note . off-balance sheet arrangements we have not entered into any transactions with unconsolidated entities whereby we have financial guarantees , subordinated retained interests , derivative instruments or other contingent arrangements that expose us to material continuing risks , contingent liabilities , or any other obligations under a variable interest in an unconsolidated entity that provides us with financing , liquidity , market risk or credit risk support . obligations and commitments leases rent expense for the year ended december 31 , 2011 was immaterial . the company has no future minimum rental payments subsequent to december 31 , 2011 under an operating lease for the company 's office facility , which expired on september 30 , 2011. critical accounting policies the discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities and related disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the applicable period . actual results may differ from these estimates under different assumptions or conditions . we define critical accounting policies as those that are reflective of significant judgments and uncertainties and which may potentially result in materially different results under different assumptions and conditions . in applying these critical accounting policies , our management uses its judgment to determine the appropriate assumptions to be used in making certain estimates . these estimates are subject to an inherent degree of uncertainty . our critical accounting policies include the following : 39 stock compensation . we have granted stock options and restricted stock to employees , directors and consultants , as well as warrants to other third parties . for employee and director grants , the value of each option award is estimated on the date of grant using the black-scholes option-pricing model . the black-scholes model takes into account volatility in the price of our stock , the risk-free interest rate , the estimated life of the option , the closing market price of our stock and the exercise price . we base our estimates of our stock price volatility on the historical volatility of our common stock and our assessment of future volatility ; however , these estimates are neither predictive nor indicative of the future performance of our stock . for purposes of the calculation , we assumed that no dividends would be paid during the life of the options and warrants . the estimates utilized in the black-scholes calculation involve inherent uncertainties and the application of management judgment .
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results of operations year ended december 31 , 2011 year ended december 31 , 2011 costs and expenses : research and development : non-cash compensation expense $ - other research and development expenses 327,283 total research and development expenses 327,283 general and administrative : non-cash compensation expense 86,494 other general and administrative expenses 468,197 total general and administrative expenses 554,691 other expense interest and amortization on notes payable ( 7,097 ) total other expense ( 7,097 ) net loss $ ( 889,071 ) non-cash compensation expense ( research and development ) . no non-cash compensation expense ( research and development ) related to equity incentive grants was recorded during the year ended december 31 , 2011. non-cash compensation expense is related to grants of equity awards to research and development personnel and the recording of the related fair value of the awards over the respective vesting periods of the individual awards . we expect non-cash compensation expense ( research and development ) to increase in 2012 as we begin clinical trials with r-603 and hire personnel to manage those programs . other research and development expenses . other research and development expenses totaled $ 327,283 for the year ended december 31 , 2011. this expense was primarily related to a non-cash charge recorded associated with the stock issued to lfb biotechnologies , for the license to tgtx-1101 . we expect our other research and development costs to increase substantially in 2012 due to the commencement of our clinical development program for tgtx-1101 . non-cash compensation expense ( general and administrative ) . non-cash compensation expense ( general and administrative ) related to equity incentive grants equaled $ 86,494 for the year ended december 31 , 2011. the non-cash compensation expense was primarily related to the period 's expense for restricted stock grants to our chief executive officer and chief financial officer .
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with operations in approximately 835 locations across six continents , we design , manufacture and service a comprehensive line of drilling and well servicing equipment ; sell and rent drilling motors , specialized downhole tools , and rig instrumentation ; perform inspection and internal coating of oilfield tubular products ; provide drill cuttings separation , management and disposal systems and services ; and provide expendables and spare parts used in conjunction with our large installed base of equipment . we also manufacture coiled tubing and high pressure fiberglass and composite tubing , and sell and rent advanced in-line inspection equipment to makers of oil country tubular goods . we have a long tradition of pioneering innovations which improve the cost-effectiveness , efficiency , safety , and environmental impact of oil and gas operations . our revenue and operating results are directly related to the level of worldwide oil and gas drilling and production activities and the profitability and cash flow of oil and gas companies and drilling contractors , which in turn are affected by current and anticipated prices of oil and gas . oil and gas prices have been and are likely to continue to be volatile . see item 1a . risk factors . we conduct our operations through four business segments : rig systems , rig aftermarket , wellbore technologies and completion & production solutions . see item 1 . business , for a discussion of each of these business segments . unless indicated otherwise , results of operations are presented in accordance with accounting principles generally accepted in the united states ( gaap ) . in an effort to provide investors with additional information regarding our results of operations , certain non-gaap financial measures , including operating profit excluding other items , operating profit percentage excluding other items , diluted earnings per share excluding other items and operating ( non-gaap ) earnings , are provided . see non-gaap financial measures and reconciliations in results of operations for an explanation of our use of non-gaap financial measures and reconciliations to their corresponding measures calculated in accordance with gaap . operating environment overview our results are dependent on , among other things , the level of worldwide oil and gas drilling , well remediation activity , the price of crude oil and natural gas , capital spending by exploration and production companies and drilling contractors , and worldwide oil and gas inventory levels . key industry indicators for the past three years include the following : replace_table_token_5_th * averages for the years indicated . see sources below . 37 the following table details the u.s. , canadian , and international rig activity and west texas intermediate oil prices for the past nine quarters ended december 31 , 2015 on a quarterly basis : source : rig count : baker hughes , inc. ( www.bakerhughes.com ) ; west texas intermediate crude price : department of energy , energy information administration ( www.eia.doe.gov ) . the average price per barrel of west texas intermediate crude was $ 48.71 in 2015 , a decrease of 48 % over the average price for 2014 of $ 93.26 per barrel . the average natural gas price was $ 2.61 per mmbtu , a decrease of 40 % compared to the 2014 average of $ 4.38 per mmbtu . average rig activity worldwide decreased 35 % for the full year in 2015 compared to 2014. the average crude oil price for the fourth quarter of 2015 was $ 41.95 per barrel , and natural gas was $ 2.11 per mmbtu . at february 12 , 2016 , there were 763 rigs actively drilling in north america , compared to 781 rigs at december 31 , 2015 ; a decrease of 2 % from year end 2015 levels . the price of oil decreased to $ 29.76 per barrel and gas decreased to $ 1.99 per mmbtu at february 12 , 2016 , representing a 22 % decrease in oil prices and a 17 % decrease in gas prices from the end of 2015. story_separator_special_tag style= '' margin-top:6pt ; margin-bottom:0pt ; font-size:10pt ; font-family : times new roman '' > the company 's completion & production solutions segment generated $ 3.4 billion in revenue and $ 161 million in operating profit , or 4.8 % of revenue , for the full year 2015. compared to the prior year , revenue decreased 28 % and operating profit decreased $ 529 million . year-over-year revenue decreases were attributable to reduced demand and customers delaying receipt of finished orders for onshore completion and production equipment in response to commodity price declines . for the fourth quarter of 2015 , the segment generated $ 746 million in revenue and $ 1 million in operating profit , or 0.1 % of revenue . compared to the prior quarter , revenue decreased $ 52 million or 7 % , and operating profit decreased $ 2 million . sequentially , revenue and operating profit decreased on lower activity levels and pricing pressures . compared to the fourth quarter of 2014 , revenue decreased $ 579 million and operating profit decreased $ 213 million as lower levels of worldwide drilling activity resulted in reduced sales across most product lines . outlook the persistent supply and demand imbalance has led to low commodity prices and significantly reduced activity by exploration and production companies . the reduced activity has created an oversupply of service capacity and capital equipment resulting in increasingly challenging prospects for many of our customers in the form of reduced volumes and pricing pressures . consequently , we are cautious in our outlook for 2016 , and anticipate that our customers will minimize capital expenditures until they see the early signs of a recovery in commodity 40 prices and overall activity levels . we also expect them to minimize parts purchases and postpone maintenance using existing stocks of spares and cannibalizing idle equipment whenever possible . in the current environment , contractors are hesitant to invest in older equipment which can be far less productive and competitive . story_separator_special_tag operating profit percentage decreased to negative 43.4 % from 16.4 % in 2014. operating profit decreased mainly due to a $ 1,658 million impairment charge incurred on the carrying value of goodwill in the segment 's drilling & intervention and drill pipe business units as well as a certain indefinite-lived trade name associated with this segment in the fourth quarter of 2015 , as well as the overall decrease in drilling activity . included in operating profit are certain restructuring and other items related to costs associated with a voluntary early retirement plan established by the company during the first quarter of 2015 and costs related to severance and facility closures . restructuring and other items included in operating profit for wellbore technologies were $ 117 million for the year ended december 31 , 2015 and $ 6 million for the year ended december 31 , 2014. completion & production solutions revenue from completion & production solutions for the year ended december 31 , 2015 was $ 3,365 million , a decrease of $ 1,280 million ( 27.6 % ) compared to the year ended december 31 , 2014. the decrease was due lower market activity . operating profit from completion & production solutions was $ 161 million for the year ended december 31 , 2015 compared to $ 690 million for 2014 , a decrease of $ 529 million ( 76.7 % ) . operating profit percentage decreased to 4.8 % from 14.9 % in 2014. this decrease was due to the overall decrease in market activity as well as $ 24 million in impairment charges incurred on intangible assets . included in operating profit are certain restructuring and other items related to costs associated with a voluntary early retirement plan established by the company during the first quarter of 2015 ; costs related to severance and 43 facility closures ; items related to acquisitions , such as transaction costs , the amortization of backlog and inventory that was stepped up to fair value during purchase accounting . restructuring and other items included in operating profit for completion & production solutions were $ 101 million for the year ended december 31 , 2015 and $ 10 million for the year ended december 31 , 2014. the completion & productions solutions segment monitors its capital equipment backlog to plan its business . new orders are added to backlog only when the company receives a firm written order for major completion and production components or a signed contract related to a construction project . the capital equipment backlog was $ 969 million at december 31 , 2015 , a decrease of $ 810 million , or 46 % from backlog of $ 1,780 million at december 31 , 2014. numerous factors may affect the timing of revenue out of backlog . considering these factors , the company reasonably expects approximately $ 778 million of revenue out of backlog in 2016 and approximately $ 191 million of revenue out of backlog in 2017 and thereafter . at december 31 , 2015 , approximately 75 % of the capital equipment backlog was for offshore products and approximately 87 % of the capital equipment backlog was destined for international markets . eliminations eliminations in operating profit were $ 749 million for the year ended december 31 , 2015 compared to $ 892 million for the year ended december 31 , 2014. this change is primarily due to lower intersegment sales . sales from one segment to another generally are priced at estimated equivalent commercial selling prices ; however , segments originating an external sale are credited with the full profit to the company . eliminations include intercompany transactions conducted between the four reporting segments that are eliminated in consolidation . intercompany transactions within each reporting segment are eliminated within each reporting segment . other income ( expense ) , net other income ( expense ) , net were expenses of $ 123 million for the year ended december 31 , 2015 compared to expenses of $ 90 million for the year ended december 31 , 2014. the increase was primarily due to higher foreign exchange losses . provision for income taxes the effective tax rate for the year ended december 31 , 2015 was ( 30.2 ) % , compared to 29.7 % for 2014. compared to the u.s. statutory rate , the effective tax rate was positively impacted in the period by a domestic loss , the effect of lower tax rates on income earned in foreign jurisdictions , a reduction of deferred taxes due to decreases in statutory tax rates of foreign jurisdictions , and foreign exchange losses for tax reporting in norway . the effective tax rate was negatively impacted by additional u.s. tax on foreign dividends net of foreign tax credits , the recognition and settlement of an uncertain tax position in a foreign jurisdiction , and nondeductible expenses . the nondeductible expenses primarily consist of non-deductible goodwill impaired during the year ended december 31 , 2015 . 44 years ended december 31 , 2014 and december 31 , 2013 the following table summarizes the company 's revenue and operating profit by operating segment in 2014 and 2013 ( in millions ) : replace_table_token_7_th rig systems revenue from rig systems for the year ended december 31 , 2014 was $ 9,848 million , an increase of $ 1,398 million ( 16.5 % ) compared to the year ended december 31 , 2013. increased demand for high-spec land rigs and equipment resulted in higher revenues for rig systems in 2014. in addition , increased capacity enabled rig systems to generate revenue out of backlog of $ 8,689 million during 2014 , compared to revenue out of backlog of $ 7,385 million during 2013. operating profit from rig systems was $ 1,996 million for the year ended december 31 , 2014 , an increase of $ 402 million ( 25.2 % ) compared to 2013. operating profit percentage increased to 20.3 % , from 18.9 % in 2013. increased demand for high-spec land rigs and equipment generated higher operating profit percentages .
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executive summary national oilwell varco , inc. generated revenue of $ 14.8 billion in 2015 , a decrease of 31 % from the prior year due to declining oil and gas prices resulting in reduced drilling activity and demand for oilfield equipment and services . average 2015 worldwide rig count ( as measured by baker hughes ) decreased 35 % in comparison to 2014. the broad-based decline in activity led all four of the company 's reporting segments to post lower year-over-year revenues in comparison to 2014 . 38 for the year ended december 2015 the company reported an operating loss of $ 390 million compared to operating profit of $ 3.6 billion in 2014 and a net loss from continuing operations of $ 769 million , or $ 1.99 per share compared to net income of $ 2.5 billion or $ 5.70 per fully diluted share during 2014. operating profit excluding other items ( as defined in the non-gaap financial measures and reconciliations in results of operations ) was $ 1,634 million in 2015 and earnings per share excluding other items was $ 2.80 in 2015 , a 54 % decrease from $ 6.07 per diluted share in 2014. for the fourth quarter ended december 31 , 2015 , revenue was $ 2.7 billion , a $ 584 million or 18 % decrease compared to the third quarter of 2015. the company reported a net loss of $ 1,523 million from continuing operations , or $ 4.06 per fully diluted share , a decrease of $ 1,678 million , or $ 4.47 per fully diluted share . compared to the fourth quarter of 2014 , revenue decreased $ 2,987 million or 52 % , and net income from continuing operations decreased $ 2,118 million .
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as of december 28 , 2014 and december 27 , 2015 , approximately $ 1.6 million and $ 1.7 million , respectively , of the company 's unbilled accounts receivable balance were under an authorization to proceed or work story_separator_special_tag in addition to historical information , the following discussion contains forward-looking statements that are subject to risks and uncertainties . our actual results may differ substantially from those expressed in or implied by any forward-looking statements herein due to a number of factors , including but not limited to the risks and uncertainties described in this item 7 , in item 1a “ risk factors ” and elsewhere in this annual report . these forward-looking statements reflect our views and assumptions only as of the date such forward-looking statements are made . except as required by law , we assume no responsibility for updating any forward-looking statements , whether as a result of new information , future events or otherwise . the following discussion should be read in conjunction with our audited consolidated financial statements and the related notes and other financial information appearing elsewhere in this annual report and other reports and filings made with the sec . overview kratos is a mid-tier government contractor at the forefront of the dod 's third offset strategy . kratos is a leading technology , intellectual property and proprietary product and solution company focused on the u.s. and its allies ' national security . kratos ' primary focus areas are unmanned systems , satellite communications , microwave electronics , cyber security/warfare , missile defense and combat systems . we believe that our technology , intellectual property , proprietary products and designed in positions on our customers ' platforms and systems is a competitive advantage and high barrier to entry into our markets . our work force is primarily technically oriented and highly skilled with a significant number holding national security clearances . our entire organization is focused on executing our strategy of becoming the leading technology and intellectual property based company in our industry . our primary end customers are u.s. government agencies , including the dod , classified agencies , intelligence agencies , other national security agencies and homeland security related agencies . we also conduct business with local , state and foreign governments and domestic and international commercial customers . in fiscal 2013 , 2014 and 2015 , we generated 62 % , 57 % and 61 % , respectively , of our total revenues from contracts with the u.s. government ( including all branches of the u.s. military ) , either as a prime contractor or a subcontractor . we believe our stable customer base , strong customer relationships , intellectual property , specialized and differentiated products , broad array of contract vehicles , “ designed in ” positions on strategic national security platforms , our targeted investments in strategic growth areas , large employee base 32 possessing specialized skills , security clearances , specialized manufacturing facilities and equipment , extensive list of past performance qualifications , and significant management and operational capabilities position us for success . we were incorporated in the state of new york on december 19 , 1994 and began operations in march 1995. we reincorporated in the state of delaware in 1998. industry background faced with significant budget pressures , in recent years the u.s. government has implemented reductions in government spending , including reductions in appropriations for the dod and other federal agencies , pursuant to the bca , as amended by the american taxpayer relief act of 2012 and the bipartisan budget act of 2013. pursuant to the terms of the bca , a sequestration went into effect in march 2013 resulting in a 7.8 % reduction to the dod budget for fy 2013 to $ 495.5 billion , excluding funding for military personnel . the dod budget was approximately $ 496.0 billion in fy 2014 and remains at a similar level in fy 2015. the dod base budget excludes funding for overseas contingency operations , such as afghanistan , iraq and syria , which are appropriated separately and are not currently subject to the bca . on november 2 , 2015 , president obama signed the bipartisan budget act of 2015 , formalizing the terms of a two year budget agreement which raises the u.s. debt ceiling and lifts the sequestration spending caps by $ 80.0 billion . under the budget agreement , the total federal spending increase over the bca topline funding caps will be $ 50.0 billion in fy 2016 and $ 30.0 billion in fy 2017 , with the amounts divided equally between defense and domestic priorities . the overall discretionary budget will be $ 1.067 trillion in fy 2016 and $ 1.07 trillion in fy 2017. the fy 2016 discretionary defense budget will be $ 548.1 billion , a $ 25.0 billion increase over the bca topline funding caps . under the bipartisan budget act of 2015 , the obama administration will receive $ 33.0 billion of the $ 38.0 billion national defense spending increase it sought in fy 2016. in summary the budget agreement : extends the bca out to 2025 ; suspends the u.s. debt limit/ceiling until march 2017 ; increased spending caps for fy 2016 and fy 2017 , by $ 80.0 billion , including $ 50.0 billion in fy 2016 and $ 30.0 billion in fy 2017 , split evenly between defense and domestic priorities ; and includes a fy 2016 dod base budget of $ 548.0 billion ; and includes a fy 2016 overseas contingency operation budget of $ 59.0 billion . current reporting segments the company operates in three reportable segments . the kgs reportable segment is comprised of an aggregation of kgs operating segments , including our microwave electronic products , satellite communications , modular systems and rocket support operating segments . the us reportable segment consists of our unmanned aerial system and unmanned ground and seaborne system businesses . story_separator_special_tag due to the federal acquisition regulation rules that govern our business , most types of costs are allowable , and we do not focus on individual cost groupings ( such as cost of sales or general and administrative costs ) as much as we do on total contract costs , which are a key factor in determining contract operating income . as a result , in evaluating our operating performance , we look primarily at changes in sales and service revenues , and operating income , including the effects of significant changes in operating income . changes in contract estimates are reviewed on a contract-by-contract basis and are revised periodically throughout the life of the contract such that adjustments to profit resulting from revisions are made cumulative to the date of the revision in accordance with gaap . significant management judgments and estimates , including the estimated costs to complete the project , which determine the project 's percentage complete , must be made and used in connection with the revenue recognized in any accounting period . material differences may result in the amount and timing of our revenue for any period if management makes different judgments or utilizes different estimates . 34 story_separator_special_tag during the reporting periods contained herein , we did experience revenue and margin adjustments on certain projects based on the aforementioned factors , but the effect of such adjustments , both positive and negative , when evaluated in total were determined to be immaterial to our consolidated financial statements . cost of revenues . cost of revenues decreased from $ 583.6 million for the year ended december 28 , 2014 to $ 495.3 million for the year ended december 27 , 2015 . the $ 88.3 million decrease in cost of revenues was primarily a result of decreased revenue discussed above . gross margin percentage increased from 23.5 % for the year ended december 28 , 2014 compared to 24.6 % for the year ended december 27 , 2015 . margins on services increased from 22.1 % for the year ended december 28 , 2014 to 24.8 % for the year ended december 27 , 2015 , due primarily to a more favorable mix of revenues . margins on product sales decreased for the year ended december 28 , 2014 as compared to december 27 , 2015 from 25.0 % to 24.5 % , respectively , primarily as a result of a change in mix of products sold . margins in the kgs segment increased from 25.3 % for the year ended december 28 , 2014 to 25.4 % for the year ended december 27 , 2015 , primarily as a result of change in the mix of products sold . margins in the us segment decreased from 23.2 % for the year ended december 28 , 2014 to 16.3 % for the year ended december 27 , 2015 , primarily due to a less favorable mix of products produced and shipped and due to increased contract costs primarily reflecting retrofits required to conform to required design configuration changes identified in recent successful demonstration test flights recorded on certain international aerial target projects in the year ended december 27 , 2015. margins in the pss segment increased from 19.3 % for the year ended december 28 , 2014 to 26.0 % for the year ended december 27 , 2015 as a result of a more favorable mix of revenues , resulting from the strategic shift in focus on smaller sized , higher margin projects and only selectively bidding on larger sized lower margin projects , the completion of certain lower margin projects , as well as the impact of cost reduction actions that were taken during the year ended december 27 , 2015. selling , general and administrative expenses ( “ sg & a ” ) . sg & a decreased $ 2.9 million from $ 153.6 million for the year ended december 28 , 2014 to $ 150.7 million for the year ended december 27 , 2015 . the decrease was primarily the result of a $ 6.1 million reduction of amortization of intangibles in 2015 , as a result of certain intangible assets being fully amortized , as well as cost reduction actions taken by the company , offset partially by increased discretionary investments to pursue business opportunities in the unmanned tactical aircraft market . as a percentage of revenues , sg & a increased from 20.1 % for fiscal 2014 to 22.9 % for fiscal 2015 . excluding amortization of intangibles of $ 19.1 million for the year ended december 28 , 2014 and amortization of intangibles of $ 13.0 million for the year ended december 27 , 2015 , sg & a increased as a percentage of revenues from 17.6 % to 21.0 % for the year ended december 28 , 2014 and december 27 , 2015 , respectively , due primarily to the decline in revenues discussed previously , as well as the impact of the public company corporate sg & a costs which are not allocable to the herley entities which have been classified as discontinued operations . in addition , due to contract award delays specifically in our unmanned and modular systems businesses , the reduced volumes have resulted in increased unabsorbed overhead costs . internal research and development ( ir & d ) expenses . ir & d expenses decreased from $ 18.6 million for the year ended december 28 , 2014 to $ 16.2 million for the year ended december 27 , 2015 . as a percentage of revenues , ir & d increased from 2.4 % of revenues for the year ended december 28 , 2014 to 2.5 % of revenues for the year ended december 27 , 2015 .
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results of operations comparison of results for the year ended december 28 , 2014 to the year ended december 27 , 2015 revenues . revenues by reportable segment for the years ended december 28 , 2014 and december 27 , 2015 are as follows ( in millions ) : replace_table_token_4_th revenues decreased $ 105.9 million from $ 763.0 million in 2014 to $ 657.1 million in 2015 . the decrease in revenues was primarily attributable to our pss business due in part to a one-time shipment of sophisticated communication equipment of $ 13.0 million that occurred in the second quarter of 2014 , as well as due to the completion or wind-down of certain security installation projects and due to the company 's change in strategic direction in the fourth quarter of 2014 to capture higher margin work and only selectively bid on larger security integration projects that traditionally generate lower margins , resulting in aggregate reduced service revenues in the pss segment of $ 38.7 million for the year ended december 27 , 2015. in addition , for the year ended december 27 , 2015 , kgs segment revenue decreased by $ 39.0 million due primarily to reduced shipments of our specialized ground equipment products of $ 38.6 million , delays in orders and awards as a result of the challenging federal government and dod funding environment , and continued reduction in our legacy government services business of $ 14.7 million , which includes reset work on legacy weapons systems , all of which adversely impacted the timing of new contract awards , bookings and our revenues , offset partially by growth in our simulation and training business and in technical government services where we support directed energy weapons and electromagnetic railgun efforts , which aggregated a net increase of $ 16.4 million .
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overview business overview we are a pioneer and leader in conversational and cognitive ai innovations that bring intelligence to everyday work and life . our solutions and technologies can understand , analyze and respond to human language to increase productivity and amplify human intelligence . our solutions are used by businesses in the healthcare , financial services , telecommunications and travel industries , among others . we see several trends in our markets , including ( i ) the growing adoption of cloud-based , connected services and highly interactive mobile applications , ( ii ) deeper integration of virtual assistant capabilities and services , and ( iii ) the continued expansion of our core technology portfolio including automated speech recognition , natural language understanding , semantic 20 processing , domain-specific reasoning , dialog management capabilities , ai , and voice biometric speaker authentication . we report our business in three segments , healthcare , enterprise , and other . healthcare . our healthcare segment provides intelligent systems that support a more natural and insightful approach to clinical documentation , freeing clinicians to spend more time caring for patients and helping care teams and health organizations drive meaningful financial and clinical outcomes . our principal solutions include dragon medical cloud-based solutions ( `` dragon medical one '' ) , computer assisted physician documentation , diagnostic imaging solutions , nuance® dragon ambient experience , clinical documentation improvement and coding , and medical transcription services . enterprise . our enterprise segment is a leading provider of ai-powered intelligent customer engagement solutions and services , which enable enterprises and contact centers to enhance and automate customer service and sales engagement . our principal solutions include interactive voice responses solutions , intelligent engagement solutions and security & biometric solutions . other . our other segment currently consists primarily of voicemail transcription services following the sale of our mobile operator services business and the wind-down of devices in 2019. discontinued operations . on february 1 , 2019 , we completed the sale of our imaging business and received approximately $ 404.0 million in cash , after estimated transaction expenses . on october 1 , 2019 , we completed the previously announced spin-off of our automotive business , cerence , into an independent public company . as a result , the historical results of operations for imaging and automotive have been included within discontinued operations in our condensed consolidated financial statements . covid-19 impact the novel coronavirus ( `` covid-19 '' ) pandemic has disrupted economic markets , and the future economic impact , duration and spread of covid-19 is still uncertain at this time . our fiscal year 2020 results of operations and liquidity position were adversely impacted by the pandemic . during the second and the third quarters , we saw reduced transaction volume in our medical transcription business and powerscribe radiology solution , as well as well as deferral in professional services and software license transactions . additionally , our operating cash flows for the second and third quarters were negatively impacted by delayed collections , especially from smaller healthcare providers , as their cash flows deteriorated due to the postponement of elective surgeries and the sharp decline in inpatient visits . as multiple states commenced phased re-openings , by the end of june , our transaction volumes in medical transcription and radiology businesses mostly recovered from the lows in april . although during the fourth quarter , we saw our results of operations and liquidity slightly improved from the second and the thirds quarter , we expect the negative effect of the pandemic to continue into the first quarter of fiscal year 2021 , particularly if certain markets implement new restrictions to limit the spread of the coronavirus . as a precaution amidst the pandemic , we ceased our share repurchase activities and borrowed $ 230.0 million under our revolving credit facility in march , which was fully repaid in june as we became more confident in our liquidity position . we remain committed to maximizing stockholders ' return , and may resume our share repurchase activities based upon the prevailing market conditions , general economic conditions , capital allocation alternatives , and other factors . we estimated our fiscal year 2020 revenue to be approximately $ 20 million to $ 60 million lower due to the pandemic . nevertheless , the negative effects of the pandemic were partially mitigated by our proactive expense reduction and cash management efforts . as a result , our fiscal year 2020 operating margin was approximately 7.6 % , compared to 7.0 % for fiscal year 2019. additionally , our full year operating cash flows from continuing operations was $ 267.9 million , which reflects lower revenue and cash collection delays due to the pandemic , offset in part by our proactive expense and liquidity management efforts . as the pandemic situation develops , we are continuing to monitor the impact on our business , results of operations , and our liquidity position . key metrics in evaluating the financial condition and operating performance of our business , management focuses on revenue , net income , gross margins , operating margins , cash flow from operations , and changes in deferred revenue . a summary of these financial metrics for the year ended september 30 , 2020 , as compared to the year ended september 30 , 2019 is as follows : total revenues were $ 1,478.9 million for the year ended september 30 , 2020 , as compared to $ 1,521.3 million for the year ended september 30 , 2019 ; 21 net income from continuing operations for the year ended september 30 , 2020 was $ 28.8 million , compared to a net loss from continuing operations of $ 12.2 million for the year ended september 30 , 2019 ; gross margins for the year ended september 30 , 2020 were 56.8 % , compared to 55.1 % for the year ended september 30 , 2019 ; operating margins for the year ended september 30 , 2020 were 7.6 % , compared to 7.0 % for story_separator_special_tag the decrease in cost and increase in gross margin were primarily due to the upfront recognition of certain project costs associated with digital engagement in the third quarter of fiscal year 2019. fiscal year 2019 compared to fiscal year 2018 cost of product and licensing revenue under asc 606 for the year ended september 30 , 2019 is $ 5.9 million higher than the amount under asc 605 for the same period , primarily due to the upfront recognition of third-party license royalties in connection with the upfront recognition of term license revenue . under asc 605 , cost of product and licensing revenue increase d by $ 9.7 million , 25 or 17.5 % , primarily due to higher royalty costs in healthcare . as a result , under asc 605 gross margins decrease d by 3.4 percentage points . cost of maintenance and support revenue cost of maintenance and support revenue primarily consists of compensation for product support personnel and overhead . the following table shows cost of maintenance and support revenue , in dollars and as a percentage of maintenance and support revenue ( dollars in millions ) : replace_table_token_10_th fiscal year 2020 compared to fiscal year 2019 cost of maintenance and support revenue for the year ended september 30 , 2020 decrease d by $ 2.4 million , or 7.1 % , primarily due to the continued transition from license transactions with maintenance and support to cloud-based solutions in healthcare . gross margins increase d by 0.3 percentage points , primarily driven by higher margin on dragon medical maintenance and support services in healthcare . fiscal year 2019 compared to fiscal year 2018 cost of maintenance and support revenue under asc 606 for the year ended september 30 , 2019 is $ 0.1 million lower than the amount under asc 605 for the same period , primarily due to the timing of recognition of third-party service costs . under asc 605 , cost of maintenance and support revenue decrease d by $ 5.7 million , or 14.5 % , primarily due to customers ' continued transition from licenses to cloud-based solutions in healthcare . under asc 605 , gross margins increase d by 1.7 percentage points , primarily driven by higher margin on dragon medical maintenance and support services in healthcare . research and development expenses research and development ( `` r & d '' ) expense primarily consists of salaries , benefits , and overhead relating to engineering staff as well as third party engineering costs . the following table shows research and development expense , in dollars and as a percentage of total revenues ( dollars in millions ) : replace_table_token_11_th fiscal year 2020 compared to fiscal year 2019 r & d expense for the year ended september 30 , 2020 increase d by $ 33.6 million , or 17.4 % , primarily due to higher compensation costs as we continued to invest in our core technologies to power new products and solutions . fiscal year 2019 compared to fiscal year 2018 r & d expense for the year ended september 30 , 2019 decrease d by $ 14.6 million , or 7.0 % , primarily driven by lower compensation costs due to our recent costs saving initiatives , offset in part by our continued investment in product development and new technologies to support our long-term growth . 26 sales and marketing expense sales and marketing expense include salaries and benefits , commissions , advertising , direct mail , public relations , tradeshow costs and other costs of marketing programs , travel expenses associated with our sales organization and overhead . the following table shows sales and marketing expense , in dollars and as a percentage of total revenues ( dollars in millions ) : replace_table_token_12_th fiscal year 2020 compared to fiscal year 2019 sales and marketing expenses for the year ended september 30 , 2020 decrease d by $ 0.7 million , or 0.3 % , as lower traveling and entertainment expenses during the covid-19 pandemic were mostly offset by our investment in sales force to support new products and solutions . fiscal year 2019 compared to fiscal year 2018 sales and marketing expense under asc 606 for the year ended september 30 , 2019 is $ 5.1 million lower than the amount under asc 605 for the same period , primarily due to the amortization of capitalized sales commission expenses over the period of benefit . under asc 605 , sales and marketing expenses decrease d by $ 7.5 million , or 2.6 % , primarily driven by lower sales headcount as a result of ongoing portfolio review and optimization . general and administrative expenses general and administrative ( `` g & a '' ) expense primarily consists of personnel costs for administration , finance , human resources , general management , fees for external professional advisers including accountants and attorneys , and provisions for doubtful accounts . the following table shows g & a expense , in dollars and as a percentage of total revenues ( dollars in millions ) : replace_table_token_13_th fiscal year 2020 compared to fiscal year 2019 general and administrative expenses decrease d by $ 16.3 million , or 9.4 % , primarily driven by decreases in compensation and professional services costs due to our cost saving initiatives , and lower traveling and entertainment expenses during the covid-19 pandemic . fiscal year 2019 compared to fiscal year 2018 general and administrative expenses decrease d by $ 41.2 million , or 19.3 % , primarily due to higher professional service costs incurred in fiscal year 2018 related to evaluating strategic alternatives for certain businesses and legal expenses related to enforcing our intellectual property rights . also contributing to the decrease was lower employee-related costs as a result of our cost saving initiatives . amortization of intangible assets amortization of acquired patents and technologies are included within cost of revenue and the amortization of acquired customer and contractual relationships , non-compete agreements , acquired trade names and trademarks , and other intangibles are included within operating expenses .
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results of operations total revenues the following table shows total revenues by product type and by geographic location , based on the location of our customers , in dollars and percentage change ( dollars in millions ) : replace_table_token_4_th fiscal year 2020 compared to fiscal year 2019 for fiscal year 2020 , the geographic split was 80 % of total revenues in the united states and 20 % internationally , as compared to 81 % of total revenues in the united states and 19 % internationally for fiscal year 2019 . fiscal year 2019 compared to fiscal year 2018 for fiscal year 2019 , the geographic split under asc 606 was 81 % of total revenues in the united states and 19 % internationally . for fiscal year 2019 , the geographic split under asc 605 was 82 % of total revenues in the united states and 18 % internationally , as compared to 80 % of total revenues in the united states and 20 % internationally for fiscal year 2018 . hosting and professional services revenue hosting revenue primarily relates to delivering on-demand hosted services , such as medical transcription , and automated customer care applications , over a specified term . professional services revenue primarily consists of consulting , implementation and training services for customers . the following table shows hosting and professional services revenue , in dollars , and as a percentage of total revenues ( dollars in millions ) : 22 replace_table_token_5_th fiscal year 2020 compared to fiscal year 2019 hosting revenue for the year ended september 30 , 2020 increase d by $ 35.2 million , or 4.7 % , primarily due to a $ 55.0 million increase in healthcare , offset in part by a $ 20.1 million decrease in our other segment .
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( 7 ) consists of : ( i ) 796 shares of common stock ; ( ii ) 796 shares of common stock issuable upon exercise of outstanding warrants exercisable within the 60-day period following january 22 , 2018 and ( iii ) 5,111 shares of common stock issuable upon exercise of outstanding options story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the notes to those statements included elsewhere in this annual report on form 10-k. in addition to historical financial information , this discussion and analysis contains forward-looking statements that that reflect our plans , estimates and beliefs . you should not place undue reliance on these forward-looking statements , which involve risks and uncertainties . as a result of many factors , including but not limited to those set forth under risk factors , '' our actual results may differ materially from those anticipated in these forward-looking statements . see cautionary note regarding forward-looking statements. on january 23 , 2018 , our stockholders approved an increase to the number of authorized shares of the company 's common stock from 100,000,000 to 250,000,000 shares . our stockholders also approved a proposal authorizing the board of directors , in its discretion , to effect a reverse stock split of our outstanding shares of common stock at a ratio ranging from 1-for-5 to 1-for-20 to be determined by the board of directors and effected , if at all , no later than november 23 , 2018. on january 23 , 2018 , our board of directors approved a 1-for-20 reverse stock split of our outstanding common stock , which was effected on january 25 , 2018. at the effective time , every twenty shares of common stock issued and outstanding were automatically combined into one share of issued and outstanding common stock . the par value of our stock remained unchanged at $ 0.0001 per share . no fractional shares of our common stock were issued in the reverse stock split , but in lieu thereof , each holder of our common stock who would otherwise have been entitled to a fraction of a share in the reverse stock split received a cash payment . in addition , by reducing the number of our outstanding shares , our loss per share in all prior periods increased by a factor of twenty . in addition , a proportionate adjustment was made to the per share exercise price and the number of shares issuable upon the exercise of our outstanding equity awards , options and warrants to purchase shares of our common stock and to the number of shares reserved for issuance pursuant to our equity incentive compensation plans . the reverse stock split affected all stockholders of our common stock uniformly , and did not affect any stockholder 's percentage of ownership interest . unless otherwise noted , all share and per share information included in this report has been retroactively adjusted to give effect to the reverse stock split . the reverse stock split did not affect the number of authorized shares of common stock , which , after giving effect to the authorized share increase , is 250,000,000 shares . overview zosano pharma corporation is a clinical stage biopharmaceutical company focused on providing rapid systemic administration of therapeutics to patients using our proprietary adhesive dermally-applied microarray , or adam , technology . in february 2017 , we announced positive results from our zotrip pivotal efficacy trial , or zotrip trial , that evaluated m207 , which is our proprietary formulation of zolmitriptan delivered via our adam technology , as an acute treatment for migraine . we are focused on developing products where rapid administration of established molecules with known safety and efficacy profiles provides an increased benefit to patients , for markets where patients remain underserved by existing therapies . we anticipate that many of our current and future development programs may enable us to utilize a regulatory pathway that would streamline clinical development and accelerate the path towards commercialization . adam is our proprietary , investigational technology platform designed to offer rapid drug absorption into the bloodstream , which can result in an improved pharmacokinetic profile compared to original dosage forms . adam consists of an array of drug-coated titanium microprojections mounted on an adhesive backing that is pressed on to the skin using a reusable handheld applicator . the microprojections penetrate the stratum corneum and allow the drug to be absorbed into the microcapillary system of the skin . we focus on developing products based on our adam technology for indications in which rapid onset , ease of use and stability offer significant therapeutic and practical advantages , for markets where there is a need for more effective therapies . our development efforts are focused on our product candidate , m207 . m207 is our proprietary formulation of zolmitriptan delivered utilizing our adam technology . zolmitriptan is one of a class of serotonin receptor 50 index to financial statements agonists known as triptans and is used as an acute treatment for migraine . migraine is a debilitating neurological disease , symptoms of which include moderate to severe headache pain , nausea and vomiting , and abnormal sensitivity to light and sound . the objective of m207 is to provide faster onset of efficacy and sustained freedom from migraine symptoms by delivering rapid absorption while avoiding gi tract . feedback from the united states food and drug administration , or fda , on m207 's regulatory path has also been encouraging . the agency has indicated that one positive pivotal efficacy study , in addition to the required safety study , would be sufficient for approval of m207 for the treatment of migraine . we have no product sales to date , and we will not have product sales unless and until we receive approval from the united states food and drug administration ( fda ) or equivalent foreign regulatory bodies , to market and sell our product candidate . story_separator_special_tag million term loan facility with hercules capital , inc. ( hercules ) , previously known as hercules technology growth capital , inc. in june 2015 , we entered into a first amendment to the loan and security agreement with hercules to increase the aggregate principal amount of the loan to $ 15.0 million ( the hercules term loan ) . upon the execution of the first amendment to the loan and security agreement , we used approximately $ 11.4 million of the hercules term loan to prepay all amounts owing under the secured promissory note held by bmv direct sotrs lp , an affiliate of biomed realty holdings , inc. the first amendment to the loan and security agreement with hercules provides that the $ 15.0 million principal balance will be subject to a 12-month interest-only period beginning july 1 , 2015 , followed by equal monthly installment payments of principal and interest , with all outstanding amounts due and payable on december 1 , 2018. the outstanding principal balance bears interest at a variable rate of the greater of ( i ) 7.95 % , or ( ii ) 7.95 % plus the prime rate as quoted in the wall street journal minus 5.25 % . the interest rate on the secured term loan with hercules was 7.95 % for the years ended december 31 , 2017 and 2016. on june 1 , 2017 , we paid a $ 100,000 legacy end of term charge and is required to pay an additional $ 351,135 end of term charge on the earlier of loan maturity or at the date we prepay the hercules term loan . we may prepay all , but not less than all , of the hercules term loan with no prepayment charge . the hercules term loan is secured by a first priority security interest and lien in and to all of our tangible and intangible properties and assets , including intellectual properties . 52 index to financial statements research and development expenses research and development expenses represent costs incurred to conduct research , such as the discovery and development of our proprietary product candidates . we recognize all research and development costs as they are incurred . research and development expenses consist of : production costs which include , but are not limited to , employee-related expenses , including salaries , benefits and stock-based compensation expense and fees paid to conduct clinical studies , drug formulation , and cost of consumables used in nonclinical and clinical trials ; expenses related to the purchase of active pharmaceutical ingredients and raw materials for the production of our intracutaneous delivery system , including fees paid to contract manufacturing organizations ; fees paid to contract research organizations ( cros ) , clinical consultants , clinical trial sites and vendors , including institutional review boards ( irbs ) , in conjunction with implementing and monitoring our clinical trials and acquiring and evaluating clinical trial data , including all related fees , such as for investigator grants , patient screening fees , laboratory work and statistical compilation and analysis ; fees paid to conduct clinical studies , drug formulation , and cost of consumables used in nonclinical and clinical trials ; other consulting fees paid to third parties ; and allocation of certain shared costs , such as facilities-related costs and it support services . the following table summarizes our research and development expenses incurred during the years ended december 31 , 2017 and 2016 , and from our inception to december 31 , 2017 : replace_table_token_12_th ( 1 ) we initiated our m207 project in september 2013 . ( 2 ) in april 2016 , we suspended further development related to daily b104 , weekly b104 and d107 . ( 3 ) our other research projects include programs other than our lead development candidate , m207 . ( 4 ) collaborative development support consists of support services provided to asahi in 2011 and 2012 and to novo nordisk in 2014 and 2015 in connection with our collaboration and license agreements with asahi and novo nordisk . ( 5 ) unallocated costs include research and development expenses not allocated to a specific program or product candidate , and personnel-related costs prior to the implementation of our timesheet tracking system in 2011 . 53 index to financial statements the project-specific expenses summarized in the table above include costs directly attributable to our product candidates . we allocate research and development salaries , benefits , stock-based compensation and indirect costs to our product candidates on a project-specific basis , and we include these costs in the project- specific expenses . we expect our research and development expenses to increase in the future . the process of conducting the necessary clinical trials to obtain regulatory approval is costly and time consuming . we consider the active management and development of our clinical pipeline to be crucial to our long-term success . the actual probability of success for each product candidate and clinical program may be affected by a variety of factors including but not limited to : the quality of the product candidate , early clinical data , investment in the program , competition , manufacturing capability and commercial viability . in situations in which third parties have control over the clinical development of a product candidate , the estimated completion dates are largely under the control of such third parties and not under our control . additionally , a future collaborative partner may only be interested in applying our technology in the development and advancement of their own product candidates . in 2017 , our research and development efforts and resources focused primarily on advancing the development of m207 . while we currently intend to continue clinical development of m207 through commercialization in the united states ourselves , we remain open to opportunities with potential strategic partners to ensure m207 will receive the best chance of commercial success . we are actively seeking opportunities to evaluate collaborations with strategic partners to further the clinical and commercial development of our other product candidates .
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results of operations comparison of the year ended december 31 , 2017 and 2016 year ended december 31 , change 2017 2016 amount % ( in thousands ) research and development $ 20,188 $ 20,457 $ ( 269 ) ( 1 % ) research and development expenses decreased approximately $ 0.3 million , or 1 % , for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016. the decrease was due to lower clinical 54 index to financial statements trial costs based on our decision to primarily focus our resources on m207 , which is our proprietary formulation of zolmitriptan delivered via our adam technology , as an acute treatment for migraine . we also completed our efficacy study in february 2017 and in november 2017 , we initiated the required long-term safety study in the development of m207 . general and administrative expenses year ended december 31 , change 2017 2016 amount % ( in thousands ) general and administrative $ 8,182 $ 8,176 $ 6 0 % general and administrative expenses increased slightly by $ 6,000 for the year ended december 31 , 2017 as compared to the same period in 2016. other income and expense replace_table_token_13_th interest expense , net , decreased approximately $ 0.5 million for the year ended december 31 , 2017 as compared to the same period in 2016. interest expense consists primarily of interest , amortization of debt discount and amortization of deferred financing costs associated with the hercules loan agreement .
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we are a team of over 18,000 employees , providing global support for all facets of the product realization process – design and development , supply chain solutions , new product introduction , manufacturing , and aftermarket services – to companies in the healthcare/life sciences , industrial/commercial , communications and aerospace/defense market sectors . plexus is an industry leader that specializes in serving customers with complex products used in demanding regulatory environments in the americas ( `` amer '' ) , asia-pacific ( `` apac '' ) and europe , middle east , and africa ( `` emea '' ) regions . with a culture built around innovation and customer service , plexus ' teams create customized end-to-end solutions to assure the realization of the most intricate products . the following information should be read in conjunction with our consolidated financial statements included herein and `` risk factors '' included in part i , item 1a herein . story_separator_special_tag 2.8 % * non-gaap metric ; refer to `` return on invested capital ( `` roic '' ) and economic return '' below for more information and exhibit 99.1 for a reconciliation . net sales . fiscal 2018 net sales increased $ 345.4 million , or 13.7 % , as compared to fiscal 2017 . fiscal 2017 net sales decreased $ 27.9 million , or 1.1 % , as compared to fiscal 2016 . net sales are analyzed by management by geographic segment , which reflects the company 's reportable segments , and by market sector . management measures operational performance and allocates resources on a geographic segment basis . the company 's global business development strategy is based on our targeted market sectors . a discussion of net sales by reportable segment is presented below for the indicated fiscal years ( in millions ) : replace_table_token_4_th 25 amer . net sales for fiscal 2018 in the amer segment increased $ 52.5 million , or 4.5 % , as compared to fiscal 2017 . the increase in net sales was primarily due to a $ 167.1 million increase due to the ramp of new products for existing customers . partially offsetting the increase were reductions in net sales of $ 44.1 million due to manufacturing transfers to our apac segment , $ 35.4 million due to disengagements with customers , $ 27.2 million due to end-of-life products , $ 7.5 million due to program transitions and net decreased customer end-market demand . net sales for fiscal 2017 in the amer segment decreased $ 162.4 million , or 12.2 % , as compared to fiscal 2016 . the reduction in net sales was driven by overall decreased customer end-market demand as well as decreases of $ 38.7 million from disengagements with customers , $ 25.5 million due to manufacturing transfers to our apac and emea segments , $ 24.0 million due to a customer 's decision to manufacture product internally , $ 16.4 million from end-of-life products and $ 5.8 million that resulted from a program disengagement . partially offsetting these decreases were net sales increases of $ 36.6 million from the ramp of new programs for existing customers and $ 11.0 million from the ramp of production for new customers . apac . net sales for fiscal 2018 in the apac segment increased $ 218.7 million , or 17.1 % , as compared to fiscal 2017 . the increase in net sales was primarily the result of a $ 237.2 million increase due to the ramp of new products for existing customers , $ 44.1 million due to manufacturing transfers from our amer segment and net increased customer end-market demand . partially offsetting these increases were reductions in net sales of $ 70.5 million due to disengagements with customers and $ 11.5 million due to end-of-life products . net sales for fiscal 2017 in the apac segment increased $ 117.4 million , or 10.1 % , as compared to fiscal 2016 . the increase in net sales was primarily due to a $ 115.6 million increase due to the ramp of new programs for existing customers , net increased customer end-market demand and $ 21.4 million due to manufacturing transfers from our amer segment . these increases were partially offset by decreases of $ 50.3 million due to a program disengagement , $ 38.6 million due to a customer 's partial divestiture of one of its businesses and $ 14.6 million that resulted from an end-of-life product . emea . net sales for fiscal 2018 in the emea segment increased $ 88.7 million , or 46.0 % , as compared to fiscal 2017 . the increase in net sales was primarily due to a $ 77.6 million increase due to the ramp of new products for existing customers and net increased customer end-market demand . net sales for fiscal 2017 in the emea segment increased $ 22.4 million , or 13.1 % , as compared to fiscal 2016 . the increase in net sales was primarily attributable to a $ 34.6 million increase due to the ramp of new programs for existing customers and $ 4.1 million due to manufacturing transfers from our amer segment . partially offsetting the increases were net decreased customer end-market demand and a $ 3.2 million decrease from end-of-life products . our net sales by market sector for the indicated fiscal years were as follows ( in millions ) : replace_table_token_5_th healthcare/life sciences . net sales for fiscal 2018 in the healthcare/life sciences sector increased $ 181.1 million , or 21.1 % , as compared to fiscal 2017 . the increase was primarily driven by increases in net sales of $ 179.8 million due to the ramp of new products for existing customers , net increased customer end-market demand and $ 7.6 million from the ramp of production for new customers . partially offsetting the increases were decreases in net sales of $ 30.1 million due to end-of-life products . net sales for fiscal 2017 in the healthcare/life sciences sector increased $ 78.5 million or 10.1 % , as compared to fiscal 2016 . story_separator_special_tag million of inventory losses sustained from a typhoon that impacted the company 's manufacturing facilities in xiamen , china during fiscal 2016 ( the `` typhoon-related losses '' ) . gross profit . gross profit for fiscal 2018 increased $ 1.7 million , or 0.7 % , as compared to fiscal 2017 . the primary driver of the increase in gross profit was the net sales increase . gross margin decreased 110 basis points as compared to fiscal 2017. the 27 decrease in gross margin as compared to fiscal 2017 was primarily driven by the larger percentage increase in cost of sales as compared to the increase in net sales , driven by the factors previously discussed . gross profit for fiscal 2017 increased $ 28.5 million , or 12.5 % , as compared to fiscal 2016 . gross margin increased 120 basis points as compared to fiscal 2016. the primary driver of the increases in gross profit and gross margin as compared to fiscal 2017 was the larger percentage decrease in cost of sales as compared to the decrease in net sales , driven by the factors previously discussed . operating income . operating income for fiscal 2018 decreased $ 11.6 million as compared to fiscal 2017 primarily as a result of a $ 13.4 million increase in selling and administrative expenses ( `` s & a '' ) , partially offset by the $ 1.7 million increase in gross profit . the increase in s & a in fiscal 2018 primarily resulted from a $ 5.2 million increase in variable compensation expense and a $ 2.8 million increase in salary and wage-related expenses . operating margin decreased to 4.1 % in fiscal 2018 from 5.1 % in fiscal 2017 primarily due to the decrease in gross margin and increase in s & a expenses , due to the factors discussed above . operating income for fiscal 2017 increased $ 30.5 million as compared to fiscal 2016 as a result of the increase in gross profit and a $ 7.0 million decrease in restructuring costs , partially offset by a $ 5.1 million increase in s & a . restructuring costs in fiscal 2016 related to the closure of our manufacturing facility in fremont , california and the partial closure of our livingston , scotland facility . the increase in s & a in fiscal 2017 resulted from a $ 3.5 million increase in variable compensation expense as a result of improved roic and $ 2.0 million of increased salary and wage-related expenses , partially offset by a $ 1.9 million decrease in share-based compensation expense . while the level of fiscal 2017 share-based compensation expense benefited from the non-recurrence of $ 5.2 million of accelerated share-based compensation expense related to the retirement of the company 's former president and chief executive officer in fiscal 2016 , that effect was partially offset by a non-recurring $ 2.1 million equity grant in 2017 in connection with his appointment as executive chairman of the board . operating margin increased to 5.1 % in fiscal 2017 from 3.9 % in fiscal 2016. a discussion of operating income ( loss ) by reportable segment is presented below ( in millions ) : replace_table_token_6_th amer . operating income decreased $ 3.3 million in fiscal 2018 as compared to fiscal 2017 , primarily as a result of increased costs to support new program ramps and a negative shift in customer mix , partially offset by the increase in net sales . operating income for fiscal 2017 decreased $ 23.0 million as compared to fiscal 2016 , primarily as a result of the decrease in net sales and increased variable labor costs to support new program ramps . the impact of the decrease in net sales was partially offset by a positive shift in customer mix due in part to decreased net sales to lower margin customers that resulted from disengagements with two customers . apac . operating income increased $ 13.8 million in fiscal 2018 as compared to fiscal 2017 , primarily as a result of the increase in net sales , partially offset by a negative shift in customer mix and increased costs to support new program ramps . operating income for fiscal 2017 increased $ 44.6 million as compared to fiscal 2016 , primarily as a result of the increase in net sales , a positive shift in customer mix , supply chain productivity initiatives and decreased inventory obsolescence expenses , which resulted primarily from the $ 2.9 million of losses sustained in fiscal 2016 from the xiamen typhoon discussed above . emea . operating income increased $ 7.7 million in fiscal 2018 as compared to fiscal 2017 primarily due to the increase in net sales , partially offset by increased costs to support new program ramps . operating loss for fiscal 2017 increased $ 2.5 million as compared to fiscal 2016 primarily due to increased labor costs to support new program ramps , partially offset by the impact of the increase in net sales . other expense . other expense for fiscal 2018 increased $ 2.6 million as compared to fiscal 2017 . the increase in other expense for fiscal 2018 was primarily due to a $ 2.1 million increase in factoring fees related to our accounts receivable purchase program . refer to `` liquidity and capital resources - financing activities '' for additional detail on the company 's accounts receivable purchase program . 28 other expense for fiscal 2017 decreased $ 4.0 million as compared to fiscal 2016 . the decrease in other expense was primarily due to the impact of foreign exchange volatility , which resulted in a foreign exchange gain of $ 2.3 million during fiscal 2017 as compared to a $ 1.7 million loss during fiscal 2016. this was partially offset by $ 2.2 million of expense related to the company 's accounts receivable purchase program . refer to `` liquidity and capital resources - financing activities '' for additional detail on the company 's accounts receivable purchase program . income taxes .
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results of operations consolidated performance summary . the following table presents selected consolidated financial data for the indicated fiscal years ( dollars in millions , except per share data ) : 2018 2017 2016 net sales $ 2,873.5 $ 2,528.1 $ 2,556.0 cost of sales 2,615.9 2,272.2 2,328.6 gross profit 257.6 255.9 227.4 gross margin 9.0 % 10.1 % 8.9 % operating income 118.3 129.9 99.4 operating margin 4.1 % 5.1 % 3.9 % other expense 10.7 8.1 12.0 income tax expense 94.6 9.8 11.0 net income 13.0 112.1 76.4 diluted earnings per share $ 0.38 $ 3.24 $ 2.24 return on invested capital * 16.1 % 16.2 % 13.8 % economic return * 6.6 % 5.7 %
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see “ item 1. business – general development of business ” . the winthrop corporation 's results of operations for the year ended december 31 , 2018 has been accounted for as a discontinued operation in the consolidated statements of operations . ( see note 2 to the consolidated financial statements ) and its results of operations for year ended december 31 , 2017 have been reclassified as discontinued operations to be consistent with the current period 's presentation . upon the consummation of the sale of the winthrop corporation , we became a “ shell company ” , as defined in rule 12b-2 of the exchange act . because we are a shell company , our stockholders are unable to utilize rule 144 to sell “ restricted stock ” as defined in rule 144 or to otherwise use rule 144 to sell our securities , and we are ineligible to utilize registration statements on form s-3 or form s-8 for so long as we remain a shell company and for 12 months thereafter . as a consequence , among other things , the offering , issuance and sale of our securities is likely to be more expensive and time consuming and may make our securities less attractive to investors . see “ item 1. business –sale of winthrop corporation ” , and “ item 1a . risk factors ” . our board of directors is considering strategic uses for the sale of the winthrop corporation proceeds including , without limitation , using such funds , together with other funds of the company , to develop or acquire interests in one or more operating businesses . while we have focused our development or acquisition efforts on sectors in which our management has expertise , we do not wish to limit ourselves to , or to foreclose any opportunities in , any particular industry or sector . prior to this use , the sale of the winthrop corporation proceeds have been , and we anticipate will continue to be , invested in high-grade , short-term investments ( such as cash and cash equivalents ) consistent with the preservation of principal , maintenance of liquidity and avoidance of speculation , until such time as we need to utilize such funds , or any portion thereof , for the purposes described above . the directors will also consider alternatives for distributing some or all of its cash and cash equivalents to stockholders ( see note 1 to the consolidated financial statements ) . investments investment in undeveloped properties . the company owns certain non-strategic assets , which includes an investment in land and certain flowage rights in undeveloped property ( the “ properties ” ) primarily located killingly , connecticut . as shown in the consolidated balance sheet as at december 31 , 2017 the properties were valued at $ 355,000 based on an independent valuation . due to the ongoing remediation efforts and no active market to sell the properties , the company believes the value of the property to be nominal and as such recorded an impairment loss of $ 355,000. as of december 31 , 2018 the properties are shown in the consolidated balance sheet at $ 0 after recording an impairment loss of $ 355,000. management discussion of critical accounting policies the following discussion and analysis of the financial condition and results of operations are based on the consolidated financial statements and notes to consolidated financial statements contained in this report that have been prepared in accordance with the rules and regulations of the sec and include all the disclosures normally required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates that affect the reported amounts of assets , liabilities , sales and expenses , and related disclosures of contingent assets and liabilities . we base these estimates on historical results and various other assumptions believed to be reasonable , all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources . actual results may differ from these estimates . certain of our accounting policies require higher degrees of judgment than others in their application . these include stock-based compensation and accounting for income taxes which are summarized below . 8 employees ' stock-based compensation . stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period , which is generally the vesting period . see note 9 to the consolidated financial statements for further information regarding our stock-based compensation assumptions and expense . income taxes income taxes are provided for based on the asset and liability method of accounting . deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled . under accounting principles generally accepted in the united states of america , the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . a valuation allowance is provided when it is more likely than not that some portion of deferred tax assets will not be realized . the valuation allowance decreased by approximately $ 64,000 and $ 3,486,000 respectively , during the years ended december 31 , 2018 and 2017. the decrease in the valuation allowance during the year ended december 31 , 2018 was mainly due to the sale of winthrop net of increases to the net operating loss carryforward and other story_separator_special_tag see “ item 1. business – general development of business ” . the winthrop corporation 's results of operations for the year ended december 31 , 2018 has been accounted for as a discontinued operation in the consolidated statements of operations . ( see note 2 to the consolidated financial statements ) and its results of operations for year ended december 31 , 2017 have been reclassified as discontinued operations to be consistent with the current period 's presentation . upon the consummation of the sale of the winthrop corporation , we became a “ shell company ” , as defined in rule 12b-2 of the exchange act . because we are a shell company , our stockholders are unable to utilize rule 144 to sell “ restricted stock ” as defined in rule 144 or to otherwise use rule 144 to sell our securities , and we are ineligible to utilize registration statements on form s-3 or form s-8 for so long as we remain a shell company and for 12 months thereafter . as a consequence , among other things , the offering , issuance and sale of our securities is likely to be more expensive and time consuming and may make our securities less attractive to investors . see “ item 1. business –sale of winthrop corporation ” , and “ item 1a . risk factors ” . our board of directors is considering strategic uses for the sale of the winthrop corporation proceeds including , without limitation , using such funds , together with other funds of the company , to develop or acquire interests in one or more operating businesses . while we have focused our development or acquisition efforts on sectors in which our management has expertise , we do not wish to limit ourselves to , or to foreclose any opportunities in , any particular industry or sector . prior to this use , the sale of the winthrop corporation proceeds have been , and we anticipate will continue to be , invested in high-grade , short-term investments ( such as cash and cash equivalents ) consistent with the preservation of principal , maintenance of liquidity and avoidance of speculation , until such time as we need to utilize such funds , or any portion thereof , for the purposes described above . the directors will also consider alternatives for distributing some or all of its cash and cash equivalents to stockholders ( see note 1 to the consolidated financial statements ) . investments investment in undeveloped properties . the company owns certain non-strategic assets , which includes an investment in land and certain flowage rights in undeveloped property ( the “ properties ” ) primarily located killingly , connecticut . as shown in the consolidated balance sheet as at december 31 , 2017 the properties were valued at $ 355,000 based on an independent valuation . due to the ongoing remediation efforts and no active market to sell the properties , the company believes the value of the property to be nominal and as such recorded an impairment loss of $ 355,000. as of december 31 , 2018 the properties are shown in the consolidated balance sheet at $ 0 after recording an impairment loss of $ 355,000. management discussion of critical accounting policies the following discussion and analysis of the financial condition and results of operations are based on the consolidated financial statements and notes to consolidated financial statements contained in this report that have been prepared in accordance with the rules and regulations of the sec and include all the disclosures normally required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates that affect the reported amounts of assets , liabilities , sales and expenses , and related disclosures of contingent assets and liabilities . we base these estimates on historical results and various other assumptions believed to be reasonable , all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources . actual results may differ from these estimates . certain of our accounting policies require higher degrees of judgment than others in their application . these include stock-based compensation and accounting for income taxes which are summarized below . 8 employees ' stock-based compensation . stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period , which is generally the vesting period . see note 9 to the consolidated financial statements for further information regarding our stock-based compensation assumptions and expense . income taxes income taxes are provided for based on the asset and liability method of accounting . deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled . under accounting principles generally accepted in the united states of america , the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . a valuation allowance is provided when it is more likely than not that some portion of deferred tax assets will not be realized . the valuation allowance decreased by approximately $ 64,000 and $ 3,486,000 respectively , during the years ended december 31 , 2018 and 2017. the decrease in the valuation allowance during the year ended december 31 , 2018 was mainly due to the sale of winthrop net of increases to the net operating loss carryforward and other
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results of operations year ended december 31 , 2018 compared to the year ended december 31 , 2017 for the year ended december 31 , 2018 , the company had a loss from continuing operations before income taxes of $ 2,487,000 compared to a loss from operations before income taxes of $ 1,765,000 for the year ended december 31 , 2017. the increased loss of $ 722,000 was primarily the result of increased compensation and benefits of $ 333,000 , an impairment loss for the entire value of the dam properties in the amount of $ 355,000 as a result of ongoing remediation efforts and no active market to sell such properties , and increased other operating expenses of $ 92,000 , partially offset by increased by other interest income of $ 67,000. compensation and benefits for the year ended december 31 , 2018 , compensation and benefits were $ 801,000 as compared to $ 468,000 for the year ended december 31 , 2017. the increased compensation and benefits of $ 333,000 in 2018 was primarily the result of increased compensation earned by the company 's chairman and chief executive officer . other operating expenses for the year ended december 31 , 2018 , other operating expenses were $ 1,398,000 as compared to $ 1,306,000 for the year ended december 31 , 2017. the increased operating expenses of $ 92,000 were primarily the result of increased professional fees and reserves for future repairs ( see note 11 to the consolidated financial statements ) related to the company 's interests in land and flowage rights in undeveloped property in killingly , connecticut , and increased rent expense due to the full absorption of rent by the company . the increased expenses were partially offset by decreased audit and sox consulting fees principally as a result of the sale .
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outstanding trade receivables are reviewed periodically and story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and the related notes included elsewhere in this annual report . in addition to historical information , this discussion contains forward-looking statements that involve risks , uncertainties and assumptions that could cause actual results to differ materially from management 's expectations . factors that could cause such differences are discussed in the sections entitled “ forward-looking statements ” and “ part i. item 1a . risk factors. ” we assume no obligation to update any of these forward-looking statements . executive summary we are a leading global provider of digital platform engineering and software development services offering specialized technological solutions to many of the world 's leading organizations . our customers depend on us to solve their complex technical challenges and rely on our expertise in core engineering , advanced technology , digital design and intelligent enterprise development . we continuously explore opportunities in new industries to expand our core industry client base in software and technology , financial services , business information and media , travel and consumer , retail and distribution and life sciences and healthcare . our teams of developers , architects , consultants , strategists , engineers , designers , and product experts have the capabilities and skill sets to deliver business results . our global delivery model and centralized support functions , combined with the benefits of scale from the shared use of fixed-cost resources , enhance our productivity levels and enable us to better manage the efficiency of our global operations . 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 customers 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 grow as a recognized brand in software development and end-to-end digital transformation services for our customers . 24 overview of 2019 and financial highlights the following table presents a summary of our results of operations for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_6_th the key highlights of our consolidated results for 2019 were as follows : we recorded revenues of $ 2.3 billion , or a 24.5 % increase from $ 1.8 billion in the previous year , negatively impacted by $ 25.0 million or 1.3 % due to changes in certain foreign currency exchange rates as compared to the corresponding period in the previous year . income from operations grew 23.2 % to $ 302.9 million from $ 245.8 million in 2018 . expressed as a percentage of revenues , income from operations was consistent with last year at 13.2 % compared to 13.3 % . our effective tax rate was 12.8 % compared to 3.8 % last year . the provision for income taxes for 2018 was favorably impacted by the recognition of $ 34.9 million of one-time tax benefits , partially offset by an increase in excess tax benefits associated with equity award exercises and vesting in 2019 compared to the same period last year . net income increased 8.7 % to $ 261.1 million compared to $ 240.3 million in 2018 . expressed as a percentage of revenues , net income decreased 1.6 % compared to last year , which was largely driven by the increase in our effective tax rate . diluted earnings per share increased 6.8 % to $ 4.53 for the year ended december 31 , 2019 from $ 4.24 in 2018 . cash provided by operations decreased $ 4.8 million , or 1.6 % , to $ 287.5 million during 2019 as compared to last year . the operating results in any period are not necessarily indicative of the results that may be expected for any future period . 25 critical accounting policies we prepare our consolidated financial statements in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) , which require us to make judgments , estimates and assumptions that affect : ( i ) the reported amounts of assets and liabilities , ( ii ) the disclosure of contingent assets and liabilities at the end of each reporting period and ( iii ) the reported amounts of revenues and expenses during each reporting period . we evaluate these estimates and assumptions based on historical experience , knowledge and assessment of current business and other conditions , and expectations regarding the future based on available information and reasonable assumptions , which together form a basis for making judgments about matters not readily apparent from other sources . since the use of estimates is an integral component of the financial reporting process , actual results could differ from those estimates . some of our accounting policies require higher degrees of judgment than others in their application . when reviewing our audited consolidated financial statements , you should consider ( i ) our selection of critical accounting policies , ( ii ) the judgment and other uncertainties affecting the application of such policies and ( iii ) the sensitivity of reported results to changes in conditions and assumptions . we consider the policies discussed below to be critical to an understanding of our consolidated financial statements as their application places significant demands on the judgment of our management . an accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , and if different estimates that reasonably could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact the consolidated financial statements . story_separator_special_tag revenues from fixed-price contracts ( 8.3 % of revenues in 2017 ) included fixed-price maintenance and support arrangements , which may have exceeded one year in duration and revenues from maintenance and support arrangements were generally recognized ratably over the expected service period . fixed-price contracts also included application development arrangements and revenues from these arrangements were primarily determined using the proportional performance method . in cases where final acceptance of the product , system , or solution was specified by the customer , and the acceptance criteria were not objectively determinable to have been met as the services were provided , revenues were deferred until all acceptance criteria had been met . in the absence of a sufficient basis to measure progress towards completion , revenue was recognized upon receipt of final acceptance from the customer . assumptions , risks and uncertainties inherent in the estimates used in the application of the proportional performance method of accounting could have affected the amount of revenues , receivables and deferred revenues at each reporting period . business combinations — we account for business combinations using the acquisition method which requires us to estimate the fair value of identifiable assets acquired and liabilities assumed , including any contingent consideration , to properly allocate purchase price to the individual assets acquired and liabilities assumed . the allocation of the purchase price utilizes significant estimates in determining the fair values of identifiable assets acquired and liabilities assumed , especially with respect to intangible assets . the significant estimates and assumptions used include the timing and amount of forecasted revenues and cash flows , anticipated growth rates , client attrition rates , the discount rate reflecting the risk inherent in future cash flows and the determination of useful lives for finite-lived assets . there are different valuation models for each component , the selection of which requires considerable judgment . these determinations will affect the amount of amortization expense recognized in future periods . we base our fair value estimates on assumptions we believe are reasonable , but recognize that the assumptions are inherently uncertain . the acquired assets typically include customer relationships , software , trade names , non-competition agreements , and assembled workforce and as a result , a substantial portion of the purchase price is allocated to goodwill and other intangible assets . if the initial accounting for the business combination has not been completed by the end of the reporting period in which the business combination occurs , provisional amounts are reported to present information about facts and circumstances that existed as of the acquisition date . once the measurement period ends , which in no case extends beyond one year from the acquisition date , revisions to the accounting for the business combination are recorded in earnings . leases — we determine if an arrangement is a lease or contains a lease at inception . we perform an assessment and classify the lease as either an operating lease or a financing lease at the lease commencement date with a right-of-use asset ( “ rou asset ” ) and a lease liability recognized in the consolidated balance sheet under both classifications . 27 lease liabilities are initially measured at the present value of lease payments not yet paid . the present value is determined by applying the readily determinable rate implicit in the lease or , if not available , the incremental borrowing rate of the lessee . we determine the incremental borrowing rate of the lessee on a lease-by-lease basis by developing an estimated centralized u.s. dollar borrowing rate for a fully collateralized obligation with a term similar to the lease term and adjust the rate to reflect the incremental risk associated with the currency in which the lease is denominated . the development of this estimate includes the use of recovery rates , u.s. risk-free rates , foreign currency/country base rate yields , and a synthetic corporate credit rating of the company developed using regression analysis . our lease agreements may include options to extend or terminate the lease . we includes such options in the lease term when it is reasonably certain that we will exercise that option . rou assets are recognized based on the initial measurement of the lease liabilities plus initial direct costs less lease incentives . lease expense for operating leases is recognized on a straight-line basis over the lease term . rou assets are subject to periodic impairment tests . we have elected a practical expedient to account for lease and non-lease components together as a single lease component . in addition , we elected the short-term lease recognition exemption for all classes of lease assets . recent accounting pronouncements see note 1 “ business and summary of significant accounting policies ” in the notes to our consolidated financial statements in this annual report on form 10-k for information regarding recent accounting pronouncements . story_separator_special_tag growth as we expand our capabilities and offerings within existing customers , we continue to focus on diversification of our customer concentration and building up a portfolio of new accounts that we believe have significant revenue potential . we anticipate the contribution of these new accounts to our total revenues to increase in the mid- to long-term and offset the potential slower growth rate of some of our largest customers as those accounts mature . 30 we expect customer concentration from our top customers to continue to decrease over the long-term . the following table presents revenues contributed by our customers by amount and as a percentage of our revenues for the periods indicated : replace_table_token_10_th the following table shows the number of customers from which we earned revenues for each year presented : replace_table_token_11_th revenues by service offering effective january 1 , 2018 , the company adopted asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) as amended .
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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 . replace_table_token_7_th ( 1 ) included $ 37,580 , $ 27,245 and $ 20,868 of stock-based compensation expense for the years ended december 31 , 2019 , 2018 and 2017 , respectively . ( 2 ) included $ 34,456 , $ 31,943 and $ 31,539 of stock-based compensation expense for the years ended december 31 , 2019 , 2018 and 2017 , respectively . 28 revenues we continue to expand our presence across multiple geographies and verticals , both organically and through strategic acquisitions . during the year ended december 31 , 2019 , our total revenues grew 24.5 % over the previous year to $ 2.3 billion . this growth resulted from our ability to retain existing customers and increase the level of services we provide to them and our ability to produce revenues from new customer relationships . customer concentration continued to decrease with revenues from our top five , top ten and top twenty clients declining as a percentage of total revenues for the year ended december 31 , 2019 as compared to the previous year . revenue has been positively impacted from the acquisition of test io and other 2019 acquisitions , which contributed 0.2 % and 0.5 % , respectively to our revenue growth , and negatively impacted by the fluctuations in foreign currency that decreased our revenue growth by 1.3 % during the year ended december 31 , 2019 as compared to the previous year . we discuss below the breakdown of our revenues by vertical , customer location , service arrangement type , and customer concentration .
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the company accounts for the co-development and license agreement as a joint risk-sharing collaboration in accordance with asc 808 , collaboration arrangements . payments between the company and the licensor with respect to each party 's share of min-202 development costs that have been incurred pursuant to the joint development plan story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the financial statements and related notes appearing elsewhere in this annual report on form 10-k. some of the information in this discussion and analysis contains forward-looking statements reflecting our current expectations and involves risk and uncertainties . for example , statements regarding our expectations as to our plans and strategy for our business , future financial performance , expense levels and liquidity sources are forward-looking statements . our actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors , including those set forth under the “ risk factors ” section and elsewhere in this annual report on form 10-k. please also see the section entitled “ special note regarding forward-looking statements. ” overview we are a clinical-stage biopharmaceutical company focused on the development and commercialization of a portfolio of product candidates to treat patients suffering from central nervous system , or cns , diseases . leveraging our scientific insights and clinical experience , we have acquired or in-licensed four development-stage proprietary compounds that we believe have innovative mechanisms of action and therapeutic profiles that may potentially address the unmet needs of patients with these diseases . our product portfolio and potential indications include : min-101 for the treatment of schizophrenia ; min-202 ( also known as jnj-42847922 ) , a compound we are co-developing with janssen pharmaceutica nv , or janssen , for the treatment of insomnia disorder and major depressive disorder , or mdd ; min-117 for the treatment of mdd ; and min-301 for the treatment of parkinson 's disease . we believe our product candidates have significant potential to improve the lives of a large number of affected patients and their families who are currently not well-served by available therapies . in november 2013 , cyrenaic pharmaceuticals , inc. , or cyrenaic , and sonkei pharmaceuticals , inc. , or sonkei , merged , and the combined company was renamed minerva neurosciences , inc. cyrenaic had been incorporated in 2007 and had exclusively licensed min-101 from mitsubishi tanabe pharma corporation , or mtpc . sonkei had been incorporated in 2008 and had exclusively licensed min-117 from mtpc . we executed the merger as we saw an opportunity to better serve an underserved patient population through combining a portfolio of promising product candidates targeting cns diseases . as a result of the merger , we have the rights to develop and commercialize min-101 and min-117 globally , excluding most of asia . we further expanded our product candidate portfolio in february 2014 by acquiring the shares of mind-nrg sarl , or mind-nrg , which had exclusive rights to develop and commercialize min-301 . in addition , in february 2014 we entered into a co-development and license agreement with janssen , one of the janssen pharmaceutical companies of johnson & johnson . pursuant to this agreement we are co-developing min-202 and have the right to commercialize this compound in europe , subject to royalty payments to janssen , with janssen having commercialization rights outside of the european union , subject to royalty payments to us . our relationships with janssen and mtpc help inform our clinical development and regulatory strategies . we have not received regulatory approvals to sell any of our product candidates , and we have not generated any revenue from the sales or license of our product candidates . we have incurred significant operating losses since inception . we expect to incur net losses and negative cash flow from operating activities for the foreseeable future in connection with the clinical development and the potential regulatory approval , infrastructure development and commercialization of our product candidates . on march 8 , 2017 and march 10 , 2017 , certain investors in our march 2015 private placement exercised their warrants and received an aggregate of 202,634 shares of our common stock . we received gross proceeds of approximately $ 1.2 million from the exercise of these warrants . financial overview revenue none of our product candidates have been approved for commercialization and we have not received any revenue in connection with the sale or license of our product candidates . 56 research and development expenses research and development expenses consists of costs incurred in connection with the development of our product candidates , including : fees paid to consultants and clinical research organizations , or cros , including in connection with our non-clinical and clinical trials , and other related clinical trial fees , such as for investigator grants , patient screening , laboratory work , clinical trial database management , clinical trial material management and statistical compilation and analysis ; licensing fees ; costs related to acquiring clinical trial materials ; costs related to compliance with regulatory requirements ; and costs related to salaries , benefits , bonuses and stock-based compensation granted to employees in research and development functions . we expense research and development costs as they are incurred . the historic direct costs relating to each of our product candidates are summarized as follows ( in thousands ) : replace_table_token_5_th ( 1 ) the expense for the years ended december 31 , 2016 , 2015 and 2014 excludes non cash stock-based compensation expense of $ 1.036 million , $ 0.604 million and $ 13.099 million , respectively . ( 2 ) the expense for the year ended december 31 , 2014 includes a $ 22.0 million license fee paid to janssen which has no alternative future use . story_separator_special_tag we have not performed a detailed analysis to determine whether an ownership change occurred upon consummation of the merger between us and sonkei or the acquisition of mind‑nrg . however , as a result of these transactions , our initial public offering and the shares issued to jjdc and shareholders of mind‑nrg as part of the private placements consummated concurrently with our initial public offering , it is likely that an ownership change would occur or has occurred . such an ownership change could also be triggered by subsequent sales of securities by us or our stockholders . such a change in ownership would limit the utilization of our net operating losses . as a result , we may not be able to take full advantage of these tax carryforwards for federal tax purposes . costs associated with the acquisitions and financings we acquired mind‑nrg in february 2014 , and the fair value of the 1,481,583 shares of common stock issued to the stockholders of mind‑nrg was approximately $ 16.5 million . the fair value of the common shares issued and the allocation of the purchase price was based upon our valuation of our common stock as approved by our board of directors . substantially all of the purchase price was allocated to in‑process research and development and goodwill . in connection with the acquisition , we entered into loan agreements for working capital up to a maximum of $ 0.6 million . the mind‑nrg loans had an interest rate of 8 % per annum , added to the principal . the mind‑nrg loans , including accrued interest , were repaid in full in april 2014 for $ 0.5 million . we subsequently entered into two loan agreements for $ 0.6 million and $ 1.0 million , the april bridge loan and the may bridge loan , respectively . the april bridge loan and may bridge loan each had an interest rate of 8 % per annum and were repaid in full out of the proceeds of our initial public offering . as part of the mind‑nrg acquisition , we also paid proteosys a final license payment of 0.5 million ( or $ 0.7 million , as converted ) upon the closing of our initial public offering . 58 story_separator_special_tag an increase of $ 0.1 million . the increase was due to investment income on cash equivalents and marketable securities . interest expense interest expense was $ 1.1 million for the year ended december 31 , 2015 compared to $ 2.0 million for the same period in 2014 , a decrease of $ 0.9 million . the decrease was primarily due to higher interest expense incurred in 2014 under our convertible promissory notes and the related beneficial conversion feature . these convertible promissory notes and accrued interest were converted into 352,000 shares of our co mmon stock in connection with our initial public offering in july 2014. liquidity and capital resources sources of liquidity we have incurred losses and cumulative negative cash flows from operations since our inception in april 2007 and , as of december 31 , 2016 , we had an accumulated deficit of approximately $ 132.9 million . we anticipate that we will continue to incur net losses for the foreseeable future as we continue the development and potential commercialization of our product candidates and to support our operations as a public company . at december 31 , 2016 , we had approximately $ 83.0 million in cash and cash equivalents . we believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements for at least the next 12 months after the date that the financial statements are issued . the process of drug development can be costly and the timing and outcomes of clinical trials is uncertain . the assumptions upon which we have based our estimates are routinely evaluated and may be subject to change . the actual amount of our expenditures will vary depending upon a number of factors including but not limited to the design , timing and duration of future clinical trials , the progress of our research and development programs and the level of financial resources available . we have the ability to adjust our operating plan spending levels based on the timing of future clinical trials which will be predicated upon adequate funding to complete the trials . sources of funds exercise of warrants public offering of common stock on june 17 , 2016 , we closed a public offering of common stock , in which we issued and sold 6,052,631 shares of common stock at a public offering price of $ 9.50 , for aggregate gross proceeds to us of $ 57.5 million . all of the shares issued and sold in this public offering were registered under the securities act pursuant to a registration statement on form s-3 ( file no . 333-205764 ) and a related prospectus and prospectus supplement , in each case filed with the securities and exchange commission . we incurred $ 3.8 million in underwriting discounts and commissions and transaction costs , which have been included as a component of additional paid-in capital , resulting in net proceeds of approximately $ 53.7 million . 60 private placement on march 17 , 2016 , we entered into a common stock purchase agreement with a member of the board of directors , pursuant to which we , in a private placement , sold to the director an aggregate of 181,488 shares of our common stock , at a pr ice per share of $ 5.51 , for gross proceeds of approximately $ 1 million . exercise of warrants in january , february , june and december 2016 , certain investors in our march 2015 private placement exercised their warrants and received an aggregate of 4,052,685 shares of our common stock . we received gross proceeds of approximately $ 23.4 million from the exercise of these warrants .
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results of operations the following table sets forth our results of operations for the years ended december 31 , 2016 , 2015 and 2014 ( in thousands ) : replace_table_token_6_th comparison of the years ended december 31 , 2016 and december 31 , 2015 research and development expenses research and development expenses were $ 20.4 million for the year ended december 31 , 2016 compared to $ 18.5 million for the same period in 2015 , an increase of $ 1.9 million . this increase in research and development expenses primarily reflects higher development expenses under the min-202 program for phase ii clinical trial preparation , and an increase in non-cash stock-based compensation expenses . this increase was partially offset by decreased expenses due to the completion of our phase iib clinical trial of min-101 . general and administrative expenses total general and administrative expenses were $ 9.8 million for the year ended december 31 , 2016 compared to $ 7.6 million for the same period in 2015 , an increase of approximately $ 2.2 million . this increase in general and administrative expenses was primarily due to an increase in non-cash stock-based compensation expenses , personnel costs and professional fees during the year ended december 31 , 2016. foreign exchange gains ( losses ) foreign exchange losses were $ 23 thousand for the year ended december 31 , 2016 compared to a loss of $ 16 thousand for the same period in 2015 , an increased loss of $ 7 thousand . the loss was primarily due to clinical activities denominated in euros . investment income investment income was $ 0.2 million for the year ended december 31 , 2016 compared to $ 0.1 million for the same period in 2015 , an increase of $ 0.1 million . the increase was due to investment income on cash equivalents and marketable securities .
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factors that could cause such differences are discussed in forward-looking statements and risk factors. we assume no obligation to update any of these forward-looking statements . overview introduction we are a leading specialty contractor serving the electrical infrastructure market . we manage and report our operations through two industry segments : t & d and c & i . we have operated in the t & d industry since 1891. we are one of the largest contractors servicing the t & d sector of the electric utility industry in the united states , and our customers include many of the leading companies in the industry . we have provided c & i electrical contracting services to facility owners and general contractors in the western united states since 1912. we believe that we have a number of competitive advantages in both of our segments , including our skilled workforce , extensive centralized fleet , proven safety performance and reputation for timely completion of quality work that allow us to compete favorably in our markets . in addition , we believe that we are better capitalized than some of our competitors , which provides us with valuable flexibility to take on additional and complex projects . we had consolidated revenues , for the year ended december 31 , 2014 , of $ 944.0 million compared to $ 902.7 million for the year ended december 31 , 2013. for the year ended december 31 , 2014 , our net income was $ 36.5 million compared to $ 34.8 million for the year ended december 31 , 2013. our results for 2014 benefitted from the successful execution of several large transmission projects and significantly higher c & i revenues , the combination of which resulted in higher revenues , gross profit and gross margins . additionally , our results benefited from lower sg & a expenses due to a favorable appeal of a legal judgment . our financial results for 2014 included higher margins due to change orders and the resolution of claims . it is unlikely that future periods will benefit to a similar extent from such favorable developments . overview segments transmission and distribution segment . our t & d segment provides comprehensive solutions to customers in the electric utility industry and the renewable energy industry . our t & d segment generally serves the electric utility industry as a prime contractor to customers such as investor-owned utilities , cooperatives , private developers , government-funded utilities , independent power producers , independent transmission companies , industrial facility owners and other contractors . our t & d segment provides a broad range of services on electric transmission and distribution networks and substation facilities which include design , engineering , procurement , construction , upgrade , maintenance and repair services with a particular focus on construction , maintenance and repair . the demand for transmission construction and maintenance services increased over the past several years due to the modernization of the existing electric utility infrastructure and the need to integrate renewable generation into the electric power grid . for the year ended december 31 , 2014 , our t & d revenues were $ 699.6 million or 74.1 % of our consolidated revenue , compared to $ 722.4 million or 80.0 % of our consolidated revenue for the year ended december 31 , 2013 and $ 828.7 million or 83.0 % of our consolidated revenue for the year ended december 31 , 2012. material and subcontractor cost in our t & d segment comprised approximately 28 % , 27 % , and 42 % , of t & d segment costs for the years ended december 31 , 2014 , 2013 and 2012 , respectively . revenues from transmission projects represented 77.8 % , 84.8 % , and 82.0 % , of t & d segment revenue for the years ended december 31 , 2014 , 2013 and 2012 , respectively . our t & d segment also provides storm restoration services in response to hurricanes , ice or other storm related events , which typically account for less than 5 % of our annual consolidated revenues . in 2014 , 2013 30 and 2012 , we recognized revenues from storm restoration services of approximately $ 13.3 million , $ 14.6 million and $ 41.3 million , respectively , which represented approximately 1.4 % , 1.6 % and 4.1 % of our annual consolidated revenues , respectively . measured by revenues in our t & d segment , we provided 53.1 % , 55.4 % and 42.0 % of our t & d services under fixed-price contracts during the years ended december 31 , 2014 , 2013 and 2012 , respectively . we also provide many services to our customers under multi-year maintenance service agreements and other variable service agreements . commercial and industrial segment . our c & i segment provides services such as the design , installation , maintenance and repair of commercial and industrial wiring , installation of traffic networks and the installation of bridge , roadway and tunnel lighting . in our c & i segment , we generally provide our electric construction and maintenance services as a subcontractor to general contractors in the c & i industry as well as to facility owners . our c & i operations are primarily in the western united states where we have sufficient scale to deploy the level of resources necessary to achieve significant market share . we concentrate our efforts on projects where our technical and project management expertise are critical to successful and timely execution . the majority of c & i contracts cover electrical contracting services for airports , hospitals , data centers , hotels , stadiums , convention centers , manufacturing plants , processing facilities , waste-water treatment facilities , mining facilities and transportation control and management systems . story_separator_special_tag in addition , deploying employees on storm restoration work may , at times , delay work on other transmission and distribution work . storm restoration service work is unpredictable and can affect results of operations . outlook in the last few years we benefitted from increased activity and spending in the electrical transmission markets we serve . in 2014 we were awarded several large transmission projects , which will be under construction in 2015. we continue to expect long term growth in the transmission market , although the timing of large bids and subsequent construction is likely to be highly variable from year to year . we believe several multi-year transmission projects , exceeding $ 50.0 million in contract value , will be available for bid in the 2015 to 2016 timeframe . we also expect bidding activity in small- to medium-sized transmission and distribution projects to continue in 2015. in 2014 we substantially increased our c & i business through organic growth in our existing markets and geographic expansion into utah , nevada and nebraska . we believe that legislative and regulatory actions , state renewable portfolio standards , the aging of the electric grid , and the general improvement of the economy will positively impact the level of spending by our customers . although competition remains strong , we see these trends as positive factors for us in the future . our business is directly impacted by the level of spending on t & d infrastructure throughout the markets we serve and the level of commercial and industrial electrical construction activity in the western united states . the electric grid is aging and requires significant upgrades and maintenance to meet current and future demands for electricity . in addition , regulatory pressures and low energy prices may accelerate the shut-down of coal-fired generating plants , which could result in the need for line upgrades and new substations . over the past several years , many utilities have begun to implement plans to improve their transmission systems , improve reliability and reduce congestion . these utilities have started or planned new construction , line upgrades and maintenance projects on many transmission systems . we believe that our 32 customers remain committed to the expansion and strengthening of their transmission infrastructure , with planning , engineering and funding for many of their projects already in place . bidding activity on multi-year transmission projects improved in 2014 compared to 2013 and we believe we will continue to see increased bidding activity on large transmission projects in 2015 and 2016. the timing of multi-year transmission project awards and substantial construction activity is difficult to predict due to regulatory requirements and right-of-way permits needed to commence construction . significant construction on any large multi-year projects awarded in 2015 will not likely occur until 2016. bidding and construction activity for small to medium-size transmission projects and upgrades remains strong , and we expect this trend to continue in 2015 , primarily due to reliability and economic drivers . competition in the transmission market continues to make winning projects difficult and has increased pressure on contract margins . the canadian transmission market appears to be entering a substantial growth phase which we expect will extend over the next several years , driven by the need for commodity-related infrastructure , further development of hydropower , load center delivery requirements , and upgrades to aging infrastructure . we are evaluating several near- and long-term canadian projects and opportunities that we believe would fit our portfolio of work . legislative or regulatory actions may affect demand for the services provided by our t & d segment in the long term , particularly in connection with electric power infrastructure . federal energy regulatory commission ( ferc ) order no . 1000 promotes more efficient and cost-effective development of new transmission facilities , which we believe could have a long-term positive impact on electric transmission line development . we also anticipate increased infrastructure spending over the long term as a result of legislation requiring the electric power industry to meet national and local reliability standards for its transmission and distribution systems and incentives to the industry to invest in and improve maintenance on its systems . the u.s. environmental protection agency 's mercury and air toxics standards , or mats , may force some coal-fired and oil-fired generating plants to discontinue operation . should this occur , it could result in increased spending by the affected utilities to strengthen their transmission infrastructure to alleviate congestion and deliver new and existing power sources to their regions . we believe that renewable resources in the u.s. will be a driver for large transmission project activity . state renewable portfolio standards , which set required or voluntary standards for how much electricity is to be generated from renewable energy sources , as well as general environmental concerns , are driving the development of renewable energy projects . the economic feasibility of renewable energy projects , and therefore the attractiveness of investment in the projects , may depend on the availability of tax incentive programs or the ability of the projects to take advantage of such incentives . as a result of reduced spending by u.s. utilities on their distribution systems for several years , we believe there is a growing need for sustained investment by utilities on their distribution systems to properly maintain or meet reliability requirements . in 2014 we saw increased bidding activity in some of our electric distribution markets , as economic conditions improved in those areas . we believe that a recovery in the u.s. economy , and in the housing market in particular , over the next few years could provide additional stimulus for spending by our customers on their distribution systems . in addition , we believe there will be a push to strengthen utility distribution systems against major storm-related damage . several industry and market trends are also prompting customers in the electric utility industry to seek outsourcing partners rather than performing projects internally . these trends include an aging electric utility workforce , increasing costs and labor issues .
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segment results the following table sets forth , for the periods indicated , statements of operations data by segment , segment net sales as a percentage of total net sales and segment operating income as a percentage of segment net sales : replace_table_token_12_th transmission & distribution revenues for our t & d segment for the year ended december 31 , 2013 were $ 722.4 million compared to $ 828.7 million for the year ended december 31 , 2012 , a decrease of $ 106.3 million or 12.8 % . the decrease in revenues was primarily the result of lower material and subcontractor costs associated with several large transmission projects . material and subcontractor costs in our t & d segment comprised approximately 27 % of total contract costs in the year ended december 31 , 2013 , compared to approximately 42 % in the year ended december 31 , 2012. revenues from storm work declined $ 26.7 million to $ 14.6 million in year ended december 31 , 2013 from $ 41.3 million in the year ended december 31 , 2012. revenues from transmission projects represented 84.8 % and 82.0 % of t & d segment revenue for the years ended december 31 , 2013 and 2012 , respectively . additionally , for the year ended december 31 , 2013 , measured by revenue in our t & d segment , we provided 55.4 % of our t & d services under fixed-price contracts , as compared to 42.0 % for the year ended december 31 , 2012 . 39 operating income for our t & d segment for the year ended december 31 , 2013 was $ 81.4 million compared to $ 80.5 million for the year ended december 31 , 2012 , as lower volume in large transmission projects was largely offset by higher contract margins on several large transmission projects .
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our products are distributed globally through various distribution channels including wholesale in countries where we have a physical presence , direct to the consumer through our retail stores and commercial websites and through third-party distributors in countries where we do not maintain a physical presence . our products are offered at varying price points to meet the needs of our customers , whether they are value-conscious or luxury oriented . based on our extensive range of accessory products , brands , distribution channels and price points , we are able to target style-conscious consumers across a wide age spectrum on a global basis . domestically , we sell our products through a diversified distribution network that includes department stores , specialty retail locations , specialty watch and jewelry stores , company-owned retail and factory outlet stores , mass market stores and through our fossil catalogs and website . our wholesale customer base includes , among others , neiman marcus , nordstrom , saks fifth avenue , macy 's , dillard 's , jcpenney , kohl 's , sears , wal-mart and target . in the united states , our network of company-owned stores included 123 retail stores located in premier retail sites and 74 outlet stores located in major outlet malls as of december 31 , 2011. in addition , we offer an extensive collection of our fossil brand products through our catalogs and on our website , www.fossil.com , as well as proprietary and licensed watch and jewelry brands through other managed and affiliated websites . internationally , our products are sold to department stores , specialty retail stores and specialty watch and jewelry stores in over 120 countries worldwide through 22 company-owned foreign sales subsidiaries and through a network of over 60 independent distributors . our products are distributed in africa , asia , australia , europe , central and south america , canada , the caribbean , mexico , and the middle east . our products are offered on airlines and cruise ships and in international company-owned retail stores , which included 171 retail stores and 30 outlet stores in select international markets as of december 31 , 2011. our products are also sold through licensed and franchised fossil retail stores , retail concessions operated by us and kiosks in certain international markets . in addition , we offer an extensive collection of our fossil brand products on our websites in certain countries . our business is subject to the risks inherent in global sourcing supply . certain key components in our products come from limited sources of supply , which exposes us to potential supply shortages that could disrupt the manufacture and sale of our products . any interruption or delay in the supply of key components could significantly harm our ability to meet scheduled product deliveries to our customers and cause us to lose sales . interruptions or delays in supply may be caused by a number of factors that are outside of our and our contractor manufacturers ' control , such as natural disasters like the earthquake and tsunami in japan that occurred during fiscal year 2011. as a result of these natural disasters , we experienced an increase in the cost of movements that negatively impacted gross profit margin in fiscal year 2011 as compared to fiscal year 2010. we do not expect material changes in movement costs during fiscal year 2012. effective january 3 , 2010 , we made changes to the presentation of reportable segments to reflect changes in the way our chief operating decision maker evaluates the performance of our operations , develops strategy and allocates capital resources . prior to january 3 , 2010 , our reportable segments consisted of the following : united states wholesale , europe wholesale , other international wholesale and direct to consumer . effective january 3 , 2010 , our reportable segments consist of the following : north america wholesale , europe wholesale , asia pacific wholesale and direct to consumer . these changes included the reclassification of our wholesale operations in canada and mexico and our u.s. export business , all of which were previously recorded within our 41 other international wholesale segment , to the north america wholesale segment . our u.s. domestic wholesale operations previously recorded within the united states wholesale segment , were also reclassified to the north america wholesale segment . our asia pacific wholesale operations , previously recorded within the other international wholesale segment , were reclassified to the asia pacific wholesale segment . our operations related to our joint venture with fossil spain , s.a. , previously recorded within the other international wholesale segment , were reclassified to the europe wholesale segment . for comparison purposes , our historical segment disclosures were recast to be consistent with the current presentation . this discussion should be read in conjunction with the consolidated financial statements and the related notes included therewith . critical accounting policies and estimates the preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . on an on-going basis , we evaluate our estimates and judgments , including those related to product returns , bad debt , inventories , long-lived asset impairment , impairment of goodwill and trade names , income taxes , warranty costs , hedge accounting , litigation reserves and stock-based compensation . we base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances . our estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies require the most significant estimates and judgments . story_separator_special_tag due to the inherent uncertainties involved in making the estimates and assumptions used in the fair value analysis , actual results may differ which could alter the fair value of the trade names and possibly cause impairment charges to occur in future periods . income taxes . we record valuation allowances against our deferred tax assets , when necessary , in accordance with asc 740 , income taxes . realization of deferred tax assets ( such as net operating loss carry-forwards ) is dependent on future taxable earnings and is therefore uncertain . at least quarterly , we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income . to the extent we believe that recovery is not likely , we establish a valuation allowance against our deferred tax asset , increasing our income tax expense in the period such determination is made . in addition , we have not recorded u.s. income tax expense for foreign earnings that we have determined to be indefinitely reinvested . on an interim basis , we estimate what our effective tax rate will be for the full fiscal year . the estimated annual effective tax rate is then applied to the year-to-date pre-tax income excluding unusual or infrequently occurring items , to determine the year-to-date tax expense . the income tax effects of infrequent or unusual items are recognized in the interim period in which they occur . as the fiscal year progresses , we continually refine our estimate based upon actual events and earnings by jurisdiction during the year . this continual estimation process periodically results in a change to our expected effective tax rate for the fiscal year . when this occurs , we adjust the income tax provision 43 during the quarter in which the change in estimate occurs so that the year-to-date provision equals the expected annual rate excluding the impact of infrequent or unusual items . warranty costs . our fossil watch products sold in the u.s. are covered by a limited warranty against defects in materials or workmanship for a period of 11 years from the date of purchase . relic watch products sold in the u.s. are covered by a comparable 12 year limited warranty , while all other watch brands sold in the u.s. are covered by a comparable two year limited warranty . generally , all of our watch products sold in canada , europe and asia are covered by a comparable two year limited warranty . we determine our warranty liability using historical warranty repair experience . as changes occur in sales volumes and warranty experience , the warranty accrual is adjusted as necessary . the year-end warranty liability for fiscal years 2011 , 2010 and 2009 was $ 11.0 million , $ 8.5 million and $ 6.4 million , respectively . hedge accounting . we operate in foreign countries , which exposes us to market risk associated with foreign currency exchange rate fluctuations . we have entered into certain forward contracts to hedge the risk of foreign currency rate fluctuations . we have elected to apply the hedge accounting rules as required by asc 815 , derivatives and hedging for these hedges . our objective is to hedge the variability in forecasted cash flows due to the foreign currency risks primarily associated with certain anticipated inventory purchases . changes in the fair value of forward contracts designated as cash flow hedges are recorded as a component of accumulated other comprehensive income within stockholders ' equity , and are recognized in other ( expense ) income-net in the period which approximates the time the hedged inventory is sold . litigation reserves . estimated amounts for claims that are probable and can be reasonably estimated are recorded as liabilities in our consolidated balance sheet . the likelihood of a material change in these estimated reserves would be dependent on new claims that may arise , changes in the circumstances used to estimate amounts for prior period claims and favorable or unfavorable final settlements of prior period claims . as additional information becomes available , we assess the potential liability related to new claims and existing claims and revise estimates as appropriate . as new claims arise or circumstances change relative to prior claim assessments , revisions in estimates of the potential liability could materially impact the results of operations and financial position . stock-based compensation . we account for stock-based compensation in accordance with the provisions of asc 718 , compensation-stock compensation ( asc 718 ) . we utilize the black-scholes model to determine the fair value of stock options and stock appreciation rights on the date of grant . the model requires us to make assumptions concerning ( i ) the length of time employees will retain their vested stock options before exercising them ( expected term ) , ( ii ) the volatility of our common stock price over the expected term , and ( iii ) the number of options that will be forfeited . changes in these assumptions can materially affect the estimate of fair value of stock-based compensation and , consequently , the related expense amounts recognized on the consolidated statements of income and comprehensive income . recently issued accounting standards in may 2011 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) 2011-04 , fair measurement ( topic 820 ) : amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss ( asu 2011-04 ) . fasb intends the new guidance to achieve common fair value measurement and disclosure requirements in u.s. gaap and international financial reporting standards . the amended guidance changes certain fair value measurement principles and enhances the disclosure requirements , particularly for level 3 assets and liabilities for which we will be required to disclose quantitative information about the unobservable inputs used in fair value measurements .
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results of operations the following table sets forth , for the periods indicated , ( i ) the percentages of our net sales represented by certain line items from our consolidated statements of income and comprehensive income and ( ii ) the percentage changes in these line items between the fiscal years indicated . replace_table_token_8_th 45 net sales . the following table sets forth consolidated net sales by segment and the percentage relationship of each segment to consolidated net sales for the fiscal years indicated ( in millions , except percentage data ) : replace_table_token_9_th fiscal year 2011 compared to fiscal year 2010 net sales . the following table illustrates by factor the total year-over-year percentage change in net sales by segment and on a consolidated basis : replace_table_token_10_th the following net sales discussion excludes the impact on sales growth attributable to foreign currency rate changes as noted in the above table . consolidated net sales . we believe watch sales across all of our operating segments are benefiting from a resurgence in the watch category in general , resulting in consumers allocating more of their discretionary spending to this fashion category . we also believe our results are outpacing those of our competitors as consumers respond positively to our innovative product offerings and focused presentations at retail . we attribute this favorable consumer response to our designs , which incorporate newer materials into the construction of the watch while also maintaining a very strong price to value relationship . with respect to the fossil brand , we have followed a strategy of focusing our marketing efforts on point-of-sale presentations , as well as our catalog and web-based marketing initiatives and the growth of our fossil store and e-commerce footprint . we believe these strategies are clearly communicating the aspirational lifestyle image of the brand and are resonating strongly with consumers around the world .
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we incurred a net loss in the years ended december 31 , 2012 and 2011. management believes that our current cash and expected license fees should fund our expected burn rate into the third quarter of 2013. we will require additional funds to continue operations . these funds are expected to come from the future sales of equity and or license agreements . we have incurred negative cash flows from operations since inception , and have expended , and expect to continue to expend in the future , substantial funds to complete our planned product development efforts . since inception , our expenses have significantly exceeded revenues , resulting in an accumulated deficit as of december 31 , 2012 of $ 267,972,000 . we expect that our capital resources , revenues from mugard sales and expected receipts due under our license agreements will be adequate to fund our current level of operations into the third quarter of 2013. however , our ability to fund operations over this time could change significantly depending upon changes to future operational funding obligations or capital expenditures . as a result , we are required to seek additional financing sources within the next twelve months . we can not assure you that we will ever be able to generate significant product revenue or achieve or sustain profitability . note 3 - related party transactions on occasion we may engage in certain related party transactions . pursuant to our audit committee charter , our policy is that all related party transactions are reviewed and approved by the board of directors or audit committee prior to our entering into any related party transactions . f-10 in the event sco capital partners llc ( sco ) and its affiliates were to convert all of their shares of series a preferred stock , series b preferred stock and exercise all of their warrants , they would own approximately 71.3 % of the voting securities of access . during 2012 and 2011 , sco and affiliates charged $ 300,000 each year in investor relations fees . in connection with the sale and issuance of series a preferred stock and warrants , we entered into a director designation agreement whereby we agreed to continue sco 's right to designate two individuals to serve on the board of directors of access . dr. esteban cvitkovic , a former director , also served as a consultant and senior director , oncology clinical research & development , from august 2007 to may 2012. dr. cvitkovic received payments for consulting expenses and reimbursement of direct expenses . in march 2011 , dr. cvitkovic also received 35,000 shares of our common stock valued at $ 71,000 for his consulting services in 2011. dr. cvitkovic received no consulting fees in 2012. dr. cvitkovic 's payments for consulting services and expense reimbursements are as follows : fair value consulting expense of restricted year fees reimbursement stock 2011 $ 139,000 $ 14,000 $ 71,000 note 4 - property and equipment replace_table_token_9_th depreciation and amortization on property and equipment was $ 57,000 and $ 21,000 for the years ended december 31 , 2012 and 2011 , respectively . the laboratory equipment is currently being sold and has no further value to the company . $ 29,000 of further depreciation was recorded in the fourth quarter of 2012. note 5 – 401 ( k ) plan we have a tax-qualified employee savings and retirement plan ( the 401 ( k ) plan ) covering all our employees . pursuant to the 401 ( k ) plan , employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit ( $ 17,000 in 2012 and $ 16,500 in 2011 ) and to have the amount of such reduction contributed to the 401 ( k ) plan . we had a 401 ( k ) matching program whereby we contributed for each dollar a participant contributes a like amount , with a maximum contribution of 4 % of a participant 's earnings in the first eleven months of 2011. the company suspended matching on december 1 , 2011. the 401 ( k ) plan is intended to qualify under section 401 of the internal revenue code so that contributions by employees or by us to the 401 ( k ) plan , and income earned on 401 ( k ) plan contributions , are not taxable to employees until withdrawn from the 401 ( k ) plan , and so that contributions by us , if any , will be deductible by us when made . at the direction of each participant , we invest the assets of the 401 ( k ) plan in any of 85 investment options . company contributions under the 401 ( k ) plan were approximately $ 0 in 2012 and $ 40,000 in 2011. f-11 note 6 – debt we had a note payable of $ 2,750,000 at december 31 , 2011 which was due on september 13 , 2012. the note and interest due was paid in full on november 2 , 2013. the note had interest at 12 % per annum with $ 330,000 of interest due on september 13 th . the interest due of $ 330,000 was in an escrow account for the noteholder at december 31 , 2011. note 7 – commitments and contingencies operating leases at december 31 , 2012 , we had commitments under non-cancelable operating leases for our new york office until august 31 , 2013 totaling $ 130,000 . story_separator_special_tag we have devoted substantially all of our efforts and resources to research and development conducted on our own behalf . the following table summarizes research and development spending by project category , which spending includes , but is not limited to , payroll and personnel expense , lab supplies , preclinical expense , development cost , clinical trial expense , outside manufacturing expense and consulting expense : replace_table_token_2_th 27 ( 1 ) cumulative spending from inception of the company or project through december 31 , 2012 . ( 2 ) includes : coboral , cobacyte and other projects . due to uncertainties and certain of the risk factors described above , including those relating to our ability to successfully commercialize our drug candidates , our ability to obtain necessary additional capital to fund operations in the future , our ability to successfully manufacture our products and our product candidates in clinical quantities or for commercial purposes , government regulation to which we are subject , the uncertainty associated with preclinical and clinical testing , intense competition that we face , market acceptance of our products and protection of our intellectual property , it is not possible to reliably predict future spending or time to completion by project or product category or the period in which material net cash inflows from significant projects are expected to commence . if we are unable to timely complete a particular project , our research and development efforts could be delayed or reduced , our business could suffer depending on the significance of the project and we might need to raise additional capital to fund operations , as discussed in the risk factors above , including without limitation those relating to the uncertainty of the success of our research and development activities and our ability to obtain necessary additional capital to fund operations in the future . as discussed in such risk factors , delays in our research and development efforts and any inability to raise additional funds could cause us to eliminate one or more of our research and development programs . we plan to continue our policy of investing any available funds in certificates of deposit , money market funds , government securities and investment-grade interest-bearing securities . we do not invest in derivative financial instruments . we do not believe inflation or changing prices have had a material impact on our revenue or operating income in the past three years . climate change we do not believe there is anything unique to our business which would result in climate change regulations having a disproportional effect on us as compared to u.s. industry overall . critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the u.s. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period . in applying our accounting principles , we must often make individual estimates and assumptions regarding expected outcomes or uncertainties . as you might expect , the actual results or outcomes are often different than the estimated or assumed amounts . these differences are usually minor and are included in our consolidated financial statements as soon as they are known . our estimates , judgments and assumptions are continually evaluated based on available information and experience . because of the use of estimates inherent in the financial reporting process , actual results could differ from those estimates . asset impairment our intangible assets at december 31 , 2012 were fully amortized or impaired . at december 31 , 2011 they consisted primarily of patents acquired in acquisitions and licenses which were recorded at fair value on the acquisition date . receivables receivables are reported in the balance sheets at the outstanding amount net of an allowance for doubtful accounts . we continually evaluate the creditworthiness of our customers and their financial condition and generally do not require collateral . the allowance for doubtful accounts is based upon reviews of specific customer balances , historic losses , and general economic conditions . as of december 31 , 2012 and 2011 , no allowance was recorded as all accounts are considered collectible . 28 product sales and allowances we sell mugard to wholesalers , and specialty and retail pharmacies . we began shipping to customers in september 2010. we recognize product sales allowances as a reduction of product sales in the same period the related revenue is recognized . product sales allowances are based on amounts owed or to be claimed on the related sales . these estimates take into consideration the terms of our agreements with customers , rebates or discounts taken . if actual future results vary from our estimates , we may need to adjust these estimates , which could have an effect on product sales and earnings in the period of adjustment . our product sales allowances include : · wholesaler and specialty and retail pharmacy discounts – we offer contractually determined discounts to certain wholesale distributors and specialty and retail pharmacies that purchase directly from us . these discounts are either taken off the invoice at the time of shipment or paid to the customer on a monthly or quarterly basis . · prompt pay discounts – we offer cash discounts to our customers , generally 2 % of the sales price , as an incentive for prompt payment . based on our experience many of the customers comply with the payment terms to earn the cash discount . · patient discount programs – we offer discount card programs in which patients receive certain discounts off their prescription . · managed care rebates – we offer discounts under contracts with certain managed care providers who do not purchase directly from us . we believe our estimates related to gross-to-net sales adjustments
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results of operations comparison of years ended december 31 , 2012 and 2011 product sales of mugard in the united states totaled $ 2,865,000 for the year ended december 31 , 2012 as compared to $ 539,000 for the same period of 2011 , an increase of $ 2,326,000 due to increased sales and acceptance of our product . see sales table in critical accounting policies and estimates relating to mugard . our licensing revenue for the year ended december 31 , 2012 was $ 1,446,000 as compared to $ 1,181,000 for 2011 , an increase of $ 265,000. we recognize licensing revenue over the period of the performance obligation under our licensing agreements . in the first quarter of 2012 , we finalized the negotiations for the termination of the license with spepharm for mugard for eu territories and recognized all of the previously received license fees ( $ 706,000 ) that were recorded in deferred revenue and a $ 500,000 termination fee . we recorded royalty revenue for mugard in europe of $ 93,000 for the year ended december 31 , 2012 as compared to $ 89,000 for 2011. sponsored research and development revenues were $ 30,000 for the year ended december 31 , 2011 with no revenues for the same period of 2012. the revenues in 2011 are for research collaborations on our coboral and cobacyte projects .
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when used in this report , the words may , would , should , could , expects , aims , plans , anticipates , believes , estimates , predicts , projects , potential , or continue or the negative of these terms or other comparable terminology are included to identify forward-looking statements . these statements include but are not limited to statements regarding our ability to successfully commercialize vascepa in the united states for use in the marine indication , the progress and timing of our clinical programs , the potential for , and timing of , regulatory approval of additional indications for vascepa and the next steps we may take thereto ; the safety and efficacy of our product candidates ; the goals of our development activities ; the scope of our intellectual property protection ; estimates of the potential markets for our product candidates ; estimates of the capacity of manufacturing and other facilities to support our products , our operating and growth strategies , our sales and marketing strategies , our industry , our projected cash needs , liquidity and capital resources and our expected future revenues , operations and expenditures . these forward-looking statements are based on our current expectations and assumptions and many factors could cause our actual results to differ materially from those indicated in these forward-looking statements . you should review carefully the factors identified in this report in item 1a , risk factors . we disclaim any intent to update or announce revisions to any forward-looking statements to reflect actual events or developments , except as required by law . except as otherwise indicated herein , all dates referred to in this report represent periods or dates fixed with reference to our fiscal year ended december 31. overview we are a biopharmaceutical company with expertise in lipid science focused on the commercialization and development of therapeutics to improve cardiovascular health . our lead product , vascepa ® ( icosapent ethyl ) capsules , is approved by the u.s. food and drug administration , or fda , for use as an adjunct to diet to reduce triglyceride levels in adult patients with severe ( tg > 500mg/dl ) hypertriglyceridemia . we refer to this approved indication for vascepa as the marine indication . we began marketing and selling vascepa in the united states in january 2013. vascepa is available in the united states by prescription only . we market vascepa through our sales force of approximately 150 sales professionals , including sales representatives and their managers . triglycerides are fats in the blood . hypertriglyceridemia refers to a condition in which patients have high levels of triglycerides in the bloodstream . it is estimated that over 40 million adults in the united states have elevated triglyceride levels ( tg > 200mg/dl ) and approximately 4.0 million people in the united states have severely high triglyceride levels ( tg > 500mg/dl ) , commonly known as very high triglyceride levels . according to the american heart association scientific statement on triglycerides and cardiovascular disease ( 2011 ) , triglycerides also provide important information as a marker associated with the risk for heart disease and stroke , especially when an individual also has low high-density lipoprotein cholesterol , or hdl-c ( often referred to as good cholesterol ) , and elevated levels of ldl-c ( often referred to as bad cholesterol ) . guidelines for the management of very high triglyceride levels suggest that reducing triglyceride levels is the primary goal in patients to reduce the risk of acute pancreatitis . the effect of vascepa on cardiovascular mortality and morbidity , or the risk for pancreatitis , in patients with hypertriglyceridemia has not been determined . the potential efficacy and safety of vascepa ( known in its development stage as amr 101 ) was studied in two phase 3 clinical trials , the marine trial and the anchor trial . at a daily dose of 4 grams of vascepa , the dose at which vascepa is fda approved , these trials showed favorable clinical results in their respective patient populations in reducing triglyceride levels without increasing ldl-c levels in the marine trial and with a statistically significant decrease in ldl-c levels in the anchor trial , in each case , relative to placebo . these trials also showed favorable results , particularly with the 4-gram dose of vascepa , in other important lipid and inflammation biomarkers , including apolipoprotein b ( apo b ) , non-high-density lipoprotein cholesterol ( non-hdl-c ) , total-cholesterol ( tc ) , very low-density lipoprotein cholesterol ( vldl-c ) , lipoprotein-associated 61 phospholipase a2 ( lp-pla2 ) , and high sensitivity c-reactive protein ( hs-crp ) . in these trials , the most commonly reported adverse reaction ( incidence > 2 % and greater than placebo ) in vascepa-treated patients was arthralgia ( joint pain ) ( 2.3 % for vascepa vs. 1.0 % for placebo ) . we are also developing vascepa for the treatment of patients with high ( tg ³ 200 mg/dl and < 500 mg/dl ) triglyceride levels who are also on statin therapy for elevated low-density lipoprotein cholesterol , or ldl-c , levels which we refer to as mixed dyslipidemia . we refer to this second proposed indication for vascepa as the anchor indication . the fda has stated that it views the proposed anchor indication as ostensibly and impliedly an indication to reduce cardiovascular risk . in addition , in december 2011 , we announced commencement of patient dosing in our cardiovascular outcomes study of vascepa , titled reduce-it ( reduction of cardiovascular events with epaintervention trial ) . the reduce-it study is designed to evaluate the efficacy of vascepa in reducing major cardiovascular events in a high risk patient population on statin therapy . we have a pending supplemental new drug application , or snda , with the fda that seeks marketing approval of vascepa for use in the anchor indication . story_separator_special_tag we currently estimate that we will complete patient enrollment in this study in the first half of 2015. however , if we do not receive an expansion of vascepa labeling for the anchor indication , we plan to re-evaluate continuation of the reduce-it study in its present form and re-evaluate whether it is advisable to continue the study . if continued , the reduce-it study will be completed after reaching an aggregate number of cardiovascular events . based on event rates in other outcomes studies , we estimate completing the reduce-it study in or about 2017 with results expected to be available in 2018. based on the results of reduce-it , we may seek additional indications for vascepa beyond the indications studied in the anchor or marine trials . in august 2013 , we completed dosing of amr102 , a fixed dose combination of vascepa and a leading statin product . the study is a randomized , open-label , single-dose , 4-way cross-over study to continue testing of the relative bioavailability of amr102 capsules , vascepa capsules with the selected statin taken concomitantly , vascepa taken alone and the selected statin taken alone . the results of this study support the feasibility of amr102 . we have suspended additional development of amr102 pending resolution of the anchor snda with the fda . if we do not receive fda approval for the anchor indication , we may discontinue development of amr102 . commercialization strategy vascepa became commercially available in the united states by prescription in january 2013 when we commenced sales and shipments to our network of u.s.-based wholesalers . on january 28 , 2013 , we commenced our full commercial launch of vascepa in the united states . in preparation for our commercial launch , we hired and trained a direct sales force of approximately 275 sales representatives . in october 2013 , we reduced our number of sales representatives to approximately 130 , excluding sales management , in the united states to focus on the sales territories that we believe have demonstrated the greatest potential for vascepa sales growth . we now market vascepa in the united states through our sales force of approximately 150 sales professionals and their managers . we also employ various marketing and medical affairs personnel to support our commercialization of vascepa . our 63 clinical and commercial supply is provided to us under agreements with various third-party suppliers . as of february 1 , 2014 , over 16,000 clinicians had written prescriptions for vascepa . in december 2013 , we completed our eleventh full calendar month of marketing and selling vascepa . based on monthly compilations of data provided by a third party , symphony health solutions , the estimated number of normalized total vascepa prescriptions for the year ended december 31 , 2013 was approximately 225,000. according to data from another third party , ims health , the estimated number of normalized total vascepa prescriptions was approximately 195,000 for that same period . normalized total prescriptions represent the estimated total number of vascepa prescriptions shipped to patients , calculated on a normalized basis ( i.e. , total capsules shipped divided by 120 capsules , or one month 's supply ) . the data reported above is based on information made available to us from a third party resource and may be subject to adjustment and may overstate or understate actual prescriptions . although we believe these data are prepared on a period-to-period basis in a manner that is generally consistent and that such results are generally indicative of current prescription trends , these data are based on estimates and should not be relied upon as definitive . in addition , because of our limited selling history , during the year ended december 31 , 2013 , we only recognized revenue on product that was resold for purposes of filling prescriptions . those prescription data may differ from data reported by other third parties . prior to commencing our u.s. commercial launch of vascepa in january 2013 , we had no revenue from vascepa . because of our limited selling history , change in the size of our sales force and uncertainty regarding resolution of the anchor snda with the fda , we do not believe that we can provide a reasonably accurate forecast of vascepa prescriptions or revenues . while we expect to be able to grow vascepa revenues , we provide no quantified guidance regarding anticipated levels of vascepa prescriptions or revenues and no such guidance should be inferred from the operating metrics described above . we believe that investors should view the above-referenced operating metrics with caution , as data for this limited period may not be representative of a trend consistent with the results presented or otherwise predictive of future results . seasonal fluctuations in pharmaceutical sales , for example , may affect future prescription trends of vascepa , as could changes in prescriber sentiment and other factors . we believe investors should consider our results over several quarters , or longer , before making an assessment about potential future performance . we secured managed care coverage for over 200 million lives , including as of february 1 , 2014 over 100 million lives covered on tier 2. this level of tier 2 coverage exceeds 66 % of the maximum level of tier 2 coverage which has been achieved over multiple years by comparable therapies . the commercial launch of a new pharmaceutical product is a complex undertaking , and our ability to effectively and profitably launch vascepa will depend in part on our ability to generate market demand for vascepa through education , marketing and sales activities , our ability to achieve market acceptance of vascepa , our ability to generate product revenue and our ability to receive adequate levels of reimbursement from third-party payers .
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results of operations comparison of fiscal years ended december 31 , 2013 versus december 31 , 2012 revenue . we recorded revenue of $ 26.4 million during the year ended december 31 , 2013. we commenced our full commercial launch of vascepa in the united states for use in the marine indication in january 2013. we recorded no revenue in 2012. all of our revenue in the year ended december 31 , 2013 was derived from product sales of vascepa , net of allowances , discounts , incentives , rebates , chargebacks and returns . we sell vascepa to distributors . in accordance with our revenue recognition policy , until we have more experience with the sale of vascepa and can better estimate product returns , we currently recognize revenue only for product which has been used for of the purpose of filling prescriptions . the excess of the amount billed and the amount recognized as revenue for the year ended december 31 , 2013 , net of applicable discounts and rebates , has been recorded as deferred revenue . during the year ended december 31 , 2013 , our net product revenues included an adjustment for co-pay mitigation rebates provided by us to commercially insured patients . such rebates are intended to offset the 68 differential for patients of vascepa not covered by commercial insurers at the time of launch on tier 2 , resulting in higher co-pay amounts for such patients . our cost for these co-payment mitigation rebates is up to $ 75 per prescription filled during 2013. commencing in march and april 2013 , certain third-party payors added vascepa to their tier 2 coverage , which results in lower co-payments for patients covered by these third-party payors . as of february 1 , 2014 , approximately 100 million lives covered by medical insurance were under insurance plans that have added vascepa to their tier 2 coverage .
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cautionary note regarding forward-looking statements this annual report on form 10-k , including management 's discussion and analysis of financial condition and results of operations and quantitative and qualitative disclosures about market risk contains forward-looking statements within the meaning of section 21e of the securities exchange act of 1934 , as amended and section 27a of the securities act of 1933 , as amended concerning , among other things , our expectations regarding the prospects of , and developments and business strategies for , vasco and our operations , including the development and marketing of certain new products and services and the anticipated future growth in certain markets in which we currently market and sell our products and services or anticipate selling and marketing our products or services in the future . these forward-looking statements ( 1 ) are identified by use of terms and phrases such as expect , believe , will , anticipate , emerging , intend , plan , could , may , estimate , should , objective , goal , possible , potential , projected and similar words and expressions , but such words and phrases are not the exclusive means of identifying them , and ( 2 ) are subject to risks and uncertainties and represent our present expectations or beliefs concerning future events . vasco cautions that the forward-looking statements are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements . these additional risks , uncertainties and other factors have been described in greater detail in this annual report on form 10-k and include , but are not limited to , ( a ) risks specific to vasco , including , demand for our products and services , competition from more established firms and others , pressures on price levels and our historical dependence on relatively few products , certain suppliers and certain key customers , ( b ) risks inherent to the computer and network security industry , including rapidly changing technology , evolving industry standards , increasingly sophisticated hacking attempts , increasing numbers of patent infringement claims , changes in customer requirements , price competitive bidding , and changing government regulations , and ( c ) risks of general market conditions , including currency fluctuations and the uncertainties resulting from turmoil in world economic and financial markets . thus , the results that we actually achieve may differ materially from any anticipated results included in , or implied by these statements . except for our ongoing obligations to disclose material information as required by the u.s. federal securities laws , we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events . general the following discussion is based upon our consolidated results of operations for the years ended december 31 , 2014 , 2013 , and 2012 ( percentages in the discussion , except for returns on average net cash balances , are rounded to the closest full percentage point ) and should be read in conjunction with our consolidated financial statements included elsewhere in this annual report on form 10-k. we design , develop , market and support both propriety and open standards-based hardware and software security systems that manage and secure access to information assets . we also design , develop , market , and support patented strong user authentication products and services for e-business and e-commerce . our products enable secure financial transactions to be made over private enterprise networks and public networks , such as the internet . our strong user authentication is delivered via our hardware and software digipass security products ( collectively digipasses , many of which incorporate an electronic and digital signature capability , which further protects the integrity of electronic transactions and data transmissions . many of our software digipasses are focused on the mobile platform and can be downloaded directly to mobile devices , such as digipass for mobile , while others are integrated directly into mobile applications ( using digipass for apps ) that are downloaded onto mobile devices . some of our digipasses are compliant with the europay 32 mastercard visa ( emv ) standard and are compatible with mastercard 's and visa 's chip authentication program ( cap ) . some of our digipasses comply with the initiative for open authentication ( oath ) . as evidenced by our current customer base , most of our products are purchased by businesses and , depending on the business application , are distributed to either their employees or their customers . those customers may be other businesses or , as an example in the case of internet and mobile banking , our customer banks ' corporate and retail customers . our target market is any business process that uses some form of electronic interface , particularly the internet , where the owner of that process is at risk if unauthorized users can gain access to its process and either obtain proprietary information or execute transactions that are not authorized . our products can not only increase the security associated with accessing the business process , thereby reducing the losses from unauthorized access , but also , in many cases , can reduce the cost of the process itself by automating activities that were previously performed manually . we offer our products either through : ( a ) a product sales and licensing model or ( b ) through our services platform , which includes our cloud-based service offering , digipass as a service ( dpaas ) or mydigipass ( mdp ) or together ( dpaas/mdp ) . our product license and sales model is expected to be used in situations where the application owner wants to control all of the critical aspects of the authentication process . story_separator_special_tag when asked to create the numbers , we do so in a secure environment with limited physical access and store the numbers on a system that is not connected to any other network , including other vasco networks , and similarly , is not connected to the internet . in the case of our new products and services , which involve the active daily processing of the secret numbers on our servers or servers managed by others in a hosted environment , we believe a cyber incident could have a material impact on our future business . we also believe that these products may be more susceptible to cyber attacks than our traditional products since it involves the active processing of transactions using the secret numbers . while we do not have a significant amount of revenue from these products today , we believe that these products have the potential to provide substantial future growth . a cyber incident involving these products in the future could substantially impair our ability to grow the business and we could suffer significant monetary and other losses and significant reputational harm . to minimize the risk , we review our security procedures on a regular basis . our reviews include the processes and software programs we are currently using as well as new forms of cyber incidents and new or updated software programs that may be available in the market that would help mitigate the risk of incidents . while we do not insure against cyber incidents today , we would likely review insurance policies related to our new product offering in the future . overall , we expect the cost of securing our networks will increase in future periods , whether through increased staff , systems or insurance coverage . 34 while we did not experience any cyber incident in 2014 , 2013 or 2012 that had a significant impact on our business , it is possible that we could experience an incident in 2015 or future years , which could result in unanticipated costs . see part i , item 3 - legal proceedings for a description of legal proceedings related to the cyber security incident in 2011. income taxes : our effective tax rate reflects our global structure related to the ownership of our intellectual property ( ip ) . all our ip is owned by two subsidiaries , one in the u.s. and one in switzerland . these two subsidiaries have entered into agreements with most of the other vasco entities under which those other entities provide services to our u.s. and swiss subsidiaries on either a percentage of revenue or on a cost plus basis or both . under this structure , the earnings of our service provider subsidiaries are relatively constant . these service provider companies tend to be in jurisdictions with higher effective tax rates . fluctuations in earnings tend to flow to the u.s. company and swiss company . earnings flowing to the u.s. company are expected to be taxed at a rate of 35 % to 40 % , while earnings flowing to the swiss company are expected to be taxed at a rate ranging from 8 % to 12 % . with the majority of our revenues being generated outside of the u.s. , our consolidated effective tax rate is strongly influenced by the effective tax rate of our foreign operations . changes in the effective rate related to foreign operations reflect changes in the geographic mix of where the earnings are realized and the tax rates in each of the countries in which it is earned . the statutory tax rate for the primary foreign tax jurisdictions ranges from 8 % to 35 % . the geographic mix of earnings of our foreign subsidiaries will primarily depend on the level of our service provider subsidiaries ' pretax income , which is recorded as an expense by the u.s. and swiss subsidiaries and the benefit that is realized in switzerland through the sales of product . the level of pretax income in our service provider subsidiaries is expected to vary based on : 1. the staff , programs and services offered on a yearly basis by the various subsidiaries as determined by management , or 2. the changes in exchange rates related to the currencies in the service provider subsidiaries , or 3. the amount of revenues that the service provider subsidiaries generate . for items 1 and 2 above , there is a direct impact in the opposite direction on earnings of the u.s. and swiss entities . any change from item 3 is generally expected to result in a larger change in income in the u.s. and swiss entities in the direction of the change ( increased revenues expected to result in increased margins/pretax profits and conversely decreased revenues expected to result in decreased margins/pretax profits ) . in addition to the provision of services , the intercompany agreements transfer the majority of the business risk to our u.s. and swiss subsidiaries . as a result , the contracting subsidiaries ' pretax income is reasonably assured while the pretax income of the u.s. and swiss subsidiaries varies directly with our overall success in the market . currency fluctuations : in 2014 , approximately 94 % of our revenue and approximately 75 % of our operating expenses were generated/incurred outside of the u.s. in 2013 , approximately 93 % of our revenue and approximately 82 % of our operating expenses were generated/incurred outside of the u.s. while the majority of our revenue is generated outside of the u.s. , the majority of our revenue is billed in u.s. dollars . in 2014 , approximately 65 % of our revenue was denominated in u.s. dollars , 30 % was denominated in euros and 5 % was denominated in other currencies . in 2013 , approximately 69 % of our revenue was denominated in u.s. dollars , 26 % was denominated in euros and 4 % was denominated in other currencies . 35 since a significant portion of our revenues and operating expenses are outside the u.s.
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general and administrative expenses 2014 compared to 2013 consolidated general and administrative expenses for the year ended december 31 , 2014 were $ 22,287 , an increase of $ 1,091 or 5 % , from the $ 21,196 reported for 2013. the increase in general and administrative expense was primarily attributable to increases in incentive-based compensation , including $ 442 of long-term incentive compensation expenses for administrative staff . the average full-time general and administrative employee headcount decreased approximately 3 % to 58 persons in 2014 from 59 persons 2013. at year-end 2014 , 2013 and 2012 , we employed 56 , 60 and 59 general and administrative employees , respectively . 2013 compared to 2012 consolidated general and administrative expenses for the year ended december 31 , 2013 were $ 21,196 , an increase of $ 1,125 or 6 % , from the $ 20,071 reported for 2012. the increase in general and administrative expense was primarily attributable to : higher compensation expenses of approximately $ 1,225 , including the unfavorable impact of changes in currency exchange rates , primarily related to an increase in average general and administrative staff in 2013 , partially offset by a decrease in long-term incentive compensation expenses of approximately $ 290. we estimate general and administrative expenses increased approximately $ 278 in 2013 primarily as a result of the strengthening of the euro to the u.s. dollar . the average full-time general and administrative employee headcount increased approximately 5 % to 59 persons in 2013 from 56 persons in 2012. amortization expense 2014 compared to 2013 amortization expense for 2014 was $ 4,532 , an increase of $ 1,207 , or 36 % , from $ 3,325 reported for 2013. the increase was primarily related to the amortization of intangible assets associated with our acquisition of cronto ltd. for twelve months in 2014 compared to 7 months of amortization in 2013 .
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we implemented a restructuring plan in the third quarter of fiscal year 2016 consisting of workforce reductions principally intended to focus resources on higher growth product lines ( the `` q3 2016 plan '' ) . we implemented a restructuring plan in the second quarter of fiscal year 2016 consisting of workforce reductions principally intended to focus resources on higher growth end markets ( the `` q2 2016 plan '' ) . all other previous restructuring plans were workforce reductions or the closure of excess facility space principally intended to integrate our businesses in order to realign 27 operations , reduce costs , achieve operational efficiencies and shift resources into geographic regions and end markets that are more consistent with our growth strategy ( the `` previous plans '' ) . the following table summarizes the number of employees reduced , the initial restructuring or contract termination charges by operating segment , and the dates by which payments were substantially completed , or the expected dates by which payments will be substantially completed , for restructuring actions implemented during fiscal years 2018 , 2017 and 2016 in continuing operations : replace_table_token_5_th we expect to make payments under the previous plans for remaining residual lease obligations , with terms varying in length , through fiscal year 2022 . we also have terminated various contractual commitments in connection with certain disposal activities and have recorded charges , to the extent applicable , for the costs of terminating these contracts before the end of their terms and the costs that will continue to be incurred for the remaining terms without economic benefit to us . we recorded additional pre-tax charges of $ 5.0 million , $ 3.6 million and $ 0.1 million in the discovery & analytical solutions segment during fiscal years 2018 , 2017 and 2016 , respectively , and $ 0.5 million during fiscal year 2017 in the diagnostics segment as a result of these contract terminations . 28 at december 30 , 2018 , we had $ 6.2 million recorded for accrued restructuring and contract termination charges , of which $ 4.8 million was recorded in short-term accrued restructuring and $ 1.4 million was recorded in long-term liabilities . at december 31 , 2017 , we had $ 14.0 million recorded for accrued restructuring and contract termination charges , of which $ 8.8 million was recorded in short-term accrued restructuring , $ 2.3 million was recorded in long-term liabilities and $ 2.9 million was recorded in other reserves . the following table summarizes our restructuring accrual balances and related activity by restructuring plan , as well as contract termination accrual balances and related activity , during fiscal years 2018 , 2017 and 2016 in continuing operations : replace_table_token_6_th ( 1 ) during fiscal year 2018 , we recognized pre-tax restructuring reversals of $ 0.2 million each in the discovery & analytical solutions and diagnostics segments , related to lower than expected costs associated with workforce reductions for the q4 2017 plan . ( 2 ) during fiscal year 2018 , we recognized pre-tax restructuring reversals of $ 0.8 million in the discovery & analytical solutions segment and $ 0.4 million in the diagnostics segment , related to lower than expected costs associated with workforce reductions for the q3 2017 plan . ( 3 ) during fiscal year 2018 , we recognized pre-tax restructuring reversals of $ 1.0 million in the discovery & analytical solutions segment , related to lower than expected costs associated with workforce reductions for the q1 2017 plan . 29 interest and other expense , net interest and other expense , net , consisted of the following : replace_table_token_7_th 2018 compared to 2017 . interest and other expense , net , for fiscal year 2018 was an expense of $ 66.2 million , as compared to income of $ 1.1 million for fiscal year 2017 , an increase of $ 67.3 million . the increase in interest and other expense , net , in fiscal year 2018 as compared to fiscal year 2017 was largely due to an increase in other expense , net of $ 56.0 million resulting from a one-time non-recurring net foreign exchange gain of $ 36.5 million in fiscal year 2017 related to remeasurement and settlement of euroimmun pre-acquisition hedges , combined with an increase in pension-related expenses of $ 20.7 million in fiscal year 2018 as compared to fiscal year 2017. interest expense increased by $ 23.0 million in fiscal year 2018 as compared to fiscal year 2017 primarily due to a higher outstanding total debt balance , beginning in the fourth quarter of fiscal year 2017 , related to financing for the euroimmun acquisition . gain on disposition of businesses and assets , net increased $ 13.2 million in fiscal year 2018 as compared to fiscal year 2017 primarily due to sale of our multi-spectral imaging business in fiscal year 2018. interest income decreased $ 1.4 million in fiscal year 2018 as compared to fiscal year 2017 due to the deployment of the cash proceeds realized from the sale of our medical imaging business in the second quarter of fiscal year 2017 that were initially invested , and subsequently utilized in the fourth quarter of fiscal year 2017 to support the settlement of the euroimmun acquisition . a more complete discussion of our liquidity is set forth below under the heading “ liquidity and capital resources. ” 2017 compared to 2016 . interest and other expense , net , for fiscal year 2017 was income of $ 1.1 million , as compared to an expense of $ 50.5 million for fiscal year 2016 , a decrease of $ 51.6 million . the decrease in interest and other expense , net , in fiscal year 2017 as compared to fiscal year 2016 was largely due to a decrease in other expense , net by $ 58.0 million , which consists primarily of net foreign exchange gain of $ 36.5 million in fiscal story_separator_special_tag we implemented a restructuring plan in the third quarter of fiscal year 2016 consisting of workforce reductions principally intended to focus resources on higher growth product lines ( the `` q3 2016 plan '' ) . we implemented a restructuring plan in the second quarter of fiscal year 2016 consisting of workforce reductions principally intended to focus resources on higher growth end markets ( the `` q2 2016 plan '' ) . all other previous restructuring plans were workforce reductions or the closure of excess facility space principally intended to integrate our businesses in order to realign 27 operations , reduce costs , achieve operational efficiencies and shift resources into geographic regions and end markets that are more consistent with our growth strategy ( the `` previous plans '' ) . the following table summarizes the number of employees reduced , the initial restructuring or contract termination charges by operating segment , and the dates by which payments were substantially completed , or the expected dates by which payments will be substantially completed , for restructuring actions implemented during fiscal years 2018 , 2017 and 2016 in continuing operations : replace_table_token_5_th we expect to make payments under the previous plans for remaining residual lease obligations , with terms varying in length , through fiscal year 2022 . we also have terminated various contractual commitments in connection with certain disposal activities and have recorded charges , to the extent applicable , for the costs of terminating these contracts before the end of their terms and the costs that will continue to be incurred for the remaining terms without economic benefit to us . we recorded additional pre-tax charges of $ 5.0 million , $ 3.6 million and $ 0.1 million in the discovery & analytical solutions segment during fiscal years 2018 , 2017 and 2016 , respectively , and $ 0.5 million during fiscal year 2017 in the diagnostics segment as a result of these contract terminations . 28 at december 30 , 2018 , we had $ 6.2 million recorded for accrued restructuring and contract termination charges , of which $ 4.8 million was recorded in short-term accrued restructuring and $ 1.4 million was recorded in long-term liabilities . at december 31 , 2017 , we had $ 14.0 million recorded for accrued restructuring and contract termination charges , of which $ 8.8 million was recorded in short-term accrued restructuring , $ 2.3 million was recorded in long-term liabilities and $ 2.9 million was recorded in other reserves . the following table summarizes our restructuring accrual balances and related activity by restructuring plan , as well as contract termination accrual balances and related activity , during fiscal years 2018 , 2017 and 2016 in continuing operations : replace_table_token_6_th ( 1 ) during fiscal year 2018 , we recognized pre-tax restructuring reversals of $ 0.2 million each in the discovery & analytical solutions and diagnostics segments , related to lower than expected costs associated with workforce reductions for the q4 2017 plan . ( 2 ) during fiscal year 2018 , we recognized pre-tax restructuring reversals of $ 0.8 million in the discovery & analytical solutions segment and $ 0.4 million in the diagnostics segment , related to lower than expected costs associated with workforce reductions for the q3 2017 plan . ( 3 ) during fiscal year 2018 , we recognized pre-tax restructuring reversals of $ 1.0 million in the discovery & analytical solutions segment , related to lower than expected costs associated with workforce reductions for the q1 2017 plan . 29 interest and other expense , net interest and other expense , net , consisted of the following : replace_table_token_7_th 2018 compared to 2017 . interest and other expense , net , for fiscal year 2018 was an expense of $ 66.2 million , as compared to income of $ 1.1 million for fiscal year 2017 , an increase of $ 67.3 million . the increase in interest and other expense , net , in fiscal year 2018 as compared to fiscal year 2017 was largely due to an increase in other expense , net of $ 56.0 million resulting from a one-time non-recurring net foreign exchange gain of $ 36.5 million in fiscal year 2017 related to remeasurement and settlement of euroimmun pre-acquisition hedges , combined with an increase in pension-related expenses of $ 20.7 million in fiscal year 2018 as compared to fiscal year 2017. interest expense increased by $ 23.0 million in fiscal year 2018 as compared to fiscal year 2017 primarily due to a higher outstanding total debt balance , beginning in the fourth quarter of fiscal year 2017 , related to financing for the euroimmun acquisition . gain on disposition of businesses and assets , net increased $ 13.2 million in fiscal year 2018 as compared to fiscal year 2017 primarily due to sale of our multi-spectral imaging business in fiscal year 2018. interest income decreased $ 1.4 million in fiscal year 2018 as compared to fiscal year 2017 due to the deployment of the cash proceeds realized from the sale of our medical imaging business in the second quarter of fiscal year 2017 that were initially invested , and subsequently utilized in the fourth quarter of fiscal year 2017 to support the settlement of the euroimmun acquisition . a more complete discussion of our liquidity is set forth below under the heading “ liquidity and capital resources. ” 2017 compared to 2016 . interest and other expense , net , for fiscal year 2017 was income of $ 1.1 million , as compared to an expense of $ 50.5 million for fiscal year 2016 , a decrease of $ 51.6 million . the decrease in interest and other expense , net , in fiscal year 2017 as compared to fiscal year 2016 was largely due to a decrease in other expense , net by $ 58.0 million , which consists primarily of net foreign exchange gain of $ 36.5 million in fiscal
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fiscal year 2016 . the increase of $ 1,455.3 million in net cash for acquisitions primarily related to the acquisition of euroimmun and tulip during fiscal year 2017 . capital expenditures for fiscal year 2017 were $ 39.1 million , primarily for manufacturing equipment and other capital equipment purchases , as compared to $ 31.7 million for fiscal year 2016 . during fiscal year 2017 , we made an equity investment that is accounted for using the cost method of accounting , amounting to $ 10.8 million . in addition , we received $ 36.5 million from the settlement of acquisition-related foreign currency forward contracts , and $ 1.1 million from disposition of businesses in fiscal year 2017 . financing activities . net cash provided by the financing activities of our continuing operations was $ 782.8 million for fiscal year 2017 , as compared to net cash used in the financing activities of our continuing operations of $ 115.0 million for fiscal year 2016 , an increase of $ 897.8 million . during fiscal year 2017 , borrowings from our senior unsecured revolving credit facility totaled $ 1,061.0 million , which was partially offset by debt payments of $ 236.0 million . this compares to borrowings from our senior unsecured revolving credit facility of $ 420.5 million , which was more than offset by debt payments of $ 902.5 million in fiscal year 2016 . during fiscal year 2017 , proceeds from the issuance of common stock under stock plans was $ 18.0 million . this compares to proceeds from the issuance of common stock under stock plans of $ 14.4 million in fiscal year 2016 .
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the guidance allows for the use of one of two retrospective application methods : the full retrospective method or the modified retrospective method . the company plans to adopt the standard in fiscal year 2020 using the modified retrospective method . the company does not expect the new standard to have a material impact on the recognition of revenue . in february 2016 , the fasb issued asu no . 2016-02 , leases . the standard amends the existing lease accounting guidance and requires lessees to recognize a lease liability and a right-of-use asset for all leases ( except for short-term leases that have a duration of one year or less ) on their balance sheets . lessees will continue to recognize lease expense in a manner similar to current accounting . for lessors , accounting for leases under the new guidance is substantially the same as in prior periods but eliminates current real estate-specific provisions and changes the treatment of initial direct costs . entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparable period presented , with an option to elect certain transition relief . full retrospective application is prohibited . the standard will be effective for the company on october 1 , 2020 ; however , early adoption of the asu is permitted . the company is still finalizing its analysis but expects to recognize additional operating liabilities of approximately $ 1.3 million , with corresponding rou assets of approximately the same amount as of october 1 , 2019 based on the present value of the remaining lease payments . in june 2016 , the fasb issued asu 2016-13 , financial instruments - credit losses ( topic 326 ) : measurement of credit losses on financial instruments ( “ asu 2016-13 ” ) . asu 2016-13 provides guidance for recognizing credit losses on financial instruments based on an estimate of current expected credit losses model . the amendments are effective for fiscal years beginning after december 15 , 2019. recently , the fasb issued the final asu to delay adoption for smaller reporting companies to calendar year 2023. the company is currently assessing the impact of the adoption of this asu on its financial statements . f- 16 3. property , plant & equipment property and equipment consists of the following ( in thousands ) : replace_table_token_7_th in january 2018 , the company acquired certain property located at 14336 south union hall road , mulino oregon 97042 for a total purchase price of approximately $ 1.6 million which includes credits issued by the seller for prior rental payments and additional improvements on the property made by the company . as part of the consideration for the purchase , the company issued the seller a note for $ 1.2 million with a 2 % interest rate and monthly payments beginning in july 2018 of $ 13,500 for a period of 19 months with a final balloon payment payable in january 2020 of approximately $ 957,000 . the note is currently being extended through mutual negotiations with its management with the same terms and conditions as previously adhered to . the company did not record a premium to the market rate of the note as it was immaterial at issuance . purchase of building with common stock on july 10 , 2019 , the company entered into an asset purchase agreement with an oregon limited liability company which owns title to real property ( buildings and improvements ) located at 399 and 451 wallis street , eugene , or 97402 for a total purchase price tendered in kind for approximately 6,322,058 shares of the company 's common stock , which included the grant of 457,191 shares as the company determined certain milestones were met within the mutli-party agreement . the building and improvement acquired was recorded at its carrying value of approximately $ 2.99 million as the seller was a related party . the company has expensed the value of the shares issued as part of the multi-party agreement which were valued at approximately $ 1 million in the year ended september 30 , 2019 and is included in the impairment of property and equipment on the statement of operations . purchase of land with common stock on july 10 , 2019 , the company entered into an asset purchase agreement with a oregon limited liability company which owns title to real property ( land ) located at 12590 highway 238 , jacksonville , or 97503 for a total purchase price tendered in kind for 1,233,665 shares of the company 's common stock . the land acquired was recorded at its carrying value of approximately $ 1.2 million as the seller was a related party . depreciation expense was approximately $ 1.2 million and $ 1.4 million for the years ended september 30 , 2019 and 2018 , respectively . depreciation expense is included in general and administrative expense . included in the depreciation amount above for the year ended september 30 , 2018 is approximately $ 0.8 million in impairments to property , plant and equipment . in the year ended september 30 , 2019 there was an impairment recorded of approximately $ 0.7 million recorded in the statement of operations under the line item impairment of property and equipment . 4. inventory inventory consists of the following ( story_separator_special_tag cautionary note regarding forward-looking information and factors that may affect future results this annual report on form 10-k contains forward-looking statements regarding our business , financial condition , results of operations and prospects . story_separator_special_tag cannabis dispensary , cultivation and production the company recognizes revenue as earned when the following four criteria have been met : ( i ) when persuasive evidence of an arrangement exists , ( ii ) the product has been delivered to a customer , ( iii ) the sales price is fixed or determinable , and ( iv ) collection is reasonably assured . revenue is recognized net of sales incentives and returns , after discounts for the assurance program , veterans coverage program and compassionate programs . leasing operations the company recognizes rental revenue from tenants , including rental abatements , lease incentives and contractual fixed increases attributable to operating leases , on a straight-line basis over the term of the related leases when collectability is reasonably assured . the company makes estimates of the collectability of its tenant receivables related to base rents , straight-line rent and other revenues . in the current fiscal year , the company began significant rental operations . the company considers such things as historical bad debts , tenant creditworthiness , current economic trends , facility operating performance , lease structure , developments relevant to a tenant 's business , and changes in tenants ' payment patterns in its analysis of accounts receivable and its evaluation of the adequacy of the allowance for doubtful accounts . specifically , for straight-line rent receivables , the company 's assessment includes an estimation of a tenant 's ability to fulfill its rental obligations over the remaining lease term . stock-based compensation the company accounts for share-based payment awards exchanged for services at the estimated grant date fair value of the award . stock options issued under the company 's long-term incentive plans are granted with an exercise price equal to no less than the market price of the company 's stock at the date of grant and expire up to ten years from the date of grant . these options generally vest on the grant date or over a one- year period . the company estimates the fair value of stock option grants using the black-scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management 's best estimates and involve inherent uncertainties and the application of management 's judgment . expected term - the expected term of options represents the period that the company 's stock-based awards are expected to be outstanding based on the simplified method , which is the half-life from vesting to the end of its contractual term . expected volatility - the company computes stock price volatility over expected terms based on its historical common stock trading prices . risk-free interest rate - the company bases the risk-free interest rate on the implied yield available on u. s. treasury zero-coupon issues with an equivalent remaining term . expected dividend - the company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in the foreseeable future , and , therefore , uses an expected dividend yield of zero in its valuation models . effective january 1 , 2017 , the company elected to account for forfeited awards as they occur , as permitted by accounting standards update ( “ asu ” ) 2016-09. ultimately , the actual expenses recognized over the vesting period will be for those shares that vested . prior to making this election , the company estimated a forfeiture rate for awards at 0 % , as the company did not have a significant history of forfeitures . impairment of long-lived assets the company reviews the carrying value of its long-lived assets , which include property and equipment , for indicators of impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable . the company considers the following to be some examples of important indicators that may trigger an impairment review : ( i ) significant under-performance or losses of assets relative to expected historical or projected future operating results ; ( ii ) significant changes in the manner or use of assets or in the company 's overall strategy with respect to the manner or use of the acquired assets or changes in the company 's overall business strategy ; ( iii ) significant negative industry or economic trends ; ( iv ) increased competitive pressures ; ( v ) a significant decline in the company 's stock price for a sustained period of time ; and ( vi ) regulatory changes . the company evaluates assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events . the company does not test for impairment in the year of acquisition of properties so long as those properties are acquired from unrelated third parties . the company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts . in cases where estimated future net undiscounted cash flows are less than the carrying value , an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of the asset or asset group . fair value is generally determined using the assets expected future discounted cash flows or market value , if readily determinable .
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results of operations the following comparative analysis on results of operations was based primarily on the comparative consolidated financial statements , footnotes and related information for the periods identified below and should be read in conjunction with the audited consolidated financial statements and the notes to those statements for the years ended september 30 , 2019 and 2018 , which are included elsewhere in this annual report on form 10-k. the results discussed below are for the years ended september 30 , 2019 and 2018 ( in thousands ) . replace_table_token_1_th revenues in 2019 , the company now engages directly in the cultivation , production and sale of cannabis and related products . prior to 2019 , the company was engaged in renting properties used in the cultivation , production and sale of cannabis . therefore , comparison of revenue between the two periods is comparing disparate business models . 100 % of the revenue in 2019 is from the cultivation , production and sale of cannabis , and related . 100 % of the revenue from 2018 is from rental of real estate . going forward , the cultivation , production and sale of cannabis related products will constitute most of the company 's revenues . in 2019 , all of the company 's revenue originates in the state of oregon . going forward the company expects to begin realizing revenue from the states of nevada and california in the near future . the company has also targeted florida , maryland , massachusetts and it has also begun working towards its investments obtaining licenses in eswatini . cost of revenues cost of revenues for the year ended september 30 , 2019 totaled approximately $ 1.9 million and consisted of contracted labor , growing and trimming expenses , and product testing .
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the costs of these assets are amortized over their remaining useful lives . useful lives of intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may no longer be recoverable . goodwill and other intangible assets in accordance with asc 350-30-65 , “ intangibles - goodwill and story_separator_special_tag operations business of the company our business is to acquire patents and patent rights and to monetize the value of those assets to generate revenue and profit for the company . we acquire patents and patent rights from their owners , who range from individual inventors to fortune 500 companies . part of our acquisition strategy is to acquire patents and patent rights that cover a wide-range of subject matter , which allows us to achieve the benefits of a growing diversified portfolio of assets . generally , the assets we acquire are characterized by having large identifiable companies who are or have been using technology that infringes our patent rights . we generally monetize our portfolio of assets by initiating enforcement activities against any infringing parties with the objective of entering into a standard form of comprehensive settlement and license agreement that may include the granting of non-exclusive retroactive and future rights to use the patented technology , a covenant not to sue , a release of the party from certain claims , the dismissal of any pending litigation and other terms that are appropriate in the circumstances . our strategy has been developed with the expectation that it will result in a long-term , diversified revenue stream for the company . recent developments reverse split on may 31 , 2013 , shareholders holding a majority of our outstanding voting capital approved a reverse stock split of our issued and outstanding common stock by a ratio of not less than one-for-five and not more than one-for-fifteen at any time prior to april 30 , 2014 , with the exact ratio to be set at a whole number within this range as determined by our board of directors in its sole discretion . on july 18 , 2013 , we filed a certificate of amendment to our amended and restated articles of incorporation with the secretary of state of the state of nevada in order to effectuate a reverse stock split of our issued and outstanding common stock , par value $ 0.0001 per share on a one ( 1 ) for thirteen ( 13 ) basis ( the “ reverse split ” ) . the reverse split became effective with the finra at the open of business on july 22 , 2013. as a result of the reverse stock split , every thirteen shares of our pre-reverse split common stock will be combined and reclassified into one share of our common stock . no fractional shares of common stock will be issued as a result of the reverse split . stockholders who otherwise would be entitled to a fractional share shall receive the next highest number of whole shares . throughout this annual report , each instance which refers to a number of shares of our common stock , refers to the number of shares of common stock after giving effect to the reverse split , unless otherwise indicated . private placement on may 31 , 2013 , we sold an aggregate of 1,153,844 units representing gross proceeds of $ 6,000,000 to certain accredited investors pursuant to a securities purchase agreement , among which , 999,998 units representing $ 5,200,000 were funded . each unit was subscribed for a purchase price of $ 5.20 per unit and consists of : ( i ) one share of our common stock , and ( ii ) a three ( 3 ) year warrant to purchase one half share of our common stock at an exercise price of $ 6.50 per share , subject to adjustment upon the occurrence of certain events such as stock splits and stock dividends and similar events . the warrants contain limitations on the holders ' ability to exercise the warrants in the event such exercise causes the holder to beneficially own in excess of 9.99 % of our issued and outstanding common stock . the company paid placement agent fees of $ 170,000 to two broker-dealers in connection with the sale of the units of which $ 30,000 was previously paid by us as a retainer . on july 29 , 2013 , we converted legal fees of $ 29,620 into 5,696 units . in august 2013 , two investors who had subscribed for an aggregate of 153,846 units for an aggregate purchase price of $ 800,000 on may 31 , 2013 assigned their subscriptions to other investors . such other investors each funded their subscriptions and such additional units were issued . additionally , we paid placement agent fees of $ 35,029 and legal fees of $ 42,375 in connection with the sale of units . -21- cyberfone acquisition on april 22 , 2013 , cyberfone acquisition corp. ( “ cyberfone acquisition corp. ” ) , a texas corporation and our newly formed wholly owned subsidiary entered into a merger agreement ( the “ cyberfone merger agreement ” ) with cyberfone systems llc , a texas limited liability company ( “ cyberfone systems ” ) , techdev holdings llc ( “ techdev ” ) and the spangenberg family foundation for the benefit of children 's healthcare and education ( “ spangenberg foundation ” ) . techdev and spangenberg foundation owned 100 % of the membership interests of cyberfone systems ( collectively , the ‘ cyberfone sellers ” ) . cyberfone systems owns a foundational patent portfolio that includes claims that provide specific transactional data processing , telecommunications , network and database inventions , including financial transactions . the portfolio , which has a large and established licensing base , consists of ten united states patents and 27 foreign patents and one patent application . story_separator_special_tag the company does not expect to provide licenses that do not provide some form of settlement or release . accounting for acquisitions in the normal course of its business , the company makes acquisitions of patent assets and may also make acquisitions of businesses . with respect to each such transaction , the company evaluates facts of the transaction and follows the guidelines prescribed in accordance with asc 805 – business combinations to determine the proper accounting treatment for each such transaction and then records the transaction in accordance with the conclusions reached in such analysis . the company performs such analysis with respect to each material acquisition within the consolidated group of entities . intangible assets intangible assets include patents purchased and patents acquired in lieu of cash in licensing transactions . the patents purchased are recorded based on the cost to acquire them and patents acquired in lieu of cash are recorded at their fair market value . the costs of these assets are amortized over their remaining useful lives . useful lives of intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may no longer be recoverable . -23- goodwill and other intangible assets in accordance with asc 350-30-65 , “ intangibles - goodwill and others ” , the company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors the company considers to be important which could trigger an impairment review include the following : ( 1 ) significant underperformance relative to expected historical or projected future operating results ; ( 2 ) significant changes in the manner of use of the acquired assets or the strategy for the overall business ; and ( 3 ) significant negative industry or economic trends . when the company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset can not be recovered from projected undiscounted cash flows , the company records an impairment charge . the company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model . significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows . impairment of long-lived assets the company accounts for the impairment or disposal of long-lived assets according to the asc 360 “ property , plant and equipment ” . the company continually monitors events and changes in circumstances that could indicate that the carrying amounts of long-lived assets , including mineral rights , may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated future net undiscounted cash flows expected to be generated by the asset . when necessary , impaired assets are written down to their estimated fair value based on the best information available . estimated fair value is generally based on either appraised value or measured by discounting estimated future cash flows . considerable management judgment is necessary to estimate discounted future cash flows . accordingly , actual results could vary significantly from such estimates . the company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset . stock-based compensation stock-based compensation is accounted for based on the requirements of the share-based payment topic of asc 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award ( presumptively , the vesting period ) . the asc also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award . pursuant to asc topic 505-50 , for share-based payments to consultants and other third-parties , compensation expense is determined at the “ measurement date. ” the expense is recognized over the vesting period of the award . until the measurement date is reached , the total amount of compensation expense remains uncertain . the company initially records compensation expense based on the fair value of the award at the reporting date . recent accounting pronouncements in april 2013 , the fasb asu 2013-07 , “ presentation of financial statements : topic liquidation basis of accounting ” . asu 2013-07 requires an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent . liquidation is considered imminent when the likelihood is remote that the organization will return from liquidation and either : ( a ) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties ; or ( b ) a plan for liquidation is being imposed by other forces . asu 2013-07 will be effective for the company beginning on january 1 , 2014. the company does not expect the adoption of asu 2013-07 to have a material impact on its financial position , results of operations nor cash flows . -24- in july 2013 , the fasb issued asu 2013-11 , `` presentation of an unrecognized tax benefit when a net operating loss carryforward , a similar tax loss , or a tax credit carryforward exists . '' asu 2013-11 provides guidance on the presentation of unrecognized tax benefits related to any disallowed portion of net operating loss carryforwards , similar tax losses , or tax credit carryforwards , if they exist . asu 2013-11 is effective for fiscal years beginning after december 15 , 2013.
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results of operations introduction t he company 's operations changed substantially in 2013 from the prior years . during late 2012 , the company acquired the assets of a patent acquisition and monetization company , hired new executive management experienced in that business and commenced the patent acquisition and monetization activities as the business of the company . concurrently with establishing the patent acquisition and monetization business , the company discontinued all of its prior businesses and took steps to wind down those operations , which steps were completed in the third quarter of 2013. throughout 2013 and subsequently , the company 's continuing business and only business was the patent acquisition and monetization business . the company 's business activities in 2013 resulted in the company recording revenue of $ 3,418,371 for the year ; the acquisition of cyberfone and its patent portfolio ; the acquisition of an additional seven patent portfolios ; and raising $ 5,777,596 in new capital . the company ended the year with a patent portfolio of 118 u.s. and foreign patents and 5 patent applications ; an active acquisition and monetization business ; and a cash balance of $ 3,610,262. as a result of the changes in the company 's business in late 2012 , the results of operations described below for continuing operations reflect the patent acquisition and monetization business and the results from discontinued operations reflect the results from the company 's prior businesses separately . results of operations for the years ended december 31 , 2013 and 2012 revenue . revenue increased by $ 3,418,371 to $ 3,418,371 in the year ended december 31 , 2013 compared to no revenue in the prior year . the increase resulted from the company generating revenue in the patent monetization business that was entered into in late 2012 and therefore did not generate revenue in that year .
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these assurance-type programs typically can not be purchased separately and do not meet the criteria to be considered a performance obligation . approximately 25 % of the segment 's revenues ( approximately 7 % of consolidated revenues ) are recognized over time as services are performed . the services accounted for under this method include an obligation to provide testing services using hardware and embedded software , software maintenance , training , lab testing , and consulting services . the related contracts contain a bundle of goods and services that are integrated in the context of the contract . therefore , the goods and services are not distinct and the company has a single performance obligation . selecting the method to measure progress towards completion for these contracts requires judgment and is based on the nature of the products and story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto and refers to the company 's results from continuing operations , except where noted . this section includes comparisons of certain 2019 financial information to the same information for 2018. year-to-year comparisons of the 2018 financial information to the same information for 2017 are contained in item 7 of the company 's form 10-k for 2018 filed with the securities and exchange commission on november 29 , 2018 and available through the sec 's website at https : //www.sec.gov/edgar/searchedgar/companysearch.html . 17 introduction esco technologies inc. and its wholly owned subsidiaries ( the company ) are organized into four reportable operating segments for financial reporting purposes : filtration/fluid flow ( filtration ) , rf shielding and test ( test ) , utility solutions group ( usg ) , and technical packaging . the company 's business segments are comprised of the following primary operating entities : ● filtration : pti technologies inc. ( pti ) ; vacco industries ( vacco ) ; crissair , inc. ( crissair ) ; westland technologies , inc. ( westland ) ; mayday manufacturing co. ( mayday ) , hi-tech metals , inc. ( hi-tech ) ; and globe composite solutions , llc ( globe ) . ● usg : doble engineering company ( doble ) ; morgan schaffer ltd. ( morgan schaffer ) ; and nrg systems , inc. ( nrg ) . ● test : ets-lindgren inc. ( ets-lindgren ) . ● technical packaging : thermoform engineered quality llc ( teq ) ; plastique limited and plastique sp . z o.o . ( together , plastique ) . in november 2019 the company entered into an agreement to sell the businesses comprising this segment . see “ subsequent event ” on page 7. filtration . pti , vacco and crissair primarily design and manufacture specialty filtration products , including hydraulic filter elements and fluid control devices used in commercial aerospace applications , unique filter mechanisms used in micro-propulsion devices for satellites and custom designed filters for manned aircraft and submarines . westland designs , develops and manufactures elastomeric-based signature reduction solutions for u.s. naval vessels . mayday designs and manufactures mission-critical bushings , pins , sleeves and precision-tolerance machined components for landing gear , rotor heads , engine mounts , flight controls , and actuation systems for the aerospace and defense industries . hi-tech is a full-service metal processor serving aerospace suppliers . globe is a vertically integrated supplier of composite-based products and solutions for acoustic , signature-reduction , communications , sealing , vibration-reducing , surface control , and hydrodynamic-related applications . usg . doble provides high-end , intelligent diagnostic test solutions for the electric power delivery industry and is a leading supplier of power factor and partial discharge testing instruments used to assess the integrity of high-voltage power delivery equipment . morgan schaffer provides an integrated offering of dissolved gas analysis , oil testing , and data management solutions which enhance the ability of electric utilities to accurately monitor the health of critical power transformers . nrg designs and manufactures decision support tools for the renewable energy industry , primarily wind . test . ets-lindgren is an industry leader in providing its customers with the ability to identify , measure and contain magnetic , electromagnetic and acoustic energy . technical packaging . the companies within this segment provide innovative solutions to the medical and commercial markets for thermoformed and precision molded pulp fiber packages and specialty products using a wide variety of thin gauge plastics and pulp . selected financial information for each of the company 's business segments is provided in the discussion below and in note 13 to the company 's consolidated financial statements . the company continues to operate with meaningful growth prospects in its primary served markets and with considerable financial flexibility . the company continues to focus on new products that incorporate proprietary design and process technologies . management is committed to delivering shareholder value through organic growth , ongoing performance improvement initiatives , and acquisitions . 18 highlights of 2019 operations ● sales , net earnings and diluted earnings per share in 2019 were $ 813.0 million , $ 81.0 million and $ 3.10 per share , respectively , compared to sales , net earnings and diluted earnings per share in 2018 of $ 771.6 million , $ 92.1 million and $ 3.54 per share , respectively . ● diluted eps – as adjusted for 2019 was $ 3.13 and excludes $ 0.6 million of pretax charges ( or $ 0.03 per share after tax ) consisting primarily of purchase accounting charges related to the globe acquisition and certain restructuring charges related to facility consolidations at doble , plastique , pti and vacco partially offset by the gain on the doble watertown building sale . story_separator_special_tag income tax expense on december 22 , 2017 , president trump signed into law new tax legislation commonly referred to as the tax cut and jobs act ( the “ tcja ” ) . provisions under the tcja affecting the company include a further reduction in the u.s. statutory rate to 21 % , a new minimum tax on global intangible low-taxed income ( “ gilti ” ) , the benefit of the deduction for foreign-derived intangible income ( “ fdii ” ) , and changes to irc section 162 ( m ) related to the deductibility of executive compensation . 22 the effective tax rates for 2019 , 2018 and 2017 were 20.7 % , ( 4.7 ) % and 33.0 % , respectively . the increase in the 2019 effective tax rate as compared to 2018 was primarily due to the enactment of the tcja . the specific impacts of the tcja in 2018 were primarily as follows : ● the company 's 2018 federal statutory rate decreased from 35.0 % to 24.5 % , which required an adjustment to the value of its deferred tax assets and liabilities . this adjustment of $ 30.6 million ( complete as of september 30 , 2018 ) favorably impacted the 2018 effective tax rate by 34.8 % . ● the tcja subjected the company 's cumulative foreign earnings to $ 3.7 million ( complete as of december 31 , 2018 ) of federal income tax which unfavorably impacted the 2018 effective tax rate by 4.2 % . in addition to the impacts from the tcja , the company recorded $ 2.4 million ( complete as of september 30 , 2018 ) for the income tax effects of the current and future repatriation of the cumulative earnings of its foreign subsidiaries which unfavorably impacted the 2018 effective tax rate by 2.8 % . ● the company approved an additional $ 7.5 million pension contribution for the 2017 plan year during the second quarter of 2018 resulting in a favorable adjustment to the 2018 effective tax rate of 0.9 % . ● an accounting method change was filed with the 2017 tax return which resulted in a favorable adjustment to the 2018 effective tax rate of 0.7 % . the 2019 effective tax rate was favorably impacted by tax planning strategies to increase foreign tax credits claimed retrospectively . the company reduced the valuation allowance for excess foreign tax credits by $ 2.4 million and recorded an amended return benefit of $ 0.3 million , which favorably impacted the 2019 effective tax rate by 2.8 % . the tjca made comprehensive changes to u.s. federal income tax laws by moving from a global to a modified territorial tax regime . as a result , cash repatriated to the u.s. is generally no longer subject to u.s. federal income tax . no provision is made for foreign withholding any applicable u.s. income taxes on the undistributed earnings of non-u.s. subsidiaries where these earnings are considered indefinitely invested or otherwise retained for continuing international operations . determination of the amount of taxes that might be paid on these undistributed earnings if eventually remitted is not practicable . acquisitions and dispositions information regarding the company 's acquisitions during 2019 , 2018 and 2017 is set forth in note 2 to the company 's consolidated financial statements , which note is incorporated by reference herein . all of the company 's acquisitions have been accounted for using the purchase method of accounting , and accordingly , the respective purchase prices were allocated to the assets ( including intangible assets ) acquired and liabilities assumed based on estimated fair values at the date of acquisition . the financial results from these acquisitions have been included in the company 's financial statements from the date of acquisition . subsequent to the end of fiscal 2019 the company entered into an agreement to sell the business comprising its technical packaging segment . see “ subsequent event ” on page 7. capital resources and liquidity the company 's overall financial position and liquidity are strong . working capital ( current assets less current liabilities ) increased to $ 243.6 million at september 30 , 2019 from $ 195.5 million at september 30 , 2018. contract assets increased $ 62.3 million in 2019 mainly within the filtration segment due to the adoption of asu no . 2014-09 , revenue from contracts with customers ( asc 606 ) . inventories decreased by $ 6.6 million during 2019 mainly due to a 9.5 million decrease within the filtration segment resulting primarily from the adoption of asc 606. the $ 8.3 million increase in accounts payable at september 30 , 2019 was mainly due to a $ 4.9 million increase within the test segment and a $ 4.0 million increase within the technical packaging segment both due to the timing of payments . net cash provided by operating activities was $ 105.1 million and $ 93.3 million in 2019 and 2018 , respectively . 23 net cash used in investing activities was $ 125.1 million and $ 41.6 million in 2019 and 2018 , respectively . the increase in net cash used in investing activities in 2019 as compared to 2018 was due to the globe acquisition and higher capital expenditures . capital expenditures were $ 37.2 million and $ 20.6 million in 2019 and 2018 , respectively . the increase in capital expenditures in 2019 as compared to 2018 was mainly due to the facility expansion at teq in 2019. there were no commitments outstanding that were considered material for capital expenditures at september 30 , 2019. in addition , the company incurred expenditures for capitalized software of $ 8.4 million and $ 9.6 million in 2019 and 2018 , respectively . the company made pension contributions of $ 2.5 million and $ 10.0 million in 2019 and 2018 , respectively .
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results of operations net sales replace_table_token_2_th net sales increased $ 41.4 million , or 5.4 % , to $ 813.0 million in 2019 from $ 771.6 million in 2018. the increase in net sales in 2019 as compared to 2018 was due to a $ 39.0 million increase in the filtration segment and a $ 5.5 million increase in the test segment , partially offset by a $ 2.1 million decrease in the usg segment and a $ 1.0 million decrease in the technical packaging segment . filtration . the $ 39.0 million , or 13.6 % , increase in net sales in 2019 as compared to 2018 was mainly due to a $ 14.3 million increase in net sales at pti due to higher aerospace and assembly element shipments , a $ 11.1 million increase in net sales at crissair due to higher aerospace shipments , an $ 8.9 million sales contribution from globe ( acquired in july 2019 ) , a $ 6.8 million increase in net sales at mayday due to higher aerospace shipments , and a $ 1.1 million increase in net sales at westland , partially offset by a $ 3.2 million decrease in net sales at vacco due to lower shipments of defense spares . 19 usg . the $ 2.1 million , or 1.0 % , decrease in net sales in 2019 as compared to 2018 was mainly due to a $ 9.5 million decrease in net sales at nrg due to continued softness in the renewable energy market , partially offset by a $ 7.4 million increase in net sales at doble driven by a full year of manta 's sales and higher f series product shipments . test .
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all intercompany transactions and balances have been eliminated in consolidation . use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . the company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . examples of such estimates include provisions for warranty , uncollectible accounts receivable , inventory obsolescence , sales returns , tax contingencies , estimates on the valuation of share-based awards and recoverability of long-lived assets and investments . actual results may materially differ from these estimates . on an ongoing basis , the company reviews its estimates to ensure that these estimates appropriately reflect changes in its business or as new information becomes available . recent accounting standards on february 25 , 2016 , the financial accounting standards story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements , the related notes and the section “ important notice to investors regarding forward-looking statements ” that appear elsewhere in this report . critical accounting policies and estimates the company 's discussion and analysis of its results of operations , financial condition and liquidity are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires the company to make estimates and judgments that affect the reported amounts of assets , liabilities , shareholders ' equity , sales and expenses , as well as related disclosures of contingent assets and liabilities . the company bases its estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances . actual results may materially differ from these estimates under different assumptions or conditions . on an ongoing basis , the company reviews its estimates to ensure that the estimates appropriately reflect changes in its business and new information as it becomes available . management believes the critical accounting policies discussed below affect its more significant estimates and assumptions used in the preparation of its consolidated financial statements . for a complete discussion of all of the company 's significant accounting policies , see note 2 “ summary of significant accounting policies ” in the notes to consolidated financial statements in this form 10-k. revenue recognition sales are recognized , in general , as products are shipped to customers , net of an allowance for sales returns and accruals for sales programs in accordance with accounting standards codification ( “ asc ” ) topic 605 , “ revenue recognition. ” in certain cases , the company recognizes sales when products are received by customers . the company records a reserve for anticipated returns through a reduction of sales and cost of sales in the period that the related sales are recorded . sales returns are estimated based upon historical returns , current economic trends , changes in customer demands and sell-through of products . in addition , from time to time , the company offers sales programs that allow for specific returns . the company records a reserve for anticipated returns related to these sales programs based on the terms of the sales program . historically , the company 's actual sales returns have not been materially different from management 's original estimates . the company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate the allowance for sales returns . however , if the actual costs of sales returns are significantly different than the recorded estimated allowance , the company may be exposed to losses or gains that could be material . assuming there had been a 10 % increase over the recorded estimated allowance for 2015 sales returns , pre-tax income for the year ended december 31 , 2015 would have decreased by approximately $ 0.8 million . the company also records estimated reductions to revenue for sales programs such as incentive offerings . sales program accruals are estimated based upon the attributes of the sales program , management 's forecast of future product demand , and historical customer participation in similar programs . the company 's primary sales program , “ the preferred retailer program , ” offers longer payment terms during the initial sell-in period , as well as potential rebates and discounts , for participating retailers in exchange for providing certain benefits to the company , including the maintenance of agreed upon inventory levels , prime product placement and retailer staff training . under this program , qualifying retailers can earn either discounts or rebates based upon the amount of product purchased . discounts are applied and recorded at the time of sale . for rebates , the company accrues an estimate of the rebate at the time of sale based on the customer 's estimated qualifying current year product purchases . the estimate is based on the historical level of purchases , adjusted for any factors expected to affect the current year purchase levels . the estimated year-end rebate is adjusted quarterly based on actual purchase levels , as necessary . the preferred retailer program is generally short term in nature and the actual costs of the program are known as of the end of the year and paid to customers shortly after year-end . in addition to the preferred retailer program , the company from time to time offers additional sales program incentive offerings which are also generally short term in nature . historically the company 's actual costs related to its preferred retailer program and other sales programs have not been materially different than its estimates . revenues from gift cards are deferred and recognized when the cards are redeemed . story_separator_special_tag the company 's estimates for calculating the warranty reserve are principally based on assumptions regarding the warranty costs of each club product line over the expected warranty period . where little or no claims experience may exist , the company 's warranty obligation calculation is based upon long-term historical warranty rates of similar products until sufficient data is available . as actual model-specific rates become available , the company 's estimates are modified to ensure that the forecast is within the range of likely outcomes . historically , the company 's actual warranty claims have not been materially different from management 's original estimated warranty obligation . the company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate the warranty obligation . however , if the number of actual warranty claims or the cost of satisfying warranty claims were to significantly exceed the estimated warranty reserve , the company may be exposed to losses that could be material . assuming there had been a 10 % increase in warranty claims over the 2015 recorded estimated allowance for warranty obligations , pre-tax income for the year ended december 31 , 2015 would have decreased by approximately $ 0.6 million . income taxes current income tax expense or benefit is the amount of income taxes expected to be payable or receivable for the current year . a deferred income tax asset or liability is established for the difference between the tax basis of an asset or liability computed pursuant to asc topic 740 , “ income taxes , ” and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled , respectively . the company maintains a valuation allowance for a deferred tax asset when it is deemed to be more likely than not that some or all of the deferred tax asset will not be realized . in evaluating whether a valuation allowance is required under such rules , the company considers all available positive and negative evidence , including prior operating results , the nature and reason for any losses , its forecast of future taxable income , and the dates on which any deferred tax assets are expected to expire . these assumptions require a significant amount of judgment , including estimates of future taxable income . these estimates are based on the company 's best judgment at the time made based on current and projected circumstances and conditions . in 2011 , as a result of this evaluation , the company recorded a valuation allowance against its u.s. deferred tax assets due to losses generated in the united states . at the end of each interim and annual reporting period , as the u.s. deferred tax assets are adjusted upwards or downwards , the associated valuation allowance and income tax expense are also adjusted . if sufficient positive evidence arises in the future , such as a sustained return to profitability in the u.s. business , the valuation allowance could be reversed as appropriate , decreasing income tax expense and creating a significant one-time non-cash tax benefit in the period that such conclusion is reached . prospectively , the company would then report an effective u.s. income tax rate that is closer to statutory rates . the company has concluded that with respect to non-u.s. entities , there is sufficient positive evidence to conclude that the realization of its deferred tax assets is deemed to be likely , and no significant allowances have been established . in addition , the company has discontinued recognizing income tax benefits related to its u.s. net operating losses until it is determined that it is more likely than not that the company will generate sufficient taxable income to realize the benefits from its u.s. deferred tax assets . pursuant to asc topic 740-25-6 , the company is required to accrue for the estimated additional amount of taxes for uncertain tax positions if it is deemed to be more likely than not that the company would be required to pay such additional taxes . the company is required to file federal and state income tax returns in the united states and various other income tax returns in foreign jurisdictions . the preparation of these income tax returns requires the company to interpret the applicable tax laws and regulations in effect in such jurisdictions , which could affect the amount of tax paid by the company . the company accrues an amount for its estimate of additional tax liability , including interest and penalties , for any uncertain tax positions taken or expected to be taken in an income tax return . the company reviews and updates the accrual for uncertain tax positions as more definitive information becomes available . historically , additional taxes paid as a result of the resolution of the company 's uncertain tax positions have not been materially different from the company 's expectations . 24 information regarding income taxes is contained in note 9 “ income taxes ” in the notes to consolidated financial statements in this form 10-k. share-based compensation the company accounts for share-based compensation arrangements in accordance with asc topic 718 , “ stock compensation , ” which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and non-employees based on estimated fair values . asc topic 718 further requires a reduction in share-based compensation expense by an estimated forfeiture rate . the forfeiture rate used by the company is based on historical forfeiture trends . if actual forfeitures are not consistent with the company 's estimates , the company may be required to increase or decrease compensation expenses in future periods . performance share units are stock-based awards in which the number of shares ultimately received depends on the company 's performance against specified goals that are measured over a designated performance period from the date of grant .
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executive summary despite significant headwinds from unfavorable foreign currency exchange rates in 2015 , the company 's operational performance , market share and brand momentum continued to improve . the success of the company 's 2015 golf club product line contributed to the company achieving the number one dollar market share position in the united states in total golf clubs ( per golf datatech ) . in addition to improved operational performance , the company also strengthened its balance sheet through the retirement of its outstanding convertible debt in 2015. the company 's net sales in 2015 decreased 5 % to $ 843.8 million compared to $ 886.9 million in 2014. as mentioned above , foreign currency exchange rates had a significant adverse effect on the company 's net sales , which negatively impacted net sales by $ 53.2 million in 2015. on a constant currency basis , net sales for 2015 would have increased by 1 % compared to 2014. the sales growth in 2015 was tempered by a planned strategic shift in product launch timing , which adversely affected first quarter net sales , and softer than expected market conditions in the company 's international markets , particularly in asia . the company 's gross profit as a percentage of net sales increased by 200 basis points , to 42.4 % in 2015 compared to 2014. on a constant currency basis , gross margin would have increased by 510 basis points to 45.5 % compared to the gross margin reported in 2014. this increase was primarily due to more favorable product pricing and mix of higher margin products , fewer closeouts , a decrease in promotional activities and cost savings from improved manufacturing efficiencies .
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the bank has six retail offices located in the new york metropolitan area and offers a traditional range of services to individuals , businesses and others needing banking services . its primary lending products are commercial mortgages and commercial and industrial loans . substantially all loans are secured by specific items of collateral including business assets , consumer assets , and commercial and residential real estate . commercial loans are expected to be repaid from cash flow from operations of businesses . at december 31 , 2018 , approximately 48 % of the bank 's commercial loan portfolio consists of loans to the healthcare industry . approximately 23 % of these loans were made to nursing and residential care facilities . these loans are made to borrowers with strong cash flows and the bank generally obtains the personal guarantee of high net worth sponsors . the bank 's primary deposit products are checking , savings , and term deposit accounts . the company is focused on organically growing and expanding its position in the new york metropolitan area . through an experienced team of commercial relationship managers and its integrated , client-centric approach , the bank has successfully demonstrated its ability to consistently grow market share by deepening existing client relationships and continually expanding its client base through referrals . since initiating the transition to a deposit-funded institution with the opening of its first banking center in 2005 , the bank has maintained a goal of converting many of its commercial lending clients into full retail relationship banking clients . this deposit growth has been a result of the bank 's diversified funding strategy , which affords it the opportunity to be a deposit funded and branch light institution . deposits are primarily derived from three sources : existing lending relationships , non-borrowing clients usually sourced through banking centers and the third-party debit card issuing business . additionally , part of the diversified strategy is growth in deposits through government or state directed fund deposits and cash management solutions provided to the digital currency customers . given the size of the market in which the bank operates and its differentiated approach to client service , there is significant opportunity to continue its loan and deposit growth trajectory . the following table includes selected financial ratios for the company for the periods indicated : 40 replace_table_token_0_th nm – not meaningful discussion of financial condition summary the company had total assets of $ 2.18 billion at december 31 , 2018 , an increase of $ 422.8 million as compared to $ 1.76 billion at december 31 , 2017. this increase was due primarily to a $ 441.3 million increase in net loans , partially offset by $ 30.7 million decrease in overnight deposits . loans , net of deferred fees and unamortized costs increased to $ 1.9 billion at december 31 , 2018 as compared to $ 1.4 billion at december 31 , 2017. total deposits increased $ 256.2 million , or 18 % , to $ 1.66 billion at december 31 , 2018 as compared to $ 1.40 billion at december 31 , 2017. this was due to an increase of $ 270.3 million in interest-bearing demand deposits partially offset by a decrease of $ 14.1 million in non-interest-bearing deposits . total borrowings increased by $ 142.9 million to $ 230.2 million at december 31 , 2018 as compared to $ 87.3 million at december 31 , 2017. this was due to an increase of $ 142.8 million in federal home loan bank advances , which were used to fund the bank 's loan growth . 41 total stockholders ' equity was $ 264.5 million on december 31 , 2018 compared to $ 236.9 million at december 31 , 2017. the company completed an initial public offering ( “ ipo ” ) in november 2017. total proceeds from the ipo , net of issuance costs , were $ 114.8 million . investments the following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at december 31 , 2018 , 2017 and 2016 ( dollars in thousands ) : replace_table_token_1_th 42 the following table sets forth the stated maturities and weighted average yields of investment securities , excluding equity securities , at december 31 , 2018 ( dollars in thousands ) : more than one year more than five one year or less to five years to ten years weighted weighted weighted amortized average amortized average amortized average cost yield cost yield cost yield available-for-sale residential mortgage-backed securities $ — — % $ — — % $ 18,665 2.12 % residential collateralized mortgage obligations — — — — 2,213 2.34 commercial mortgage-backed securities issued by u.s. government sponsored entities — — — — 3,017 2.34 municipal bond 257 3.32 — — — — total securities available-for-sale $ 257 3.32 $ — — % $ 23,895 2.19 % held-to-maturity residential mortgage-backed securities — — % — — % $ — — % foreign government securities — — 25 1.83 — — total securities held-to-maturity $ — — % $ 25 1.83 % $ — — % more than ten years total weighted weighted amortized average amortized fair average cost yield cost value yield available-for-sale residential mortgage-backed securities $ 3,215 3.30 % $ 21,880 $ 21,397 2.71 % residential collateralized mortgage obligations — — 2,213 2,116 2.34 commercial mortgage-backed securities issued by u.s. government sponsored entities 2,857 3.41 5,874 5,849 2.34 municipal bond 817 3.32 1,074 1,077 3.32 total securities available-for-sale $ 6,889 2.13 % $ 31,041 $ 30,439 2.64 % held-to-maturity residential mortgage-backed securities $ 4,546 2.07 % $ 4,546 4,378 2.07 % foreign government securities — — 25 25 1.83 total securities held-to-maturity $ 4,546 2.07 % $ 4,571 4,403 2.07 % at december 31 , 2018 and 2017 , the company 's securities portfolio primarily consisted of investment grade mortgage-backed securities and collateralized mortgage obligations issued by government agencies . story_separator_special_tag the bank recognized $ 169,000 for these loans for the year ended december 31 , 2018. interest income that would have been recorded for the year ended year ended december 31 , 2017 , had troubled debt restructurings been current according to their original terms , is immaterial . the bank recognized $ 117,000 for these loans for the year ended december 31 , 2017 . 48 classified assets the following table sets forth information regarding the bank 's classified assets , as defined under applicable regulatory standards , at the dates indicated ( dollars in thousands ) . replace_table_token_11_th potential problem loans in addition to classifying assets as substandard , doubtful or loss , we also categorize assets as special mention . a special mention asset has potential weaknesses that deserve management 's close attention . if left uncorrected , these potential weaknesses may result in the deterioration of the repayment prospects for the asset or in the bank 's credit position at some future date . other than the loans listed above as non-performing , classified or special mention , there are no potential problem loans that cause management to have serious doubts as to the ability of the borrower to comply with the present loan repayment terms . allowance for loan losses the allowance is an amount that management believes will be adequate to absorb probable incurred losses on existing loans . the allowance is established based on management 's evaluation of the probable incurred losses inherent in the company 's portfolio in accordance with gaap , and is comprised of both specific valuation allowances and general valuation allowances . the allowance for loan losses is increased through a provision for loan losses charged to operations . loans are charged against the allowance for loan losses when management believes that the collectability of all or a portion of the principal is unlikely . management 's evaluation of the adequacy of the allowance for loan losses is performed on a quarterly basis and takes into consideration such factors as the credit risk grade assigned to the loan , historical loan loss experience and review of specific impaired loans . 49 the following tables set forth the allowance for loan losses allocated by loan category ( dollars in thousands ) : replace_table_token_12_th 50 story_separator_special_tag ( 2 ) determined by subtracting the weighted average cost of total interest-bearing liabilities from the weighted average yield on total interest-earning assets . ( 3 ) determined by dividing net interest income by total average interest-earning assets . rate/volume analysis the following table presents the effects of changing rates and volumes on net interest income for the periods indicated . the rate column shows the effects attributable to changes in rate ( changes in rate multiplied by prior volume ) . 55 the volume column shows the effects attributable to changes in volume ( changes in volume multiplied by prior rate ) . the net column represents the sum of the prior columns . for purposes of this table , changes attributable to both rate and volume , which can not be segregated , have been allocated proportionately , based on the changes due to rate and the changes due to volume ( dollars in thousands ) . replace_table_token_19_th for 2018 , net interest income was $ 71.2 million , an increase of $ 19.0 million or 36.4 % from $ 52.2 million for 2017. net interest margin increased 18 basis points to 3.70 % as compared to 3.52 % for 2017. this increase was primarily due to an increase in the average balances of loans as well as increase in the average yield earned on loans . net interest margin also benefited from the effect of an increase in average non-interest-bearing deposits as a percentage of total average deposits at december 31 , 2018 as compared to the same period in 2017. average non-interest-bearing deposits increased $ 276.9 million to $ 884.6 million for 2018 , compared to $ 607.7 million in 2017 and accounted for 56.0 % of average total deposits in 2018 as compared to 49.0 % for the same period in 2017. average interest-earning assets increased $ 445.0 million for the year ended december 31 , 2018 as compared to the same period in 2017 due primarily to an increase of $ 360.4 million in average loans and a $ 91.2 million increase in average overnight deposits . interest income interest income increased $ 23.0 million , or 37.8 % , to $ 83.9 million for the year ended december 31 , 2018 from $ 60.9 million for the year ended december 31 , 2017. this was attributable , primarily , to an increase in interest on loans , which increased $ 20.2 million , or 35.1 % , to $ 77.3 million for the year ended december 31 , 2018 from $ 57.2 million for the year ended december 31 , 2017. the increase in interest income on loans was due to an increase in the average balance of loans to $ 1.60 billion for 2018 as compared to $ 1.24 billion for 2017. in addition , the average yield earned on loans increased 22 basis points to 4.82 % for 2018 as compared to 4.60 % for 2017. during 2018 , the bank originated $ 823.9 million of loans as compared to $ 446.4 million during 2017. interest on overnight deposits amounted to $ 4.8 million for 2018 as compared to $ 2.1 million for 2017. this increase was due to an increase of $ 91.2 million or 55.0 % in the average balance of overnight deposits and a 64 basis point increase in the yield earned to 1.88 % . interest expense interest expense increased $ 4.0 million , or 46.0 % , to $ 12.7 million for the year ended december 31 , 2018 from $ 8.7 million for the year ended december 31 , 2017 , primarily due to a $ 3.2 million increase in interest expense on deposits .
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summary of loan loss experience the following tables present a summary by loan portfolio segment of allowance for loan and lease loss , loan loss experience , and provision for loan losses for the years indicated ( dollars in thousands ) : replace_table_token_13_th nm – not meaningful deposits the tables below summarize the bank 's deposit composition by segment for the periods indicated , and the dollar and percent change from december 31 , 2017 to december 31 , 2018 and december 31 , 2016 to december 31 , 2017 ( dollars in thousands ) : replace_table_token_14_th 51 replace_table_token_15_th the tables below summarize the bank 's average balances and average interest rate paid , by segment , for the periods indicated ( dollars in thousands ) : replace_table_token_16_th as of december 31 , 2018 , the aggregate amount of the bank 's outstanding certificates of deposit in amounts greater than or equal to $ 100,000 was approximately $ 90.0 million . the following are scheduled maturities of time deposits as of december 31 , 2018 ( dollars in thousands ) : at december 31 , 2018 three months or less $ 22,732 over three months through six months 13,534 over six months through one year 29,765 over one year 30,970 total $ 97,001 the bank 's deposit strategy is to fund the bank with stable , low-cost deposits , primarily checking account deposits and other low interest-bearing deposit accounts . a checking account is the driver of a banking relationship and consumers consider the bank where they have their checking account as their primary bank . these customers will typically turn to their primary bank first when in need of other financial services .
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the allocation of stock-based compensation for all equity awards is as follows ( in thousands ) : replace_table_token_21_th as of december 31 , 2015 the unrecognized compensation cost related to outstanding employee options was $ 2.4 million and is expected to be recognized as expense over approximately 2.6 years . common stock reserved for future issuance common stock reserved for future issuance as of december 31 , 2015 and 2014 is as follows story_separator_special_tag you should read the following discussion and analysis together with item 6. selected financial data and our financial statements and related notes included elsewhere in this annual report . the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors , including those set forth under the caption item 1a . risk factors. unless otherwise indicates , references to the terms the combined company , eiger , the company , we , our and us refer to eiger biopharmaceuticals , inc. ( formerly known as celladon corporation ) and its subsidiaries after the merger described herein . the term private eiger refers to privately-held eiger biopharmaceuticals , inc. prior to its merger with celladon merger sub , inc. a wholly-owned subsidiary of celladon corporation . the term celladon refers to celladon corporation and its subsidiaries prior to the merger . the financial information included in this management 's discussion and analysis of financial condition and results of operations is that of celladon prior to the merger because the merger was consummated after the period covered by the financial statements included in this annual report on form 10-k. accordingly , the historical financial information included in this annual report on form 10-k , unless otherwise indicated or as the context otherwise requires , is that of celladon and its subsidiaries prior to the merger . introduction we are a clinical stage biopharmaceutical company focused on bringing to market novel product candidates for the treatment of orphan diseases . we have worked with investigators at stanford and have evaluated a number of potential development candidates from pharmaceutical companies to comprise a pipeline of novel product candidates . our pipeline includes three phase 2 candidates addressing four distinct orphan diseases . the programs have several aspects in common : the disease targets represent conditions of high medical need which are inadequately treated by current standard of care ; the therapeutic approaches are supported by an understanding of disease biology and mechanism as elucidated by our academic research relationships ; prior clinical experience with the product candidates guides an understanding of safety ; and the development paths leverage the experience and capabilities of our experienced , commercially focused management team . the pipeline includes sarasar ® ( lonafarnib ) for hdv , exendin ( 9-39 ) for severe hypoglycemia , and bestatin ( ubenimex ) for pah and lymphedema . lonafarnib and ubenimex ( for pah ) have been granted orphan drug designation by the u.s. food and drug administration , or the fda , and european medicines agency , or the ema . lonafarnib is our most advanced program and to date , over 50 hdv infected patients have been dosed with lonafarnib across international phase 2 clinical trials . recent developments on march 22 , 2016 , celladon and private eiger completed a business combination in accordance with the terms of the agreement and plan of merger and reorganization ( the merger agreement ) , dated as of november 18 , 2015 , by and among celladon , merger sub and private eiger , pursuant to which merger sub merged with and into private eiger , with private eiger surviving as a wholly-owned subsidiary of celladon . this transaction is referred to as the merger or the merger. immediately prior to the merger , on march 22 , 2016 , celladon effected a 1-for-15 reverse stock split on its issued and outstanding common stock . upon the closing of the merger , each outstanding share of private eiger 's common stock converted into approximately 0.09 shares of celladon 's common stock . in addition , each outstanding option to purchase private eiger 's stock options and each outstanding warrant to purchase private eiger 's common stock prior to the effective time of the merger was converted into an option or warrant to purchase celladon 's common stock . no fractional shares of celladon 's common stock were issued in connection 76 index to financial statements with the merger . instead , private eiger 's stockholders received cash in lieu of any fractional shares of eiger 's common stock such stockholders would have otherwise been entitled to receive in accordance with the merger agreement . immediately following the merger , the combined company changed its name from celladon corporation to eiger biopharmaceuticals , inc. immediately prior to the closing of the merger , private eiger sold approximately $ 39.5 million in shares of its common stock to certain former stockholders of private eiger and certain new investors in private eiger ( the financing ) , which amount included the conversion of the $ 6.0 million in aggregate principal amount outstanding under , and all interest accrued on , certain convertible promissory notes of private eiger . we intend to use the proceeds from the financing to help fund our development pipeline , for working capital and general corporate purposes . the merger will be accounted for as a reverse merger under the acquisition method of accounting . under the acquisition method of accounting , private eiger will be treated as the accounting acquiror and celladon will be treated as the acquired company for financial reporting purposes because , immediately upon completion of the merger , the stockholders of private eiger , prior to the merger held a majority of the voting interest of the combined company . story_separator_special_tag celladon recognized research and development expenses as they were incurred . celladon research and development expenses consisted primarily of : salaries and related overhead expenses , which include stock-based compensation and benefits for personnel in research and development functions ; fees paid to contract manufacturers for commercial scale-up activities ; fees paid to consultants and contract research organizations ( cros ) including in connection with preclinical studies and clinical trials and other related clinical trial fees , such as for investigator grants , patient screening , laboratory work , clinical trial material management and statistical compilation and analysis ; costs related to acquiring and manufacturing clinical trial materials , including continued testing such as process validation and stability of drug product ; costs related to compliance with regulatory requirements ; and payments related to licensed products and technologies . 78 index to financial statements from celladon 's inception through december 31 , 2015 , celladon incurred approximately $ 136.7 million in research and development expenses , of which we estimate $ 130.0 million related to its development of mydicar . celladon 's direct research and development expenses consisted principally of external costs , such as fees paid to investigators , consultants , central laboratories and cros , in connection with clinical trials , developing manufacturing capabilities and costs related to acquiring and manufacturing clinical trial materials . prior to celladon 's reductions in force including all its research and development staff , celladon typically used its employee and infrastructure resources across multiple research and development programs . we expect the research and development expenses related to celladon activities to decrease compared to prior periods through the completion of the cupid 2 trial in the first quarter of 2016 due to celladon 's reduction in workforce , its suspension of further research and development activities and its reduced facility space and rent . mydicar-hfref prior to the suspension of further research and clinical development activities , the majority of celladon 's research and development resources were focused on the cupid 2 trial , commercialization and manufacturing preparations , clinical trials and other work needed to submit mydicar for regulatory approval in the united states and europe . mydicar-pah prior to the suspension of further research and clinical development activities , celladon 's research and development expenses for mydicar for pah related primarily to the preclinical testing in porcine models of pah . stem cell factor program prior to the suspension of further research and clinical development activities , celladon 's research and development expenses for its stem cell factor program related primarily to the preclinical testing of the membrane-bound form of the stem cell factor gene , or mscf , in myocardial infarction porcine models . small molecule program prior to the suspension of further research and clinical development activities , celladon 's research and development expenses for the small molecule program related primarily to identification and pre-clinical testing of small molecule serca2 enzyme modulators . general and administrative expenses general and administrative expenses consisted primarily of salaries and related costs for employees in executive , finance , legal and administration , corporate development and administrative support functions , including stock-based compensation expenses and benefits . other significant general and administrative expenses included accounting and legal services , expenses associated with obtaining and maintaining patents , the cost of various consultants , occupancy costs and information systems costs . general and administrative expenses also included costs to support the merger transaction . we expect the general and administrative expenses related to celladon activities to decrease compared to prior periods due to a reduction in workforce , suspended activities related to pre-commercial planning and reduced facility space and rent . restructuring charges in light of the cupid 2 results and following analysis of the cupid 2 data , celladon implemented three reductions in workforce starting in the second quarter of 2015 to reduce operating expenses and conserve cash resources while it evaluated its strategic alternatives . celladon also committed to retention payments payable to 79 index to financial statements certain key employees if such employees remained with the company until december 31 , 2015 or were terminated by celladon without cause prior to such date . the restructuring charges consisting of severance and retention commitments were fully settled in the first quarter of 2016. also included in restructuring charges were asset impairments related to certain equipment used in the mydicar manufacturing process and early termination fees incurred upon the termination of certain facility subleases . we may incur additional charges in the future for additional restructuring activities . other income ( expense ) other income consisted primarily of interest income earned on celladon 's cash , cash equivalents and investments . other expense consisted primarily of the accretion of debt discount and interest charges on prior debt agreements and the change in the fair value of outstanding warrant liability prior to its reclassification to stockholders ' equity in february 2014 in connection with the closing of celladon 's initial public offering . in august 2015 , celladon prepaid the outstanding amounts due under its loan and security agreement and recorded the debt discount balance as interest expense in the financial statements . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which we have prepared in accordance with generally accepted accounting principles in the united states , or gaap . the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of its consolidated financial statements , as well as the reported expenses during the reported periods . we evaluate these estimates and judgments on an ongoing basis .
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results of operations comparison of the years ended december 31 , 2015 and 2014 the following table summarizes celladon 's results of operations for the years ended december 31 , 2015 and 2014 ( in thousands ) : replace_table_token_4_th research and development expenses . research and development expenses were $ 22.0 million and $ 22.7 million for the years ended december 31 , 2015 and 2014 , respectively . the decrease of approximately $ 0.7 million was due primarily to a decrease of $ 2.4 million in expenses during 2015 in clinical and consulting costs due to the lower cost , long-term follow up stage of the cupid 2 trial and cancellation of other development efforts following the negative results of the cupid 2 trial in april 2015 , $ 1.5 million in personnel costs and $ 0.8 million in stock-based compensation due to the reduction in workforce , partially offset by a $ 3.4 million increase 82 index to financial statements in drug substance manufacturing scale-up costs prior to the data unblinding and $ 0.6 million in close-out fees of preclinical studies and various other expenses . general and administrative expenses . general and administrative expenses were $ 12.4 million and $ 10.3 million for the years ended december 31 , 2015 and 2014 , respectively . the increase of approximately $ 2.1 million was due primarily to an increase of $ 1.5 million in costs related to the preparation and filing of a registration statement on form s-4 and the merger , including $ 0.9 million in consulting and $ 0.9 million in legal and printing costs .
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instead , an entity shall perform its annual or interim , goodwill impairment test by comparing the fair value of story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes included in this annual report on form 10-k. this discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties , including those discussed under part i , item 1a , “ risk factors. ” these risks and uncertainties may cause actual results to differ materially from those discussed in the forward-looking statements . overview net revenue in fiscal 2017 was $ 2.3 billion and was 13 % lower than net revenue of $ 2.6 billion in fiscal 2016. the decline was primarily due to a 47 % decrease in sales of our other products and a 28 % decrease in sales of our connectivity products . these decreases were primarily driven by the previously announced restructuring of the mobile platform business . restructuring . in november 2016 , we announced a restructuring plan intended to refocus our research and development , increase operational efficiency and improve profitability . during fiscal 2017 we recorded restructuring and other related charges of $ 105.2 million . in connection with our restructuring plan , we also plan to divest certain businesses and we began an active program to locate buyers for several businesses . as of january 28 , 2017 , two of these businesses have been classified as discontinued operations and we have retrospectively recast our consolidated financial statements for all periods presented to reflect these businesses as discontinued operations . these actions are expected to lower annual operating expenses to the $ 820 million to $ 830 million range . unless noted otherwise , our discussion under part ii , item 7 , management 's discussion and analysis of financial condition and results of operations refers to our continuing operations . capital return program . we believe our financial position is strong and we remain committed to deliver shareholder value through our share repurchase and dividend programs . we previously announced our intention to repurchase shares of our common stock up to $ 1 billion , of which we intend to repurchase $ 500 million from november 2016 through october 2017. in the fourth quarter of fiscal 2017 , we repurchased 8.9 million shares of our common stock for $ 126.5 million . including these stock repurchases , we returned $ 303.9 million to stockholders in fiscal 2017 , including $ 181.6 million through repurchases of common stock and $ 122.3 million of cash dividends . our cash , cash equivalents and short-term investments were $ 1.7 billion at january 28 , 2017. we used cash flow from operations of $ 358.4 million through the fourth quarter of fiscal 2017 , primarily due to the $ 750 million settlement with cmu that was fully paid in april 2016. significant customers historically , a relatively small number of customers have accounted for a significant portion of our net revenue . see the table in our discussion of “ customers , sales and marketing ” in item 1 of this annual report on form 10-k for further information . we continuously monitor the creditworthiness of our distributors and believe these distributors ' sales to diverse end customers and geographies further serve to mitigate our exposure to credit risk . most of our sales are made to customers located outside of the united states , primarily in asia . sales shipped to customers with operations in asia represented approximately 94 % of our net revenues in fiscal 2017 , and 96 % of our net revenue in each of fiscal 2016 and 2015. because many manufacturers and manufacturing subcontractors of our customers are located in asia , we expect that most of our net revenue will continue to be represented by sales to our customers in that region . a relatively large portion of our sales have historically been made on the basis of purchase orders rather than long-term agreements . in addition , the development process for our products is long , which may cause us to experience a delay between the time we incur expenses and the time revenue is generated from these expenditures . we anticipate that the rate of new orders may vary significantly from quarter to quarter . consequently , if anticipated sales and shipments in any quarter do not occur when expected , expenses and inventory levels could be disproportionately high , and our operating results for that quarter and future quarters may be adversely affected . critical accounting policies and estimates the preparation of consolidated financial statements in conformity with generally accepted accounting principles in the united states ( “ gaap ” ) requires management to make estimates , judgments and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we 28 evaluate our estimates , including those related to revenue recognition , provisions for sales returns and allowances , share-based compensation , income taxes , inventory excess and obsolescence , goodwill and other intangible assets , restructuring , litigation and other contingencies . we base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances when these carrying values are not readily available from other sources . actual results could differ from these estimates , and such differences could affect the results of operations reported in future periods . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition . we recognize revenue when there is persuasive evidence of an arrangement , delivery has occurred , the fee is fixed or determinable , and collection is reasonably assured . story_separator_special_tag forfeitures are estimated at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from initial estimates . assumptions for forfeitures are stratified by employee groups with sufficiently distinct behavior patterns . changes in the estimated forfeiture rate can have a significant effect on reported share-based compensation expense , as the effect of adjusting the rate for all expense amortization is recognized in the period the forfeiture estimate is changed . if the actual forfeiture rate is higher than the estimated forfeiture rate , then an adjustment will be made to increase the estimated forfeiture rate , which will result in a decrease to the expense recognized in the financial statements . if the actual forfeiture rate is lower than the estimated forfeiture rate , then an adjustment will be made to lower the estimated forfeiture rate , which will result in an increase to the expense recognized in the financial statements . the expense we recognize in future periods could be affected by changes in the estimated forfeiture rate and may differ significantly from amounts recognized in the current period and or our forecasts . accounting for income taxes . we estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our actual tax exposure together with assessing temporary differences resulting from the differing treatment of certain items for tax return and financial statement purposes . these differences result in deferred tax assets and liabilities , which are included in our consolidated balance sheets . we recognize income taxes using an asset and liability approach . this approach requires the recognition of taxes payable or refundable for the current year , and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . the measurement of current and deferred taxes is based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated . evaluating the need for an amount of a valuation allowance for deferred tax assets often requires judgment and analysis of all the positive and negative evidence available , including cumulative losses in recent years and projected future taxable income , to determine whether all or some portion of the deferred tax assets will not be realized . using available evidence and judgment , we establish a valuation allowance for deferred tax assets , when it is determined that it is more likely than not that they will not be realized . valuation allowances have been provided primarily against the u.s. research and development credits . valuation allowances have also been provided against certain acquired operating losses and the deferred tax assets of foreign subsidiaries . a change in the assessment of the realization of deferred tax assets may materially impact our tax provision in the period in which a change of assessment occurs . as a multinational corporation , we conduct our business in many countries and are subject to taxation in many jurisdictions . the taxation of our business is subject to the application of various and sometimes conflicting tax laws and regulations as well as multinational tax conventions . our effective tax rate is highly dependent upon the geographic distribution of our worldwide earnings or losses , the tax regulations and tax holidays in each geographic region , the availability of tax credits and carryforwards , and the effectiveness of our tax planning strategies . the application of tax laws and regulations is subject to legal and factual interpretation , judgment and uncertainty . tax laws themselves are subject to change as a result of changes in fiscal policy , changes in legislation , and the evolution of regulations and court rulings . consequently , taxing authorities may impose tax assessments or judgments against us that could materially impact our tax liability and or our effective income tax rate . we are subject to income tax audits by the respective tax authorities in all of the jurisdictions in which we operate . we recognize the effect of income tax positions only if these positions are more likely than not of being sustained . recognized income tax positions are measured at the largest amount that is more than 50 % likely of being realized . changes in recognition or measurement are reflected in the period in which the change in judgment occurs . we record interest and penalties related to unrecognized tax benefits in income tax expense . the calculation of our tax liabilities involves the inherent uncertainty associated with the application of gaap and complex tax laws . we believe we have adequately provided for in our financial statements additional taxes that we estimate may be required to be paid as a result of such examinations . while we believe that we have adequately provided for all tax positions , amounts asserted by tax authorities could be greater or less than our accrued position . these tax liabilities , including the interest and penalties , are released pursuant to a settlement with tax authorities , completion of audit or expiration of various statutes of limitation . the material jurisdictions in which we may be subject to potential examination by tax authorities throughout the world include china , israel , singapore , switzerland and the united states . 30 the recognition and measurement of current taxes payable or refundable , and deferred tax assets and liabilities require that we make certain estimates and judgments . changes to these estimates or a change in judgment may have a material impact on our tax provision in a future period . inventories . we value our inventory at the lower of cost or market , cost being determined under the first-in , first-out method .
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general and administrative replace_table_token_19_th 38 general and administrative expense increased by $ 21.3 million in fiscal 2016 compared to fiscal 2015. the increase was primarily attributable to a charge for a cash payment authorized by our board of directors of $ 15.4 million to our former chief executive officer , higher legal expenses of $ 7.7 million mainly associated with certain accounting and internal control matters that are the subject of investigations by the securities and exchange commission and the u.s. attorney , and which were also investigated by the company 's audit committee and $ 4.2 million of higher costs for the surety bond related to cmu . these increases were partially offset by $ 7.8 million of lower personnel-related costs due to lower headcount and lower share-based compensation expenses related to the performance-based equity awards granted to our executive officers in fiscal 2016 for which financial goals were not achieved . carnegie mellon university litigation settlement year ended january 30 , 2016 january 31 , 2015 % change in 2016 ( in thousands , except percentages ) litigation settlement with carnegie mellon university $ 654,667 $ — 100.0 % % of net revenue 24.7 % — % in connection with the settlement agreement with cmu for $ 750 million , $ 654.7 million of the settlement allocated to the mutual release of claims and covenant not to sue was recorded in operating expenses .
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plan of reorganization in accordance with the plan , on the effective date : the successor issued ( i ) 25,000,000 new shares ( the “ new common shares ” ) of its common stock , par value $ 0.0001 per share ( “ common stock ” ) ; and ( ii ) warrants ( the “ warrants ” ) to purchase up to 2,173,913 shares of legacy amplify 's common stock exercisable for a five-year period commencing on the effective date entitling their holders upon story_separator_special_tag management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and related notes in “ item 8. financial statements and supplementary data ” contained herein . the following discussion contains forward-looking statements that reflect our future plans , estimates , beliefs and expected performance . the forward-looking statements are dependent upon events , risks and uncertainties that may be outside our control . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences are discussed in “ risk factors ” contained in part i , item 1a . of this report . in light of these risks , uncertainties and assumptions , the forward-looking events discussed may not occur . see “ forward-looking statements ” in the front of this annual report . overview we operate in one reportable segment engaged in the acquisition , development , exploitation and production of oil and natural gas properties . our management evaluates performance based on the reportable business segment as the economic environments are not different within the operation of our oil and natural gas properties . our business activities are conducted through ollc , our wholly owned subsidiary , and its wholly owned subsidiaries . our assets consist primarily of producing oil and natural gas properties located in oklahoma , the rockies , federal waters offshore southern california , east texas/north louisiana and south texas . most of our oil and natural gas properties are located in large , mature oil and natural gas reservoirs . beginning in 2019 , the company has elected to change its reporting convention from natural gas equivalent ( mcfe ) to barrels of oil equivalent ( boe ) . the change in presentation reflects our liquids-weighted production and reserve profile with a balanced approach to development of our oil and natural gas asset portfolio . the company 's properties consist primarily of operated and non-operated working interests in producing and undeveloped leasehold acreage and working interests in identified producing wells . as of december 31 , 2019 : our total estimated proved reserves were approximately 163.0 mmboe , of which approximately 43 % were oil and 80 % were classified as proved developed reserves ; we produced from 2,643 gross ( 1,567 net ) producing wells across our properties , with an average working interest of 59 % , and the company is the operator of record of the properties containing 93 % of our total estimated proved reserves ; and our average net production for the three months ended december 31 , 2019 was 29.9 mboe/d , implying a reserve-to-production ratio of approximately 15 years . recent developments merger on august 6 , 2019 , midstates completed its business combination with legacy amplify in accordance with the terms of the merger agreement , by and among midstates , legacy amplify and merger sub . pursuant to the terms of the merger agreement , merger sub merged with and into legacy amplify , with legacy amplify surviving the merger as a wholly owned subsidiary of midstates , and immediately following the merger , legacy amplify merged with and into llc sub , with llc sub surviving as a wholly owned subsidiary of midstates . at the effective time of the merger , each share of legacy amplify common stock issued and outstanding immediately prior to the effective time ( other than excluded shares ) were cancelled and converted into the right to receive 0.933 shares of midstates common stock , par value $ 0.01 per share . on the effective date of the merger , midstates changed its name to “ amplify energy corp. ” and llc sub changed its name to “ amplify energy holdings llc . following the closing of the merger , legacy amplify stockholders and midstates stockholders each owned approximately 50 % of the outstanding stock of the company and the company continues to operate under the amplify brand . borrowing base redetermination on november 8 , 2019 , as part of the company fall 2019 semiannual borrowing base redetermination , the borrowing base and lender commitments under the company 's credit agreement among wholly owned subsidiaries of the company , bank of montreal , as administrative agent , and other lenders party thereto ( as amended from time to time , the “ revolving credit facility ” ) were decreased from $ 530.0 million to $ 450.0 million , with the next such redetermination scheduled for spring 2020. the revolving credit facility is a reserve-based revolving credit facility with a maturity date of november 2 , 2023 , and semiannual borrowing base redeterminations . 50 departure of certain officers on january 30 , 2020 , richard p. smiley notified the company of his intent to resign from his current position as senior vice president , operations . mr. smiley intends to remain in his role at the company to assist with an orderly transition of his responsibilities . mr. smiley did not resign from the position of senior vice president , operations due to any disagreement with the company or any matter relating to the company 's operations , policies or practices . story_separator_special_tag price volatility . in the past , oil and natural gas prices have been extremely volatile , and we expect this volatility to continue . the following table shows the low and high commodity future index prices for the periods indicated : replace_table_token_10_th commodity derivative contracts . our hedging activities are intended to support oil , natural gas and ngl prices at targeted levels and to manage our exposure to commodity price fluctuations . see “ item 7a . quantitative and qualitative disclosures about market risk ” for additional information . we intend to enter into commodity derivative contracts at times and on terms desired to maintain a portfolio of commodity derivative contracts covering at least 25 % - 50 % of our estimated production from proved developed producing reserves over a one-to-three-year period at any given point of time to satisfy the hedging covenants in our revolving credit facility and pursuant to our internal policies . we may , however , from time to time hedge more or less than this approximate range . additionally , we may take advantage of opportunities to modify our commodity derivative portfolio to change the percentage of our hedged production volumes when circumstances suggest that it is prudent to do so . the current market conditions may also impact our ability to enter into future commodity derivative contracts . principal components of cost structure lease operating expense . these are the day to day costs incurred to maintain production of our natural gas , ngls and oil . such costs include utilities , direct labor , water injection and disposal , the cost of co 2 injection , chemicals , materials and supplies , compression , repairs and workover expenses . cost levels for these expenses can vary based on supply and demand for oilfield services and activities performed during a specific period . gathering , processing and transportation . these are costs incurred to deliver production of our natural gas , ngls and oil to the market . cost levels of these expenses can vary based on the volume of natural gas , ngls and oil production . exploration expense . these are geological and geophysical costs and include certain seismic costs , costs of unsuccessful exploratory dry holes and unsuccessful leasing efforts . exploration expense also include rig contract termination fees . taxes other than income . these consist of production , ad valorem and franchise taxes . production taxes are paid on produced natural gas , ngls and oil based on a percentage of market prices and at fixed per unit rates established by federal , state or local taxing authorities . we take advantage of credits and exemptions in the various taxing jurisdictions where we operate . ad valorem taxes are generally tied to the valuation of the oil and natural gas properties . franchise taxes are privilege taxes levied by states that are imposed on companies , including limited liability companies and partnerships , which gives the businesses the right to be chartered or operate within that state . depreciation , depletion and amortization . depreciation , depletion and amortization ( “ dd & a ” ) includes the systematic expensing of the capitalized costs incurred to acquire , exploit and develop oil and natural gas properties . as a “ successful efforts ” company , all costs associated with acquisition and development efforts and all successful exploration efforts are capitalized , and these costs are depleted using the units of production method . impairment expense . proved properties are impaired whenever the net carrying value of the properties exceed their estimated undiscounted future cash flows . unproved properties are impaired based on time or geologic factors . general and administrative expense . these costs include overhead , including payroll and benefits for employees , costs of maintaining headquarters , costs of managing production and development operations , compensation expense associated with certain long-term incentive-based plans , audit and other professional fees and legal compliance expenses . accretion expense . accretion expense is recognized over time as the discounted liabilities are accreted to their expected settlement value . 52 interest expense . historically , we financed a portion of our working capital requirements , capital development and acquisitions with borrowings under our revolving credit facility , our emergence credit facility , our predecessor 's revolving credit facility and the predecessor 's senior note issuances . as a result , we incur substantial interest expense that is affected by both fluctuations in interest rates and financing decisions . we expect to continue to incur significant interest expense . income tax expense . we are a corporation subject to federal and certain state income taxes . our predecessor was organized as a pass-through entity for federal and most state income tax purposes . during the period from january 1 , 2017 through may 4 , 2017 , certain of our consolidated subsidiaries were taxed as corporations for federal and state income tax purposes . we are subject to the texas margin tax for activities in the state of texas . outlook based on our current plans , our capital expenditure program for the full year 2020 is expected to be approximately $ 40.0 million to $ 52.0 million . the charts below detail the allocation of capital across our asset base and by investment type based on the midpoint of our 2020 capital expenditure range . the amounts noted below are in millions : as has been our historical practice , we will periodically review our capital expenditures throughout the year and may adjust the budget based on commodity prices and other factors . we anticipate funding our 2020 capital program from internally generated cash flow . borrowings under our revolving credit facility and or debt or equity financings may provide incremental financial flexibility . critical accounting policies and estimates fresh start accounting upon the effective date , legacy amplify adopted fresh start accounting as required by gaap .
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results of operations the results of operations for the years ended december 31 , 2019 and 2018 , the period from may 5 , 2017 through december 31 , 2017 and the period from january 1 , 2017 through may 4 , 2017 , have been derived from our consolidated financial statements . factors affecting the comparability of the historical financial results the comparability of the results of operations among the periods presented is impacted by the following significant transactions : the south texas divestiture in may 2018 for approximately $ 17.1 million ; and the merger between legacy amplify and midstates in august 2019. as a result of the factors listed above , the historical results of operations and period-to-period comparisons of these results and certain financial data may not be comparable or indicative of future results . 55 the table below summarizes certain of the results of operations and period-to-period comparisons for the periods indicated . replace_table_token_11_th for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 net loss of $ 35.2 million and net income of $ 54.6 million was recorded for the year ended december 31 , 2019 and 2018 , respectively . oil , natural gas and ngl revenues were $ 274.6 million and $ 339.8 million for the year ended december 31 , 2019 and 2018 , respectively . average net production volumes were approximately 25.4 mboe/d and 26.6 mboe/d for the year ended december 31 , 2019 and 2018 , respectively . the change in production volumes was primarily related to decreases in drilling activities partially offset by the merger of midstates . the average realized sales price was $ 29.67 per boe and $ 35.06 per boe for the year ended december 31 , 2019 and 2018 , respectively . the change in the average realized sales price was primarily due to lower production .
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the discussion should be read in conjunction with the accompanying consolidated financial statements and notes thereto . business overview newell rubbermaid is a global marketer of consumer and commercial products that help people get more out of life every day , where they live , learn , work and play . the company 's products are marketed under a strong portfolio of leading brands , including sharpie ® , paper mate ® , parker ® , waterman ® , dymo ® , rubbermaid ® , levolor ® , goody ® , calphalon ® , irwin ® , lenox ® , rubbermaid commercial products ® , graco ® and aprica ® . the company is executing its growth game plan , which is its strategy to simplify the organization and free up resources to invest in growth initiatives and strengthened capabilities in support of the company 's brands . the changes being implemented in the execution of the growth game plan are considered key enablers to building a bigger , faster-growing , more global and more profitable company . during 2013 , the company continued the cadence of consistent execution and delivery while simultaneously driving its change agenda to propel the growth game plan into action . during 2013 , the company transitioned from the delivery phase of the growth game plan to the strategic phase . the company expects to remain focused on the strategic phase in 2014. the company is driving the growth game plan into action and simplifying its structure through the execution of project renewal . in the growth game plan operating model , the company has reorganized around two core activity systems , development and delivery , supported by three business partnering functions , human resources , finance/it and legal , and four winning capabilities in design , marketing & insight , supply chain and customer development , all in service to drive accelerated performance in the company 's five segments . the company 's five segments and the key brands included in each segment are as follows : segment key brands description of primary products writing sharpie ® , paper mate ® , expo ® , parker ® , waterman ® , dymo ® office , endicia ® writing instruments , including markers and highlighters , pens and pencils ; art products ; fine writing instruments ; office technology solutions , including labeling and on-line postage solutions home solutions rubbermaid ® , calphalon ® , levolor ® , goody ® indoor/outdoor organization , food storage and home storage products ; gourmet cookware , bakeware and cutlery ; drapery hardware and window treatments ; hair care accessories tools irwin ® , lenox ® , hilmor , dymo ® industrial hand tools and power tool accessories ; industrial bandsaw blades ; tools for hvac systems ; label makers and printers for industrial use commercial products rubbermaid commercial products ® , rubbermaid ® healthcare cleaning and refuse products , hygiene systems , material handling solutions ; medical and computer carts and wall-mounted workstations baby & parenting graco ® , aprica ® , teutonia ® infant and juvenile products such as car seats , strollers , highchairs and playards during 2013 , the company divested its hardware and teach businesses , which were primarily included in the former specialty segment at december 31 , 2012. accordingly , the results of operations of these businesses have been classified as discontinued operations for all periods presented . these divested businesses consist of convenience , cabinet and window hardware ( bulldog , ashland and amerock , as well as the levolor ® -branded and private label drapery hardware business ) , manual paint applicators ( shur-line ) and interactive teaching solutions ( mimio and headsprout ) . the remaining businesses in the former specialty segment , specifically dymo office and endicia , were combined with the writing segment given the significant channel and operating synergies . 22 market and performance overview the company operates in the consumer and commercial products markets , which are generally impacted by overall economic conditions in the regions in which the company operates . the following is a summary of the company 's progress in 2013 in driving the growth game plan into action : core sales , which exclude foreign currency , increased 3.2 % in 2013 compared to 2012 , with core sales growth in every segment . core sales increased 10.2 % in the baby & parenting segment , with improved sales in north america primarily due to launches of innovative new products and expanded distribution . core sales grew 3.9 % in the commercial products segment , driven by volume growth in both north america and latin america . core sales in the tools segment grew 3.4 % due in large part to expanded distribution and the success of expanded product offerings in brazil . core sales grew 2.9 % in the home solutions segment , primarily driven by targeted marketing initiatives in rubbermaid consumer , new levolor product launches and increased distribution in calphalon . core sales increased 0.1 % in the writing segment , as core sales growth in latin america and price increases , particularly in venezuela , was substantially offset by weak fine writing results in china and office superstore channel contraction in the u.s. core sales is determined by applying a fixed exchange rate , calculated as the 12-month average in the prior year , to the current and prior year local currency sales amounts , with the difference equal to changes in core sales , and the difference between the changes in reported sales and the changes in core sales being attributable to currency . core sales growth in latin america and north america of 26.6 % and 3.0 % , respectively , were partially offset by core sales declines in europe and asia pacific . the latin america core sales growth was driven by volume and price increases in the writing segment and new product launches and increased distribution in the tools segment . story_separator_special_tag the total costs of project renewal through 2015 are expected to be $ 340 million to $ 375 million , with $ 300 million to $ 340 million representing cash costs . approximately 75 % of the cash costs consist of employee-related costs , including severance , retirement and other termination benefits and costs , as approximately 2,250 employees are expected to be impacted as a result of the implementation of the project renewal initiatives . project renewal is expected to be fully implemented by mid-2015 and generate annualized savings of $ 270 million to $ 325 million . the majority of these savings will be reinvested in the business to strengthen brand building and selling capabilities . through december 31 , 2013 , the company had incurred $ 182 million and $ 35 million of restructuring and restructuring-related costs , respectively . restructuring-related costs represent certain organizational change implementation costs and incremental cost of products sold and sg & a expenses associated with the implementation of project renewal . the majority of the restructuring costs represent employee-related cash costs , including severance , retirement and other termination benefits and costs , and through december 31 , 2013 , the company 's total headcount has been reduced by approximately 1,800 employees as a result of project renewal initiatives . the company has realized approximately $ 200 million of annualized savings to date . 24 the following table summarizes the estimated costs , savings and employee headcount impacts of project renewal , as well as the actual results through 2013 ( amounts in millions , except headcount ) : replace_table_token_5_th in 2013 , the company initiated the following activities as part of project renewal : the restructuring of the development organization as part of the organizational simplification workstream , which includes the consolidation and relocation of its design and innovation capabilities into a new center of excellence - a design center in kalamazoo , michigan , which is expected to open by early 2014 ; the creation of a larger , independent consumer marketing research organization ; the consolidation of the marketing function into a global center of excellence ; and the staffing of the company 's global e-commerce initiative . the implementation of the emea simplification workstream , initiating projects aimed at refocusing the region on profitable growth , including the closure , consolidation and or relocation of certain manufacturing facilities , distribution centers , customer support and sales and administrative offices . the company has also begun exiting certain markets and product lines to reduce complexity and infrastructure in emea and improve margins , including initiating the following actions : exiting direct sales in over 50 of the 120 countries and territories that the emea region serves ; discontinuing the baby & parenting business in about 19 countries ; discontinuing several lines of baby & parenting products ; and exiting the custom-logo fine writing business . the implementation of the best cost finance workstream by consolidating and realigning its shared services and decision support capabilities . the refocusing of its channel marketing team and realignment of its distributor and field sales organizations in the delivery organization to enable cost savings to be reinvested into new capabilities . the rollout of a new global supply chain organization in the delivery organization to strengthen capabilities across all five supply chain disciplines of plan , source , make , deliver and serve . the initiation of projects to streamline the three business partnering functions , human resources , finance/it and legal , and to align these functions with the new operating structure . the closure of its u.s. manufacturing facility in lowell , indiana related to its hardware business ( included in discontinued operations ) . over the past two years , the company reduced structural overhead by eliminating the operating groups , consolidating its 13 gbus into five business segments and consolidating its sales organization into the newly formed customer development organization . the company also completed the consolidation of its greenville , texas operations into its existing operations in kansas and ohio . one newell rubbermaid the company strives to leverage common business activities and best practices to build functional capabilities and to build one common culture of shared values with a focus on collaboration and teamwork . through this initiative , the company has established regional shared services centers to leverage nonmarket-facing functional capabilities to reduce costs . in addition , the company is expanding its focus on leveraging common business activities and best practices by reorganizing the business around two of the critical elements of the growth game plan - brand & category development and market execution & delivery , enhancing its newly created customer development organization , creating a new global supply chain organization and creating new centers of excellence for design and innovation capabilities and marketing capabilities . the company is also migrating multiple legacy systems and users to a common sap global information platform in a phased , multi-year rollout . sap is expected to enable the company to integrate and manage its worldwide business and reporting processes more efficiently . during 2013 , certain operations within the company 's hardware business and the company 's brazil operations 25 went live on sap . as of december 31 , 2013 , substantially all of the north american , european and brazilian operations of the company 's five reportable business segments have successfully gone live on sap . foreign currency - venezuela the company accounts for its venezuelan operations using highly inflationary accounting , and therefore , the company remeasures assets , liabilities , sales and expenses denominated in bolivar fuertes into u.s. dollars using the applicable exchange rate , and the resulting translation adjustments are included in earnings . in february 2013 , the exchange rate for bolivar fuertes declined to 6.3 bolivar fuertes to u.s. dollar . previously , the company remeasured its operations denominated in bolivar fuertes at the rate of exchange used by the transaction system for foreign currency denominated securities ( sitme ) of 5.3 bolivar fuertes to u.s. dollar .
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business segment operating results : 2013 vs. 2012 business segment operating results net sales by segment were as follows for the years ended december 31 , ( in millions , except percentages ) : replace_table_token_9_th the following table sets forth an analysis of changes in net sales in each segment for 2013 as compared to 2012 : replace_table_token_10_th 29 operating income ( loss ) by segment was as follows for the years ended december 31 , ( in millions , except percentages ) : replace_table_token_11_th ( 1 ) for 2013 , includes restructuring-related costs associated with project renewal of $ 0.3 million and $ 0.8 million for the writing and baby & parenting segments , respectively . ( 2 ) for 2012 , includes restructuring-related costs associated with project renewal of $ 1.2 million and $ 4.9 million attributable to the writing and home solutions segments , respectively . ( 3 ) includes organizational change implementation and restructuring-related costs of $ 23.8 million and $ 4.1 million for 2013 and 2012 , respectively , associated with project renewal . includes restructuring-related costs of $ 24.3 million for 2012 associated with the european transformation plan . writing net sales for 2013 were $ 1,706.1 million , a decrease of $ 18.1 million , or 1.0 % , from $ 1,724.2 million for 2012. core sales increased 0.1 % , driven by a strong back-to-school season in north america and double-digit core sales growth in latin america due to the rollout of new products , strong back-to-school sell-in , and price increases implemented in response to the devaluation of the venezuelan bolivar , partially offset by a challenging macroeconomic environment in western europe , declines in fine writing in asia due to the transitioning of the distribution model in china and an overall slowdown in the category in that region , and declines in the office superstore channel in the u.s. excluding the impacts of currency , the segment 's north american businesses reported a core sales decline of 2.1 % while
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our forward-looking statements and factors that might cause future actual results to differ materially from our recent results or those projected in the forward-looking statements include , but are not limited to , those discussed in the section titled “ forward-looking information ” and “ risk factors ” of this annual report on form 10-k. except as required by law , we assume no obligation to update the forward-looking statements or our risk factors for any reason . overview we are a leading provider of enterprise cloud computing solutions , with a focus on customer relationship management , or crm . we introduced our first crm solution in february 2000 , and we have since expanded our service offerings with new editions , solutions , features and platform capabilities . our mission is to help our customers transform themselves into customer-centric companies by empowering them to connect with their customers in entirely new ways . our customer success platform , including sales force automation , customer service and support , marketing automation , community management , analytics , application development , internet of things integration and our professional cloud services , provide the next-generation platform of enterprise applications and services to enable customer success . key elements of our strategy include : strengthening our market-leading solutions ; expanding strategic relationships with customers ; extending distribution into new and high-growth product categories ; expanding our world-class sales organization ; reducing customer attrition ; building our business in top software markets globally , which includes building partnerships that help add customers ; and encouraging the development of third-party applications on our cloud computing platforms . we believe the factors that will influence our ability to achieve our objectives include : our prospective customers ' willingness to migrate to enterprise cloud computing services ; the availability , performance and security of our service ; our ability to continue to release , and gain customer acceptance of , new and improved features ; our ability to successfully integrate acquired businesses and technologies ; successful customer adoption and utilization of our service ; acceptance of our service in markets where we have few customers ; the emergence of additional competitors in our market and improved product offerings by existing and new competitors ; the location of new data centers ; third-party developers ' willingness to develop applications on our platforms ; our ability to attract new personnel and retain and motivate current personnel ; and general economic conditions which could affect our customers ' ability and willingness to purchase our services , delay the customers ' purchasing decision or affect attrition rates . to address these factors , we will need to , among other things , continue to add substantial numbers of paying subscriptions , upgrade our customers to fully featured versions or arrangements such as an enterprise license agreement , provide high quality technical support to our customers , encourage the development of third-party applications on our platforms and continue to focus on retaining customers at the time of renewal . our plans to invest for future growth include the continuation of the expansion of our data center capacity , the hiring of additional personnel , particularly in direct sales , other customer-related areas and research and development , the expansion of domestic and international selling and marketing activities , specifically in our top markets , continuing to develop our brands , the addition of distribution channels , the upgrade of our service offerings , the development of new services such as the announcement of our analytics cloud , community cloud , and internet of things , or iot , cloud , the integration of acquired technologies , the expansion of our marketing cloud and app cloud core service offerings , and the additions to our global infrastructure to support our growth . 32 we also regularly evaluate acquisitions or investment opportunities in complementary businesses , joint ventures , services and technologies and intellectual property rights in an effort to expand our service offerings . we expect to continue to make such investments and acquisitions in the future and we plan to reinvest a significant portion of our incremental revenue in future periods to grow our business and continue our leadership role in the cloud computing industry . as a result of our aggressive growth plans , specifically our hiring plan and acquisition activities , we have incurred significant expenses from equity awards and amortization of purchased intangibles which have resulted in net losses on a u.s. generally accepted accounting principles ( `` gaap '' ) basis . as we continue with our growth plan , we may continue to have net losses on a gaap basis in some future quarters . we remained focused on improving operating margins in fiscal 2016 and expect to remain similarly focused in fiscal 2017. our operating margin for fiscal 2016 was $ 114.9 million compared to a $ 145.6 million loss during the same period a year ago . our typical subscription contract term is 12 to 36 months , although terms range from one to 60 months , so during any fiscal reporting period only a subset of active subscription contracts is eligible for renewal . we calculate our attrition rate as of the end of each month . our current attrition rate calculation does not include the marketing cloud service offerings . our attrition rate was between eight and nine percent during the fiscal year ended january 31 , 2016 , which is favorable compared to the nine to ten percent attrition rate as of january 31 , 2015 . we expect our attrition rate to remain in this range as we continue to expand our enterprise business and invest in customer success and related programs . story_separator_special_tag for example , customers may use the sales cloud , the service cloud or our app cloud to record account and contact information , which are similar features across these core service offerings . depending on a customer 's actual and projected business requirements , more than one core service offering may satisfy the customer 's current and future needs . we record revenue based on the individual products ordered by a customer , and not according to the customer 's business requirements and usage . in addition , as we introduce new features and functions within each offering and refine our allocation methodology for changes in our business , we do not expect it to be practical to adjust historical revenue results by core service offering for comparability . accordingly , comparisons of revenue performance by service offering over time may not be meaningful . our sales cloud service offering is our most widely distributed service offering and has historically been the largest contributor of subscription and support revenues . as a result , sales cloud has the most international exposure and foreign exchange rate exposure , relative to the other cloud service offerings . conversely , revenue for marketing cloud is primarily derived from the americas , with little impact from foreign exchange rate movement . we estimate that for fiscal 2017 , subscription and support revenues from the sales cloud service offering will continue to be the largest contributor of subscription and support revenues , and foreign currency will continue to have a more pronounced impact on sales cloud subscription and support revenues than revenues from our other cloud service offerings . 34 seasonal nature of deferred revenue , accounts receivable and operating cash flow deferred revenue primarily consists of billings to customers for our subscription service . over 90 percent of the value of our billings to customers is for our subscription and support service . we generally invoice our customers in annual cycles . approximately 80 percent of all subscription and support invoices were issued with annual terms during fiscal 2016 , which is consistent with fiscal 2015. occasionally , we bill customers for their multi-year contract on a single invoice which results in an increase in noncurrent deferred revenue . we typically issue renewal invoices in advance of the renewal service period , and depending on timing , the initial invoice for the subscription and services contract and the subsequent renewal invoice may occur in different quarters . this may result in an increase in deferred revenue and accounts receivable . there is a disproportionate weighting towards annual billings in the fourth quarter , primarily as a result of large enterprise account buying patterns . our fourth quarter has historically been our strongest quarter for new business and renewals . the year on year compounding effect of this seasonality in both billing patterns and overall new and renewal business causes the value of invoices that we generate in the fourth quarter for both new business and renewals to increase as a proportion of our total annual billings . accordingly , because of this billing activity , our first quarter is our largest collections and operating cash flow quarter . the sequential quarterly changes in accounts receivable , related deferred revenue and operating cash flow during the first three quarters of our fiscal year are not necessarily indicative of the billing activity that occurs in the fourth quarter as displayed below ( in thousands , except unbilled deferred revenue ) : replace_table_token_7_th replace_table_token_8_th replace_table_token_9_th ( 1 ) operating cash flow represents net cash provided by operating activities for the three months ended in the periods stated above . 35 unbilled deferred revenue , a non-gaap measure the gaap deferred revenue balance on our consolidated balance sheet does not represent the total contract value of annual or multi-year , non-cancelable subscription agreements . unbilled deferred revenue is a non-gaap operational measure that represents future billings under our subscription agreements that have not been invoiced and , accordingly , are not recorded in deferred revenue . unbilled deferred revenue was approximately $ 7.1 billion as of january 31 , 2016 and approximately $ 5.7 billion as of january 31 , 2015 . our typical contract length is between 12 and 36 months . we expect that the amount of unbilled deferred revenue will change from quarter to quarter for several reasons , including the specific timing , duration and size of large customer subscription agreements , varying billing cycles of subscription agreements , the specific timing of customer renewals , foreign currency fluctuations , the timing of when unbilled deferred revenue is to be recognized as revenue , and changes in customer financial circumstances . for multi-year subscription agreements billed annually , the associated unbilled deferred revenue is typically high at the beginning of the contract period , zero just prior to renewal , and increases if the agreement is renewed . low unbilled deferred revenue attributable to a particular subscription agreement is often associated with an impending renewal and may not be an indicator of the likelihood of renewal or future revenue from such customer . accordingly , we expect that the amount of aggregate unbilled deferred revenue will change from year-to-year depending in part upon the number and dollar amount of subscription agreements at particular stages in their renewal cycle . such fluctuations are not a reliable indicator of future revenues . unbilled deferred revenue does not include minimum revenue commitments from indirect sales channels , as we recognize revenue , deferred revenue , and any unbilled deferred revenue upon sell-through to an end user customer . cost of revenues and operating expenses cost of revenues .
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results of operations the following tables set forth selected data for each of the periods indicated ( in thousands ) : replace_table_token_10_th ( 1 ) cost of revenues and marketing and sales expenses include the following amounts related to amortization of purchased intangibles from business combinations ( in thousands ) : replace_table_token_11_th ( 2 ) cost of revenues and operating expenses include the following amounts related to stock-based expenses ( in thousands ) : replace_table_token_12_th 41 revenues by geography were as follows ( in thousands ) : replace_table_token_13_th americas revenue attributed to the united states was approximately 95 percent , 94 percent and 96 percent for fiscal 2016 , 2015 and 2014 , respectively . no other country represented more than ten percent of total revenue during fiscal 2016 , 2015 or 2014 . the following tables set forth selected consolidated statements of operations data for each of the periods indicated as a percentage of total revenues : replace_table_token_14_th replace_table_token_15_th 42 replace_table_token_16_th replace_table_token_17_th replace_table_token_18_th we present constant currency information to provide a framework for assessing how our underlying business performed excluding the effect of foreign currency rate fluctuations . to present this information , current and comparative prior period results for entities reporting in currencies other than united states dollars are converted into united states dollars at the weighted average exchange rate for the year being compared to for growth rate calculations presented , rather than the actual exchange rates in effect during that period . replace_table_token_19_th unbilled deferred revenue was approximately $ 7.1 billion as of january 31 , 2016 and $ 5.7 billion as of january 31 , 2015 . unbilled deferred revenue represents future billings under our non-cancelable subscription agreements that have not been invoiced and , accordingly , are not recorded in deferred revenue . 43 fiscal years ended january 31 , 2016 and 2015 revenues . replace_table_token_20_th total revenues were $ 6.7 billion for fiscal 2016 , compared to $ 5.4
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each warrant entitles the holder to purchase one share of the company 's common stock . the company has enough shares of common stock authorized in the event that these warrants are exercised . 49 the following table summarizes information about the company 's warrants outstanding as of december 31 , 2013 and 2012 : warrant series 2013 number of warrants strike price grant date expiry date unit warrants 44,450,500 usd 0.70 may 6 , 2011 may 6 , 2014 total warrants outstanding 44,450,500 replace_table_token_21_th 10. investment in petromanas on february 12 , 2010 , the company 's wholly-owned subsidiary dwm petroleum , signed a share purchase agreement and completed the sale of all of the issued and outstanding shares of manas adriatic to petromanas energy inc. ( petromanas ) . after closing , the share purchase agreement was amended by an amending agreement dated may 25 , 2010. as a result of this transaction , the company acquired 200,000,000 common shares of petromanas . 100,000,000 of these were issued on march 3 , 2010 pursuant to the original terms of the share purchase agreement ; the additional 100,000,000 were received on may 26 , 2010 , pursuant to the amending agreement . the shares were subject to a hold period expiring september 24 , 2011 and bore a legend to that effect . in addition , all of these shares were deposited into an escrow pursuant to the requirements of the tsx venture exchange which provides for the release of the shares from escrow according to the following schedule : replace_table_token_22_th on july 6 , 2012 , dwm petroleum sold 10,000,000 of these shares to one unrelated party at a price of cad 0.17 per common share for gross proceeds of cad 1,700,000 ( usd 1,670,598 ) . on august 17 , 2012 , pursuant to agreements dated august 13 , 2012 , dwm petroleum sold an additional 90,000,000 of these petromanas shares to twelve purchasers at a price of cad 0.115 per common share for gross proceeds of cad 10,350,000 ( usd 10,445,050 ) together with the right to receive 22.5 % of the performance shares if and when any performance shares are issued by petromanas . as of december 31 , 2012 no proceeds were allocated to these performance shares as they are only issuable upon achievement of certain conditions and the likelihood of the contingent event is not reasonably determined . during the period of october 18 , 2013 to october 29 , 2013 , dwm petroleum sold 1,000,000 shares at a price of cad 0.12 per common share for gross proceeds of cad 120,000 ( usd 114,900 ) on the open market . on october 25 , 2013 , dwm petroleum sold an additional 3,000,000 shares at a price of cad 0.10 per common shares for gross proceeds of cad 300,000 ( usd 288,510 ) on the open market . on november 8 , 2013 , dwm petroleum sold an additional 46,000,000 shares at a volume weighted price of cad 0.12 per common shares for gross proceeds of cad 5,595,710 ( usd 5,366,286 ) on the open market . on december 31 , 2012 , dwm petroleum owned and controlled 100,000,000 common shares of petromanas and it had the right to acquire a further 38,750,000 common shares ( referred to as performance shares ) upon the occurrence of certain conditions . the 100,000,000 common shares represent approximately 14.4 % of the issued and outstanding common shares of petromanas . 50 on december 31 , 2013 , dwm petroleum owned and controlled 50,000,000 common shares of petromanas and it had the right to acquire a further 38,750,000 common shares ( referred to as performance shares ) upon the occurrence of certain conditions . the 50,000,000 common shares represent approximately 7.2 % of the issued and outstanding common shares of petromanas . since the shares were subject to a hold period of thirty months until february 24 , 2013 , and because the shares were also deposited into escrow and subject to a fixed escrow release schedule , the company deemed them to have a level 2 input for the calculation of the fair value in accordance with asc 820 ( fair value measurements and disclosures ) . the company had applied an annual discount rate of 12 % on the quoted market price based on the time before the shares become freely tradable . the discount rate was an estimate of the cost of capital , based on previous long-term debt the company has issued . since february 25 , 2013 the fair value of the investment in petromanas has been reclassified to level 1 and no additional discount rate is being used story_separator_special_tag our management 's discussion and analysis of financial condition and results of operations provides a narrative about our financial performance and condition that should be read in conjunction with the audited consolidated financial statements and related notes thereto included in this annual report beginning at page 33 below . this discussion contains forward looking statements reflecting our current expectations and estimates and assumptions about events and trends that may affect our future operating results or financial position . our actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements due to a number of factors , including , but not limited to , those set forth in the sections of this annual report titled risk factors beginning at page 14 above and forward-looking statements beginning at page 4 above . overview of business operations we are in the business of exploring for oil and gas , primarily in central and east asia . story_separator_special_tag if we discover sufficient reserves of oil or gas , we intend to exploit them . although we are currently focused primarily on projects located in certain geographic regions , we remain open to attractive opportunities in other areas . we do not have any known reserves on any of our properties . we carry out our operations both directly and through participation in ventures with other oil and gas companies . we are actively involved in projects in mongolia and tajikistan . in addition , we own shares of petromanas energy inc. , which is involved in oil and gas activities in albania france and australia . we have no operating income yet and , as a result , depend upon funding from various sources to continue operations and to implement our growth strategy . story_separator_special_tag normal operational activities only . it does not include such financial commitments as discussed in item 1 as we are subject to certain expenditures and commitments in order to maintain our licenses which are currently pending re-negotiations . ( 3 ) the information presented in the table above includes the costs related to our normal operational activities and development of infrastructure but does not include any drilling activity . it does not include such financial commitments discussed in item 1 because we assume to farm-out and be carried . ( 4 ) payment to kavsar in compensation for its expenses pursuant to section 3.4.2 of the share purchase agreement , exhibit 10.24. our monthly burn rate ( excluding exploration , drill-site preparation activities and the rehabilitation payment of usd 2,000,000 ) amounts to approximately usd 498,005 ( corporate usd 271,449 , ventures usd 226,556 ) and usd 685,000 if included . considering our net working capital and our 50 million shares in petromanas energy inc. , we believe that we are able to fund our planned operations for the next twelve months . application of critical accounting policies our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the united states of america . preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses . these estimates and assumptions are affected by management 's application of accounting policies . we believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements . - 30 - we base our assumptions and estimates on historical experience and other sources that we believe to be reasonable at the time . actual results may vary from our estimates due to changes in circumstances , weather , politics , global economics , mechanical problems , general business conditions and other factors . our significant estimates are related to the going concern , the valuation of options and oil and gas properties . there are accounting policies that we believe are significant to the presentation of our financial statements . the most significant of these are described below . exploration and evaluation costs the company uses the successful efforts method of accounting for oil and natural gas producing activities . under this method , acquisition costs for proved and unproved properties are capitalized when incurred . exploration costs , including geological and geophysical costs , the costs of carrying and retaining unproved properties and exploratory dry hole drilling costs , are expensed . exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves . if a well is determined to be successful , the capitalized drilling costs will be reclassified as part of the cost of the well . if a well is determined to be unsuccessful , the capitalized drilling costs will be charged to expense in the period the determination is made . equity investment in associate measured at fair value for the period ended december 31 , 2012 the company had initially elected for the fair value option for subsequent measurement . the shares of the investment in associate were subject to a hold period of thirty months until february 24 , 2013 , and because the shares were also deposited into escrow and subject to a fixed escrow release schedule , the company deemed them to have a level 2 input for the calculation of the fair value in accordance with asc 820 ( fair value measurements and disclosures ) . the company had applied an annual discount rate of 12 % on the quoted market price based on the time before the shares become freely tradable . the discount rate was an estimate of the cost of capital , based on previous long-term debt the company has issued . for period ended december 31 , 2013 we have reclassified our investment in associates from level 2 to level 1and account for in accordance with asc 320 investments - debt and equity securities . we have classified the investment in associates as trading securities and report it at fair value , with unrealized gains and losses included in earnings . stock-based compensation we account for all of our stock-based payments and awards applying the fair value method . stock-based payments to non-employees are measured at the fair value of the consideration received , or the fair value of the equity instruments issued , or liabilities incurred , whichever is more reliably measurable . the fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete , and any change therein is recognized over the vesting period of the award and in the same manner as if we had paid cash instead of paying with or using equity based instruments . the costs of the stock-based payments to non-employees that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date , unless there is a contractual term for
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results of operations net income/net loss net loss for the year ended december 31 , 2013 , was usd 10,961,113 compared to a net loss of usd 11,778,750 for the same period in 2012. this decrease of usd 817,637 was mainly due to a reduction in exploration costs and the partially offset by changes in and loss from the sale of investment in associate . operating expenses operating expenses for the year ended december 31 , 2013 , decreased to usd 6,542,669 from usd 11,968,239 reported for the same period in 2012. this is a decrease of 45 % in our total operating expenses , mainly due to lower exploration activity in the ventures in tajikistan and mongolia . personnel costs for the year ended december 31 , 2013 , personnel costs decreased to usd 2,301,938 from usd 2,653,844 for the same period in 2012. this decrease of 13 % is mainly attributable to lower expenses related to equity awards under the stock compensation and stock option plans as well as a wind down of activity in mongolia . exploration costs for the year ended december 31 , 2013 , we incurred exploration costs of usd 1,146,948 as compared to usd 5,784,277 for the same period in 2012. this is a decrease of 80 % primarily related to decreased exploration activity at our project in mongolia because of the moratorium entered into in april 2013 with the government agency pam . consulting fees for the year ended december 31 , 2013 , we incurred consulting fees of usd 1,838,909 as compared to consulting fees of usd 1,812,230 for the same period in 2012. this is an increase of 1 % is due to higher expenses in investor relations . - 28 - for the year ended december 31 , 2013 , we incurred expenses of usd 30,540 related to equity-based awards to non-employees , as compared to usd 36,814 in the same period in 2012.
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as of december 31 , 2015 , the interest coverage ratio was 13.16 to 1.00 , the total debt to ebitdax story_separator_special_tag the following is a discussion of our consolidated financial condition , results of operations , liquidity and capital resources . this discussion excludes the results of our canadian subsidiary which was sold on october 31 , 2014. the results of these foreign operations are included as discontinued operations in the accompanying consolidated financial statements and notes thereto . this discussion should be read in conjunction with our consolidated financial statements and the notes thereto . see “ financial statements and supplementary data ” in item 8. general we are an independent energy company primarily engaged in the acquisition , exploration , exploitation , development and production of oil and gas in the united states . historically , we have grown through the acquisition and subsequent development and exploitation of producing properties , principally through the redevelopment of old fields utilizing new technologies such as modern log analysis and reservoir modeling techniques as well as 3-d seismic surveys and horizontal drilling . as a result of these activities , we believe that we have a number of development opportunities on our properties . in addition , we intend to expand upon our development activities with complementary acreage acquisitions in our core areas of operation . success in our development and exploration activities is critical in the maintenance and growth of our current production levels and associated reserves . while we have attained positive net income in three of the last five years , there can be no assurance that operating income and net earnings will be achieved in future periods . our financial results depend upon many factors which significantly affect our results of operations including the following : 42 commodity prices and the effectiveness of our hedging arrangements ; the level of total sales volumes of oil and gas ; the availability of and our ability to raise additional capital resources and provide liquidity to meet cash flow needs ; the level of and interest rates on borrowings ; and the level and success of exploration and development activity . commodity prices and hedging arrangements . the results of our operations are highly dependent upon the prices received for our oil and gas production . the prices we receive for our production are dependent upon spot market prices , differentials and the effectiveness of our derivative contracts , which we sometimes refer to as hedging arrangements . substantially all of our sales of oil and gas are made in the spot market , or pursuant to contracts based on spot market prices , and not pursuant to long-term , fixed-price contracts . accordingly , the prices received for our oil and gas production are dependent upon numerous factors beyond our control . significant declines in prices for oil and gas could have a material adverse effect on our financial condition , results of operations , cash flows and quantities of reserves recoverable on an economic basis . oil and gas prices have been volatile , and this volatility is expected to continue . as a result of the many uncertainties associated with the world political environment , worldwide supplies of oil , ngl and gas , the availability of other worldwide energy supplies and the relative competitive relationships of the various energy sources in the view of consumers , we are unable to predict what changes may occur in oil , ngl , and gas prices in the future . the market price of oil and condensate , ngl and gas in 2016 will impact the amount of cash generated from operating activities , which will in turn impact our financial position . as of march 10 , 2016 , the nymex oil and gas price was $ 37.84 per bbl of oil and $ 1.79 per mcf of gas , respectively , representing declines of 22 % and 31 % , respectively , from the average nymex prices in 2015. during 2015 , the nymex future price for oil averaged $ 48.76 per barrel as compared to $ 92.91 per barrel in 2014. during 2015 the nymex future spot price for gas averaged $ 2.63 per mmbtu compared to $ 4.26 per mmbtu in 2014. prices closed on december 31 , 2015 at $ 37.04 per bbl of oil and $ 2.34 per mmbtu of gas . if commodity prices remain at these levels or continue to decline , our revenue and cash flow from operations will also likely decline . in addition , lower commodity prices could also reduce the amount of oil and gas that we can produce economically . if oil and gas prices remain depressed or continue to decline , our revenues , profitability and cash flow from operations will also likely decrease which could cause us to alter our business plans , including reducing our drilling activities . such declines could also require us to write down the carrying value of our oil and gas assets which would also cause a reduction in net income . finally , low commodity prices will likely cause a reduction of the borrowing base under our credit facility . the borrowing base under our credit facility is next scheduled to be redetermined on april 1 , 2016. the realized prices that we receive for our production differ from nymex futures and spot market prices , principally due to : basis differentials which are dependent on actual delivery location ; adjustments for btu content ; quality of the hydrocarbons ; and gathering , processing and transportation costs . the following table sets forth our average differentials for the years ended december 31 , 2013 , 2014 and 2015 : replace_table_token_14_th ( 1 ) average realized prices are before the impact of hedging activities . -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - the company 's derivative contracts consist of nymex-based fixed price swaps and three-way collar contracts . story_separator_special_tag as described more fully under “ liquidity and capital resources ” below , our sources of capital are cash flow from operating activities , borrowings under our credit facility , cash on hand , proceeds from the sale of properties , monetizing of derivative instruments , and if an appropriate opportunity presents itself , the sale of debt or equity securities , although we may not be able to complete any financing on terms acceptable to us , if at all . as of december 31 , 2015 , we had approximately $ 31.0 million of availability under our credit facility and $ 3.5 million in cash . the availability under our credit facility is subject to a borrowing base determined by our lenders . this borrowing base is subject to semi-annual redeterminations . the next redetermination becomes effective on april 1 , 2016. borrowings and interest . at december 31 , 2015 , we had a total of $ 134.0 million outstanding under our credit facility and total indebtedness of $ 140.7 million ( including the current portion ) . if interest expense increases as a result of higher interest rates or increased borrowings , more cash flow from operations would be used to meet debt service requirements . as a result , we would need to increase our cash flow from operations in order to fund the development of our drilling opportunities which , in turn , will be dependent upon the level of our production volumes and commodity prices . exploration and development activity . we believe that our high quality asset base , high degree of operational control and inventory of drilling projects position us for future growth . at december 31 , 2015 , we operated properties accounting for approximately 95 % of our pv-10 , giving us substantial control over the timing and incurrence of operating and capital expenditures . we have identified numerous additional drilling locations on our existing leaseholds , the successful development of which we believe could significantly increase our production and proved reserves . over the five years ended december 31 , 2015 , we drilled or participated in 145 gross ( 55.8 net ) wells of which 97 % were commercially productive . our future oil and gas production , and therefore our success , is highly dependent upon our ability to find , acquire and develop additional reserves that are profitable to produce . the rate of production from our oil and gas properties and our proved reserves will decline as our reserves are produced unless we acquire additional properties containing proved reserves , conduct successful development and exploration activities or , through engineering studies , identify additional behind-pipe zones or secondary recovery reserves . we can not assure you that our exploration and development activities will result in increases in our proved reserves . if our proved reserves decline in the future , our production may also decline and , consequently , our cash flow from operations and the amount that we are able to borrow under our credit facility may also decline . in addition , approximately 60 % of our estimated proved reserves on a boe basis ( 19 % on a pv-10 basis ) at december 31 , 2015 were undeveloped . by their nature , estimates of undeveloped reserves are less certain . recovery of such reserves will require significant capital expenditures and successful drilling operations . we may be unable to acquire or develop additional reserves , in which case our results of operations and financial condition could be adversely affected . 2016 outlook market prices for oil , gas and ngl are inherently volatile . accordingly , we can not predict with certainty the future prices for the commodities we produce and sell . current market fundamentals indicate prices for oil , gas and ngl will continue to be depressed for much of 2016. although changes in opec production strategies , geopolitical risks or other factors could impact current forecasts , we anticipate weak commodity prices throughout 2016. depressed prices for oil and gas will likely have a material adverse effect on our results of operations and liquidity . our primary sources of liquidity are cash flow from operations and borrowings under our credit facility . cash flow from operations is sensitive to many variables , the most volatile of which is the price of the oil , gas and ngl we produce and sell . our consolidated cash flow from operations decreased in 2015 as a result of the significant decrease in commodity prices . availability under our credit facility is currently subject to a borrowing base of $ 165.0 million . the borrowing base is subject to scheduled semiannual ( april 1 and october 1 ) and other elective borrowing base redeterminations . the amount of the borrowing base is calculated by the lenders based upon their valuation of our proved reserves securing the facility utilizing these reserve reports and their own internal decisions . the lenders under our credit facility can 45 unilaterally adjust the borrowing base and the borrowings permitted to be outstanding under our credit facility . given the ongoing decline in commodity prices for oil , gas and ngl , it is likely that reductions in our borrowing base could arise in 2016. in 2015 , as a result of the sharp decline in commodity prices , we incurred an impairment to our proved properties of $ 128.6 million . we expect to record additional impairments of our oil and gas properties during 2016 as a result of declining oil and gas prices .
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results of operations selected operating data . the following table sets forth operating data from continuing operations for the periods presented . replace_table_token_17_th _ ( 1 ) revenue and average sales prices are before the impact of hedging activities . comparison of year ended december 31 , 2015 to year ended december 31 , 2014 operating revenue . during the year ended december 31 , 2015 , operating revenue decreased to $ 67.0 million from $ 133.7 million in 2014. the decrease in revenue was primarily due to a significant decline in commodity prices in 2015. lower commodity prices had a negative impact on revenue of $ 69.0 million in 2015. during 2015 we experienced a decline in the average realized oil price of approximately 50 % from 2014 levels . average realized gas prices declined by approximately 53 % and average realized ngl prices declined approximately 75 % from 2014 levels . higher sales volumes of all products added $ 2.3 million to revenue in 2015 as compared to 2014 . 46 oil sales volumes increased to 1,440 mbbls for the year ended december 31 , 2015 from 1,394 mbbls for the same period of 2014. the increase in oil sales volumes was due to new production brought on line in 2015. new wells brought onto production in 2015 contributed 298 mbbls to production for the year ended december 31 , 2015 , offset by natural field declines and property sales . gas sales volumes increased to 3,015 mmcf for the year ended december 31 , 2015 from 2,918 mmcf for the year ended december 31 , 2014. the increase in gas production was due to new wells being brought on line , offset by natural field declines .
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in january 2017 , the fasb issued authoritative guidance clarifying the definition of a business when evaluating transactions involving acquisitions or disposals of assets or story_separator_special_tag the following discussion of our financial condition and results of operations should be read together with our financial statements and related notes included elsewhere in the annual report . this discussion contains forward-looking statements based upon our current plans , estimates , beliefs and expectations that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under the sections entitled “ risk factors , ” “ special note regarding forward-looking statements ” and elsewhere in this annual report . we are an early stage molecular oncology diagnostics company that develops and commercializes proprietary circulating tumor cell , or ctc , and circulating tumor dna , or ctdna , assays utilizing a standard blood sample , or “ liquid biopsy. ” our current and planned assays are intended to provide information to aid healthcare providers to identify specific oncogenic alterations that may qualify a subset of cancer patients for targeted therapy at diagnosis , progression or for monitoring in order to identify specific resistance mechanisms . sometimes traditional procedures , such as surgical tissue biopsies , result in tumor tissue that is insufficient and or unable to provide the molecular subtype information necessary for clinical decisions . our assays , performed on blood , have the potential to provide more contemporaneous information on the characteristics of a patient 's disease when compared with tissue biopsy and radiographic imaging . our current assays and our planned future assays focus on key solid tumor indications utilizing our target-selector tm liquid biopsy technology platform for the biomarker analysis of ctcs and ctdna from a standard blood sample . our patented target-selector ctc offering is based on an internally developed microfluidics-based cell capture and analysis platform , with enabling features that change how information provided by ctc testing is used by clinicians . our ctc technology could also be validated on cerebral spinal fluid in order to provide information for patients with leptomeningeal disease . our patented target-selector ctdna technology enables detection of mutations and genome alterations with enhanced sensitivity and specificity , and is applicable to nucleic acid from ctdna , and could potentially be validated for other sample types such as bone marrow , tissue or cerebrospinal fluid . our target-selector ctc and ctdna platforms provide both biomarker detection as well as monitoring capabilities and require only a patient blood sample . we believe that our target-selector platform technology has the potential to be developed and commercialized as in vitro diagnostic ( ivd ) test kits , and we are currently pursuing this strategy . at our corporate headquarters facility located in san diego , california , we operate a clinical laboratory that is certified under the clinical laboratory improvement amendments of 1988 , or clia , and accredited by the college of american pathologists , or cap . we also perform research and development that led to our current assays and planned assays , at this same facility . in addition , we manufacture our microfluidic channels , related equipment and certain reagents . the assays we offer and intend to offer are classified as laboratory developed tests , or ldts , under clia regulations . clia certification is required before any clinical laboratory , including ours , may perform testing on human specimens for the purpose of obtaining information for the diagnosis , prevention , or treatment of disease or the assessment of health . in addition , we participate in and have received cap accreditation , which includes rigorous bi-annual laboratory inspections and adherence to specific quality standards . our primary sales strategy is to engage medical oncologists , surgical oncologists , pulmonologists , pathologists and other physicians in the united states at private and group practices , hospitals and cancer centers . in addition , we market our clinical trial and research services to pharmaceutical and biopharmaceutical companies and clinical research organizations . additionally , commencing in october 2017 , our pathology partnership program , branded as empower tc tm , provides the unique ability for pathologists to participate in the interpretation of liquid biopsy results and is available to pathology practices and hospital systems throughout the united states . further , our proprietary blood collection tubes , or bcts , which allow for the intact transport of liquid biopsy samples for research use only , or ruo , from regions around the world , are anticipated to be sold to laboratory supply distributors commencing in 2018. our revenue generating efforts are focused in three areas : medical oncologists , surgical oncologists , pulmonologists , pathologists and other physicians who use the biomarker information we provide in order to determine the best treatment plan for their patients ; providing laboratory services utilizing both our ctc and ctdna testing in order to help pharmaceutical and biopharmaceutical companies developing drug candidate therapies to treat cancer ; and licensing and or selling our proprietary testing and or technologies to partners in the united states and abroad . 64 assays , products and services we have commercialized our target-selector assays for a number of solid tumor indications such as : breast cancer , non-small cell lung cancer , or nsclc , gastric cancer , colorectal cancer , prostate cancer , melanoma , pancreaticobiliary cancer , and ovarian cancer . these assays utilize our dual ctc and ctdna technology platforms and provide biomarker analysis from a patient 's blood sample . story_separator_special_tag we completed a study , published in cancer medicine in march 2013 , utilizing our assay , and a version of this assay adapted for use with bone marrow samples , with a group at the university of texas md anderson cancer center comprised of breast cancer surgeons , pathologists and basic researchers . in this study , we demonstrated the ability to identify her2 positive ctcs and disseminated tumor cells , or dtcs , seen in bone marrow in patients that had been previously classified as her2 negative by analysis of their tumor tissue . a her2 positive result in a patient with breast cancer provides an indication to the physician that there is likely to be a survival benefit from treatment with herceptin ® , which has been demonstrated in a number of large clinical studies . we were involved in a clinical study led by investigators at the dana-farber cancer institute following up on the study findings , published in cancer medicine regarding ctcs . this study has completed enrolling patients . in the screening phase of this study , we tested in our clia-certified , cap accredited , and state-licensed laboratory blood samples from her2 negative patients based on standard tumor tissue analysis , to identify those patients that have her2 positive ctcs . these patients were then assigned to chemotherapy plus herceptin ® , and followed for a period of time , with additional ctc assays , including biomarker analysis for her2 using fish , performed at subsequent time points . in december 2014 , we announced findings that were presented at the san antonio breast conference that 22 % of 311 patients tested , who were previously her2 negative according to a solid tumor biopsy , were found , upon disease progression , to be her2 positive by ctc analysis , making them potential candidates for anti-her2 therapy as the cancer evolves . moreover , our multi-antibody ctc capture method identified a substantial subset of patients who would not likely be detected with commonly used ctc capture technologies . this added 10 % ( included in the 22 % ) to the number of women who were candidates for this highly specific targeted therapy . with our cooperation , researchers at columbia published a study in the journal clinical and translational oncology in january 2015. the study demonstrated the high correlation ( 79 % ) of circulating tumor cells , primary tumor tissue biopsy and metastatic tumor tissue biopsy for determination of hormone receptor status ( er/pr ) in breast cancer patients . the investigators also found that this high correlation was strongest when comparing metastatic tissue biopsy to ctcs ( 83 % ) . the conclusion of the study was that determining er/pr status in ctcs using our platform is feasible , with high concordance in er/pr between tumor tissue ( as determined with immunohistochemistry , or ihc ) and ctcs ( as determined with immunocytochemistry , or icc ) . the authors suggest a larger trial to determine the prognostic significance of these findings . in collaboration with the university of california , san diego , in june 2015 we presented the clinical validation data of our ctdna assay demonstrating a very high level of concordance to tissue results ( 88 % ) , and with our > 95 % analytical sensitivity and 99 % analytical specificity , that we offer a validated , robust non-invasive solution for mutation identification and monitoring in patients with lung cancer . the fda approval of tagrisso ® , a third-generation tyrosine kinase inhibitor , presents an opportunity for patients to be monitored using a ctdna assay . during 2016 , we announced a pharmaceutical collaboration agreement that provides testing for a clinical trial , which includes metastatic lung cancer patients with leptomeningeal or brain metastases . in this exploratory trial , we are testing both cerebrospinal fluid and blood for molecular alterations that could be impacted by treatment . in april 2016 , we announced a collaboration involving a study conducted with dr. giuseppe giaccone at the medstar georgetown university hospital to assess resistance biomarkers in nsclc patients treated with egfr inhibitors or chemotherapy . also in 2016 , we announced another collaboration involving a study presented at the european society for medical oncology , or esmo , annual congress in october 2016 , evaluating the detection of egfr alterations ( del19 , l858r and t790m ) by our target-selector liquid biopsy . subsequent to this study , we have earned business in both mexico and columbia for egfr testing in blood to qualify patients for a pharmaceutical company 's targeted therapy . the relationship also resulted in a 2017 study that includes peripheral blood ctc assessment of pd-l1 protein expression in patients undergoing chemotherapy as a monotherapy or in combination with a checkpoint inhibitor . in december 2016 , we announced a clinical study agreement with columbia 66 university medical center to evaluate the clinical utility of our target-selector platform to diagnose leptomeningeal metastases , or lm , in breast cancer patients . dr . kevin kalinsky leads the study to test ctcs in cerebrospinal fluid and blood , where ctc analysis will be compared to standard methods for confirming lm diagnosis . in april 2017 , we announced our entry into a preferred provider collaboration and services agreement with oregon health & sciences university on behalf of the ohsu knight cancer institute , or collectively ohsu . the multiphase agreement grants ohsu the rights to commercially offer our target-selector liquid biopsy testing services exclusively throughout the state of oregon . additionally , we and ohsu plan to engage in technology transfer , whereby ohsu will have the ability to use target-selector assays in-house , and act as a secondary laboratory for our research and testing activities . we and ohsu also plan to co-develop additional liquid biopsy assay technologies and platform capabilities including highly sensitive , multiplexed assay panels for molecular biomarker detection and assessment . additional research and development and commercial pilot projects are anticipated under the agreement .
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results of operations years ended december 31 , 2016 and 2017 the following table sets forth certain information concerning our results of operations for the periods shown : replace_table_token_4_th net revenues net revenues were approximately $ 5,069,000 for the year ended december 31 , 2017 , compared with approximately $ 3,223,000 for the same period in 2016 , an increase of $ 1,846,000 , or 57 % . of the $ 5,069,000 of net revenues recognized during the year ended december 31 , 2017 , $ 3,843,000 related to revenues recognized on an accrual basis , while $ 1,226,000 related to revenues recognized upon the receipt of cash , as compared to the same period in 2016 when $ 240,000 of revenues were recognized on an accrual basis and $ 2,983,000 of revenues were recognized upon the receipt of cash . during the three months ended march 31 , 2017 , we converted from cash-based revenue recognition for our commercial revenues to accrual-based revenue recognition . as a result of the change to accrual-based revenue recognition , we recognized total nonrecurring net revenue of $ 843,000 during the year ended december 31 , 2017 , which represents the estimated value of net accounts receivable at december 31 , 2016 that was recognized as revenue during the year ended december 31 , 2017 , and the incremental net revenue recorded as a result of the change was $ 1,139,000 , which represents the total amount of net revenue recorded in excess of the amount of commercial cash collections .
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overview we are a designer , developer and global supplier of a broad portfolio of power semiconductors . our portfolio of power semiconductors includes approximately 2,300 products , and has grown significantly with the introduction of over 160 new products in the fiscal year ended june 30 , 2020 , and over 200 new products in each of the fiscal year ended june 30 , 2019 and 2018 , respectively . our teams of scientists and engineers have developed extensive intellectual properties and technical knowledge that encompass major aspects of power semiconductors , which we believe enables us to introduce and develop innovative products to address the increasingly complex power requirements of advanced electronics . we have an extensive patent portfolio that consists of 823 patents and 76 patent applications in the united states as of june 30 , 2020 . we also have a total of 851 foreign patents , which primarily were based on our research and development efforts through june 30 , 2020. we differentiate ourselves by integrating our expertise in technology , design and advanced manufacturing and packaging to optimize product performance and cost . our portfolio of products targets high-volume applications , including portable computers , graphic cards , flat panel tvs , home appliances , smart phones , battery packs , consumer and industrial motor controls and power supplies for tvs , computers , servers and telecommunications equipment . our business model leverages global resources , including research and development and manufacturing in the united states and asia . our sales and technical support teams are localized in several growing markets . we operate an 8-inch wafer fabrication facility located in hillsboro , oregon , or the oregon fab , which is critical for us to accelerate proprietary technology development , new product introduction and improve our financial performance . to meet the market demand for the more mature high volume products , we also utilize the wafer manufacturing capacity of selected third party foundries . for assembly and test , we primarily rely upon our in-house facilities in china . in addition , we utilize subcontracting partners for industry standard packages . we believe our in-house packaging and testing capability provides us with a competitive advantage in proprietary packaging technology , product quality , cost and sales cycle time . we operate a power semiconductor packaging , testing and wafer fabrication facility in the liangjiang new area of chongqing , china through our joint venture ( the “ jv company ” ) with two investment funds owned by the municipality of chongqing ( the “ chongqing funds ” ) , ( the “ jv company ” ) . we currently own 51 % , and the chongqing funds own 49 % , of the equity interest in the jv company . the company 's consolidated financial statements for the fiscal years ended june 30 , 2020 , 2019 and 2018 reflect net losses attributable to the non-controlling interest in the jv company of $ 11.7 million , $ 16.5 million and $ 9.3 million , respectively . while the jv company is our consolidated subsidiary for purpose of financial reporting , it operates as an independent and separate legal entity . as a result , the jv company 's assets and liabilities are generally segregated from our companies . for example , the jv company incurs debt through its own financing and bank loan agreements , and our parent company and other subsidiaries are not parties to these agreements and do not provide any guarantee or security for the jv company 's debt , nor do we have direct access to any cash proceeds borrowed from such loan agreements . as part of our strategic plan , we built the jv company to fulfill growing customer demand . in fact , in the quarter ended june 30 , 2020 , the jv company made a major contribution to capturing increasing demand for our products . even though the covid-19 pandemic has slowed its production , we are continuing to make progress . the jv company had been ramping up its production of assembly and testing during the fiscal year 2020. the 12-inch wafer fabrication facility commenced its limited mass production in the quarter ended september 30 , 2019 and continued its ramp in the year ended june 30 , 2020. importantly , the jv company achieved a positive ebitdas in the fourth quarter of fiscal year 2020. for the quarter ending september 30 , 2020 , we expect the jv company to sequentially increase its production of its 12-inch wafer fabrication and assembly and test . our current goal is to achieve phase 1 target run rate in the quarter ending september 30 , 2021. however , the impact of the global covid-19 pandemic and related economic downturn , intensified geopolitical tensions , logistical difficulties and other factors beyond our control could delay our plan . we will continue to monitor and evaluate market conditions closely during this period and react quickly to the changing environment as necessary to achieve an optimal production level at the jv company . we expect the joint venture to provide much needed capacity to support our future growth , enhance our market positions in china , and drive improvements in capital expenditures . on september 5 , 2017 , we entered into a license agreement with stmicroelectronics international n.v. ( “ stmicro ” ) , pursuant to which stmicro granted us a world-wide , royalty-free and fully-paid license to use its technologies to develop , market and distribute certain digital multi-phase controller products , which have been previously offered by stmicro . as of june 30 , 2020 , we recorded $ 16.2 million as intangible assets . we will begin to amortize such intangible asset during the 44 september 2020 quarter , which is when the technology meets qualification requirements and becomes ready for its intended use in production . story_separator_special_tag in addition , we are developing our digital power business based on the stmicro license agreement , which will allow us to design and distribute a full suite of advanced low-voltage power ic products . we have incurred and expect to continue to incur additional costs , including costs relating to compensation of qualified engineers and technical staff and other research and development and management activities , as we continue to build this new business . in the short term , we will not be able to generate sufficient amount of revenue from either of these two business initiatives to offset the increased costs , which will likely negatively impact our results of operations . manufacturing costs : our gross margin is affected by a number of factors including our manufacturing costs , utilization of our manufacturing facilities , the production mixtures of our sales , pricing of wafers from third party foundries and pricing of semiconductor raw materials . capacity utilization affects our gross margin because we have certain fixed costs associated with our packaging and testing facilities at our oregon fab and our chongqing fabrication facility operated by the jv company . we expect that in the long term our jv company will reduce our cost of manufacturing . if we are unable to utilize our manufacturing facilities at a desired level , our gross margin may be adversely affected . in addition , from time to time , we may experience wafer capacity constraints , particularly at third party foundries , that may prevent us from fully meeting the demand of our customers . while we can mitigate such constraints by increasing and re-allocating capacity at our own fab , we may not be able to do so quickly or at sufficient level , which could adversely affect our financial conditions and results of operations . erosion and fluctuation of average selling price : erosion of average selling prices of established products is typical in our industry . consistent with this historical trend , we expect our average selling prices of existing products to decline in the future . however , in the normal course of business , we seek to offset the effect of declining average selling price by introducing new and higher value products , expanding existing products for new applications and new customers and reducing the manufacturing cost of existing products . these strategies may cause the average selling price of our products to fluctuate significantly from time to time , thereby affecting our financial performance and profitability . the global , regional economic and pc market conditions : because our products primarily serve consumer electronic applications , a deterioration of the global and regional economic conditions could materially affect our revenue and results of operations . for example , because a significant amount of our revenue is derived from sales of products in the personal computing ( `` pc '' ) markets , such as notebooks , motherboards and notebook battery packs , a significant decline or downturn in the pc market can have a material adverse effect on our revenue and results of operations . our revenue from the pc markets accounted for approximately 41.1 % , 45.9 % and 41.6 % of our total revenue for the years ended june 30 , 2020 , 2019 and 2018 , respectively . the pc markets have experienced a modest global decline in recent years due to continued growth of demand in tablets and smart phones , worldwide economic conditions and the industry inventory correction which had and may continue to have a material impact on the demand for our products . while recently we have experienced an increase of demand in pc market due to the impact of the covid-19 pandemic , we can not predict whether and how long this trend will continue . a decline of the pc market may have negative impact on our revenue , factory utilization , gross margin , our ability to resell excess inventory , and other performance measures . we have executed and continue to execute strategies to diversify our product portfolio , penetrate other market segments , including the consumer , communications and industrial markets , and improve gross margins and profit by implementing cost control measures . while making efforts to reduce our reliance on the computing market , we continue to support our computing business and capitalize on the opportunities in this market with a more focused and competitive pc product strategy to gain market share . product introductions and customers ' product requirements : our success depends on our ability to introduce products on a timely basis that meet or are compatible with our customers ' specifications and performance requirements . both factors , timeliness of product introductions and conformance to customers ' requirements , are equally important in securing design wins with our customers . as we accelerate the development of new technology platforms , we expect to increase the pace at which we introduce new products and seek and acquire design wins . our failure to introduce new products on a timely basis that meet customers ' specifications and performance requirements , particularly those products with major oem customers , and our inability to continue to expand our serviceable markets , could adversely affect our financial performance , including loss of market share . we believe that the jv transaction will increase and diversify our customer base , particularly in china , in the long term . however , the ramp-activities and production schedule of our jv company have been impacted by the covid-19 pandemic and related events , as discussed above .
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operating results the following tables set forth our results of operations and as a percentage of revenue for the fiscal years ended june 30 , 2020 , 2019 and 2018 . our historical results of operations are not necessarily indicative of the results for any future period . replace_table_token_2_th ( 1 ) includes share-based compensation expense as follows : replace_table_token_3_th revenue the following is a summary of revenue by product type : replace_table_token_4_th 50 fiscal 2020 vs 2019 total revenue was $ 464.9 million for fiscal year 2020 , an increase of $ 14.0 million , or 3.1 % , as compared to $ 450.9 million for fiscal year 2019 . the increase was primarily due to an increase of $ 20.1 million in sales of power discrete products , partially offset by a decrease of $ 3.9 million in sales of power ic products . the net increase in product sales was primarily due to a 6.0 % increase in average selling price as compared to last fiscal year due to a shift in product mix , partially offset by a 2.3 % decrease in unit shipments . the decrease in revenue of packaging and testing services for fiscal year 2020 as compared to last fiscal year was primarily due to the fluctuation of demand on these services externally . during fiscal year 2020 , we accelerated the development of new technology platforms which allowed us to introduce 48 medium and high voltage mosfet products , targeting primarily the power supply , as well as 42 low voltage mosfet products primarily for the computing and communication markets . in addition , we introduced 56 power ic new products for computing applications , communication and consumer markets .
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( f ) deferred story_separator_special_tag the following discussion should be read in conjunction with `` selected financial data '' and the historical consolidated financial statements and notes thereto appearing elsewhere in this form 10-k. 2016 accomplishments occupancy of manufactured home sites within our core portfolio ( as defined below ) increased by 597 sites to 94.0 % as of december 31 , 2016 compared to 93.1 % as of december 31 , 2015. rv revenue within our core portfolio increased by 5.9 % as compared to 2015 . new home sales volume increased by 179 homes , or 37.4 % as compared to 2015 . closed on the acquisition of three rv resorts and one mh community for a total purchase price of approximately $ 120.5 million . raised our annual dividend to $ 1.70 per share in 2016 , an increase of 13.3 % compared to $ 1.50 per share in 2015 . sold 683,548 shares for gross proceeds of $ 50.0 million through our at-the-market ( `` atm '' ) equity offering program . closed on approximately $ 88.1 million of refinancing proceeds on six properties and paid maturing debt of approximately $ 41.8 million . after closing on these loans , our current debt balance has a weighted average maturity of 10.1 years and approximately 32.0 % of our outstanding secured debt is fully amortizing . overview and outlook occupancy in our properties , as well as our ability to increase rental rates , directly affects revenues . our revenue streams are predominantly derived from customers renting our sites on a long-term basis . our mh community sites and annual rv resort sites are leased on an annual basis . seasonal sites are leased to customers generally for one to six months . transient sites are leased to customers on a short-term basis . the revenue from seasonal and transient sites is generally higher during the first and third quarters . we consider the transient revenue stream to be our most volatile as it is subject to weather conditions and other factors affecting the marginal rv customer 's vacation and travel preferences . sites designated as right-to-use sites are primarily utilized to service the approximately 104,700 customers who have entered into right-to-use contracts . we also have interests in joint venture properties for which revenue is classified as equity in income from unconsolidated joint ventures in the consolidated statements of income and comprehensive income . the following table shows the breakdown of our sites by type ( amounts are approximate ) : replace_table_token_15_th _ ( 1 ) includes approximately 5,700 sites rented on an annual basis . ( 2 ) includes approximately : 2,300 annual sites , 400 seasonal sites and 500 transient sites . for the periods presented , our core portfolio ( `` core portfolio '' ) consists of our properties owned and operated during the entire period . this measure is useful to investors for annual comparison as it removes the fluctuations associated with acquisitions , dispositions and significant transactions or unique situations , which are included in income from property operations , excluding deferrals and property management . for the year ended december 31 , 2016 , property operating revenues in our core portfolio , excluding deferrals , were up 4.6 % and property operating expenses in our core portfolio , excluding deferrals and property management , were up 3.2 % , resulting in an increase in our core portfolio net operating income before deferrals and property management of 5.7 % . our core portfolio occupancy consists of occupied home sites in our mh communities . our core portfolio average occupancy was 93.5 % for the year ended december 31 , 2016 , compared to 92.6 % for the year ended december 31 , 2015. our historical high was 94.6 % in 2000. in the years following the disruption in the site-built housing market , our home sales business was negatively affected by our customers ' inability to sell their existing site-built homes and relocate to their retirement destination . as a result , we focused on home rental rather than sales as our primary source of occupancy upon turnover . at its peak , in 2013 , rental occupancy represented almost 10.0 % of our core portfolio occupancy . in recent years we have focused on the quality of occupancy growth by increasing the number of manufactured homeowners in our core portfolio . as of december 31 , 2016 , we increased occupancy of manufactured homes within our core portfolio by 597 sites with an increase in homeowner occupancy of 33 management 's discussion ( continued ) 814 sites compared to occupancy at december 31 , 2015 . by comparison , as of december 31 , 2015 , our core portfolio occupancy increased by 473 sites with an increase in homeowner occupancy of 749 sites compared to occupancy at december 31 , 2014 . as of december 31 , 2016 , we had 4,750 occupied rental homes , which represents 7.2 % of our occupancy in our manufactured home communities . for the years ended december 31 , 2016 and 2015 , home rental program net operating income was approximately $ 32.3 million and $ 32.8 million , respectively , net of rental asset depreciation expense of approximately $ 10.7 million for each of the comparative periods . approximately $ 35.7 million and $ 36.6 million of home rental operations revenue was included in community base rental income for the years ended december 31 , 2016 and 2015 , respectively ( see the rental operations tables in the sections below for additional detail regarding our rental activity ) . we believe at this time we compete effectively with other types of rentals ( i.e. , apartments ) . we continue to evaluate home rental operations and expect to continue to invest in additional units . approximately one third of our rental agreements on mh community sites have rent increases that are directly or indirectly connected to published cpi statistics that are issued from june through september of the year prior to the increase effective date . story_separator_special_tag our social media presence has increased within this member base and we have also been successful at providing a venue for our customers to promote our properties by encouraging them to share their memories of their experiences at our resorts . 2016 is the third full year of enhanced marketing campaigns to drive traffic to our properties and websites . in that time period , we have tripled our social media fan base to the current level of 340,000. our annual online visitors have doubled , and we have tripled our rv reservations booked online . property acquisitions , joint ventures and dispositions the following chart lists the properties or portfolios acquired , invested in , or sold during the period january 1 , 2015 through december 31 , 2016 . replace_table_token_17_th our gross investment in real estate has increased approximately $ 207.7 million to $ 4,685.3 million as of december 31 , 2016 from $ 4,477.6 million as of december 31 , 2015 primarily due to increased capital expenditures as well as the acquisition of four properties : rose bay rv resort , portland fairview , forest lakes estates and riverside rv . 35 management 's discussion ( continued ) markets the following table identifies our largest markets by number of sites and provides information regarding our properties ( excluding five properties owned through joint ventures ) . replace_table_token_18_th _ ( 1 ) property operating revenues for this calculation excludes approximately $ 12.3 million of property operating revenue not allocated to properties , which consists primarily of upfront payments from right-to-use contracts . qualification as a reit we believe that we have qualified for taxation as a real estate investment trust ( `` reit '' ) for u.s. federal income tax purposes since our taxable year ended december 31 , 1993. we plan to continue to meet the requirements for taxation as a reit . many of these requirements , however , are highly technical and complex and concern the ownership of our outstanding stock , the nature of our assets , the sources of our income and the amount of our distributions to our stockholders . the fact that we hold our assets through our operating partnership and our subsidiaries further complicates the application of the reit requirements . if we fail to qualify as a reit and are unable to correct such failure we would be subject to u.s. federal income tax at regular corporate rates . also , unless the irs granted us relief under certain statutory provisions , we would remain disqualified as a reit for four years following the year we first failed to qualify . even if we qualify for taxation as a reit , we are subject to certain foreign , state and local taxes on our income and property and u.s. federal income and excise taxes on our undistributed income . recent u.s. federal income tax legislation on december 18 , 2015 , the consolidated appropriations act , 2016 was enacted ; an omnibus spending bill , with a division referred to as the protecting americans from tax hikes act of 2015 ( the `` path act '' ) . the path act changes certain of the rules affecting reit qualification and taxation of reits and reit shareholders , which are briefly summarized below . for taxable years beginning after 2017 , the percentage of a reit 's total assets that may be represented by securities of one or more taxable reit subsidiaries ( `` trss '' ) is reduced from 25 % to 20 % . `` publicly offered reits '' ( which generally include any reit required to file annual and periodic reports with the sec , including us ) are no longer subject to the preferential dividend rules for taxable years beginning after 2014. for taxable years beginning after 2015 , debt instruments issued by publicly offered reits are qualifying assets for purposes of the 75 % reit asset test . however , no more than 25 % of the value of a reit 's assets may consist of debt instruments that are issued by publicly offered reits that are not otherwise treated as real estate assets , and interest on debt of a publicly offered reit will not be qualifying income under the 75 % reit gross income test unless the debt is secured by real property . for taxable years beginning after 2015 , to the extent rent attributable to personal property is treated as rents from real property ( because rent attributable to the personal property for the taxable year does not exceed 15 % of the total rent for the taxable year for such real and personal property ) , the personal property will be treated as a real estate asset for purposes of the 75 % reit asset test . similarly , a debt obligation secured by a mortgage on both real and personal property will be treated as a real estate asset for purposes of the 75 % asset test , and interest thereon will be treated as interest on an obligation secured by real property , if the fair market value of the personal property does not exceed 15 % of the fair market value of all property securing the debt . 36 management 's discussion ( continued ) for taxable years beginning after 2015 , a 100 % excise tax will apply to `` redetermined services income , '' i.e. , non-arm's-length income of a reit 's trs attributable to services provided to , or on behalf of , the reit ( other than services provided to reit tenants , which are potentially taxed as redetermined rents ) .
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results of operations comparison of year ended december 31 , 2016 to year ended december 31 , 2015 income from property operations the following table summarizes certain financial and statistical data for our core portfolio and the total portfolio for the years ended december 31 , 2016 and 2015 ( amounts in thousands ) . the core portfolio may change from time-to-time depending on acquisitions , dispositions and significant transactions or unique situations . the core portfolio in this comparison of the years ended december 31 , 2016 and december 31 , 2015 includes all properties acquired prior to december 31 , 2014 and which we have owned and operated continuously since january 1 , 2015 . core portfolio growth percentages exclude the impact of u.s. gaap deferrals of upfront payments from right-to-use contracts and related commissions . 37 management 's discussion ( continued ) replace_table_token_20_th ( 1 ) non-gaap measure . the increase in total portfolio income from property operations is primarily due to increases in both core and non-core community base rental income , resort base rental income , as well as increased utility and other income . the increase in property operating revenues , excluding deferrals , is partially offset by increases in property operating and maintenance expense and real estate taxes . the 4.6 % increase in core portfolio community base rental income primarily reflects a 3.7 % growth from rate increases and a 0.9 % growth from occupancy gains . the average monthly base rent per site in our core portfolio increased to approximately $ 590 in 2016 from approximately $ 569 in 2015 . the average occupancy for the core portfolio increased to 93.5 % in 2016 from 92.6 % in 2015 .
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” readers are cautioned that the statements , estimates , projections or outlook contained in this report , including discussions regarding financial prospects , economic conditions , trends and uncertainties contained in this item 7 , may constitute forward-looking statements within the meaning of the pslra . these forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the expectations expressed or implied in the forward-looking statements . a description of some of the risks and uncertainties can be found further below in this item 7 and in part i , item 1a , “ risk factors. ” executive overview general unitedhealth group is a diversified health and well-being company dedicated to helping people live healthier lives and making the health system work better for everyone . we offer a broad spectrum of products and services through two distinct platforms : unitedhealthcare , which provides health care coverage and benefits services ; and optum , which provides information and technology-enabled health services . we have four reportable segments across our two business platforms , unitedhealthcare and optum : unitedhealthcare , which includes unitedhealthcare employer & individual , unitedhealthcare medicare & retirement , unitedhealthcare community & state and unitedhealthcare global ; optumhealth ; optuminsight ; and optumrx . further information on our business and reportable segments is presented in part i , item 1 , “ business ” and in note 13 of notes to the consolidated financial statements included in part ii , item 8 , “ financial statements. ” business trends our businesses participate in the u.s. , brazilian and certain other international health economies . in the u.s. , health care spending comprises approximately 18 % of gross domestic product and has grown consistently for many years . we expect overall spending on health care to continue to grow in the future , due to inflation , medical technology and pharmaceutical advancement , regulatory requirements , demographic trends in the population and national interest in health and well-being . the rate of market growth may be affected by a variety of factors , including macro-economic conditions and regulatory changes , including enacted health reform legislation in the united states , which have impacted and could further impact our results of operations . pricing trends . to price our health care benefit products , we start with our view of expected future costs . we frequently evaluate and adjust our approach in each of the local markets we serve , considering all relevant factors , such as product positioning , price competitiveness and environmental , competitive , legislative and regulatory considerations . our review of regulatory considerations involves a focus on minimum mlr thresholds and the new risk adjustment , risk corridor and reinsurance provisions that impact the small group and individual markets . we will continue to balance growth and profitability across all of these dimensions . overall , we continue to be under pressure from ongoing market competition in commercial products and from government payment rates . the intensity of commercial pricing competition depends on local market conditions and competitive dynamics . health plans have generally reflected the industry tax and reinsurance programs ( together , aca fees ) in their pricing . conversely , the industry has continued to experience favorable medical cost trends due to moderated utilization , which has impacted pricing trends . having reflected the additional cost step-ups in 2014 related to the aca fees , we anticipate health plans ' pricing returning to a more normal inflation rate in 2015. annual commercial premium rate increases are subject to federal and state review and approval procedures . while our rates and rate filings are developed using methods consistent with the standards of actuarial practice , we have experienced regulatory challenges to proposed premium rate increases in certain states , including california and new york . the medicare advantage rate structure is changing and funding has been cut in recent years , with additional reductions to take effect in 2015 , as discussed below in “ regulatory trends and uncertainties. ” we are taking actions to respond to these funding reductions , but the reductions adversely affected after-tax earnings for our medicare business during 2014 , and we expect our 29 2015 medicare mlr to be slightly higher than in 2014. we expect continued medicaid revenue increases due to anticipated growth in our offerings ; we also believe that the reimbursement rate environment creates the risk of downward pressure on medicaid net margin percentages . we continue to take a prudent , market-sustainable posture for both new business and maintenance of existing relationships . we advocate for actuarially sound rates that are commensurate with our medical cost trends and remain dedicated to partnering with those states that are committed to the long-term viability of their programs . medical cost trends . our medical cost trends are primarily related to unit costs , utilization and prescription drug costs . consistent with our experience in recent years , our 2014 cost trends were largely driven by continued unit cost pressure from health care providers . although the weak economic environment combined with our medical cost management strategies has had a favorable impact on utilization trends in recent years , the impacts of health reform legislation , namely mandated essential health benefits and limits on out-of-pocket maximums , are exerting upward pressure on medical cost trends . the primary drivers of prescription drug trends continue to be unit cost pressure on brand name drugs and a shift towards expensive new specialty medications , including new hepatitis c therapies . delivery system and payment modernization . the health care market continues to change based on demographic shifts , new regulations , political forces and both payer and patient expectations . health plans and care providers are being called upon to work together to close gaps in care and improve overall care quality , improve the health of populations and reduce costs . delivery system modernization and payment reform are critical and the alignment of incentives between key constituents remains an important theme . story_separator_special_tag these programs encompass : a reinsurance program ; a temporary risk corridors program ; and a permanent risk adjustment program . the reinsurance program is a temporary program that will be funded on a per capita basis from all commercial lines of business including insured and self-funded arrangements . the total three year amount of $ 25 billion for the reinsurance program will be allocated as follows : $ 20 billion ( 2014 - $ 10 billion , 2015 - $ 6 billion , 2016 - $ 4 billion ) subject to increases based on state decisions , to fund the reinsurance pool and $ 5 billion ( 2014 and 2015 - $ 2 billion , 2016 - $ 1 billion ) to fund the u.s. treasury . while funding for the reinsurance program will come from all commercial lines of business , only market reform compliant individual businesses will be eligible for reinsurance recoveries . for detail on the industry tax and premium stabilization programs , see note 2 of notes to the consolidated financial statements included in part ii , item 8 , “ financial statements. ” exchanges and coverage expansion . across markets , we and our competitors are adapting product , network and marketing strategies to anticipate new or expanding distribution channels including public exchanges , private exchanges and off exchange purchasing . effective in 2014 , states have either created their own public exchange , entered a partnership exchange or relied on the federally facilitated exchange for individuals and small employers . the exchanges have created new market dynamics that have impacted and could further impact our existing businesses , depending on the ultimate member migration patterns for each market . in 2014 , commercial fully insured membership expanded industry-wide with more than 7 million consumers served through the individual public exchanges alone . self-insured enrollment remained relatively stable , but there has been an increased interest in post-reform alternatives such as private exchange solutions . our level of participation in public exchanges is determined on a state-by-state basis . each state is evaluated based on factors such as growth opportunities , our current local presence , our competitive positioning , our ability to honor our commitments to our local customers and consumers , and the regulatory environment . in 2014 , we participated in 13 state public exchanges , including four individual and nine small group exchanges . in 2015 , we are participating in 23 individual exchanges and in 12 small group exchanges . health reform legislation also provided for optional expanded medicaid coverage that became effective in january 2014. we participate in programs in 24 states and the district of columbia , and of these , 12 states opted to expand medicaid for 2014. for 2015 , 13 of our state customers have elected to expand medicaid . the congressional budget office forecasts that due to medicaid expansion , a total of 13 million people will have obtained coverage through medicaid by the end of 2016 , and we are actively seeking to build market share serving the needs of these medicaid expansion beneficiaries and their state sponsors . 31 story_separator_special_tag style= '' line-height:120 % ; padding-top:6px ; font-size:10pt ; '' > earnings from operations and operating margins for the year ended december 31 , 2014 increased primarily due to revenue growth and cost efficiencies , offset in part by investments to develop future growth opportunities . 35 optuminsight revenue , earnings from operations and operating margins at optuminsight for the year ended december 31 , 2014 increased primarily due to the growth and expansion in revenue management services and government exchange services , partially offset by a reduction in hospital compliance services and investments for future growth . optumrx increased optumrx revenue for the year ended december 31 , 2014 was due to growth in people served in unitedhealthcare 's public and senior markets , the insourcing of unitedhealthcare 's commercial pharmacy benefit programs , which was completed on january 1 , 2014 , growth from external clients and an increase in specialty pharmaceutical revenues . earnings from operations and operating margins for the year ended december 31 , 2014 increased primarily due to growth in scale that resulted in greater productivity and better absorption of our fixed costs , and improved performance in both drug purchasing and home delivery pharmacy fulfillment . 2013 results of operations compared to 2012 results consolidated financial results revenues the increases in revenues during 2013 were primarily driven by the full year effect of 2012 acquisitions , including amil , growth in the number of individuals served through benefit products and overall organic growth in each of optum 's major businesses . the revenue impact of these factors was partially offset by the reduction in medicare advantage rates . also offsetting the revenue increase was the first quarter conversion of a large fully-insured commercial customer from a risk-based to a fee-based arrangement affecting 1.1 million members . while this conversion reduced our full-year 2013 consolidated revenues by $ 2.3 billion , the impact to earnings from operations and cash flows was negligible . medical costs and medical care ratio medical costs during 2013 increased due to risk-based membership growth in our international and public and senior markets businesses , partially offset by the funding conversion of the large client discussed above . the year-over-year medical care ratio increased primarily due to funding reductions for medicare advantage products , changes in business mix favoring governmental benefit programs , and reduced levels of favorable medical cost reserve development . operating costs the increase in our operating costs during 2013 was due to business growth , including an increase in fee-based benefits and fee-based service revenues and a greater mix of international business , which carry comparatively higher operating costs , partially offset by our ongoing cost containment efforts . reportable segments unitedhealthcare unitedhealthcare 's revenue growth in 2013 was primarily attributable to the impact of 2012 acquisitions and the growth in the number of individuals served .
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results summary the following table summarizes our consolidated results of operations and other financial information : replace_table_token_5_th nm= not meaningful ( a ) medical care ratio is calculated as medical costs divided by premium revenue . ( b ) return on equity is calculated as annualized net earnings divided by average equity . average equity is calculated using the equity balance at the end of the preceding year and the equity balances at the end of each of the four quarters in the year presented . selected operating performance and other significant items the following represents a summary of select 2014 year-over-year operating comparisons to 2013 and other 2014 significant items . consolidated revenues increased by 7 % , optum revenues grew 25 % and unitedhealthcare revenues increased 5 % . aca fees favorably affected our 2014 medical care ratio ( 110 bps ) , and unfavorably impacted our operating cost ratio ( 120 bps ) and effective income tax rate ( 510 bps ) . earnings from operations increased by 7 % , including an increase of 32 % at optum partially offset by a decrease of 2 % at unitedhealthcare . diluted earnings per share to unitedhealth group shareholders increased 4 % to $ 5.70 and included the negative year-over-year impact of approximately $ 1.00 per share in aca fees , aca medicare rate cuts and other aca impacts . as of december 31 , 2014 , there was $ 738 million of cash available for general corporate use and 2014 cash flows from operations were $ 8.1 billion . 32 2014 results of operations compared to 2013 results consolidated financial results revenues the increases in revenues during the year ended december 31 , 2014 were primarily driven by growth in the number of individuals served in our public and senior markets businesses and growth across all of optum 's businesses .
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the warrant represented consideration for business and strategic development performed during 2018. the fair value of the warrant on the grant date was estimated using the black-scholes-merton option pricing model with a common stock value of $ 1.67 per share , a contractual life of 2.5 years , a dividend yield of 0 % , a volatility of 102.4 % and an assumed risk-free interest rate of 2.19 % . the fair value of the warrant was determined to be $ 664,224 and is included in general and administrative expenses in the statement of operations . on march 13 , 2018 and march 22 , 2018 , the company issued to national securities corporation warrants to purchase shares of the company 's common stock in an amount equal to 10 % of the shares of common stock issuable upon conversion of 5,662,000 shares of the company 's series a preferred stock . the warrants represented placement agent compensation in connection with the 2018 private placement . the fair value of the warrants on the grant date was estimated using the black-scholes-merton option pricing model with a common stock value of $ 1.67 per share , a contractual life of 2.5 years , a dividend yield of 0 % , a volatility of 102.4 % and an assumed risk-free interest rate of 2.36 % . the fair value of the warrants was determined to be $ 480,485 and is included in general and administrative expenses in the statement of operations . in connection with the conversion of the series a preferred stock as a result of the ipo , the company issued additional warrants to purchase 53,679 shares of common stock . the additional warrants were considered offering costs and netted with the proceeds from the ipo . f- 16 tff pharmaceuticals , inc. notes to consolidated financial statements for the year ended december 31 , 2019 , period from january 24 , 2018 to december 31 , 2018 and period from january 1 , 2018 to january 23 , 2018 ( predecessor ) note 8 – warrants , continued on april 6 , 2018 , the company issued a five-year warrant to purchase 10,000 shares of common stock at $ 2.50 per share to bp directors , lp ( “ bp ” ) . the warrant represented consideration for board service story_separator_special_tag general we were formed as a delaware corporation on january 24 , 2018 for the purpose of developing and commercializing innovative drug products based on our patented thin film freezing , or tff , technology platform ” . since our formation , we have focused on the development of our initial drug candidates , the establishment of strategic relationships with established pharmaceutical companies for the licensing of our tff technology platform and the pursuit of additional working capital . we have not commenced revenue-producing operations . since our organization in 2018 , we have engaged in the following financing transactions : series a preferred stock placements . in march 2018 , we conducted a private placement of 5,662,000 shares of our series a preferred stock , at an offering price of $ 2.50 per share , for the gross proceeds of approximately $ 14.2 million , and in may 2019 we conducted a private placement of 3,268,000 shares of our series a preferred stock , at an offering price of $ 2.50 per share , for the gross proceeds of approximately $ 8.2 million . the shares of our series a preferred stock accumulated dividends at the rate of 6 % per annum . the shares of series a preferred stock , including all accrued but unpaid dividends on the series a preferred stock , which totalled $ 1,603,709 , automatically converted into 9,571,692 shares of our common stock concurrent with the completion of our initial public offering at the conversion price of $ 2.50 . 42 initial public offering . on october 25 , 2019 , we conducted an initial public offering of 4,400,000 shares of common stock at a public offering price of $ 5.00 per share . after the payment of underwriter discounts and offering expenses , and after giving effect to the underwriters ' exercise of its overallotment option on november 20 , 2019 to purchase an additional 479,300 shares of our common stock at the offering price of $ 5.00 per share , we received net proceeds of approximately $ 21.8 million . story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0pt 0 ; text-align : justify '' > we account for the fair value of equity instruments issued to non-employees using either the fair value of the services received or the fair value of the equity instrument , whichever is considered more reliable . we utilize the black-scholes-merton option-pricing model to measure the fair value of options issued to non-employees . for grants prior to the ipo , the fair value of the common stock was determined by the board of directors based on a variety of factors , including valuations prepared by third parties , our financial position , the status of our development efforts , the current climate in the marketplace and the prospects of a liquidity event , among others . for grants after the ipo , we use the closing stock price on the date of grant as the fair value of the common stock . 44 research and development expenses in accordance with authoritative guidance , we charge research and development costs to operations as incurred . research and development expenses consist of personnel costs for the design , development , testing and enhancement of our technology , and certain other allocated costs , such as depreciation and other facilities related expenditures . common stock warrants we classify as equity any warrants that ( i ) require physical settlement or net-share settlement or ( ii ) provides us with a choice of net-cash settlement or settlement in its own story_separator_special_tag the warrant represented consideration for business and strategic development performed during 2018. the fair value of the warrant on the grant date was estimated using the black-scholes-merton option pricing model with a common stock value of $ 1.67 per share , a contractual life of 2.5 years , a dividend yield of 0 % , a volatility of 102.4 % and an assumed risk-free interest rate of 2.19 % . the fair value of the warrant was determined to be $ 664,224 and is included in general and administrative expenses in the statement of operations . on march 13 , 2018 and march 22 , 2018 , the company issued to national securities corporation warrants to purchase shares of the company 's common stock in an amount equal to 10 % of the shares of common stock issuable upon conversion of 5,662,000 shares of the company 's series a preferred stock . the warrants represented placement agent compensation in connection with the 2018 private placement . the fair value of the warrants on the grant date was estimated using the black-scholes-merton option pricing model with a common stock value of $ 1.67 per share , a contractual life of 2.5 years , a dividend yield of 0 % , a volatility of 102.4 % and an assumed risk-free interest rate of 2.36 % . the fair value of the warrants was determined to be $ 480,485 and is included in general and administrative expenses in the statement of operations . in connection with the conversion of the series a preferred stock as a result of the ipo , the company issued additional warrants to purchase 53,679 shares of common stock . the additional warrants were considered offering costs and netted with the proceeds from the ipo . f- 16 tff pharmaceuticals , inc. notes to consolidated financial statements for the year ended december 31 , 2019 , period from january 24 , 2018 to december 31 , 2018 and period from january 1 , 2018 to january 23 , 2018 ( predecessor ) note 8 – warrants , continued on april 6 , 2018 , the company issued a five-year warrant to purchase 10,000 shares of common stock at $ 2.50 per share to bp directors , lp ( “ bp ” ) . the warrant represented consideration for board service story_separator_special_tag general we were formed as a delaware corporation on january 24 , 2018 for the purpose of developing and commercializing innovative drug products based on our patented thin film freezing , or tff , technology platform ” . since our formation , we have focused on the development of our initial drug candidates , the establishment of strategic relationships with established pharmaceutical companies for the licensing of our tff technology platform and the pursuit of additional working capital . we have not commenced revenue-producing operations . since our organization in 2018 , we have engaged in the following financing transactions : series a preferred stock placements . in march 2018 , we conducted a private placement of 5,662,000 shares of our series a preferred stock , at an offering price of $ 2.50 per share , for the gross proceeds of approximately $ 14.2 million , and in may 2019 we conducted a private placement of 3,268,000 shares of our series a preferred stock , at an offering price of $ 2.50 per share , for the gross proceeds of approximately $ 8.2 million . the shares of our series a preferred stock accumulated dividends at the rate of 6 % per annum . the shares of series a preferred stock , including all accrued but unpaid dividends on the series a preferred stock , which totalled $ 1,603,709 , automatically converted into 9,571,692 shares of our common stock concurrent with the completion of our initial public offering at the conversion price of $ 2.50 . 42 initial public offering . on october 25 , 2019 , we conducted an initial public offering of 4,400,000 shares of common stock at a public offering price of $ 5.00 per share . after the payment of underwriter discounts and offering expenses , and after giving effect to the underwriters ' exercise of its overallotment option on november 20 , 2019 to purchase an additional 479,300 shares of our common stock at the offering price of $ 5.00 per share , we received net proceeds of approximately $ 21.8 million . story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0pt 0 ; text-align : justify '' > we account for the fair value of equity instruments issued to non-employees using either the fair value of the services received or the fair value of the equity instrument , whichever is considered more reliable . we utilize the black-scholes-merton option-pricing model to measure the fair value of options issued to non-employees . for grants prior to the ipo , the fair value of the common stock was determined by the board of directors based on a variety of factors , including valuations prepared by third parties , our financial position , the status of our development efforts , the current climate in the marketplace and the prospects of a liquidity event , among others . for grants after the ipo , we use the closing stock price on the date of grant as the fair value of the common stock . 44 research and development expenses in accordance with authoritative guidance , we charge research and development costs to operations as incurred . research and development expenses consist of personnel costs for the design , development , testing and enhancement of our technology , and certain other allocated costs , such as depreciation and other facilities related expenditures . common stock warrants we classify as equity any warrants that ( i ) require physical settlement or net-share settlement or ( ii ) provides us with a choice of net-cash settlement or settlement in its own
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results of operations we were formed in january 2018 and have not commenced revenue-producing operations . to date , our operations have consisted of the development and early-stage testing of our initial product candidates . in connection with our organization on january 24 , 2018 , we entered into a contribution and subscription agreement with lung therapeutics , inc. , or lti , our former parent , pursuant to which we agreed to acquire from lti certain of lti 's non-core intellectual property rights and other assets , or the acquired assets , all of which relate to our thin film freezing technology . we closed on the acquisition of the acquired assets concurrent with the close of the initial series a preferred stock financing in march 2018. the operations surrounding the acquired assets are deemed to be our accounting predecessor and the results of operations in the financial summary below for the period january 1 , 2018 through january 23 , 2018 reflect the results of operations of the acquired assets , which were immaterial , as our predecessor . during the fiscal years ended december 31 , 2019 and 2018 , we incurred $ 8.8 million and $ 848,809 of research and development expenses and $ 3.2 million and $ 3.0 million of general and administrative expenses , respectively . the increase in research and development expenses during 2019 was due to the ramp-up of research and development activities following the completion of our funding in may 2019. we incurred a net loss applicable to common stockholders of $ 36.7 million and $ 4.6 million for the fiscal years ended december 31 , 2019 and 2018 , respectively .
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the preparation of these financial statements requires us to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes to the consolidated financial statements . our estimation processes generally relate to potential bad debts , damaged and slow moving inventory , health care and workers compensation claims , the value of long-lived assets , and the value of goodwill and other intangible assets . we base our judgments on historical experience and various other assumptions we believe to be reasonable under the circumstances . these judgments result in the amounts shown as carrying values of assets and liabilities , disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses in the consolidated financial statements and accompanying notes . actual results could differ materially from our estimates . we believe the following accounting policies are the most critical in the preparation of our consolidated financial statements . revenue is recognized when persuasive evidence of an arrangement exists , delivery has occurred , the sales price is fixed or determinable and collection is probable . these criteria are met generally at the time product is shipped but sometimes when the product reaches its destination . we maintain an allowance for doubtful accounts receivable by providing for specifically identified accounts where collection is questionable and an allowance based on the aging of the receivables , giving consideration to historical experience and current trends . a change in experiences or trends could require a material change in our estimate of the allowance for doubtful accounts in the future . inventories are valued at the lower of average cost or market for most products other than welded steel reinforcement products . the welded steel reinforcement products division of the concrete construction products segment values its inventory at the lower of first in , first out ( `` fifo '' ) cost or market . we provide a valuation allowance for damaged and slow moving inventory based on individual product activity , giving consideration to historical experience and current trends . the valuation adjustment is the recorded cost of the inventory minus its estimated realizable value . we accrue estimated liabilities for workers ' compensation claims expense and claims incurred but not reported under our self-insured health care program . these accruals are based on claims data and valuations that reflect our best estimate of the ultimate expense , which considers current and historical claims development experience . a change in the current or historical trends could require a material change in our estimate for this accrued liability in the future . we account for business acquisitions using the purchase method of accounting . the cost of the acquired company is allocated to identifiable tangible and intangible assets based on estimated fair values , with the excess allocated to goodwill . certain assumptions and estimates are employed in determining the fair value of assets acquired ( including goodwill and other intangible assets ) and of liabilities assumed . we review the carrying value of goodwill on an annual basis , or more frequently if events or changes in circumstances indicate that such carrying values may not be recoverable . the review for impairment requires the use of forecasts , estimates , and assumptions as to the future performance of our operations . actual results could differ from forecasts resulting in a revision of our assumptions and , if required , could result in recognizing an impairment loss in a future period . in determining the fair value of each reporting unit , the company estimates fair value by applying a range of multiples to a weighted average estimate of earnings before interest , taxes , depreciation and amortization ( `` ebitda '' ) . in the event the carrying value exceeds the estimated fair value , the company determines the implied value of the goodwill to determine any potential goodwill impairment . if such impairment exists , the excess carrying value is written off as an impairment expense . we evaluate the recoverability of our long-lived assets that are held-for-use whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . the recoverability of long-lived assets is determined based on a comparison of the estimated future undiscounted cash flows related to such assets to their carrying values . if the carrying value of such assets exceeds the future undiscounted cash flows , the carrying value of the related assets would be reduced to their estimated fair value . estimating future undiscounted cash flows requires the use of forecasts , estimates , and assumptions as to the future performance of our operations . any changes in these estimates or assumptions could result in an impairment charge in a future period . assets to be disposed of by sale are reflected at the lower of their carrying amount or fair value less any costs to sell the asset . recent accounting standards in november 2004 , the fasb issued sfas no . 151 , `` inventory costs-an amendment of arb no . 43 , chapter 4 '' , to clarify the accounting for abnormal inventory costs and the allocation of fixed production overhead costs . sfas no . 151 will be effective for inventory costs incurred beginning in fiscal year 2006. the company has not yet determined the impact of applying the provisions of sfas no . 151. story_separator_special_tag higher expense levels were due primarily to increases in incentive and retirement plan compensation , the allowance for uncollectible accounts , and a cost recovery initiative . in addition , rental expense of $ 1.1 million was incurred during 2004 for new trucks used in the distribution of inventory . this equipment replaced trucks used in 2003 which were owned , many of which were already fully depreciated . the depreciation expense associated with their use in 2003 was $ 0.6 million . story_separator_special_tag this segment also dealt with pricing pressures attributable to the construction market slowdown and the introduction to the market of some imported concrete accessories . some minor price increases were achieved in selected products during 2003. gross profit replace_table_token_8_th consolidated gross profit decreased 7.0 % in fiscal 2003 as compared to 2002. fence fence gross profit decreased $ 4.6 million or 6.7 % in 2003 on approximately the same level of sales as in 2002. while raw material costs were increasing , competitive pressure negatively impacted selling prices . in addition to this cost-sales price squeeze , the depressed market activity during the first six months of the year caused unfavorable absorption of fixed manufacturing costs . also contributing to the $ 4.6 million gross profit decrease was approximately $ 1.1 million of unfavorable costs attributable to the use of some steel rod which proved to be defective , resulting in manufacturing inefficiencies and inventory write downs . favorable factors affecting gross profit were : ( i ) the benefits from reducing the number of facilities and production lines ( a `` downsizing '' process begun in 2002 ) and the closing of the whittier , california plant in 2003 ; ( ii ) efficiencies from the introduction of lean manufacturing management concepts ; and ( iii ) more effective purchasing of non-manufactured products . concrete construction products concrete construction products gross profit decreased $ 3.0 million or 7.4 % as compared to 2002. although this segment was able to affect some price increases , gross profit was negatively impacted by significant raw material cost increases . this negative impact was offset by a $ 3.5 million favorable impact on gross profit associated with the closure of the baltimore , maryland and oregon , ohio plants and the addition of the hazleton , pennsylvania plant from the srp acquisition . other changes to gross profit were improved efficiencies in manufacturing and the classification of $ 1.9 million of expenses associated with former manufacturing facilities that are now strictly distribution centers and thus part of selling expense . selling , general and administrative expenses replace_table_token_9_th consolidated selling , general and administrative expense in 2003 was $ 81.4 million , a 2.8 % increase over 2002. as a percent of sales , selling , general and administrative expense increased less than one percent . the increase is due to labor related expenses as headcount was increased to improve marketing and administrative support capabilities , as well as the classification of $ 1.9 million of expenses for distribution center facilities that were previously manufacturing sites . these increases were offset by a reduction in bonus and retirement expense , which decreased due to lower earnings . fence fence selling , general and administrative expense increased slightly as a decrease in bonus and retirement expense was offset by increases in labor and employee related costs ( benefits , telephone , travel and supplies ) to improve marketing and administrative support capabilities . concrete construction products concrete construction products selling , general and administrative expense increased $ 1.7 million in 2003. of the total increase , $ 1.9 million is attributable to the classification of expenses formerly associated with manufacturing facilities that now serve only a distribution center role . labor and employee related costs ( benefits , telephone , travel , and supplies ) also contributed to the increase in 2003 as two new service centers were opened and additional employees were hired to improve marketing , sales and administrative support capabilities . the increase was partially offset by a reduction in bonus and retirement expense . other expense , net replace_table_token_10_th beginning in early fiscal 2002 , management began the process of evaluating the company 's existing network of manufacturing plants and distribution locations , and re-engineering business processes within facilities . the initiative 's primary focus is the more effective utilization of assets and reduction of excess capacity through consolidation and rationalization . in 2002 , the company incurred approximately $ 7.0 million in asset impairments and restructuring charges as a direct result of management 's plan to rationalize existing operations , and where applicable , to reduce fixed costs and improve operational efficiencies . the 2002 charges included restructuring costs of $ 3.2 million of which $ 2.7 million were attributable to the concrete construction products segment with the remaining attributable to the fence segment . fixed asset impairments in 2002 of $ 3.8 million ( $ 3.0 million related to the concrete construction products segment ) resulted from plant closures and realignments , where estimated future undiscounted cash flows related to certain fixed assets indicated impairment had occurred . other expense in 2003 included a $ 1.4 million settlement charge related to the baltimore , maryland union pension plan and $ 1.2 million related to the 2003 closure of our manufacturing facility in whittier , california that was partially offset by a $ 0.8 million gain on the sale of that facility . in addition , there were costs of $ 1.8 million in 2003 associated with the ongoing restructuring initiatives begun in 2002. net loss replace_table_token_11_th interest expense . interest expense totaled $ 28.4 million in 2003 , which represents an increase of 10.8 % as compared to 2002. the 2003 increase is primarily due to additional borrowings of $ 24 million to fund the srp acquisition in december 2002. income tax benefit . the effective tax benefit rate of 38.2 % in 2003 is greater than the 36.3 % rate in 2002 due primarily to the relatively fixed dollar impact of expenses not deductible for income tax purposes . liquidity and capital resources cash flow operating activities . despite a $ 28.0 million increase in net income in 2004 as compared to 2003 , operations utilized $ 15.8 million of cash in 2004 as compared to $ 16.9 million in 2003. the increased investment during 2004 in working capital as discussed below was the primary reason for this change . investing activities .
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general the following is an analysis of our financial condition and results of operations . you should read this analysis in conjunction with our consolidated financial statements and accompanying notes to the consolidated financial statements included on pages 32 through 57 of this report . results of operations for fiscal 2004 compared to 2003 fiscal 2004 demonstrated a significant recovery from the unfavorable market and competitive environment that existed through the majority of 2002 and 2003. an improving economy fostered a strong residential construction demand , and for the first year since 2000 , non-residential construction activity showed positive growth . infrastructure spending also started to trend up . these factors aided the volume growth in our concrete construction products segment . fundamental changes in the steel rod industry also helped reverse the factors that had so distorted competitive conditions within our respective industry sectors in 2002 and 2003. steel rod producers incurred a significant increase in their cost input factors in 2004. when these cost factors were combined with a rationalization of domestic steel rod capacity , meaningful steel price increases resulted , aggregating anywhere from 80 % to 100 % during the year . supply and demand conditions were further influenced by : the establishment of dumping and countervailing duties against a number of countries formerly quite active in exporting to the u.s. strong demand for steel in china and other parts of the world increases in ocean freight rates , and declines in the relative value of the u.s. dollar as a result , steel rod availability was tight through the first eight months of fiscal 2004 , and companies eliminated the excess stocks of inventory that had built up in 2003. these factors allowed us , as well as the other competitors in the various industrial sectors within which we operate , to implement price increases that offset the steel cost price increases and improved profit margins
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the bank operates from 24 offices in greene , allegheny , washington , fayette and westmoreland counties in southwestern pennsylvania ; brooke , marshall , ohio , upshur and wetzel counties in west virginia ; and one office in belmont county in ohio . the bank is a community-oriented institution offering residential and commercial real estate loans , commercial and industrial loans , and consumer loans as well as a variety of deposit products for individuals and businesses in its market area . property and casualty , commercial liability , surety and other insurance products are offered through exchange underwriters , inc. , the bank 's wholly-owned subsidiary that is a full-service , independent insurance agency . the bank invests primarily in united states government agency securities , bank-qualified , general obligation and special revenue municipal issues , and mbs 's issued or guaranteed by the united states government or agencies thereof . our principal sources of funds are customer deposits , proceeds from the sale of loans , funds received from the repayment and prepayment of loans and mbs 's , and the sale , call , or maturity of investment securities . principal sources of income are interest income on loans and investments , sales of loans and securities , service charges , commissions , loan servicing fees and other fees . our principal expenses are interest paid on deposits , employee compensation and benefits , occupancy and equipment expense , contracted services , and advertising . our results of operations depend primarily on our net interest income . net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities . our results of operations also are affected by our provisions for loan losses , noninterest income and noninterest expense . noninterest income currently consists primarily of fees and service charges on deposit accounts , fees and charges on loans , gain on sales of other real estate owned , income from bank-owned life insurance and other income . we continue to expect our noninterest income to increase in future periods as a result of the insurance commissions generated from the bank 's subsidiary , exchange underwriters . noninterest expense currently consists primarily of expenses related to salaries and employee benefits , occupancy and equipment , contracted services , legal fees , other real estate owned , advertising and promotion , stationery and supplies , deposit and general insurance and other expenses . our results of operations also may be affected significantly by general and local economic and competitive conditions , changes in market interest rates , governmental policies and actions of regulatory authorities . we expect our return on equity to remain relatively low until we are able to leverage the additional capital we received from the stock offering associated with the merger . business strategy we intend to operate as a well-capitalized and profitable community bank dedicated to providing exceptional personal service to our customers . we believe that we have a competitive advantage in the markets we serve because of our knowledge of the local marketplace and our long-standing history of providing superior , relationship-based customer service . our core business strategies are discussed below . improve earnings through asset diversification . loan diversification improves our earnings because commercial real estate and commercial and industrial loans generally have higher interest rates than residential mortgage loans . another benefit of commercial lending is that it improves the sensitivity of our interest-earning assets because commercial loans typically have shorter terms than residential mortgage loans and frequently have variable interest rates . earnings growth helps ensure we not only remain well-capitalized , but also enhances our ability to increase dividends . use sound underwriting practices to maintain asset quality . we have sought to maintain a high level of asset quality and moderate credit risk by using underwriting standards that we believe are conservative . although we intend to continue our efforts to originate commercial real estate and commercial and industrial loans , we intend to continue our philosophy of managing loan exposures through our conservative , yet reasonable , approach to lending . 35 maintain our funding mix that emphasizes growth in core deposits . core deposits ( demand deposits , now accounts , money market accounts and savings accounts ) comprised 80.4 % of our total deposits at december 31 , 2019. we value core deposits because they represent longer-term customer relationships and a lower cost of funding compared to certificates of deposit . we have succeeded in growing core deposits by promoting a sales culture in our branch offices that is supported by the use of technology and by offering a variety of products for our customers , such as sweep and insured money sweep services , remote electronic deposit , online banking with bill pay , mobile banking , and automated clearinghouse . competent and modern deposit operations are one of our key competencies , leading to increased customer service and fee revenue . supplement fee income through our insurance operations . fee income earned through our insurance agency , exchange underwriters , supplements our income from banking operations . we intend to pursue opportunities to grow this line of business , including hiring insurance producers with established books of business and through acquisitions . critical accounting policies critical accounting policies are those that involve significant judgments and assumptions by management and that have , or could have , a material impact on the company 's income or the carrying value of its assets . allowance for loan losses . the allowance for loan losses ( “ allowance ” ) is maintained at a level considered adequate to provide for losses that can be reasonably anticipated . story_separator_special_tag similarly , estimates and assumptions are used in determining the fair value of other intangible assets . estimates of fair value are primarily determined using discounted cash flows , market comparisons and recent transactions . these approaches use significant estimates and assumptions including projected future cash flows , discount rates reflecting the market rate of return , projected growth rates and determination and evaluation of appropriate market comparables . however , future events could cause us to conclude that goodwill or other intangibles have become impaired , which would result in recording an impairment loss . any resulting impairment loss could have a material adverse impact on our financial condition and results of operations . other-than-temporary impairment . in estimating other-than-temporary impairment of investment securities , securities are evaluated on at least a quarterly basis to determine whether a decline in their value is other-than-temporary . in estimating other-than temporary impairment losses , management considers ( 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 , and ( 3 ) whether or not the company intends to sell or expect that it is more likely than not that it will be required to sell the investment security before an anticipated recovery in fair value . once a decline in value for a debt security is determined to be other than temporary , the other-than-temporary impairment is separated in ( a ) the amount of total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security ( the credit loss ) and ( b ) the amount of other-than-temporary impairment related to all other factors . the amount of the total other-than-temporary impairment related to credit loss is recognized in earnings . the amount of other-than-temporary impairment related to other factors is recognized in other comprehensive income ( loss ) . deferred tax assets . deferred income tax expense results from changes in deferred tax assets and liabilities between periods . deferred tax assets are recognized if it is more likely than not , based on the technical merits , that the tax position will be realized or sustained upon examination , the term more likely than not means a likelihood of more than 50 % ; the terms examined and upon examination also include resolution of the related appeals or litigation processes , if any . a tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 % likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information . the determination of whether a tax position has met the more-likely-than-not recognition threshold considers the facts , circumstances and information available at the reporting date , and is subject to management 's judgment . deferred tax assets are reduced by a valuation allowance if , based on the weight of evidence available , it is more likely than not that some portion or all of a deferred tax asset will not be realized . fair value measurements . fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the transaction date . valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs . a three-level of fair value hierarchy prioritizes the inputs used to measure fair value : level 1 – fair value is based on unadjusted quoted prices in active markets that are accessible to the company for identical assets . these generally provide the most reliable evidence and are used to measure fair value whenever available . level 2 – fair value is based on significant inputs , other than level 1 inputs , that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data . level 2 inputs include quoted market prices in active markets for similar assets , quoted market prices in markets that are not active for identical or similar assets , and other observable inputs . level 3 – fair value is based on significant unobservable inputs . examples of valuation methodologies that would result in level 3 classification include option pricing models , discounted cash flows , and other similar techniques . 37 this hierarchy requires the use of observable market data when available . the level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement . recent accounting pronouncements and developments new accounting pronouncements that were adopted in the current period or will be adopted in a future period are discussed in note 1 – summary of significant accounting policies in the notes to consolidated financial statements , which is included in part iv , item 15 of this report . comparison of financial condition at december 31 , 2019 , and december 31 , 2018 assets . total assets increased $ 39.8 million , or 3.1 % , to over $ 1.32 billion at december 31 , 2019 compared to $ 1.28 billion at december 31 , 2018. cash and due from banks increased $ 26.9 million , or 50.4 % , to $ 80.2 million at december 31 , 2019 , compared to $ 53.4 million at december 31 , 2018. this is primarily the result of an increase in deposits as well as investment security activity that was not fully repurposed through loan production . investment securities classified as available-for-sale decreased $ 28.0 million , or 12.4 % , to $ 197.4 million at december 31 , 2019 , compared to $ 225.4 million at december 31 , 2018. this was primarily the result of $ 83.7
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overview . net income increased $ 7.3 million , or 103.2 % , to $ 14.3 million for the year ended december 31 , 2019 compared to $ 7.1 million for the year ended december 31 , 2018. results for the year ended december 31 , 2019 were largely impacted by the full period effect of the fwvb merger that was completed on april 30 , 2018 . 38 net interest income . the interest income on interest-earning assets , net interest rate spread and net interest margin are presented on a fte basis . the fte basis adjusts for the tax benefit of income on certain tax-exempt loans and securities using the federal statutory tax rate of 21 percent for 2019 and 2018. we believe the presentation of net interest income on a fte basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice . the following table reconciles net interest income per the consolidated statements of net income to net interest income , net interest spread and net interest margin on a fte basis for the periods indicated : replace_table_token_21_th net interest income increased $ 5.5 million , or 14.6 % , to $ 43.2 million for the year ended december 31 , 2019 , compared to $ 37.7 million for the year ended december 31 , 2018. interest and dividend income increased $ 7.4 million , or 17.0 % , to $ 51.0 million for the year ended december 31 , 2019 , compared to $ 43.6 million for the year ended december 31 , 2018. interest income on loans increased $ 5.2 million due to an increase in average loans outstanding of $ 69.7 million , primarily commercial and residential real estate , and an increase of 23 basis points in loan yield .
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forward-looking statements , which are based on certain assumptions and describe our future plans , strategies , beliefs and expectations , are generally identifiable by use of the words `` believe '' , `` expect '' , `` intend '' , `` anticipate '' , `` estimate '' , `` project '' , or similar expressions . such forward-looking statements include , but are not limited to , statements regarding our : future issuances of equity and debt and the expected use of proceeds from such issuances ; potential sales or purchases of outlet centers ; anticipated results of operations , liquidity and working capital ; new outlet center developments , expansions and renovations ; and real estate joint ventures . you should not rely on forward-looking statements since they involve known and unknown risks , uncertainties and other important factors which are , in some cases , beyond our control and which could materially affect our actual results , performance or achievements . important factors which may cause actual results to differ materially from current expectations include , but are not limited to : our inability to develop new outlet centers or expand existing outlet centers successfully ; risks related to the economic performance and market value of our outlet centers ; the relative illiquidity of real property investments ; impairment charges affecting our properties ; our dispositions of assets may not achieve anticipated results ; competition for the acquisition and development of outlet centers , and our inability to complete outlet centers we have identified ; environmental regulations affecting our business ; risk associated with a possible terrorist activity or other acts or threats of violence and threats to public safety ; our dependence on rental income from real property ; our dependence on the results of operations of our retailers ; the fact that certain of our properties are subject to ownership interests held by third parties , whose interests may conflict with ours ; risks related to uninsured losses ; the risk that consumer , travel , shopping and spending habits may change ; risks associated with our canadian investments ; risks associated with attracting and retaining key personnel ; risks associated with debt financing ; risk associated with our guarantees of debt for , or other support we may provide to , joint venture properties ; our potential failure to qualify as a reit ; our legal obligation to make distributions to our shareholders ; legislative or regulatory actions that could adversely affect our shareholders ; our dependence on distributions from the operating partnership to meet our financial obligations , including dividends ; the risk of a cyber-attack or an act of cyber-terrorism and other important factors which may cause actual results to differ materially from current expectations include , but are not limited to , those set forth under item 1a - risk factors . the following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere in this report . historical results and percentage relationships set forth in the consolidated statements of operations , including trends which might appear , are not necessarily indicative of future operations . 34 general overview as of december 31 , 2016 , we had 36 consolidated outlet centers in 22 states totaling 12.7 million square feet . we also had 8 unconsolidated outlet centers totaling 2.3 million square feet , including 4 outlet centers in canada . the table below details our acquisitions , new developments , expansions and dispositions of consolidated and unconsolidated outlet centers that significantly impacted our results of operations and liquidity from january 1 , 2014 to december 31 , 2016 : replace_table_token_17_th 35 leasing activity the following table provides information for our consolidated outlet centers regarding space re-leased or renewed during the years ended december 31 , 2016 and 2015 , respectively : replace_table_token_18_th ( 1 ) excludes fort myers outlet center , which was sold in january 2016 . ( 2 ) excludes kittery i & ii , tuscola , west branch and barstow outlet centers which were sold in 2015 . ( 3 ) net average straight-line base rent is calculated by dividing the average tenant allowance costs per square foot by the average initial term and subtracting this calculated number from the average straight-line base rent per year amount . the average annual straight-line base rent disclosed in the table above includes all concessions , abatements and reimbursements of rent to tenants . the average tenant allowance disclosed in the table above includes landlord costs . story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; '' > compared to the 2015 period . the 2015 period included the reversal of $ 731,000 of share-based compensation expense related to the october 2015 announcement that the company 's then chief financial officer would retire in may 2016. in addition , the 2016 period included increased legal , consulting and other professional fees compared to the 2015 period . depreciation and amortization depreciation and amortization increased $ 11.4 million , or 11 % , in the 2016 period compared to the 2015 period . the following table sets forth the changes in various components of depreciation and amortization ( in thousands ) : replace_table_token_25_th depreciation and amortization costs decreased at existing properties as certain construction and development related assets , as well as lease related intangibles recorded as part of the acquisition price of acquired properties , which are amortized over shorter lives , became fully depreciated during 2016. this decrease was partially offset by additional depreciation and amortization recorded as a result of a change in the estimated useful life of assets at various centers where demolition of existing buildings occurred in conjunction with renovations and expansions . story_separator_special_tag ; and lower earnings as a result of the sale of our equity interest in the wisconsin dells joint venture . in the tables below , information set forth for new developments includes our foxwoods , grand rapids , and southaven outlet centers , which opened in may 2015 , july 2015 , and november 2015 , respectively . properties disposed includes the lincoln city outlet center that was sold in december 2014 , the kittery i & ii , tuscola , and west branch outlet centers sold in september 2015 and the barstow outlet center sold in october 2015. base rentals base rentals increased $ 15.2 million , or 6 % , in the 2015 period compared to the 2014 period . the following table sets forth the changes in various components of base rentals ( in thousands ) : replace_table_token_27_th base rental income generated from existing properties in our portfolio increased due to increases in rental rates on lease renewals , incremental rents from re-tenanting vacant spaces , and incremental income from the expansion of our sevierville , branson , park city and san marcos outlet centers . termination fees , which are generally based on the lease term remaining at the time of termination , increased in the 2015 period compared to the 2014 period as a result of certain brand-wide store closures throughout our portfolio . the 2014 period did not have any significant tenant closures . at december 31 , 2015 , the combined net value representing the amount of unamortized above market lease assets and below market lease liability values , recorded as a part of the purchase price of acquired properties , was a net asset totaling approximately $ 5.9 million . if a tenant terminates its lease prior to the contractual termination of the lease and no rental payments are being made on the lease , any unamortized balance of the related above or below market lease value would be written off and could materially impact our net income positively or negatively . 41 percentage rentals percentage rentals decreased $ 150,000 , or 1 % , in the 2015 period compared to the 2014 period . the following table sets forth the changes in various components of percentage rentals ( in thousands ) : replace_table_token_28_th percentage rentals represents revenues based on a percentage of tenants ' sales volume above their contractual break points . the increase in percentage rentals from existing properties is due to higher sales volume for certain existing tenants and also due to certain new tenants added to the existing properties whose sales exceeded their contractual break point . reported tenant comparable sales for our consolidated properties for the year ended december 31 , 2015 of $ 395 per square foot were flat compared to the year ended december 31 , 2014. reported tenant comparable sales is defined as the weighted average sales per square foot reported in space open for the full duration of each comparison period . expense reimbursements expense reimbursements increased $ 3.9 million , or 3 % , in the 2015 period compared to the 2014 period . the following table sets forth the changes in various components of expense reimbursements ( in thousands ) : replace_table_token_29_th expense reimbursements , which represent the contractual recovery from tenants of certain common area maintenance , insurance , property tax , promotional , advertising and management expenses , generally fluctuate consistently with the reimbursable property operating expenses to which they relate . see `` property operating expenses '' below for a discussion of the increase in property operating expenses . most , but not all , leases contain provisions requiring tenants to reimburse a share of our operating expenses as additional rent . however , substantially all of the leases for our new foxwoods outlet center , which opened in may 2015 , require tenants to pay a single minimum contractual gross rent and , in certain cases , percentage rent . thus , all minimum rents received for the foxwoods outlet center are recorded as base rent and none are recorded to expense reimbursements . management , leasing and other services management , leasing and other services increased $ 1.8 million , or 51 % , in the 2015 period compared to the 2014 period . the following table sets forth the changes in various components of management , leasing and other services ( in thousands ) : replace_table_token_30_th 42 the increase in fees recognized was due to the increase in the number of unconsolidated joint ventures for which we provide services in the 2015 period compared to the 2014 period . the majority of the increases was due to fees from the savannah outlet center which opened in april 2015. other income other income decreased $ 18,000 , in the 2015 period compared to the 2014 period . the following table sets forth the changes in various components of other income ( in thousands ) : replace_table_token_31_th property operating expenses property operating expenses increased $ 9.1 million , or 7 % , in the 2015 period compared to the 2014 period . the following table sets forth the changes in various components of property operating expenses ( in thousands ) : replace_table_token_32_th property operating expenses from existing properties increased due to higher snow removal costs and increased mall office operating costs , maintenance costs , and increased real estate taxes . general and administrative expenses general and administrative expenses in the 2015 period was flat when compared to the 2014 period .
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results of operations 2016 compared to 2015 net income net income decreased $ 17.8 million in 2016 compared to 2015 . in 2016 , we recorded a $ 95.5 million gain on the acquisitions of our venture partners ' equity interests in the westgate and savannah joint ventures , a $ 4.9 million gain on the sale of our outlet center in fort myers , florida and $ 1.4 million gain on the sale of an outparcel at our hwy 501 outlet center in myrtle beach , south carolina . in 2015 , we recorded gains totaling $ 120.4 million related to the sale of our equity interest in the wisconsin dells joint venture , and the sales of our kittery i & ii , tuscola , west branch and barstow outlet centers . in addition , net income in 2016 was impacted by : an increase in operating income due to the opening of one new outlet center , the acquisitions of our partners ' interest in two joint ventures , and the full year impact of the addition of three new consolidated centers in 2015 ; offset by a decrease in operating income due to the properties disposed of in early 2016 and 2015 ; and an increase in interest expense due to higher average borrowing levels and an increase in interest rates . in the tables below , information set forth for new developments includes our foxwoods , grand rapids , southaven and daytona beach outlet centers , which opened in may 2015 , july 2015 , november 2015 and november 2016 , respectively . acquisitions include our westgate and savannah centers , which were previously held in unconsolidated joint ventures prior to our acquisitions of our venture partners ' interest in each venture in june 2016 and august 2016 , respectively .
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on march 14 , 2012 , the company issued 8,400,000 warrants with an exercise price of $ 0.50 to amf group pursuant to an exclusive marketing agreement for central and south america and india dated november 1 , 2011. these warrants expire march 14 , 2017. warrants were valued using the black-scholes model , resulting in valuation of $ 378,000 , of which $ 18,900 has been recognized in the current year . on march 28 , 2012 , the company issued 1,500,000 warrants to purchase its common stock at $ 0.20 per share . these warrants expire on march 28 , 2017. on april 5 , 2012 , the company issued 20,000 warrants to purchase its common stock at $ 0.50 per share . these warrants expire on april 5 , 2017. on may 3 , 2012 , the company issued 428,572 warrants to purchase its common stock at $ 0.14 per share . these warrants expire on may 3 , 2017. on december 31 , 2012 , the company issued a total of 72,500,000 warrants to its executive officers and a director purchase its common stock at $ 0.15 per share . these warrants expire in five years on december 30 , 2017. these options may only be exercised between the following dates : ( i ) the earliest date on which the price per share has traded at or above $ 0.30 for at least three trading days out of any ten consecutive trading days ; and ( ii ) december 30 , 2017 . 37 below is a summary of options and warrants outstanding : replace_table_token_5_th options and warrants were valued using the black-scholes method . the significant assumptions used in the valuation of the options and warrants issued were : weighted average : dividend rate 0.0 % risk-free interest rate 1.34 % expected lives ( years ) 7.9 expected price volatility 78.9 % forfeiture rate 0.0 % 11. common stock purchase agreement on june 26 , 2009 , the company completed a common stock purchase agreement ( the belmont agreement ) whereby belmont partners , llc acquired 5,000,000 common shares of the company 's common stock . following the transaction , belmont partners , llc controlled approximately 76.6 % of the company 's outstanding capital stock . concurrent with the agreement , mr. joseph meuse , managing member of belmont partners , llc , was named to the board of directors as well as president and secretary of the company , and the company 's former officers resigned from all positions held in the company . in connection with the belmont agreement , the company 's former officers forgave amounts advanced to the company aggregating $ 28,816 as well as either paid or assumed the remaining other liabilities of the company aggregating $ 14,347 . accordingly , the company recorded a gain on debt extinguishment of $ 43,163 . on october 31 , 2009 , the company completed a common stock purchase agreement ( the pelikin agreement ) whereby pelikin group acquired 5,000,000 common shares of the company 's common stock from belmont partners . following the transaction , pelikin group controlled approximately 76.6 % of the company 's outstanding capital stock . 12. subsequent events management has evaluated subsequent events through the date the financial statements were issued . based on this evaluation no events have occurred requiring adjustment or disclosure . 38 item 9. changes in and disagreements with accountants on accounting and financial disclosure . on october 11 , 2011 , peter messineo , cpa ( “ pm ” ) was appointed as the company 's new auditor . in december 2012 , pm merged into the firm known as dkm certified public accountants of clearwater , florida ( “ dkm ” ) . pm has audited lightlake 's most recent financial statements , as of july 31 , 2012. in april 2013 , the agreement of dkm and pm was terminated . the successor firm , messineo & co. , cpas , llc , is a continuation of the audit firm pm . item 9a . controls and procedures . evaluation of disclosure controls and procedures under the supervision and with the participation of lightlake 's management , including the company 's principal executive officer and the principal financial officer , the company has conducted an evaluation of the effectiveness of the design and operation of the company 's disclosure controls and procedures , as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the securities and exchange act of 1934 , as of the end of the period covered by this report . based on this evaluation , the company 's principal executive officer and principal financial officer concluded as of the evaluation date that the company 's disclosure controls and procedures were not effective such that the material information required to be included in the company 's securities and exchange commission reports is recorded , processed , summarized , and reported within the time periods specified in sec rules and forms relating to the company , particularly during the period when this report was being prepared . management 's annual report on internal control over financial reporting lightlake 's management story_separator_special_tag the following discussion and analysis of the results of operations and financial condition for the fiscal years ended july 31 , 2013 and 2012 and should be read in conjunction with our financial statements , and the notes to those financial statements that are included elsewhere in this report . overview lightlake therapeutics inc. ( “ lightlake ” or the “ company ” ) is an early stage biopharmaceutical company using its expertise in opioid antagonists to develop innovative treatments for common addictions and related disorders . story_separator_special_tag binge eating disorder has been added to the fifth edition of the apa 's diagnostic and statistical manual of mental disorders ( “ dsm-5 ” ) , which was launched at the apa annual meeting . dsm-5 is used by clinicians and researchers to diagnose and classify mental disorders in order to improve diagnoses , treatment , and research . this manual is the product of more than 10 years of effort by hundreds of international experts in all aspects of mental health . dsm-5 diagnostic criteria are concise and explicit , intended to facilitate an objective assessment of symptom presentations in a variety of clinical settings from inpatient to primary care . binge eating disorder is defined in the dsm-5 chapter on feeding and eating disorders as a diagnosis for individuals who experience persistent , recurrent episodes of overeating , marked by loss of control and significant clinical distress . the chapter also includes changes in the requirements for diagnosis of anorexia nervosa and bulimia nervosa , two potential additional indications for the company 's treatment . 11 lightlake now aims to collaborate with other parties to progress its drug development program for binge eating disorder . the company has identified suitable centers in the united states and has plans for imperial college london , united kingdom , to be a major site for the european union . the company currently has agreements to collaborate with celesio ag and lloyds pharmacy , and the company plans to pursue relationships to provide funding and strategic relationships that would help the company reach key milestones . the company aims to broaden its product pipeline , and anticipates commencing further trials based on its existing , as well as potential patents that relate to the use of opioid antagonists . in particular , the company is looking to commence phase ii trials to investigate an opioid antagonist-based treatment for bulimia nervosa at king 's college london , uk , as the company is confident that it can apply the same science to develop a solution for this condition . during the year ended july 31 , 2013 , lightlake carried out operations to utilize the patent and patent applications , including european patent ep1681057b1 and us patent application 11/031,534 , which were acquired on august 24 , 2009 from dr. david sinclair . the company was informed on october 15 , 2010 , that the us patent application was approved . the company has successfully commenced and completed a phase ii binge eating disorder trial . the company has also planned to widen its pipeline through collaboration with professor strang , king 's college london , uk , to develop a treatment for overdose and develop a treatment for premenstrual syndrome overeating using the company 's patented technology . lightlake anticipates launching phase ii trials to investigate the application of the company 's technology as a treatment for bulimia nervosa , and the company is seeking funding to facilitate the launch of these trials . the company has made arrangements with king 's college london , uk , to conduct these trials at the institution . in working with king 's college , which has an internationally renowned eating disorder unit , the company believes that it will considerably strengthen the company 's already distinguished research and development team . professor janet treasure , head of the eating disorders unit at the south london and maudsley nhs trust and author of several well-regarded books on eating disorders , and professor ulrike schmidt , a consultant psychiatrist for the eating disorders service and a fellow of the academy for eating disorders , would serve as tremendous guides for these phase ii trials . the company also is considering other trials leveraging off of its patent portfolio . on april 24 , 2013 , lightlake announced that it had signed a collaboration agreement with the division of pharmacotherapies and medical consequences of drug abuse ( “ dpmcda ” ) of the national institute on drug abuse ( “ nida ” ) , part of the national institutes of health ( “ nih ” ) , to co-develop a treatment for opioid addiction that utilizes the company 's innovative proprietary technology . under the terms of the agreement , the dpmcda of nida will sponsor a phase i clinical study designed to evaluate the pharmacokinetic properties of the company 's product candidate in 14 healthy volunteer subjects . assuming successful completion of this study , nida plans to file an ind for a final larger study . the goal of the collaboration is to establish a clinical development plan and regulatory pathway that will potentially result in fda approval and commercialization of a new pharmaceutical treatment that effectively addresses the complications of opioid addiction within 18 months . with respect to lightlake 's potential treatment for opioid addiction , on april 16 , 2013 and may 30 , 2013 , the company entered into agreements and subsequently received funding from one investor in the amounts of $ 600,000 and $ 150,000 , respectively , for the research , development , marketing and commercialization of the company 's aforementioned treatment for opioid addiction . in exchange for these investments , the company agreed to pay the investor 6.0 % and 1.5 % , respectively , of the net profit generated from the product after the deduction of all expenses incurred by and payments made by the company in connection with the product , including but not limited to an allocation of company overhead .
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results of operations the following compares lightlake 's operations for the years ended july 31 , 2013 to the same period at july 31 , 2012. revenues lightlake did not have any revenues during the years ended july 31 , 2013 or 2012 , and has generated no revenues since inception as the company is devoting substantially all of its efforts on establishing the business and its planned principal operations have not commenced . all losses accumulated since inception has been considered as part of the company 's development stage activities . general and administrative expenses lightlake 's operating expenses were incurred in the amounts of $ 4,284,574 and $ 12,335,706 for the years ended july 31 , 2013 and 2012 , respectively . the difference in the year over year change of $ 8,051,132 was primarily due to stock based compensation issued to outside consultants in the amount of $ 7,542,133 during the year ended july 31 , 2012. research and development lightlake spent $ 282,670 and $ 506,169 during the years ended july 31 , 2013 and 2012 , respectively . this decrease was the result of the company 's phase ii clinical testing that was occurring during the year ended july 31 , 2012. the company does not anticipate any decreases in expenditures related to research and development ; however , the company 's research and development initiatives and processes are dependent on the ability of the company to raise capital . interest expense during the years ended july 31 , 2013 and 2012 , lightlake 's interest expense was $ 553,045 and $ 61,389 , respectively . the increase in fiscal 2013 was due to an increase in borrowings of $ 604,500 to fund the operations of the company .
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brands , inc. ( “ yum ” or the “ company ” ) operates or franchises a worldwide system of over 43,500 restaurants in more than 135 countries and territories operating under the kfc , pizza hut or taco bell ( collectively the `` concepts '' ) brands . these three concepts are the global leaders in the chicken , pizza and mexican-style food categories , respectively . of the over 43,500 restaurants , 7 % are operated by the company and its subsidiaries and 93 % are operated by franchisees . as of december 31 , 2016 , yum consists of three operating segments : the kfc division which includes the worldwide operations of the kfc concept the pizza hut division which includes the worldwide operations of the pizza hut concept the taco bell division which includes the worldwide operations of the taco bell concept effective january 2016 , the india division was segmented by brand , integrated into the global kfc , pizza hut and taco bell divisions , and is no longer a separate operating segment . while our consolidated results were not impacted , we have restated our historical segment information for consistent presentation . on october 31 , 2016 ( the “ distribution date ” ) , we completed the spin-off of our china business ( the `` separation '' ) into an independent , publicly-traded company under the name of yum china holdings , inc. ( “ yum china ” ) . on the distribution date , we distributed to each of our shareholders of record as of the close of business on october 19 , 2016 ( the “ record date ” ) , one share of yum china common stock for each share of our common stock held as of the record date . the distribution was structured to be a tax free distribution to our u.s. shareholders for federal income tax purposes in the united states . yum china 's common stock now trades on the new york stock exchange under the symbol “ yumc. ” after the distribution , we do not beneficially own any shares of yum china common stock . concurrent with the separation , a subsidiary of the company entered into a master license agreement with a subsidiary of yum china for the exclusive right to use and sublicense the use of intellectual property owned by yum and its affiliates for the development and operation of kfc , pizza hut and taco bell restaurants in china . prior to the separation , our operations in mainland china were reported in our former china division segment results . as a result of the separation , the results of operations , assets and liabilities , and cash flows of the separated business are presented as discontinued operations in our consolidated statements of income , consolidated balance sheets and consolidated statements of cash flows for all periods presented . see additional information related to the impact of the separation in item 8 , note 4 to the consolidated financial statements . on october 11 , 2016 , we announced our strategic transformation plans to drive global expansion of our kfc , pizza hut and taco bell brands ( “ yum 's strategic transformation initiatives ” ) following the separation . major features of the company 's transformation and growth strategy involve being more focused , franchised and efficient . yum 's strategic transformation initiatives below represent the continuation of yum 's transformation of its operating model and capital structure . more focused . four growth drivers will form the basis of yum 's strategic plans and repeatable business model to accelerate same-store sales growth and net-new restaurant development at kfc , pizza hut and taco bell around the world over the long term . the company will focus on becoming best-in-class in : building distinctive , relevant brands developing unmatched franchise operating capability driving bold restaurant development growing unrivaled culture and talent more franchised . yum intends to increase franchise restaurant ownership to at least 98 % by the end of 2018. more efficient . the company intends to revamp its financial profile , improving the efficiency of its organization and cost structure globally , by : reducing annual capital expenditures to approximately $ 100 million in 2019 ; reducing general and administrative ( `` g & a '' ) expenses by a cumulative ~ $ 300 million over the next three years ; and 23 maintaining an optimized capital structure of ~5.0x earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) leverage . since the fourth quarter of 2015 , we have returned approximately $ 7.2 billion of capital to shareholders through share repurchases and cash dividends , funding the repurchases through a recapitalization and issuance of $ 5.2 billion of incremental borrowings in 2016. over the next 3 years , we intend to return an additional $ 6.5 - $ 7.0 billion to shareholders through share repurchases and cash dividends . we intend to fund these shareholder returns through a combination of refranchising proceeds , free cash flow generation and maintenance of our five times ebitda leverage . we anticipate generating proceeds in excess of $ 2 billion , net of tax , through our refranchising initiatives . refer to the liquidity and capital resources section of this md & a for additional details . we intend for this md & a to provide the reader with information that will assist in understanding our results of operations , including performance metrics that management uses to assess the company 's performance . throughout this md & a , we commonly discuss the following performance metrics : the company provides certain percentage changes excluding the impact of foreign currency translation ( “ fx ” or “ forex ” ) . these amounts are derived by translating current year results at prior year average exchange rates . we believe the elimination of the foreign currency translation impact provides better year-to-year comparability without the distortion of foreign currency fluctuations . story_separator_special_tag franchise and license fees and income in 2016 , the increase in franchise and license fees income , excluding the impacts of foreign currency translation and 53 rd week , was driven by net new unit growth , refranchising and higher fees from expiring development agreements , partially offset by franchise same-store sales declines of 2 % . in 2015 , the increase in franchise and license fees and income , excluding the impact of foreign currency translation , was driven by net new unit growth . franchise same-store sales were even . 33 g & a expenses in 2016 , the decrease in g & a expenses , excluding the impacts of foreign currency translation and 53 rd week , was driven by lower litigation settlement costs and legal fees , refranchising and lower u.s. pension costs , partially offset by higher incentive compensation costs . in 2015 , the increase in g & a expenses , excluding the impact of foreign currency translation , was driven by strategic international investments and higher u.s. pension costs . operating profit in 2016 , the increase in operating profit , excluding the impacts of foreign currency translation and 53 rd week , was driven by lower g & a expenses and net new unit growth , partially offset by franchise same-store sales declines . in 2015 , the increase in operating profit , excluding the impact of foreign currency translation , was driven by net new unit growth and lower commodity costs , partially offset by higher g & a expenses . taco bell division the taco bell division has 6,604 units , the vast majority of which are in the u.s. the company owns 14 % of the taco bell units in the u.s. , where the brand has historically achieved high restaurant margins and returns . replace_table_token_25_th replace_table_token_26_th replace_table_token_27_th 34 replace_table_token_28_th company sales and restaurant profit the changes in company sales and restaurant profit were as follows : replace_table_token_29_th replace_table_token_30_th in 2016 , the decrease in company sales and restaurant profit associated with store portfolio actions was driven by refranchising , partially offset by net new unit growth . significant other factors impacting company sales and or restaurant profit were company same-store sales growth of 1 % and favorable commodity costs , partially offset by higher labor costs and store-level investments . in 2015 , the increase in company sales and restaurant profit associated with store portfolio actions was driven by net new unit growth . significant other factors impacting company sales and or restaurant profit were company same-store sales growth of 4 % and commodity deflation . franchise and license fees and income in 2016 , the increase in franchise and license fees and income , excluding the impacts of foreign currency translation and the 53 rd week , was driven by net new unit growth , franchise same-store sales growth of 2 % and refranchising . in 2015 , the increase in franchise and license fees and income was driven by franchise same-store sales growth of 5 % , net new unit growth and lapping franchise incentives provided in the first quarter of 2014 related to the national launch of breakfast . g & a expenses i n 2016 , the decrease in g & a expenses was driven by lower u.s. pension costs , lapping the live más scholarship contribution , and lower litigation costs . in 2015 , the increase in g & a expenses was driven by higher incentive compensation costs , investment spending on strategic growth and technology initiatives , higher u.s. pension costs , higher litigation costs and the creation of the live más scholarship . 35 operating profit in 2016 , the increase in operating profit , excluding the impacts of foreign currency translation and 53 rd week , was driven by same-store sales growth , net new unit growth and lower g & a expenses , partially offset by higher restaurant operating costs and refranchising . in 2015 , the increase in operating profit was driven by same-store sales growth and net new unit growth , partially offset by higher g & a expenses . corporate & unallocated replace_table_token_31_th corporate g & a expenses in 2016 , the increase in corporate g & a expenses was driven by incremental costs associated with yum 's strategic transformation initiatives ( see note 5 ) , non-cash charges associated with the modification of certain executive income deferral ( “ eid ” ) share-based compensation awards ( see note 5 ) , retirement plan settlement charges ( see note 5 ) and higher incentive compensation costs , partially offset by lower professional and legal fees . in 2015 , the increase in corporate g & a expenses was driven by higher pension costs . unallocated franchise and license fees and income in 2016 , unallocated franchise and license fees and income reflects charges related to the kfc u.s. acceleration agreement . see note 5. unallocated franchise and license expenses in 2016 and 2015 , unallocated franchise and license expenses reflect charges related to the kfc u.s. acceleration agreement . see note 5. unallocated other income ( expense ) in 2016 , unallocated other ( income ) expense primarily includes write-downs related to our decision to dispose of our corporate aircraft and foreign exchange losses . see note 8. in 2015 and 2014 , unallocated other ( income ) expense primarily includes foreign exchange losses . interest expense , net the increase in interest expense , net for 2016 was driven by increased outstanding borrowings . see note 11. the decrease in interest expense , net for 2015 was driven by lower effective interest rates on outstanding borrowings , partially offset by increased short-term borrowings . 36 income tax provision see note 18 for discussion of our income tax provision . income from discontinued operations , net of tax the following table is a summary of the operating results of the china business which have been reflected in discontinued operations . see note 4 for additional information .
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summary all comparisons within this summary are versus the same period a year ago , exclude the impact of special items and include the impact of a 53 rd week in 2016 , unless otherwise noted . 2016 diluted eps from continuing operations increased 18 % to $ 2.48 per share . 2016 diluted eps from continuing operations excluding special items increased 5 % to $ 2.45 per share . foreign currency translation from our international operations negatively impacted gaap operating profit by $ 55 million . 2016 financial highlights are below : replace_table_token_5_th replace_table_token_6_th 25 worldwide gaap results replace_table_token_7_th ( a ) see note 3 for the number of shares used in these calculations . performance metrics replace_table_token_8_th replace_table_token_9_th 26 extra week in 2016 fiscal 2016 included a 53 rd week for all of our u.s. businesses and certain of our non-u.s. businesses that report 13 four-week periods versus 12 months . see note 2 for additional details related to our fiscal calendar . the following table summarizes the estimated impact of the 53 rd week on revenues and operating profit : replace_table_token_10_th 27 non-gaap items non-gaap items , along with the reconciliation to the most comparable gaap financial measure , are presented below . replace_table_token_11_th 28 replace_table_token_12_th ( a ) we have historically recorded refranchising gains and losses in the u.s. as special items due to the scope of our u.s. refranchising program and the volatility in associated gains and losses . beginning in 2016 , we are also including all international refranchising gains and losses in special items .
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also , please read the “ cautionary statement regarding forward-looking statements ” set forth at the beginning of this annual report on form 10-k. in addition , read the following discussion in conjunction with part 1 of this annual report on form 10-k as well as our consolidated financial statements and the related notes contained elsewhere in this annual report on form 10-k. overview we provide post-acute health care services primarily to medicare beneficiaries throughout the united states , through our home health agencies , hospice agencies , community-based services agencies , and long-term acute care hospitals ( `` ltachs '' ) . our net service revenue increased $ 82.8 million to $ 816.4 million for the year ending december 31 , 2015 from $ 733.6 million for the year ending december 31 , 2014 . during 2015 , we acquired 28 agencies , such that , as of december 31 , 2015 , we operated 363 locations in the following 25 states : alabama , arizona , arkansas , california , colorado , florida , georgia , idaho , illinois , kentucky , louisiana , maryland , mississippi , missouri , north carolina , ohio , oregon , rhode island , south carolina , tennessee , texas , virginia , washington , west virginia and wisconsin . segments our services are classified into four segments : ( 1 ) home health services ; ( 2 ) hospice services ; ( 3 ) community-based services and ( 4 ) facility-based services offered primarily through our ltachs . 33 through our home health services segment we offer a wide range of services , including skilled nursing , medically-oriented social services , and physical , occupational and speech therapy . as of december 31 , 2015 , we operated 283 home health service locations , of which 168 are wholly-owned by us , 109 are majority-owned or controlled by us through equity joint ventures , three are controlled by us through license lease arrangements and the remaining three are only managed by us . through our hospice services segment , we offer a wide range of services , including pain and symptom management , emotional and spiritual support , inpatient and respite care , homemaker services , and counseling . as of december 31 , 2015 , we operated 56 hospice locations , of which 43 are wholly-owned by us , 11 are majority-owned by us through equity joint ventures and two are controlled by us through license lease arrangements . through our community-based services segment , our services are performed by paraprofessional personnel , and include assistance to the elderly , chronically ill , and disabled patients with activities of daily living . as of december 31 , 2015 , we operated 13 community-based services locations , of which 12 are wholly-owned and one is majority-owned through an equity joint venture . we provide facility-based services principally through our ltachs . as of december 31 , 2015 , we owned and operated six ltachs with eight locations , of which all but one are located within host hospitals . we also operate a pharmacy , family health center , and family health clinic . of these 11 facility-based services locations as of december 31 , 2015 , six are wholly-owned by us and five are controlled by us through equity joint ventures . the percentage of net service revenue contributed from each reporting segment for the each of the periods ended december 31 , 2015 , 2014 and 2013 was as follows : replace_table_token_5_th development activities the following table provides a summary of our acquisitions , divestitures and internal development activities from january 1 , 2013 through december 31 , 2015 . this table does not include the three management services agreements under which we manage the operations of three home nursing agencies , through our home health services segment , nor does it include our pharmacy , family health center and family health clinic , through our facility-based services segment . replace_table_token_6_th 34 recent developments home-based services when the patient protection and affordable care act ( `` ppaca '' ) was enacted in 2010 , it changed a number of medicare payment rates , including the reinstatement of the 3 % home health rural add-on , which began on april 1 , 2010 ( expired on january 1 , 2016 ) . other changes from ppaca that took effect on or after january 1 , 2011 were : reduced the market basket adjustment to be determined by cms for each of 2011 , 2012 and 2013 by 1 % ; instituted a full productivity adjustment beginning in 2015 ; and re-based the base payment rate for medicare beginning in 2014 and phasing in over a four year period . on october 30 , 2014 , cms issued a final rule ( effective january 1 , 2015 ) regarding payment rates for home health services provided during 2015. the net impact of all policies in the rule is a reduction in medicare payments of 0.3 % . cms estimated that freestanding proprietary agencies would have a 0.9 % reduction in medicare reimbursement compared with 2014 levels . the final rule included the following elements : the national , standardized 60-day episode payment rate increased from $ 2,869.27 in 2014 to $ 2,961.38 in 2015. this is a net 3.2 % increase in standardized rate , due to application of ( 1 ) a wage index budget neutrality factor ( +.24 % ) and ( 2 ) a case mix budget neutrality factor ( +3.66 % ) to the 2014 standard rate which is offset by a recalibration of the case mix , then subtracting the rebasing adjustment of - $ 80.95 ( 2.82 % of 2014 rates ) , then applying the net market basket adjustment of +2.1 % ( market basket =+2.6 % , productivity adjustment =-0.5 % ) . the 2013 office of management and budget ( `` omb '' ) core-based statistical area ( `` cbsa '' ) designations for calculating wage indexes were adopted . story_separator_special_tag our primary payors are tenncare managed care organization and medicaid . approximately 82 % of our net service revenue in this segment is generated in tennessee . facility-based services on december 26 , 2013 , president obama signed into law the bipartisan budget act of 2013 ( public law 113-67 ) . this new law prevents a scheduled payment reduction for physicians and other practitioners who treat medicare patients from taking effect on january 1 , 2014. included in the legislation are the following changes to ltach reimbursement : medicare discharges from ltachs will continue to be paid at full ltach-pps rates if the patient spent at least three days in a short-term care hospital ( `` stch '' ) intensive care unit ( `` icu '' ) during a stch stay that immediately preceded the ltach stay , or 36 the patient was on a ventilator for more than 96 hours in the ltach ( based on the ms-ltach drg assigned ) and had a stch stay immediately preceding the ltach stay . also , the ltach discharge can not have a principal diagnosis that is psychiatric or rehabilitation . all other medicare discharges from ltachs will be paid at a new “ site neutral ” rate , which is the lesser of : the ipps comparable per diem amount determined using the formula in the short-stay outlier regulation at 42 c.f.r . § 412.529 ( d ) ( 4 ) plus applicable outlier payments , or 100 % of the estimated cost of the services involved . the above new payment policy will not be effective until ltach cost reporting periods beginning on or after october 1 , 2015 , and the site neutral payment rate will be phased-in over two years . for cost reporting periods beginning on or after october 1 , 2015 , discharges paid at the site neutral payment rate or by a medicare advantage plan ( part c ) will be excluded from the ltach average length-of-stay ( “ alos ” ) calculation . for cost reporting periods beginning in fiscal year 2016 and later , cms will notify ltachs of their “ ltach discharge payment percentage ” ( i.e. , the number of discharges not paid at the site neutral payment rate divided by the total number of discharges ) . for cost reporting periods beginning in fiscal year 2020 and later , ltachs with less than 50 % of their discharges paid at the full ltach-pps rates will be switched to payment under the ipps for all discharges in subsequent cost reporting periods . however , cms will set up a process for ltachs to seek reinstatement of ltach-pps rates for applicable discharges . medpac will study the impact of the above changes on quality of care , use of hospice and other post-acute care settings , different types of ltachs and growth in medicare spending on ltachs . medpac is to submit a report to congress with any recommendations by june 30 , 2019. the report is to also include medpac 's assessment of whether the 25 percent rule should continue to be applied . 25 percent rule relief for freestanding ltachs , hwhs and satellite facilities will be extended without interruption for cost reporting periods beginning on or after december 29 , 2007. the 25 percent rule is scheduled to become effective : ( i ) for freestanding ltachs for cost reporting periods beginning on or after july 1 , 2016 , and ( ii ) for hwhs and satellite facilities for cost reporting periods beginning on or after october 1 , 2016. grandfathered hwhs will be permanently exempt from the 25 percent rule . cms must report to congress by december 18 , 2015 on whether the 25 percent rule should continue to be applied . the moratorium on new ltach facilities and increases in ltach beds will be renewed for the period from april 1 , 2014 to september 30 , 2017. although the introductory language only refers to a moratorium extension for ltach bed increases , the amendment to the medicare , medicaid , and schip extension act ( `` mmsea '' ) would extend both moratoriums . no exceptions will apply during this extension of the moratoriums . the original rule renewed the moratorium for the period beginning january 1 , 2015 ; however , a provision with hr4302 accelerated the moratorium period beginning on april 1 , 2014. not later than october 1 , 2015 , cms will establish a new functional status quality measure for change in mobility of ventilator patients . as part of the fiscal year 2015 or 2016 rulemaking , cms is to study payment rates and regulations that apply to the special category of neoplastic disease ltachs and may adjust such payment rates . on august 4 , 2014 , cms released its final rule for ltach medicare reimbursement for fiscal year 2015 , which began on october 1 , 2014 and ended on september 30 , 2015. in the aggregate , payments for fiscal year 2015 increased by 1.1 % over fiscal year 2014 rates . the 1.1 % increase consisted of a 2.9 % inflationary market basket update , offset by a 0.5 % reduction for the productivity adjustment , and a 0.2 % reduction to the market basket as defined by ppaca . ltach payment rates were also reduced by approximately 1.3 % for the `` one-time '' budget neutrality adjustment factor under the last year of a three-year phase-in and increased by 0.2 % for wage index budget neutrality adjustment . on july 31 , 2015 , cms issued a final rule to update fiscal year 2016 payment policies and rates under the ipps and ltach pps , which affects discharges occurring in cost reporting periods beginning on or after october 1 , 2015. cms projects that ltach pps rates would decrease by 4.6 % .
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consolidated results of operations the following table sets forth , for the periods indicated , our consolidated results ( amounts in thousands ) : replace_table_token_9_th 38 replace_table_token_10_th the following table sets forth our consolidated results as a percentage of net service revenue , except income tax expense , which is presented as a percentage of income attributable to lhc group , inc. 's common stockholders : replace_table_token_11_th year ended december 31 , 2015 compared to year ended december 31 , 2014 net service revenu e consolidated net service revenue for the year ended december 31 , 2015 was $ 816.4 million compared to $ 733.6 million for the same period in 2014 , an increase of $ 82.8 million , or 11.3 % . consolidated net service revenue growth in 2015 was primarily due to both our acquisitions of 28 agencies during 2015 and an increase in same store growth . consolidated net service revenue was comprised of the following for the periods ending december 31 : replace_table_token_12_th revenue derived from medicare represented 74.5 % and 75.9 % of our consolidated net service revenue for the years ended december 31 , 2015 and 2014 , respectively . the following table sets forth each of our segment 's revenue growth or loss , admissions , census , episodes and patient days for the twelve months ended december 31 , 2015 and the related change from the same period in 2014 ( amounts in thousands , except admissions , census , episode data and patient days ) : replace_table_token_13_th 39 replace_table_token_14_th ( 1 ) same store - location that has been in service with us for greater than 12 months . ( 2 ) de novo - internally developed location that has been in service for 12 months or less . ( 3 ) organic - combination of same store and de novo . ( 4 ) acquired - purchased location that has been in service with us 12 months or less .
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story_separator_special_tag the following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included in item 8 of this annual report on form 10-k. company overview in 2011 , we strengthened our organization and talent base , made improvements to our capital structure , expanded our international presence , improved productivity , and completed two accretive acquisitions . our financial results reflect improving conditions in our served markets , higher product prices and product costs , favorable foreign currency exchange rates positively impacting net sales by 0.8 % , and acquisitions positively impacting net sales by 6.8 % . sales in creased $ 1,061.9 million , or 21.0 % , over the prior year . cost of goods sold as a percentage of net sales was 79.8 % and 80.3 % in 2011 and 2010 , respectively . operating income in creased to $ 332.9 million , or 57.9 % , primarily from organic growth and margin expansion . as a result , net income in creased 69.9 % over the prior year to $ 196.2 million . diluted earnings per share attributable to wesco international , inc. were $ 3.96 in 2011 , compared with $ 2.50 in 2010 . our end markets consist of industrial firms , electrical and data communications contractors , utilities and commercial organizations , institutions and governmental entities . our transaction types to these markets can be categorized as stock , direct ship and special order . stock orders are filled directly from existing inventory and represent approximately 46 % of total sales . approximately 43 % of our total sales are direct ship sales . direct ship sales are typically custom-built products , large orders or products that are too bulky to be easily handled and , as a result , are shipped directly to the customer from the supplier . special orders are for products that are not ordinarily stocked in inventory and are ordered based on a customer 's specific request . special orders represent the remainder of total sales . we have historically financed our working capital requirements , capital expenditures , acquisitions , share repurchases and new branch openings through internally generated cash flow , debt issuances , borrowings under our credit facilities and funding through our receivables facility . cash flow we generated $ 167.5 million in operating cash flow during 2011 . included in this amount was increased operating results offset by investments in working capital to fund our growth . investing activities included payments of $ 48.1 million for the acquisitions of reco and brews and $ 33.3 million for capital expenditures . refer to note 5 of our notes to the consolidated financial statements for additional information regarding the reco and brews acquisitions . financing activities during 2011 consisted of borrowings and repayments of $ 435.7 million and $ 398.9 million , respectively , related to our revolving credit facility , and borrowings and repayments of $ 210.0 million and $ 330.0 million , respectively , related to our receivables facility . there was also an increase in bank overdrafts of $ 19.9 million . financing availability as of december 31 , 2011 , we had $ 499.3 million in total available borrowing capacity . the available borrowing capacity under our revolving credit facility , which has a maturity date in august 2016 was $ 299.3 million , of which $ 188.6 million was the u.s. sub-facility borrowing limit and $ 110.7 million was the canadian sub-facility borrowing limit . the available borrowing capacity under the receivables facility , which has a maturity date in august 2014 was $ 200.0 million . in addition , in august 2009 , we completed an exchange offer pursuant to which we issued $ 345.0 million in aggregate principal amount of 2029 debentures in exchange for approximately $ 299.7 million and $ 57.7 million in aggregate principal amounts of our 2026 debentures and 2025 debentures , respectively . on december 23 , 2010 , we completed the conversion and redemption of all our outstanding 2025 debentures . our 2029 debentures can not be redeemed or repurchased until september 2016. for further discussion related to the debentures , refer to note 7 of our notes to the consolidated financial statements . we monitor the depository institutions that hold our cash and cash equivalents on a regular basis , and we believe that we have placed our deposits with creditworthy financial institutions . for further discussions refer to “ liquidity and capital resources. ” critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . 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 assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to supplier programs , bad debts , inventories , insurance costs , goodwill , income taxes , contingencies and litigation . 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 17 carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . if actual market conditions are less favorable than those projected by management , additional adjustments to reserve items may be required . we believe the following critical accounting policies affect our judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition revenues are recognized for product sales when title , ownership and risk of loss pass to the customer , or for services when the service is rendered . story_separator_special_tag we estimate our reserve based on historical incident rates and costs . income taxes we recognize deferred tax assets and liabilities for expected future tax consequences of events that have been included in our consolidated financial statements or tax returns . deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse . we record our deferred tax assets at amounts that are expected to be realized . we evaluate future taxable income and potential tax planning strategies in assessing the potential need for a valuation allowance . should we determine that it is more likely than not that we would not be able to realize all or part of our deferred tax assets in the future , an adjustment to the deferred tax asset would be charged to income in the period such determination was made . we account for uncertainty in income taxes using a recognition threshold and measurement attribute prescribed by income tax accounting guidance . we frequently review tax issues and positions taken on tax returns to determine the need and amount of contingency reserves necessary to cover any probable audit adjustments . convertible debentures we separately account for the liability and equity components of our convertible debentures in a manner that reflects our nonconvertible debt borrowing rate . we estimate our non-convertible debt borrowing rate through a combination of discussions with our financial institutions and review of relevant market data . the discounts to the convertible note balances are amortized to interest expense , using the effective interest method , over the implicit life of the debentures . stock-based compensation our stock-based employee compensation plans are comprised of stock options , stock-settled stock appreciation rights and restricted stock units . compensation cost for all stock-based awards is measured at fair value on the date of grant , and compensation cost is recognized , net of estimated forfeitures , over the service period for awards expected to vest . the fair value of stock options and stock-settled appreciation rights is determined using the black-scholes valuation model . expected volatilities are based on historical volatility of our common stock . we estimate the expected life of stock options and stock-settled stock appreciation rights using historical data pertaining to option exercises and employee terminations . the risk-free rate is based on the u.s. treasury yields in effect at the time of grant . the forfeiture assumption is based on our historical employee behavior , which we review on an annual basis . restricted stock units with vesting dependent upon service conditions are valued based on the market price on the grant date . no dividends are assumed for stock-based awards . story_separator_special_tag selling , general and administrative ( “ sg & a ” ) expenses . sg & a expenses include costs associated with personnel , shipping and handling , travel , advertising , facilities , utilities and bad debts . sg & a expenses increased by $ 69.7 million , or 10.0 % , to $ 763.6 million in 2010 due to the increase in commissions and incentives and the restoration of temporary cost and benefit reductions taken in the prior year . as a percentage of net sales , sg & a expenses increased to 15.1 % of sales , compared with 15.0 % in 2009 , reflecting the impact of the reinstatement of discretionary benefits , the absence of mandatory unpaid leave of absences in the current year , an impairment charge related to our 40 % interest in the ladd joint venture and an increase in variable operating expenses partially offset by the decrease in severance costs related to headcount cost reduction actions taken in the prior year . sg & a payroll expenses for 2010 of $ 527.5 million increased by $ 60.5 million compared to 2009. the increase in payroll expense was primarily due to the increase in commissions and incentives of $ 27.8 million , the net impact of $ 24.3 million related to temporary cost reductions taken in the prior year and an increase in temporary labor costs of $ 5.2 million . other sg & a payroll related costs increased by $ 3.2 million . contributing to the remaining change in sg & a expenses was a charge of $ 3.8 million related to the impairment of our 40 % interest in the ladd joint venture and an increase in various operating expenses of $ 5.4 million due to the increase in business activity levels . depreciation and amortization . depreciation and amortization decreased $ 2.1 million to $ 23.9 million in 2010 , compared with $ 26.0 million in 2009. the decrease in depreciation and amortization was due to the reduction in capital expenditures in 2009 and 2010. income from operations . income from operations increased by $ 31.0 million , or 17.2 % , to $ 210.9 million in 2010 , compared to $ 180.0 million in 2009. the increase in operating income was primarily due to improved conditions in our markets served . interest expense . interest expense totaled $ 57.6 million in 2010 , compared with $ 53.8 million in 2009 , an increase of 7.1 % . interest expense was impacted by an increase in interest rates and interest expense of $ 4.2 million resulting from the resolution of an outstanding tax matter . interest rates increased upon amending both the receivables facility and the revolving credit facility in april 2009 and february 2010 , respectively . the receivables facility was amended again in september 2010 to , among other things , reduce the program fee and commitment fee . it is expected that these changes will have a favorable impact on interest expense in the future . amortization of the debt discount resulted in non-cash interest expense of $ 4.3 million in 2010 and $ 11.8 million in 2009. other income .
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results of operations the following table sets forth the percentage relationship to net sales of certain items in our consolidated statements of income for the periods presented . 19 replace_table_token_6_th 2011 compared to 2010 net sales . sales in 2011 in creased 21.0 % to $ 6,125.7 million , compared with $ 5,063.9 million in 2010 . sales were positively impacted by our growth initiatives , improved conditions in our markets served , favorable foreign currency exchange rates positively impacting net sales by 0.8 % , and acquisitions positively impacting net sales by 6.8 % . additionally , management estimates the price impact on net sales was approximately 3.0 % . cost of goods sold . cost of goods sold in creased 20.3 % in 2011 to $ 4,889.2 million , compared with $ 4,065.4 million in 2010 . cost of goods sold as a percentage of net sales was 79.8 % in 2011 versus 80.3 % in 2010 . the decrease in the cost of goods sold percentage was primarily due to the margin impact from recent acquisitions and higher supplier volume rebate rates driven by the increase in sales . selling , general and administrative ( “ sg & a ” ) expenses . sg & a expenses include costs associated with personnel , shipping and handling , travel , advertising , facilities , utilities and bad debts . sg & a expenses in creased by $ 108.4 million , or 14.2 % , to $ 872.0 million in 2011 . the increase in sg & a expenses is primarily due to compensation expenses related to the growth in sales and the impact from recent acquisitions of $ 44.6 million . as a percentage of net sales , sg & a expenses de creased to 14.2 % of sales , compared with 15.1 % in 2010 .
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the fair value of each stock option award is estimated on the date of grant using the black-scholes option pricing model . due to its limited operating history and limited number of sales of its common stock , the company estimated its volatility in consideration of a number of factors including the volatility of comparable public companies . the company uses historical data , as well as subsequent events occurring prior to the issuance of the consolidated financial statements , to estimate option exercises and employee terminations within the valuation model . the risk-free interest rate is based on the u.s. treasury yield curve in effect at the time of grant commensurate with the expected term assumption . the expected term of stock options granted , all of which qualify as `` plain vanilla , `` is based on the average of the contractual term ( generally 10 years ) and the vesting period . for non-employee options , the expected term is the contractual term . see report of independent registered public accounting firm . f-13 the following assumptions were used in determining the fair value of stock option grants : replace_table_token_9_th a summary of option activity under the 2014 plan is presented below : replace_table_token_10_th on september 12 , 2014 , the board of directors granted stock options to purchase 3,300,000 shares of common stock at an exercise price of $ 0.45 per share . the weighted average grant-date fair value of the options granted was estimated at $ 0.34 per share . these options vest over three years and have a term of 10 years . on april 1 , 2015 , the board of directors granted stock options to purchase 100,000 shares of common stock at an exercise price of $ 0.60 per share . the weighted average grant-date fair value of the options granted was estimated at $ 0.16 per share . these options vested immediately and have a term of 5 years . on june 1 , 2015 , the board of directors granted stock options to purchase 500,000 shares of common stock at an exercise price of $ 0.60 per share . the weighted average grant-date fair value of the options granted was estimated at $ 0.27 per share . these options vest over three years and have a term of 10 years . stock-based compensation expense for the year ended september 30 , 2015 and the nine months ended september 30 , 2014 was $ 486,271 and $ 470,185 , respectively . at september 30 , 2015 , unrecognized total compensation cost related to unvested awards of $ 325,316 is expected to be recognized over a weighted average period of 1.62 years . see report of independent registered public accounting firm . f-14 warrants the company has reserved 8,797,130 shares of common stock for the exercise of outstanding warrants . the following table summarizes the warrants outstanding at september 30 , 2015 : replace_table_token_11_th _ ( 1 ) fair value of these warrants are included in the derivative warrant liability at september 30 , 2015 , the weighted average remaining life of the warrants is 4.23 years , all warrants are exercisable , and there is no aggregate intrinsic value for the warrants outstanding . 8. related party transactions the company 's headquarters is located in the office space of a company affiliated through common ownership . the company has not recorded any revenue or expense related to the use of the office space as management has determined the usage to be immaterial and the affiliate has not charged for the usage . as of september 30 , 2015 and 2014 , the company owed $ 70,386 and $ 56,134 , respectively , to a company affiliated through common ownership for the expenses the related party paid on the company 's behalf and services performed by the related party . our chief executive officer is the cofounder and vice chairman of akrimax pharmaceuticals , llc ( `` akrimax `` ) , a privately held pharmaceutical company specializing in producing cardiovascular and general pharmaceutical products ( see note 3 ) . 9. employment and consulting agreements employment agreements in december 2012 and january 2013 , the company entered into employment agreements with two employees . as of december 31 , 2013 , the employment agreements had expired . the company entered into a three year employment agreement story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes included elsewhere in this annual report on form 10-k. management 's discussion and analysis contains forward-looking statements , such as statements of our plans , objectives , expectations and intentions . any statements that are not statements of historical fact are forward-looking statements . when used , the words `` believe , '' `` plan , '' `` intend , '' `` anticipate , '' `` target , '' `` estimate , '' `` expect '' and the like , and or future tense or conditional constructions ( `` will , '' `` may , '' `` could , '' `` should , '' etc . ) , or similar expressions , identify certain of these forward-looking statements . these forward-looking statements are subject to risks and uncertainties including those under `` risk factors '' in item 1a in this form 10-k that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements . our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors . story_separator_special_tag 41 results of operations for year ended september 30 , 2015 compared to nine months ended september 30 , 2014 replace_table_token_2_th revenues we did not generate any revenues for the year ended september 30 , 2015 and the nine months ended september 30 , 2014. beginning in may 2012 , our strategic sales and marketing partner , prenzamax , generated revenues from the sale of suprenza , our first commercial product . under the partnering agreement , we were not entitled to any revenues during the year ended september 30 , 2015 and the nine months ended september 30 , 2014. it is unlikely that we will ever receive any material revenues from suprenza . research and development expenses for the year ended september 30 , 2015 , research and development expenses were $ 1,797,045 as compared to $ 574 during the nine months ended september 30 , 2014. the $ 1,796,471 increase in 2015 was primarily due to costs incurred in the development of our product for the treatment of hemorrhoids in the current year and our limited working capital in the prior period . we are actively seeking additional capital in order to fund our research and development efforts . story_separator_special_tag ss= '' hpbhr '' > 44 liquidity and capital resources going concern uncertainty and working capital citius has incurred operating losses of $ 2,902,268 , $ 737,727 and $ 1,288,003 for the year ended september 30 , 2015 , the nine months ended september 30 , 2014 , and the year ended december 31 , 2013 , respectively . at september 30 , 2015 , citius had a stockholders ' deficit of $ 635,213 and an accumulated deficit of $ 9,040,549. citius ' net cash used in operations during the year ended september 30 , 2015 , the nine months ended september 30 , 2014 , and the year ended december 31 , 2013 was $ 2,385,416 , $ 183,164 and $ 1,095,266 , respectively . as of september 30 , 2015 , citius had a working capital deficit of $ 640,614. the working capital deficit was attributable to the operating losses incurred by the company since inception offset by our capital raising activities . at september 30 , 2015 , citius had cash and cash equivalents of $ 676,137 available to fund its operations . the company 's primary sources of cash flow since inception have been from financing activities . during the year ended september 30 , 2015 and the nine months ended september 30 , 2014 , the company received net proceeds of $ 1,509,493 and $ 1,680,834 , respectively from the issuance of equity . during the year ended december 31 , 2013 , the company received proceeds of $ 1,175,000 from the issuance of debt . our primary uses of operating cash were for product development and commercialization activities , regulatory expenses , employee compensation , consulting fees , legal and accounting fees , and insurance and travel expenses . on july 31 , 2014 , the note holders demanded conversion of the outstanding $ 1,685,000 in convertible notes , the $ 350,000 subordinated note and the accrued interest of $ 196,058 into 3,667,886 membership interests of citius . citius and the two note holders agreed to convert the convertible notes and accrued interest at the 2014 private offering price of $ 0.60 per share of common stock while the subordinated note issued in the 2013 private placement converted at $ 0.65 per share . all the citius membership interests were exchanged on a one for one basis for shares of common stock in the reverse acquisition . on september 12 , 2014 , the company sold 3,400,067 units ( `` units '' ) for a purchase price of $ 0.60 per unit for gross proceeds of $ 2,040,040 and net proceeds of $ 1,630,834. each unit consists of one share of common stock and one five-year warrant ( the `` investor warrants '' ) to purchase one share of common stock at an exercise price of $ 0.60 , ( the `` private offering '' ) . the exercise price of the investor warrants is subject to adjustment , for up to one year , if the company issues common stock at a price lower than the exercise price , subject to certain exceptions . the investor warrants will be redeemable by the company at a price of $ 0.001 per investor warrant at any time subject to the conditions that ( i ) the common stock has traded for twenty ( 20 ) consecutive trading days with a closing price of at least $ 1.50 per share with an average trading volume of 50,000 shares per day and ( ii ) the company provides 20 trading days prior notice of the redemption and the closing price of the common stock is not less than $ 1.17 for more than any 3 days during such notice period and ( iii ) the underlying shares of common stock are registered . on december 31 , 2014 , the note holders requested conversion of $ 600,000 in promissory notes and accrued interest of $ 33,333 into 1,055,554 shares of common stock at a conversion price of $ 0.60 per share . between march 19 , 2015 and september 14 , 2015 , the company sold an additional 2,837,037 units for a purchase price of $ 0.54 per unit and 200,000 units for a purchase price of $ 0.60 per unit for gross proceeds of $ 1,652,000. we expect that we will have sufficient capital to continue our operations for the next six months however , based upon our cash availability and expenses , we will not have sufficient capital to fund our operations for the next twelve months .
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general and administrative expenses for the year ended september 30 , 2015 , general and administrative expenses were $ 946,613 , as compared to $ 183,044 for the nine months ended september 30 , 2014. the increase of $ 763,569 was attributable to additional compensation costs for our new chief executive officer , plus additional financial and consulting expenses , higher insurance costs and increases in professional fees due to being a public company . expense increases in the year ended september 30 , 2015 were also attributable to our ability to fund our efforts as a result of the working capital raised in our private placements . expenses were limited in 2014 as we focused our efforts solely on raising new capital to fund operations . 42 stock-based compensation expense for the year ended september 30 , 2015 , stock-based compensation expense was $ 486,271 compared to $ 470,185 for the nine months ended september 30 , 2014. the $ 16,086 increase in 2015 was primarily due to options granted to two consultants during the year ended september 30 , 2015. a majority of the stock-based compensation expense for the year ended september 30 , 2015 and all of the stock-based compensation expense for the nine month period ended september 30 , 2014 relates to options granted to our chief executive officer in september 2014 in connection with his employment agreement to purchase 3,300,000 shares of the company 's common stock . other income ( expense ) interest income earned was $ 3,066 for the year ended september 30 , 2015 compared to $ 555 for the nine months ended september 30 , 2014. the interest income was earned on the proceeds of our private offerings that were invested in money market accounts .
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approximately two thirds of product sales are used by the mobile market , which is characterized by applications where the equipment is not fixed in place , the operating environment is often unpredictable , and duty cycles are generally moderate to low . some examples of the mobile market include equipment used in off-road construction , agriculture , fire and rescue , utilities , oil fields , and mining . the remaining one third of sales are used by industrial markets , which are characterized by equipment that is fixed in place , typically in a controlled environment , and which operates at higher pressures and duty cycles . power units , automation machinery , metal cutting machine tools and plastics machinery are some examples of industrial equipment . the company sells to both markets with a single product line . industry conditions demand for the company 's products is dependent on demand for the capital goods into which the products are incorporated . the capital goods industries in general , and the fluid power industry specifically , are subject to economic cycles . according to the national fluid power association ( the fluid power industry 's trade association in the united states ) , the united states index of shipments of hydraulic products increased 42 % in 2010 , after a decrease of 40 % in 2009 and an increase of 8 % in 2008. the company 's order trend has historically tracked closely to the united states purchasing managers index ( pmi ) . a pmi above 50 indicates economic expansion in the manufacturing sector and when below 50 , it indicates economic contraction . the index increased to 58.5 in december 2010 , from 56.4 in december 2009. the index has remained above 50 since august 2009. the report in february 2011 indicates continuing strong performance in the manufacturing sector with an index at 61.4 , its highest level since 2004. new orders and production , driven by strength in exports in particular , continue to drive the composite index . management believes these are very positive signs for the company 's business in 2011 . 16 results for the 2010 fiscal year ( dollars in millions except net income per share ) replace_table_token_4_th business activity in 2010 rebounded more quickly than management had anticipated . the company has been able to keep up with the steadily increasing demand , while realizing substantial productivity improvements , thanks in large part to maintaining and investing in its workforce readiness throughout the downturn . the operational efficiency of the company is demonstrated by its strong earnings numbers . generally , the company 's second quarter is its strongest , but business expanded in the fourth quarter , resulting in its highest revenue and earnings quarter of the year . that expansion has continued into the first quarter , as some of the company 's traditional markets gain strength . sales in 2010 were buoyed by new customers around the world . traditional markets like mining , construction and aerial work platforms appear to be gaining strength , which management believes is a good indication for 2011. the macroeconomic outlook is robust , the pmi continues to expand and all signals are positive . as capital goods industries remain strong , management believes sun will continue to grow and earnings will continue to rise . the company has a very strong first quarter forecast , and expects to remain busy . maintaining the company 's strong balance sheet and financial flexibility remains a key strategy . the company ended 2010 with cash and investments of $ 45.0 million , up $ 6.7 million from the previous year , an unused line of credit of $ 35.0 million , and zero dollars of long-term debt . the company continued to invest in its business in 2010 with capital expenditures for the year of approximately $ 3.9 million . the company has ample cash to do the things management believes are necessary to position the company to take the next step in its growth . dividends the company declared quarterly dividends of $ 0.09 per share that were paid on the 15th day of the month following the date of declaration . additionally , the company declared a one-time special cash dividend of $ 0.50 per share that was paid on november 30 , 2010 , to shareholders of record as of november 15 , 2010. in march 2011 , the board elected to once again apportion a shared distribution for employees and shareholders based on the company 's 2010 results . the shared distribution consists of a 9 % contribution of salaries to all eligible employees , most of which will be paid into retirement plans , and an $ 0.11 per share dividend to shareholders , totaling approximately $ 4.6 million . the shared distribution concept was introduced in 2008 as a way to reward both shareholders and employees when sun has a successful year . 17 the shared distribution dividend will be issued to shareholders of record on march 15 , 2011 , with payment on march 31 , 2011. outlook first quarter 2011 revenues are expected to be approximately $ 50 million , up approximately 58 % from the first quarter of 2010. earnings per share are estimated to be $ 0.50 to $ 0.53 compared to $ 0.20 in the same period a year ago . story_separator_special_tag costs due to the strength of the korean won against the u.s. dollar for material purchases made in u.s. dollars , and productivity improvements totaling $ 1.0 million . the increase in sales volume resulted in $ 0.4 million of additional operating income . the german reporting segment contributed $ 4.0 million to our consolidated operating income during 2010 compared to $ 2.5 million during 2009 , an increase of $ 1.5 million . the increase was primarily due to the absorption of selling , engineering , and administrative expenses which remained flat in whole dollars . the increase in sales volume resulted in $ 0.9 million of additional operating income . story_separator_special_tag 21 gross profit gross profit decreased $ 37.2 million or 62.9 % to $ 22.0 million in 2009 , compared to $ 59.1 million in 2008. gross profit as a percentage of net sales decreased to 22.5 % in 2009 , compared to 33.2 % in 2008. the company experienced a sharp decline in sales during the fourth quarter of 2008 , which resulted in gross profit margins of 24.9 % in that period . sales continued to decline during the first half of 2009 , resulting in further reductions in the gross profit margin . both sales and gross profit margins increased sequentially in the third and fourth quarters of 2009. the gross profit margin in the fourth quarter of 2009 was flat compared to the prior year with a margin of 24.9 % , while sales decreased $ 5.7 million for the same period . the 2008 fourth quarter results included additional retirement expense related to the shared distribution that was not included in the current year . the 2009 gross profit decreases were primarily related to lower sales volume , which contributed $ 26.8 million of the decrease . the remaining decreases in gross profit were attributed to productivity declines of approximately $ 2.5 million , and increases in overhead expenses as a percentage of sales of approximately $ 10.0 million , both of which occurred primarily in the u.s. in periods of sharp declining sales , the company can not reduce costs at the same pace . however , the decrease in gross profit was partially offset by lower material costs as a percent of sales of approximately $ 2.1 million , primarily in the u.s. additionally , the company eliminated overtime premiums equal to approximately $ 1.1 million , reduced retirement benefits , primarily related to the shared distribution , of approximately $ 3.2 million that was included in the prior year results , and the company had cost savings of approximately $ 1.3 million resulting from the furloughs and salary reductions during the current year . these reductions were all primarily in the u.s. selling , engineering , and administrative expenses selling , engineering and administrative expenses in 2009 were $ 19.8 million , a $ 2.9 million , or 12.8 % , decrease , compared to $ 22.7 million in 2008. the change was due to decreases in compensation of $ 0.9 million , resulting primarily from salary freezes and reductions that began in january , fringe benefit costs of $ 0.9 million , primarily related to retirement benefits associated with the shared distribution that was included in the prior year results , travel of $ 0.4 million , and professional fees and outside services of $ 0.4 million . operating income operating income decreased $ 34.2 million or 94.1 % to $ 2.1 million in 2009 , compared to $ 36.4 million in 2008 , with operating margins of 2.2 % and 20.4 % for 2009 and 2008 , respectively . the u.s. reporting segment experienced an operating loss of $ 2.1 million in 2009 compared to operating income of $ 24.5 million during 2008 , a decrease of $ 26.7 million . the sharp decline in sales volume reduced operating income $ 11.5 million . additional decreases in operating income occurred from productivity declines as a result of keeping its workforce intact , and increased variable and fixed overhead costs as a percent of sales . decreases in operating income were partially offset by decreases in material costs . additionally , the company had cost savings of approximately $ 1.4 million in 2009 , as a result of the furloughs and salary reductions . the korean reporting segment contributed $ 0.6 million to our consolidated operating income during 2009 compared to $ 1.1 million during 2008 , a decrease of $ 0.5 million . the decrease was almost entirely related to the reduction in sales volume . the german reporting segment contributed $ 2.5 million to our consolidated operating income during 2009 compared to $ 7.7 million during 2008 , a decrease of $ 5.2 million . reduction in sales volume resulted in a decrease of $ 3.6 million to operating income . the remaining decrease was primarily related to increased fixed overhead costs as a percent of sales and increased material costs due to the strength of the u.s. dollar against the euro for material purchases made in u.s. dollars . 22 the u.k. reporting segment contributed $ 0.9 million to our consolidated operating income during 2009 compared to $ 3.2 million during 2008 , a decrease of $ 2.3 million . the reduction in sales volume was responsible for $ 1.3 million of the decrease in operating income . the remaining decrease was primarily related to increased fixed overhead costs as a percent of sales . interest income , net net interest income for 2009 was $ 0.6 million compared to net interest income of $ 0.8 million for 2008. the company paid off the remaining balance of its long-term debt in the first quarter of 2009 , and had total average debt for 2008 of $ 0.5 million . total average cash and investments for 2009 , was $ 36.8 million compared to total average cash of $ 27.3 million for 2008. although total cash and investments increased in 2009 , interest rates were at an all time low . in response to the decrease in interest rates in 2009 , the company invested in primarily corporate and municipal bonds to achieve an above average rate of return . foreign currency transaction ( gain ) loss , net net foreign currency transaction loss was $ 0.3 million in 2009 compared to a gain of $ 0.5 million in 2008. while the euro , the korean won and the british pound strengthened against the u.s. dollar , the uk operations experienced losses related to sales conducted in u.s. dollars and from the revaluation of sun ltd. balance sheet items , which were held in u.s. dollars .
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results of operations the following table sets forth , for the periods indicated , certain items in the company 's statements of operations as a percentage of net sales . replace_table_token_5_th segment information ( in thousands ) replace_table_token_6_th 18 comparison of years ended january 1 , 2011 and january 2 , 2010 net sales net sales were $ 150.7 million , an increase of $ 53.3 million , or 54.7 % , compared to $ 97.4 million in 2009. net sales increased 54.8 % excluding the effect of exchange rates . the increase in net sales was primarily driven by increased demand in our end markets , which primarily include capital goods equipment . price increases instituted in july 2010 accounted for approximately 1.5 % of total sales . new product sales ( defined as products introduced within the last five years ) generally made up 10-15 % of total sales in 2010. north american sales increased 51.3 % or $ 22.8 million , to $ 67.3 million in 2010 , asian sales increased 74.2 % or $ 12.8 million , to $ 30.1 million in 2010 , and european sales increased 46.9 % or $ 15.2 million , to $ 47.7 million in 2010. the u.s. reporting segment had sales of $ 94.1 million during 2010 , up $ 34.8 million or 58.7 % , compared to sales of $ 59.3 million during 2009. the increase was driven by demand in our end markets and the general upturn in the global economy . international sales out of the u.s. were $ 34.9 million during 2010 , up 83.7 % or $ 15.9 million , compared to $ 19.0 million during 2009. international sales out of the us include sales to europe , africa and the asia/pacific region . significant increases in sales were noted in almost all geographic regions .
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factors that might cause those differences include those discussed in `` risk factors '' and elsewhere in this annual report on form 10-k. overview we are a leading provider of online travel and travel related reservation and search services . through our online travel agent ( `` ota '' ) services , we connect consumers wishing to make travel reservations with providers of travel services around the world . we offer consumers accommodation reservations ( including hotels , bed and breakfasts , hostels , apartments , vacation rentals and other properties ) through our booking.com , priceline.com and agoda.com brands . our priceline.com brand also offers consumers reservations for rental cars , airline tickets , vacation packages and cruises . we offer rental car reservations worldwide through rentalcars.com . we also allow consumers to easily compare airline ticket , hotel reservation and rental car reservation information from hundreds of travel websites at once through kayak . we recently acquired opentable , a leading provider of online restaurant reservations . we believe that the online restaurant reservation business is complementary to our online travel businesses , and that both opentable and our travel businesses will benefit from adding opentable to the priceline group . we refer to our company and all of our subsidiaries and brands , including booking.com , priceline.com , kayak , agoda.com , rentalcars.com and , as of july 24 , 2014 , opentable , collectively as `` the priceline group , '' the `` company , '' `` we , '' `` our '' or `` us . '' we launched our business in the united states in 1998 under the priceline.com brand and have since expanded our operations to include booking.com , kayak , agoda.com , rentalcars.com and opentable , which are independently managed and operated brands . our principal goal is to serve consumers and our travel service provider and restaurant partners with worldwide leadership in online reservation services . our business is driven primarily by international results , which consist of the results of booking.com , agoda.com and rentalcars.com and the results of the internationally based websites of kayak and , as of july 24 , 2014 , opentable ( in each case regardless of where the consumer resides , where the consumer is physically located while making a reservation or the location of the travel service provider or restaurant ) . during the year ended december 31 , 2014 , our international business ( the substantial majority of which is generated by booking.com ) represented approximately 87 % of our gross bookings ( an operating and statistical metric referring to the total dollar value , generally inclusive of all taxes and fees , of all travel services purchased by our customers ) , and approximately 94 % of our consolidated operating income . see note 18 to the consolidated financial statements for more geographic information . a significant majority of our gross profit is earned in connection with facilitating accommodation reservations . we derive substantially all of our gross profit from the following sources : commissions earned from facilitating reservations of accommodations , rental cars , cruises and other travel services ; transaction gross profit and customer processing fees from our accommodation , rental car , airline ticket and vacation package reservation services ; advertising revenues primarily earned by kayak from sending referrals to otas and travel service providers , as well as from advertising placements on kayak 's websites and mobile apps ; beginning on july 24 , 2014 , revenues recognized by opentable , which consist of reservation revenues ( a fee for restaurant guests seated through opentable 's online reservation service ) , subscription fees for restaurant reservation management services and other revenues ; and global distribution system ( `` gds '' ) reservation booking fees related to our name your own price ® hotel , rental car and airline ticket reservation services , and price-disclosed airline ticket and rental car reservation services . our priceline.com brand offers merchant name your own price ® opaque travel services , which are recorded in revenue on a `` gross '' basis and have associated cost of revenue . all of our other services are recorded in revenue on a `` net '' basis and have no associated cost of revenue . therefore , revenue increases and decreases are impacted by changes in the mix of our revenues between name your own price ® travel services and other services . gross profit reflects the commission or net margin earned for our retail , name your own price ® and semi-opaque travel services and our advertising and other services . consequently , gross profit is an important measure to evaluate growth in our business because , in contrast to our revenues , it is not affected by 40 the different methods of recording revenue and cost of revenue between our name your own price ® travel services and our other services . trends over the last several years we have experienced strong growth in our accommodation reservation services . we believe this growth is the result of , among other things , the broader shift of travel purchases from offline to online , the widespread adoption of mobile devices , the high growth of travel overall in emerging markets such as asia-pacific and south america , and the continued innovation and execution by our teams around the world to build accommodation supply , content and distribution and to improve the customer experience on our websites and mobile apps . these year-over-year growth rates have generally decelerated in recent years . for example , for the year ended december 31 , 2014 , our accommodation room night reservation growth was 28 % , a deceleration from 37 % in 2013 , 40 % in 2012 and 53 % in 2011. given the size of our hotel reservation business , we expect that our year-over-year growth rates will continue to decelerate , though the rate of deceleration may fluctuate . the size of the travel market outside of the united states is substantially greater than that within the united states . story_separator_special_tag this may increase the likelihood that greece , and in turn other countries , could exit the european union , which could lead to added economic uncertainty and further devaluation or eventual abandonment of the euro common currency . these and other macro-economic uncertainties , such as sovereign default risk becoming more widespread , declining oil prices and geopolitical tensions , have led to significant volatility in the exchange rate between the euro , the u.s. dollar and other currencies . the european central bank , in an effort to stimulate the european economy , recently launched a quantitative easing program to purchase public debt , which in turn has caused the euro exchange rate to weaken compared to the u.s. dollar . our international business represents a substantial majority of our financial results . during the year ended december 31 , 2014 , our international business ( the substantial majority of which is generated by booking.com ) represented approximately 87 % of our gross bookings ( an operating and statistical metric referring to the total dollar value , generally inclusive of all taxes and fees , of all travel services purchased by our customers ) , and approximately 94 % of our consolidated operating income . therefore , because we report our results in u.s. dollars , we face exposure to adverse movements in currency exchange rates as the financial results of our international businesses are translated from local currency ( principally the euro and the british pound sterling ) into u.s. dollars . the u.s. dollar significantly strengthened against the euro during 2014 , moving from an exchange rate of 1.38 u.s. dollars per euro as of january 1 , 2014 to 1.13 u.s. dollars per euro as of january 31 , 2015. the u.s. dollar also strengthened significantly during this time frame as compared to many other currencies . as a result , our foreign currency denominated net assets , gross bookings , gross profit , operating expenses and net income have been negatively impacted as expressed in u.s. dollars . for example , gross profit from our international operations grew year-over-year on a local currency basis by approximately 32 % for the three months ended december 31 , 2014 , but , as a result of the impact of changes in currency exchange rates , grew 24 % as reported in u.s. dollars . the u.s. dollar significantly strengthened against the euro during 2014 , moving from an exchange rate of 1.38 u.s. dollars per euro as of january 1 , 2014 to 1.21 u.s. dollars per euro as of december 31 , 2014. the u.s. dollar strengthened further in january 2015 to an exchange rate of 1.13 u.s. dollars per euro as of january 31 , 2015. the u.s. dollar has also strengthened against many other currencies since january 1 , 2014. at these exchange rates , the growth of our total and international gross bookings , expressed in u.s. dollars , will be significantly adversely impacted in 2015. we generally enter into derivative instruments to minimize the impact of short-term currency fluctuations on our consolidated operating results . however , such derivative instruments are short-term in nature and not designed to hedge against currency fluctuations that could impact our gross bookings , revenues or gross profit ( see note 5 to the consolidated financial statements for additional information on our derivative contracts ) . significant fluctuations in currency exchange rates can also impact consumer travel behavior . for example , recent dramatic depreciation of the russian ruble has resulted in it becoming more expensive for russians to travel to europe and most other non-ruble destinations . consumers traveling from a country whose currency has weakened against other currencies may book lower adr accommodations , choose to shorten or cancel their international travel plans or choose to travel domestically rather than internationally , any of which could adversely affect our gross bookings , revenues and results of operations , in particular when expressed in u.s. dollars . the uncertainty of macro-economic factors , the volatility in foreign exchange rates and their impact on consumer behavior , which may differ across regions , makes it more difficult to forecast industry and consumer trends and the timing and degree of their impact on our markets and business , which in turn could adversely affect our ability to effectively manage our business and adversely affect our results of operations . we compete with both online and traditional travel and travel related reservation and search services . the market for the travel reservation and search services we offer is intensely competitive , a trend we expect to continue , and current and new competitors can launch new services at a relatively low cost . we currently , or potentially may in the future , compete with a variety of companies , including : online travel reservation services such as those owned by expedia , orbitz ( which has agreed to be acquired by expedia ) , ctrip , rakuten , edreams odigeo and jalan ; 42 online accommodation search and or reservation services , such as homeaway and airbnb , focused on vacation rental properties , including individually owned properties ; large online companies , including search , social networking and marketplace companies such as google , facebook , alibaba , amazon and groupon ; traditional travel agencies , wholesalers and tour operators , such as carlson wagonlit , american express , thomas cook and tui travel , as well as thousands of individual travel agencies around the world ; travel service providers such as accommodation providers , rental car companies and airlines ; online travel search and price comparison services ( generally referred to as `` meta-search '' services ) , such as tripadvisor , trivago ( in which expedia has acquired a majority ownership interest ) , qunar and hotelscombined ; and online restaurant reservation services , such as tripadvisor 's lafourchette and yelp 's seatme .
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results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 operating and statistical metrics gross bookings resulting from accommodation room nights , rental car days and airline tickets reserved through our international and u.s. operations for the years ended december 31 , 2013 and 2012 were as follows ( numbers may not total due to rounding ) : replace_table_token_16_th gross bookings increased by 37.7 % for the year ended december 31 , 2013 , compared to the same period in 2012 ( growth on a local currency basis was approximately 38 % ) , principally due to growth of 36.9 % in accommodation room night reservations and growth of 37.0 % in rental car day reservations . the 42.5 % increase in international gross bookings ( growth on a local currency basis was approximately 42 % ) was primarily attributable to growth in hotel and accommodation room night reservations for our booking.com and agoda.com businesses , as well as growth in rental car day reservations for our rentalcars.com business . domestic gross bookings increased by 15.5 % for the year ended december 31 , 2013 , compared to the same period in 2012 , primarily due to an increase in priceline.com 's retail airline ticket service , express deals ® hotel reservation service , and retail rental car service , partially offset by a decline in our name your own price ® opaque hotel reservation service ( driven in part by customer shift to express deals ® ) .
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we also invest in corporate debt and equity securities , collateralized loan obligations , or `` clos , '' consumer loans and asset-backed securities , or `` abs , '' backed by consumer and commercial assets , non-mortgage-related derivatives , and other financial assets , including private debt and equity investments in mortgage-related entities . we are externally managed and advised by our manager , an affiliate of ellington . ellington is a registered investment adviser with a 21-year history of investing in a broad spectrum of mortgage-backed securities , or `` mbs , '' and related derivatives . we conduct all of our operations and business activities through ellington financial operating partnership llc , or the `` operating partnership . '' as of december 31 , 2015 , we have an ownership interest of approximately 99.4 % in the operating partnership . the interest of approximately 0.6 % not owned by us represents the interest in the operating partnership that is owned by an affiliate of our manager and certain related parties , and is reflected in our financial statements as a non-controlling interest . our primary objective is to generate attractive , risk-adjusted total returns for our shareholders . we seek to attain this objective by utilizing an opportunistic strategy to make investments , without restriction as to ratings , structure , or position in the capital structure , that we believe compensate us appropriately for the risks associated with them rather than targeting a specific yield . our evaluation of the potential risk-adjusted return of any potential investment typically involves weighing the potential returns of such investment under a variety of economic scenarios against the perceived likelihood of the various scenarios . potential investments subject to greater risk ( such as those with lower credit ratings and or those with a lower position in the capital structure ) will generally require a higher potential return to be attractive in comparison to investment alternatives with lower potential return and a lower degree of risk . however , at any particular point in time , depending on how 55 we perceive the market 's pricing of risk both generally and across sectors , we may favor higher-risk assets or we may favor lower-risk assets , or a combination of the two in the interests of portfolio diversification or other considerations . through december 31 , 2015 , our credit strategy ( which in prior periods we referred to as our non-agency strategy ) has been the primary driver of our risk and return , and we expect that this will continue in the near- to medium-term . however , while we believe opportunities in u.s. non-agency mbs remain , we believe other asset classes offer attractive returns as well as asset diversification . these asset classes include residential and commercial mortgage loans , which can be performing , non-performing , or sub-performing ; clos ; european non-dollar denominated investments ; other mortgage-related structured investments ; consumer loans and abs backed by consumer loans ; private debt and or equity investments in mortgage originators and other mortgage-related entities ; and distressed corporate debt . our investments in these asset classes , together with our non-agency mbs and real estate owned , are collectively referred to as our credit portfolio . we believe that ellington 's proprietary research and analytics allow our manager to identify attractive assets in these classes , value these assets , monitor and forecast the performance of these assets , and opportunistically hedge our risk with respect to these assets . we continue to maintain a highly leveraged portfolio of agency rmbs to take advantage of opportunities in that market sector and to maintain our exclusion from registration as an investment company under the investment company act . unless we acquire very substantial amounts of whole mortgage loans or there are changes to the rules and regulations applicable to us under the investment company act , we expect that we will always maintain some core amount of agency rmbs . we also use leverage in our credit strategy , albeit significantly less leverage than that used in our agency rmbs strategy . through december 31 , 2015 , we financed our asset purchases almost exclusively through reverse repurchase agreements , or `` reverse repos , '' which we account for as collateralized borrowings and we expect to continue to obtain the vast majority of our financing through the use of reverse repos . the strategies that we employ are intended to capitalize on opportunities in the current market environment . we intend to adjust our strategies to changing market conditions by shifting our asset allocations across various asset classes as credit and liquidity trends evolve over time . we believe that this flexibility , combined with ellington 's experience , will help us generate more consistent returns on our capital throughout changing market cycles . as of december 31 , 2015 , outstanding borrowings under reverse repos were $ 1.2 billion and our debt-to-equity ratio was 1.59 to 1. our debt-to-equity ratio does not account for liabilities other than debt financings . of our total borrowings outstanding as of december 31 , 2015 , approximately 79.5 % , or $ 933.3 million , relates to our agency rmbs holdings . the remaining outstanding borrowings relate to our non-agency mbs , clos , consumer loans , and corporate debt . we opportunistically hedge our credit risk , interest rate risk , and foreign currency risk ; however , at any point in time we may choose not to hedge all or a portion of these risks , and we will generally not hedge those risks that we believe are appropriate for us to take at such time , or that we believe would be impractical or prohibitively expensive to hedge . we believe that we have been organized and have operated so that we have qualified , and will continue to qualify , to be treated for u.s. federal income tax purposes as a partnership and not as an association or a publicly traded partnership taxable as a corporation . story_separator_special_tag the risk of rising interest rates reinforces the importance of our ability to hedge interest rate risk in both our agency rmbs and credit portfolios using a variety of tools , including forward-settling to-be-announced agency pass-through certificates , or `` tbas , '' interest rate swaps , and various other instruments . additional uncertainty surrounds the federal reserve 's timeline to curtail its reinvestment of principal payments from its u.s. treasury security and agency rmbs holdings . the current pace of monthly reinvestments under this program is approximately $ 25 billion , thus providing significant market support . global macroeconomic events throughout 2015 , global financial markets experienced a heightened level of volatility . while global financial markets in the fourth quarter were less volatile than they had been in the third quarter , emerging markets continued to weaken over concerns regarding slowing chinese growth and chinese currency devaluation . on october 19 , 2015 , china reported that its economy grew 6.9 % in the third quarter , the lowest level since 2009. slowing chinese growth resulted in lower demand for raw materials , negatively impacting commodity prices in the fourth quarter . at the same time , countries reliant on commodities exports increased output to maintain government revenues , creating a supply glut . lower commodity prices may create fiscal issues for these countries and possibly raise long-term geopolitical risks . in addition , while the federal reserve tightened its 57 monetary policy in the fourth quarter , foreign central banks eased their monetary policies . on october 23 , 2015 , the people 's bank of china lowered benchmark interest rates for the sixth time since november 2014 , and lowered the bank reserve requirement ratio by 50 basis points . similarly , on december 3 , 2015 , the european central bank announced that it would cut its bank deposit rate , and that it would extend its current 60 billion a month quantitative easing program for another six months , to at least march 2017. following the end of the fourth quarter , volatility increased in global financial markets . housing and mortgage market statistics the following table demonstrates the decline in residential mortgage delinquencies and foreclosure inventory on a national level , as reported by corelogic in its december 2015 and november 2015 national foreclosure reports : as of number of units ( in thousands ) december 2015 december 2014 seriously delinquent mortgages ( 1 ) 1,206 1,574 foreclosure inventory 433 568 ( 1 ) seriously delinquent mortgages are ninety days and over in delinquency and include foreclosures and real estate owned , or `` reo , '' property . as the above table indicates , both the number of seriously delinquent mortgages and the number of homes in foreclosure have declined significantly over the past year . this decline supports the thesis that as many homeowners have re-established equity in their homes through recovering real estate prices , they have become less likely to become delinquent and default on their mortgages . monthly housing starts provide another indicator of market fundamentals . the following table shows the trailing three-month average housing starts for the periods referenced : replace_table_token_7_th ( 1 ) shown in thousands of units . source : u.s. census bureau as of december 2015 , average single-family housing starts during the trailing three months rose 7.8 % as compared to december 2014 , while multi-family housing starts increased by approximately 6.9 % during the same period . overall , privately-owned housing starts in december 2015 came in at a seasonally adjusted annual rate of 1,143,000 units , 5.8 % higher than the december 2014 rate of 1,080,000 units . data released by s & p indices for its s & p/case-shiller home price indices for december 2015 showed that , on average , home prices had increased from december 2014 by 5.7 % for its 20-city composite and by 5.1 % for its 10-city composite . home price appreciation has been relatively modest in 2014 and 2015 , following strong appreciation in 2013. according to the report , home prices remain below the peak levels of 2006 , but , on average , are back to their february 2005 and march 2005 levels for the 10- and 20-city composites , respectively . finally , as indicated in the table above , as of december 2015 , the national inventory of foreclosed homes fell to 433,000 units , a 23.8 % decline when compared to december 2014 ; this represented the fiftieth consecutive month with a year-over-year decline and the lowest level since november 2007. as a result , there are many fewer unsold foreclosed homes overhanging the housing market than there were a year ago . we believe that near-term home price trends are more likely to be driven by fundamental factors such as economic growth , mortgage rates , and affordability , rather than by technical factors such as shadow inventory . shadow inventory represents the number of properties that are seriously delinquent , in foreclosure , or held as reo by mortgage servicers , but not currently listed on a multiple listing service . the freddie mac survey 30-year mortgage rate ended 2015 at 4.01 % , a 14-basis point increase from the beginning of the year . while the refinance index published by the mortgage bankers association , or `` mba , '' ended 2015 essentially flat from where it began the year , it spiked 24 % week over week for the week ended october 2 , 2015 on account of the impending mortgage disclosure rule change known as the `` trid rule '' ( see below , `` gse/government agency developments `` ) . the spike was only temporary , as the following week the mba 's refinance index reverted back close to its previous level . similarly , the mba 's market composite index , a measure of mortgage application volume , also ended 2015 at essentially the same level from where it began the year , and experienced a comparable temporary jump on october 2 , 2015 .
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results of operations for the years ended december 31 , 2015 , 2014 , and 2013 the table below represents the net increase in equity resulting from operations for the years ended december 31 , 2015 , 2014 , and 2013. replace_table_token_12_th ( 1 ) conformed to current period presentation . results of operations for the years ended december 31 , 2015 and 2014 summary of net increase in shareholders ' equity from operations our net income for the years ended december 31 , 2015 and 2014 was $ 38.1 million and $ 59.2 million , respectively . the decrease in our net income year over year was primarily driven by an increase in our combined net realized and unrealized losses on our investments and financial derivatives , partially offset by an increase in our net investment income . total return based on changes in `` net asset value '' or `` book value '' for our common shares was 5.14 % for the year ended december 31 , 2015 as compared to 8.77 % for the year ended december 31 , 2014 . total return on our common shares is calculated based on changes in net asset value per share or book value per share and assumes reinvestment of dividends . 72 net investment income net investment income was $ 66.2 million for the year ended december 31 , 2015 as compared to $ 58.8 million for the year ended december 31 , 2014 . net investment income consists of interest and other income less total expenses . the year-over-year increase in net investment income was primarily due to higher interest income for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 . interest income interest income was $ 101.8 million for the year ended december 31 , 2015 as compared to $ 93.5 million for the year ended december 31 , 2014 .
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we believe that any adjustments would not be material to the consolidated financial statements and we expect this review to be completed by the end of story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements provided under part ii , item 8 of this annual report on form 10-k. we have included herein statements that constitute forward-looking statements within the meaning of the private securities litigation reform act of 1995. we generally identify forward-looking statements in this report using words like believe , intend , seek , expect , estimate , may , plan , should plan , project , contemplate , anticipate , predict , potential , continue , or similar expressions . you may find some of these statements below and elsewhere in this report . these forward-looking statements are not historical facts and are inherently uncertain and outside of our control . any or all of our forward-looking statements in this report may turn out to be wrong . they can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties . many factors mentioned in our discussion in this report will be important in determining future results . consequently , no forward-looking statement can be guaranteed . actual future results may vary materially . factors that may cause our plans , expectations , future financial condition and results to change are described throughout this annual report and particularly in risk factors part i , item 1a of this annual report on form 10-k. the forward-looking information set forth in this annual report on form 10-k is as of february 27 , 2008 , and we undertake no duty to update this information . shareholders and prospective investors can find information filed with the sec after february 27 , 2008 , at our website at http : //investor.vcaantech.com or at the sec 's website at www.sec.gov . overview we are a leading national animal healthcare company . we provide veterinary services and diagnostic testing services to support veterinary care and we sell diagnostic imaging equipment and other medical technology products and related services to veterinarians . our reportable segments are as follows : our laboratory segment operates the largest network of veterinary diagnostic laboratories in the nation . our laboratories provide sophisticated testing and consulting services used by veterinarians in the detection , diagnosis , evaluation , monitoring , treatment and prevention of diseases and other conditions affecting animals . at december 31 , 2007 , our laboratory network consisted of 36 laboratories serving all 50 states . our animal hospital segment operates the largest network of freestanding , full-service animal hospitals in the nation . our animal hospitals offer a full range of general medical and surgical services for companion animals . we treat diseases and injuries , offer pharmaceutical and retail products and perform a variety of pet wellness programs , including health examinations , diagnostic testing , routine vaccinations , spaying , neutering and dental care . at december 31 , 2007 , our animal hospital network consisted of 438 animal hospitals in 38 states . our medical technology segment sells digital radiography and ultrasound imaging equipment , related computer hardware , software and ancillary services . the practice of veterinary medicine is subject to seasonal fluctuation . in particular , demand for veterinary services is significantly higher during the warmer months because pets spend a greater amount of time outdoors where they are more likely to be injured and are more susceptible to disease and parasites . in addition , use of veterinary services may be affected by levels of flea infestation , heartworm and ticks , and the number of daylight hours . executive overview the last several years have been marked by continued growth in our operating segments achieved through a combination of organic growth and acquisitions . our laboratory internal revenue growth , adjusted for differences in billing days , was 13.5 % and 15.2 % in 2007 and 2006 , respectively . our animal hospital same-store revenue growth , adjusted for differences in business days , was 5.2 % and 5.8 % in 2007 and 2006 , 22 respectively . our medical technology segment also experienced growth through the sale of its digital radiography imaging equipment . our acquisition of independent animal hospitals for the last three years was augmented by the acquisition of two animal hospital chains including : healthy pet corp. ( healthy pet ) in 2007 and pet 's choice , inc. ( pet 's choice ) in 2005 , both of which are discussed in greater detail below . acquisitions and facilities our annual growth strategy includes the acquisition of independent animal hospitals . in 2007 , we acquired 29 independent animal hospitals with annual revenue of $ 57.0 million . in addition , we also evaluate the acquisition of animal hospital chains , laboratories or related businesses if favorable opportunities are presented . the following table summarizes the changes in the number of facilities operated by our laboratory and animal hospital segments : replace_table_token_5_th replace_table_token_6_th acquisition of healthy pet on june 1 , 2007 , we acquired healthy pet , which operated at the time of its acquisition , 44 animal hospitals and a small laboratory , which primarily serviced its own animal hospitals . at the time of the acquisition , healthy pet had estimated annualized revenue of approximately $ 80.0 million . this acquisition allowed us to expand our animal hospital operations , particularly in massachusetts , connecticut , virginia and georgia . our consolidated financial statements reflect the operating results of healthy pet since june 1 , 2007. the total purchase price for this acquisition was $ 185.0 million , consisting of : $ 153.7 million in cash paid to holders of healthy pet 's stock and debt ; $ 17.7 million in assumed debt ; $ 12.3 million in assumed liabilities ; and $ 1.3 million paid for professional and other outside services . story_separator_special_tag if vsoe of fair value of one or more undelivered elements does not exist , the revenue for the entire transaction , including revenue related to the delivered elements , is deferred and recognized , based on the facts and circumstances , either : i ) on a straight-line basis over the life of the post-contract service period if this is the only undelivered element , or ii ) when the last undelivered element is delivered . each transaction requires careful analysis to determine whether all of the individual elements in the license transaction have been identified , along with the fair value of each element and that the transaction is accounted for correctly . digital radiography imaging equipment we sell our digital radiography imaging equipment with multiple elements , including hardware , software , licenses and or services . we have determined that the software included in these sales arrangements is more than incidental to the products and services as a whole . as a result , we account for digital radiography imaging equipment sales under sop no . 97-2 , as amended . for those sales arrangements where we have determined vsoe of fair value for all undelivered elements , we allocate revenue to the undelivered items based on the vsoe of value independent of any discounts given . we then recognize the revenue for undelivered elements when elements are delivered . we recognize the remaining or residual revenue for the delivered elements at the time of delivery or installation and customer acceptance . generally , at the time of delivery and installation of equipment the only undelivered item is the post-contract customer support ( pcs ) . this obligation is contractually defined in both terms of scope and period . when we have established vsoe of fair value for the pcs , we recognize the revenue for these services on a straight-line basis over the period of support and recognize revenue for the delivered elements under the residual method . when we have not established vsoe of fair value for the pcs , we defer all revenue , including revenue for the delivered elements , recognizing it on a straight-line basis over the period of support . in the third quarter of 2005 , we established vsoe of fair value for the undelivered elements for a majority of our sales arrangements by including renewal rates in the sales contracts for pcs . as a result , for transactions with defined renewal rates for pcs , we began recognizing revenue on the sale of our digital radiography imaging equipment , computer hardware and software at the time of delivery or installation and customer acceptance if required per the sale arrangement , and revenue from the pcs on a straight-line basis over the term of the support period . prior to the third quarter of 2005 , we recognized revenue on all elements in these sales arrangements ratably over the period of the pcs . 25 ultrasound imaging equipment we sell our ultrasound imaging equipment on a stand-alone basis and with multiple elements , including hardware , software , licenses and or services . we account for the sale of ultrasound imaging equipment on a stand-alone basis under the requirements of sab no . 104 , and recognize revenue upon delivery . we account for the sale of ultrasound imaging equipment with related computer hardware and software by separating the transaction into individual elements . we account for the ultrasound imaging equipment under the requirements of sab no . 104 , as the software is not deemed to be essential to the functionality of the equipment , and we account for the computer hardware and software under the requirements of sop no . 97-2 , as amended . for those sales of our ultrasound imaging equipment that include computer hardware and software , we recognize revenue on the ultrasound imaging equipment , computer hardware and software upon delivery , which occurs simultaneously . digital radiography and ultrasound imaging equipment sold together in certain transactions we sell our ultrasound imaging equipment and related services together with our digital radiography imaging equipment and related services . in these transactions , we allocate total invoice dollars to each element using a relative fair value basis . each element is then accounted for pursuant to either sab no . 104 or sop no . 97-2. other services we recognize revenue on mobile imaging , consulting and education services at the time the services have been rendered . we also generate revenue from extended service agreements related to our digital radiography imaging and ultrasound imaging equipment . these extended service agreements include technical support , product updates for software and extended warranty coverage . the revenue for these extended service agreements is recognized on a straight-line basis over the term of the agreement . valuation of goodwill and other intangible assets goodwill we allocate a significant portion of the purchase price for our acquired businesses to goodwill . our goodwill represents the excess of the cost of an acquired entity over the net of the amounts assigned to identifiable assets acquired and liabilities assumed . the total amount of our goodwill at december 31 , 2007 was $ 822.0 million , consisting of $ 95.3 million for our laboratory segment , $ 707.5 million for our animal hospital segment and $ 19.2 million for our medical technology segment . we test our goodwill for impairment annually , or sooner if circumstances indicate an impairment may exist , in accordance with statement of financial accounting standards ( sfas ) no . 142 , goodwill and other intangible assets ( sfas no . 142 ) . when sfas no . 142 was issued in 2001 , we adopted the end of december as our annual impairment testing date . during the current year , we elected to change our date to the end of october .
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consolidated results of operations the following table sets forth components of our income statements expressed as a percentage of revenue : replace_table_token_7_th revenue the following table summarizes our revenue ( in thousands , except percentages ) : replace_table_token_8_th 29 consolidated revenue increased $ 172.8 million in 2007 as compared to 2006 , and $ 143.6 million in 2006 as compared to 2005. the increases in revenue were attributable to the combination of revenue from acquired animal hospitals , including healthy pet acquired on june 1 , 2007 and pet 's choice acquired on july 1 , 2005 , and organic growth . our laboratory internal revenue growth , adjusted for differences in billing days , was 13.5 % and 15.2 % , in 2007 and 2006 , respectively . our animal hospital same-store revenue growth , adjusted for differences in business days , was 5.2 % and 5.8 % in 2007 and 2006 , respectively . historically , the animal healthcare industry and our business have been relatively resistant to changes in the general economy . our fourth quarter results appear to indicate that we were marginally impacted by the uncertainty in the economy . during this quarter , our laboratory internal revenue growth , adjusted for differences in billing days , was 9.1 % and our animal hospital same-store revenue growth , adjusted for differences in business days , was 2.5 % . gross profit the following table summarizes our gross profit and our gross profit as a percentage of applicable revenue , or gross margin ( in thousands , except percentages ) : replace_table_token_9_th consolidated gross profit increased $ 50.9 million in 2007 as compared to 2006 , and $ 44.7 million in 2006 as compared to 2005. the increases in both periods were primarily due to the increase in consolidated revenue discussed above and improvements in consolidated gross margins as compared to the previous year .
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pursuant to our agreement with the ir consultant , in addition to monthly cash compensation , we issued to the ir consultant a 4 -year consulting warrant , or ir warrant , for the purchase of 6,000 shares of common stock that became fully vested on september of 2015. the ir warrant had an exercise price of $ 6.50 and expired on september 30 , 2018 . there was no expense recorded for the years ended december 31 , 2017 or 2018 related to the investor relations warrants as they had been fully expensed as of december 31 , 2015 . private placement warrants - 2016 in april 2016 , we issued warrants to purchase 1,996,880 shares of our common stock at an exercise price of $ 2.86 in connection with our private placement sale of 1,996,880 shares of common stock . the warrants are exercisable for a period commencing october 2016 and expire on april 25 , 2019 . we also issued to the placement agents in the financing , warrants to purchase an aggregate of 99,844 shares of our common stock at an exercise price of $ 2.86 for a period commencing 6 months and ending 36 months after the closing . we refer to these warrants as private placement warrants - 2016 . we estimated the fair value of the private placement warrants - 2016 at $ 2,500,000 using the black-scholes option valuation model with the following assumptions : market prices of the stock of $ 2.90 per share , time to maturity of 3 years , volatility of 60 % , zero expected dividend rate and risk free rate of 0.97 % . the allocation of the fair value of these warrants was included in additional paid-in capital on the consolidated balance sheet . in december 2017 , we entered into warrant exercise agreements with certain holders of private placement warrants - 2016 to induce the exercise of 836,780 warrants in full . pursuant to the agreements , the warrant holders exercised in full the warrants and purchased an aggregate of 836,780 shares of our common stock at an exercise price of $ 2.86 per share , for an aggregate exercise price of approximately $ 2.4 million and we paid the warrant holders aggregated inducement fees of approximately $ 239,000 , which resulted in net proceeds to us of $ 2.2 million . the inducement offer included in the warrant exercise agreements was considered a modification to the warrants upon acceptance by the warrant holders . upon modification of the warrants we were required to remeasure the fair value of the warrants . we estimated the fair value of the private placement warrants - 2016 immediately prior to modification at $ 3.8 million using the black-scholes option valuation model with the following assumptions : market prices of the stock of $ 6.96 to $ 7.42 per share , time to maturity of 1.42 years , volatility of 60 % , zero expected dividend rate and risk free rates of 1.70 % to 1.74 % . we estimated the fair value of the private placement warrants - 2016 upon modification at $ 3.9 million using the story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes to the consolidated financial statements included later in this annual report on form 10-k. in addition to historical financial information , the following discussion contains forward-looking statements that reflect our plans , estimates , beliefs and expectations that involve risks and uncertainties . our actual results and the timing of events could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in “ risk factors ” and “ special note regarding forward-looking statements. ” overview we are a late-stage development company that designs filters for the mobile device industry . we have not yet realized material revenues and our focus is on continuing to engage new customers , expand the number of contracts for filter designs and build the necessary infrastructure to support anticipated growth . consequently , our expenses will continue to increase . we plan to expand our ip libraries and further the development of our isn ® platform . while we remain a filter design licensing company , we are also investigating the potential of licensing part or all of our isn ® software design suite to potential customers in the rffe industry . however , we intend to retain ownership of our technology , software , designs and related improvements . our goal is to establish and leverage alliances with new and existing customers , who will help grow the market for our designs by integrating them with their own proprietary technology and products , or by using our software products for their own designs , thus combining their own particular strengths with ours to provide an extensive array of solutions . our costs include employee salaries and benefits , compensation paid to consultants , capital costs for research and other equipment , costs associated with development activities including travel and administration , legal expenses , sales and marketing costs , general and administration expenses , and other costs associated with a late-stage development , publicly-traded technology company . we continue to add employees to support the development of our isn ® platform , applications and system test , research and development , as well as sales , marketing and administration functions , to support our efforts . story_separator_special_tag contractual obligations and known future cash requirements indemnification agreements in the ordinary course of business , we may enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers , vendors , lessors , business partners and other parties with respect to certain matters , including , but not limited to , losses arising out of breach of such agreements , services to be provided by us or from intellectual property infringement claims made by third parties . in addition , we have entered into indemnification agreements with directors and certain officers and employees that will require us , among other things , to indemnify them against certain liabilities that may arise by reason of their status or service as directors , officers or employees . no demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our consolidated balance sheets , consolidated statements of comprehensive loss , consolidated statements of stockholders ' equity or consolidated statements of cash flows . purchasing commitments we have non-cancelable purchasing commitments that we incur in the ordinary course of business . the purchase commitments covered by these agreements are for less than one year and aggregate to $ 193,000 as december 31 , 2018. operating leases we lease various office facilities , including our corporate headquarters in goleta , california and our office in burlingame , california , under operating lease agreements . the terms of the lease agreements provide for rental payments on a graduated basis . we recognize rent expense on a straight-line basis over the lease periods . commitments 34 as of d ecember 31 , 2018 , our principal commitments consisted of obligations under our purchasing commitments and the operating leases for our offices . the following table summarizes our future minimum payments under these arrangements as of december 31 , 2018 : replace_table_token_1_th critical accounting policies and estimates our critical accounting estimates are included in our significant accounting policies as described in note 2 of the consolidated financial statements included in item 8 , financial statements and supplemental data , of this annual report on form 10-k. those consolidated financial statements were prepared in accordance with accounting principles generally accepted in the united states of america . critical accounting estimates are those that we believe are most important to the portrayal of our financial condition and results of operations . the preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . our estimates are evaluated on an ongoing basis and are drawn from historical operations , current trends , future business plans and other factors that management believes are relevant at the time our consolidated financial statements are prepared . actual results may differ from our estimates . management believes that the following accounting estimates reflect the more significant judgments and estimates we use in preparing our consolidated financial statements . investments —securities held-to-maturity : investments are classified as held-to-maturity when we have the positive intent and ability to hold the securities to maturity . when the fair value of an investment instrument classified as held-to-maturity is less than its amortized cost , management assesses whether or not : ( i ) we have the intent to sell the instrument or ( ii ) it is more likely than not that we will be required to sell the instrument before its anticipated recovery . if either of these conditions is met , we recognize an other-than-temporary impairment for the difference between the instrument 's amortized cost basis and its fair value , and include such amounts in other income ( expense ) . we continually evaluate investments and record impairment expense if needed . revenue recognition —as of january 1 , 2018 , we recognize revenue in accordance with financial accounting standards board , or fasb , accounting standards codification , or asc , topic 606 , revenue from contracts with customers . revenue is recognized upon the transfer of control of promised goods or services to the customers in an amount that reflects the consideration we expect to receive in exchange for those products or services . under the new guidance we are required to use estimates to determine the transaction price in the contract as well as the time over which we will satisfy the performance obligations . the determination of the transaction price may include estimates of amounts we expect to receive , including milestones that we may achieve which would result in additional payments upon achievement . these estimates are used for recognition of our revenue primarily related to upfront non-refundable fees received in connection with filter design projects with customers . our performance obligation is to design a licensable filter in accordance with customer specifications . we recognize revenue over the course of the estimated design development phase based on efforts expended to date . at the end of each reporting period , we reassess our measure of progress and adjust revenue when appropriate . stock-based compensation —we account for employee stock options in accordance with asc topic 718 , compensation-stock compensation . for stock options issued to employees and directors we use the black-scholes option valuation model for estimating fair value at the date of grant . for stock options issued for services rendered by non-employees , we recognize compensation expense in accordance with the requirements of asc topic 505-50 , equity , or asc 505-50 , as amended . non-employee option grants that do not vest immediately upon grant are recorded as an expense over the vesting period . at the end of each financial reporting period prior to performance , the value of these options , as calculated using the black-scholes option valuation model , is determined , and compensation expense recognized or recovered during the period is adjusted
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results of operations comparison of the years ended december 31 , 2017 and 2018 revenues . revenues consist of the recognized portion of amounts received from customers for the development of our filter designs , milestone payments based on the achievement of specific milestones and royalties from shipments of our licensed designs . the revenues related to upfront payments associated with our filter design development contracts are recognized ratably over the estimated development period associated with that upfront payment . as of january 1 , 2018 , we adopted financial accounting standards board , or fasb , accounting standards codification , or asc , topic 606 , revenues from contracts with customers , which requires a change in the method of recognizing revenue from contracts with customers . we recorded an adjustment to accumulated deficit for the cumulative effect as of the date of adoption . for the year ended december 31 , 2018 , under the new guidance , revenues consisted of the recognized portion of the transaction price associated with our contracts from customers recognized over time as the obligations under the terms of the contract are satisfied . generally , the transaction price includes both upfront and milestone payments that we expect to receive in exchange for providing services . additionally , we recognized royalty revenue related to sales by our customers of our licensed designs . for the years ended december 31 , 2017 and 2018 , we recognized $ 653,000 and $ 524,000 , respectively , of revenue . the adoption of asc topic 606 negatively impacted our revenue by $ 71,000 for the year ended december 31 , 2018. under the guidance in effect for 2017 , our revenue would have been $ 595,000 for the year ended december 31 , 2018. we have recorded $ 271,000 of deferred revenue as of december 31 , 2018 , which we expect to recognize over the next year .
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the company currently has two leases for manufacturing and office space that would be subject to the provisions of asu 2016-02. the company believes that adoption of asc topic 842 ( as amended by asc 2017-13 described above ) will result in the establishment on the company 's consolidated balance sheet of an asset and liability for each such lease , but that neither such assets and liabilities nor the resulting lease expense recognition will have a material effect on the company 's consolidated financial statements . in august 2016 , the fasb issued asu 2016-15 , “ statement of cash flows ( topic 230 ) : classification of certain cash receipts and cash payments , ” which addresses eight specific cash flow issues with the objective of reducing existing diversity in practice . the standard is effective for the company beginning in 2018 , and early adoption is permitted . the company believes that adoption of asu 2016-15 will not have a material effect on its consolidated financial statements . in may 2017 , the fasb issued asu 2017-09 , “ compensation – stock compensation ( topic 718 ) , ” which clarifies and reduces both ( i ) diversity in practice and ( ii ) cost and complexity when a company changes the terms or conditions of a share-based payment award . the standard is effective for the company beginning in 2018 , and early adoption is permitted . the company believes that adoption of asu 2017-09 will not have a material effect on its consolidated financial statements . in july 2017 , the fasb issued asu 2017-11 , “ earnings per share ( topic 260 ) ; distinguishing liabilities from equity ( topic 480 ) ; derivatives and hedging ( topic 815 ) : ( part i ) accounting for certain financial instruments with down round features , ( part ii ) replacement of the indefinite deferral for mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests with a story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes thereto included elsewhere in this annual report . this discussion and analysis contains forward-looking statements that are based upon current expectations and involve risks , assumptions and uncertainties . you should review the “ risk factors ” section of this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis . overview we are a medical device company that develops and commercializes innovative platforms for performing minimally invasive surgical procedures in the brain and heart under direct , intra-procedural mri guidance . we have two product platforms . our clearpoint system , which is in commercial use , is used to perform minimally invasive surgical procedures in the brain . we anticipate that our cleartrace system , which is a product candidate , will be used to perform minimally invasive surgical procedures in the heart . in 2015 , we suspended development of the cleartrace system so that we could focus our resources on the clearpoint system . both systems utilize intra-procedural mri to guide the procedures and are designed to work in a hospital 's existing mri suite . we believe that our two product platforms , subject to appropriate regulatory clearance and approval , will deliver better patient outcomes , enhance revenue potential for both physicians and hospitals , and reduce costs to the healthcare system . in 2010 , we received regulatory clearance from the fda to market our clearpoint system in the u.s. for general neurological procedures . in 2011 , we also obtained ce marking approval for our clearpoint system , which enables us to sell our clearpoint system in the european union . substantially all our product revenues for the years ended december 31 , 2017 and 2016 relate to sales of our clearpoint system products . we do not have regulatory clearance or approval to sell our cleartrace system for commercial use . we have financed our operations and internal growth primarily through the sale of equity securities , the issuance of convertible and other secured notes , and license arrangements . we have incurred significant losses since our inception in 1998 as we have devoted substantial efforts to research and development . as of december 31 , 2017 , we had accumulated losses of approximately $ 101 million . we may continue to incur operating losses as we commercialize our clearpoint system products , continue to develop our cleartrace system , and expand our business . factors which may influence future results of operations the following is a description of factors which may influence our future results of operations , and which we believe are important to an understanding of our business and results of operations . revenues in 2010 , we received 510 ( k ) clearance from the fda to market our clearpoint system in the u.s. for general neurological procedures . future revenues from sales of our clearpoint system products are difficult to predict and may not be sufficient to offset our continuing research and development expenses and our increasing selling , general and administrative expenses . we can not sell our cleartrace system for commercial use until we receive regulatory clearance or approval . generating recurring revenues from the sale of functional neurological products is an important part of our business model for our clearpoint system . we anticipate that , over time , recurring revenues will constitute an increasing percentage of our total revenues as we leverage installations of our clearpoint system to generate recurring sales of our functional neurological products . story_separator_special_tag ● sales of functional neurology products and biologics and drug delivery systems products : revenues from the sale of functional neurology products ( consisting of disposable products sold commercially and related to cases utilizing our clearpoint system ) , and biologics and drug delivery systems ( consisting primarily of disposable products related to customer-sponsored clinical trials utilizing our clearpoint system ) , are recognized at the time risk of loss passes to the customer , which is generally upon delivery to the customer 's location . 43 ● sales of capital equipment : the predominance of capital equipment sales ( consisting of integrated computer hardware and software that are integral components of our clearpoint system ) are preceded by customer evaluation periods of generally 90 days . during these evaluation periods , installation of , and training of customer personnel on , the systems have been completed and the systems have been in operation . accordingly , capital equipment sales following such evaluation periods are recognized upon receipt of an executed purchase agreement or purchase order that provide for risk of loss to pass to the customer . sales of capital equipment not having been preceded by an evaluation period are recognized on an individual agreement basis as described above . ● rental , service and other revenues : revenues from rental of our clearpoint capital equipment are recognized over the term of the rental agreement , which is less than one year . revenues from service of clearpoint capital equipment previously sold to customers are based on agreements with terms ranging from one to three years . typically , we bill and collect service fees at the inception of the agreement and recognize revenue ratably over the term of the related service agreement . other revenues consist primarily of installation , training and shipping fees in connection with sales of clearpoint capital equipment and is recognized as the related services are performed . inventory . inventory is carried at the lower of cost ( first-in , first-out method ) or net realizable value . all items included in inventory relate to our functional neurological products , drug delivery and biologic products , and clearpoint capital equipment . software license inventory that is not expected to be utilized within the next twelve months is classified as a non-current asset . we periodically review our inventory for obsolete items and provide a reserve upon identification of potentially obsolete items . derivative liabilities . our derivative liabilities arise from : ( a ) a conversion feature related to the brainlab note ; and ( b ) warrants issued in connection with certain private placements of shares our common stock . the fair values of the conversion feature and the warrants are presented as liabilities based on the terms of the conversion feature that allow for potential conversion at a price that may be less than market value on the date of conversion , and the terms of the warrants that bear certain net cash settlement and exercise price reset , or “ down round , ” provisions . these derivative liabilities , which are recorded on our consolidated balance sheets , are calculated utilizing the monte carlo simulation valuation method . changes in the fair values of these warrants are recognized as other income or expense in the related statement of operations . share-based compensation . we account for compensation for all arrangements under which employees and others receive shares of stock or other equity instruments ( including options and warrants ) based on fair value . the fair value of each award is estimated as of the grant date and amortized as compensation expense over the requisite vesting period . the fair values of our share-based awards are estimated on the grant dates using the black-scholes valuation model . this valuation model requires the input of highly subjective assumptions , including the expected stock volatility , estimated award terms and risk-free interest rates for the expected terms . to estimate the expected terms , we utilize the “ simplified ” method for “ plain vanilla ” options discussed in the sec 's staff accounting bulletin 107 , or sab 107. we believe that all factors listed within sab 107 as prerequisites for utilizing the simplified method apply to us and to our share-based compensation arrangements . we intend to utilize the simplified method for the foreseeable future until more detailed information about exercise behavior becomes available . we based our estimate of expected volatility on the average of historical volatilities of publicly traded companies we deemed similar to us because we lack our own relevant historical volatility data . we will consistently apply this methodology until we have sufficient historical information regarding the volatility of our own share prices to use as the input for all of our share-based fair value calculations . we utilize risk-free interest rates based on a zero-coupon u.s. treasury instrument , the term of which is consistent with the expected term of the share-based award . we have not paid , and do not anticipate paying , cash dividends on shares of our common stock ; therefore , the expected dividend yield is assumed to be zero . research and development costs . costs related to research , design and development of products are charged to research and development expense as incurred . these costs include direct salary and employee benefit-related costs for research and development personnel , costs incurred under the terms of collaborative agreements , costs for materials used in research and development activities , and costs for outside services . 44 story_separator_special_tag june 2016 amendments , on june 30 , 2016 , we recorded a debt restructuring loss of $ 820,000 resulting from the restructuring of the new brainlab note and those 2014 secured notes subject to the june 2016 amendments .
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results of operations comparison of the year ended december 31 , 2017 to the year ended december 31 , 2016 replace_table_token_2_th nm= not meaningful revenue . total revenues were $ 7.4 million for the year ended december 31 , 2017 , and $ 5.7 million for the year ended december 31 , 2016 , an increase of $ 1.6 million , or 28 % . functional neurology revenue , which consists of disposable product commercial sales related to cases utilizing the clearpoint system , increased 34 % to $ 5.3 million from $ 4.0 million in 2016. this increase was due primarily to the utilization of the clearpoint system in 629 cases during 2017 , an increase of 25 % from 504 cases in 2016. there were no increases in functional neurology product prices during 2017 that would be reasonably expected to affect a typical customer order . biologics and drug delivery systems revenue , which consists primarily of disposable product sales related to customer-sponsored clinical trials utilizing the clearpoint system , were $ 563,000 , as compared with $ 771,000 in 2016. this fluctuation arose from $ 222,000 in purchases of such products by voyager in late 2016 , which have been subsequently used in voyager 's clinical trials . biologics and drug delivery product price increases were implemented in 2017 , but such increases did not extend to the entire biologics and drug delivery product line and averaged less than 1 % for a typical customer order .
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we currently operate wholly owned subsidiaries in three core industry segments : overnight air cargo , comprised of our mountain air cargo , inc. ( “ mac ” ) and csa air , inc. ( “ csa ” ) subsidiaries , which operates in the air express delivery services industry ; ground equipment sales , comprised of our global ground support , llc ( “ ggs ” ) subsidiary , which manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines , airports , the military and industrial customers ; and ground support services , comprised of our global aviation services , llc ( “ gas ” ) subsidiary , which provides ground support equipment maintenance and facilities maintenance services to domestic airlines and aviation service providers . we recently added two other businesses , which are reported in separate segments . in october 2015 , we formed a wholly owned equipment leasing subsidiary , air t global leasing , llc ( “ atgl ” ) , which comprises our leasing segment , and in november 2015 we acquired a minority interest in delphax technologies inc. ( “ delphax ” ) , a printing equipment manufacturer and maintenance provider , which comprises our printing equipment and maintenance segment . each business segment has separate management teams and infrastructures that offer different products and services . we evaluate the performance of our business segments based on operating income . following is a table detailing revenues by segment and by major customer category : replace_table_token_4_th 15 mac and csa are two of seven companies in the u.s. that have north american feeder airlines under contract with fedex . with a relationship with fedex spanning over 35 years , mac and csa operate and maintain cessna caravan , atr-42 and atr-72 aircraft that fly daily small-package cargo routes throughout the eastern united states , upper midwest and the caribbean . mac and csa 's revenues are derived principally pursuant to “ dry-lease ” service contracts with fedex . on june 1 , 2015 , mac and csa entered into new dry-lease agreements with fedex which together cover all of the revenue aircraft operated by mac and csa and replace all prior dry-lease service contracts . these dry-lease agreements provide for the lease of specified aircraft by mac and csa in return for the payment of monthly rent with respect to each aircraft leased , which monthly rent was increased from the prior dry-lease service contracts to reflect an estimate of a fair market rental rate . these new dry-lease agreements provide that fedex determines the type of aircraft and schedule of routes to be flown by mac and csa , with all other operational decisions made by mac and csa , respectively . the new dry-lease agreements provide for the reimbursement by fedex of mac and csa 's costs , without mark up , incurred in connection with the operation of the leased aircraft for the following : fuel , landing fees , third-party maintenance , parts and certain other direct operating costs . unlike prior dry-lease contracts , under the new dry-lease agreements , certain operational costs incurred by mac and csa in operating the aircraft under the new dry-lease agreements are not reimbursed by fedex at cost , and such operational costs are borne solely by mac and csa . under the new dry-lease agreements , mac and csa are required to perform maintenance of the leased aircraft in return for a maintenance fee based upon an hourly maintenance labor rate , which has been increased from the rate in place under the prior dry-lease service contracts . under prior dry-lease service contracts , the hourly maintenance labor rate had not been adjusted since 2008. the new dry-lease agreements provide for the payment by fedex to mac and csa of a monthly administrative fee based on the number and type of aircraft leased and routes operated . the amount of the monthly administrative fee under the new dry-lease agreements is greater than under the prior dry-lease service contracts with fedex , in part to reflect the greater monthly lease payment per aircraft and that certain operational costs are borne by mac and csa and not reimbursed . the amount of the administrative fee is subject to adjustment based on the number of aircraft operated , routes flown and whether aircraft are considered to be soft-parked . on june 1 , 2016 , the new dry-lease agreements were amended to extend the expiration date to may 31 , 2020. the new dry-lease agreements may be terminated by fedex or mac and csa , respectively , at any time upon 90 days ' written notice and fedex may at any time terminate the lease of any particular aircraft thereunder upon 10 days ' written notice . in addition , each of the dry-lease agreements provides that fedex may terminate the agreement upon written notice if 60 % or more of mac or csa 's revenue ( excluding revenues arising from reimbursement payments under the dry-lease agreement ) is derived from the services performed by it pursuant to the respective dry-lease agreement , fedex becomes mac or csa 's only customer , or mac or csa employs less than six employees . as of the date of this report , fedex would have been permitted to terminate each of the dry-lease agreements under this provision . the company believes that the short-term nature of its agreements with fedex is standard within the airfreight contract delivery service industry , where performance is measured on a daily basis . fedex has been a customer of the company since 1980. loss of its contracts with fedex would have a material adverse effect on the company . under the dry-lease service contracts in place during the fiscal years ended march 31 , 2015 and 2014 and the first two months of the fiscal year ended march 31 , 2016 , fedex leased its aircraft to mac and csa for a nominal amount and paid a monthly administrative fee to mac and csa to operate the aircraft . story_separator_special_tag under the agreement that provided for the company 's purchase of these interests , on november 24 , 2015 three designees of the company ( including nick swenson , the company 's president , chief executive officer and chairman , and michael moore , the president of our ggs subsidiary ) were elected to the board of directors of delphax , which had a total of seven members following their election . pursuant to the terms of the series b preferred stock , for so long as amounts are owed to air t under the senior subordinated note or we continue to hold a specified number of the shares and interests in the warrant holders of the series b preferred stock , voting as a separate class , the company would be entitled to elect , after june 1 , 2016 , four-sevenths of the members of the board of directors of delphax and , without the written consent or waiver of the company , delphax may not enter into specified corporate transactions . as a result of these transactions , we determined that , even though delphax was not a subsidiary of the company , we had obtained control over delphax in conjunction with the acquisition of the interests described above , and we have consolidated delphax in air t 's consolidated financial statements beginning on november 24 , 2015. the operating loss attributable to delphax in our consolidated financial statements for the year ended march 31 , 2016 was approximately $ 1,967,000. this operating loss is included in our consolidated net income for that period . 17 delphax designs , manufactures and sells advanced digital print production equipment ( including high-speed , high-volume cut-sheet and continuous roll-fed printers ) , maintenance contracts , spare parts , supplies and consumable items for these systems . the equipment is sold through delphax and its subsidiaries located in canada , the united kingdom and france . a significant portion of delphax 's net sales has historically been related to service and support provided after the sale , including the sale of consumable items for installed printing systems . our investments in delphax were intended to support the commercial rollout and manufacturing costs of the new delphax elan500 digital color print system , which combines advances in inkjet and paper-handling technologies in a production class sheet-fed system offering full cmyk color and 1600 dpi print quality at speed of up to 500 letter impression per minute . delphax 's legacy consumables production business was expected to generate cash flow while delphax rolled-out its next generation élan commercial inkjet printer . in april 2016 , delphax received notice from its largest ( approximately 50 % of legacy revenues ) customer that it planned to reduce its order volume by approximately 90 % ; and phase out its use of the legacy delphax printers within eighteen months . accordingly , delphax is reviewing its fiscal year 2016 operating plan and has engaged an experienced turn-around consultant — the platinum group — to assist it in developing a go-forward plan . the decline in order volumes from its largest customer is expected to significantly impact delphax 's results for the quarter ending june 30 , 2016. on april 4 , 2016 , atgl purchased two elan 500 printers from delphax for $ 650,000 for lease to a third party . one of those acquired printers was subject to an existing lease to a third party which has been assigned to atgl . we organized atgl on october 6 , 2015. atgl provides funding for equipment leasing transactions , which may include transactions for the leasing of equipment manufactured by ggs and delphax and transactions initiated by third parties unrelated to equipment manufactured by us . in march 2014 , the company formed space age insurance company ( “ saic ” ) , a captive insurance company licensed in utah , and initially capitalized with $ 250,000. saic insures risks of the company and its subsidiaries that were not previously insured by the company 's insurance programs ; and underwrites third-party risk through certain reinsurance arrangements . the activities of saic are included within the corporate results in the accompanying consolidated financial statements . story_separator_special_tag increased $ 3,917,000 ( 28 % ) to $ 18,140,000 in fiscal year 2016. general and administrative expense increased by $ 1,219,000 due to the inclusion of delphax in consolidated results . general and administrative expense also increased by $ 598,000 for the increase in ggs compensation accruals and increased general and administrative expenses for the gas segment as discussed above . operating income for the year ended march 31 , 2016 was $ 6,032,000 , a $ 2,615,000 ( 77 % ) increase from fiscal 2015. the overnight air cargo segment saw an increase in its operating income this year resulting from the greater administrative fee amount paid under the new dry-lease agreements , as well as maintenance revenue increases as a result of the higher hourly maintenance labor rate during fiscal year 2016. operating income for the ground equipment sales segment increased by 74 % over the prior year as a result of significantly increased volumes and margin improvements , principally as a result of production efficiencies obtained in connection with the assembly of similar units under a significant order by a major airline company received in june 2015 and completed in the second and third fiscal quarters . the ground support services segment saw an increase in its operating loss from fiscal year 2015 as costs incurred in the 2016 fiscal year under fixed-price service contracts in place in certain markets significantly exceeded the revenue associated with those contracts . other increases in the ground support services segment 's annual operating expenses include facility upgrades , administrative infrastructure and programs to help position the segment for growth . consolidated operating income included a gain on sale of assets of $ 6,000 in the current fiscal year compared to $ 869,000 in the prior fiscal year .
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fiscal 2016 summary revenues for our overnight air cargo segment totaled $ 68,227,000 for the year ended march 31 , 2016 , representing an $ 18,362,000 ( 37 % ) increase over the prior year . the segment 's administrative fee revenues increased by $ 13,264,000 , reflecting the greater administrative fee amount paid under the new dry-lease agreements which became effective on june 1 , 2015. in addition , the segment 's maintenance revenues increased as a result of higher hourly maintenance labor rates during fiscal 2016. the june 2015 agreement effected the first hourly maintenance labor rate increase in eight years . the segment 's operating income increased by $ 3,264,000 in fiscal 2016. increased administrative fees were partially offset by the increase in the monthly rental rate for leased aircraft under the june 2015 agreement , which increased monthly rental rates to reflect an estimate of a fair market value rental rate . operating income for the overnight air cargo segment for the prior fiscal year 2015 included a $ 374,000 gain from the sale of the company owned aircraft primarily used to support the overnight air cargo segment 's operations . the segment 's operating income for the prior fiscal year was also adversely affected by a $ 107,000 regulatory penalty assessed for the prior year and $ 94,000 incurred for the mandated regulatory rewrite of applicable manuals that began in fiscal 2015. revenues for ggs totaled $ 51,176,000 for the year ended march 31 , 2016 , an increase of $ 9,405,000 ( 23 % ) from the prior year , while operating income increased by $ 2,716,000 or 74 % . the increase in ggs revenues is attributable to a $ 14.4 million increase in sales of commercial deicers and $ 954,000 increase in sales of catering trucks .
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risk factors ” and elsewhere in this annual report on form 10-k , may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis . we assume no obligation to update any of these forward-looking statements . overview we are a bank holding company headquartered in dallas , texas . through our wholly owned subsidiary , veritex community bank , a texas state chartered bank , we provide relationship-driven commercial banking products and services tailored to meet the needs of small to medium-sized businesses and professionals . beginning at our inception in 2010 , we initially targeted customers and focused our acquisitions primarily in the dallas metropolitan area , which we consider to be dallas and the adjacent communities in north dallas . as a result of our recent acquisitions of sovereign and liberty , our current primary market now includes the broader dallas-fort worth metroplex , which also encompasses arlington , as well as the houston metropolitan area . as we continue to grow , we may expand to other metropolitan markets within the state of texas . our business is conducted through one reportable segment , community banking , where we generate the majority of our revenues from interest income on loans , customer service and loan fees , gains on sale of small business administration ( “ sba ” ) guaranteed loans and mortgage loans and interest income from securities . we incur interest expense on deposits and other borrowed funds and noninterest expense , such as salaries and employee benefits and occupancy expenses . we analyze our ability to maximize income generated from interest earning assets and expense of our liabilities through our net interest margin . net interest margin is a ratio calculated as net interest income divided by average interest-earning assets . net interest income is the difference between interest income on interest-earning assets , such as loans and securities , and interest expense on interest-bearing liabilities , such as deposits and borrowings , which are used to fund those assets . changes in the market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing liabilities , as well as the volume and types of interest-earning assets , interest-bearing and noninterest-bearing liabilities and stockholders ' equity , are usually the largest drivers of periodic changes in net interest spread , net interest margin and net interest income . fluctuations in market interest rates are driven by many factors , including governmental monetary policies , inflation , deflation , macroeconomic developments , changes in unemployment , the money supply , political and international conditions and conditions in domestic and foreign financial markets . periodic changes in the volume and types of loans in our loan portfolio are affected by , among other factors , economic and competitive conditions in texas and specifically in the dallas-fort worth metroplex , as well as developments affecting the real estate , technology , financial services , insurance , transportation , manufacturing and energy sectors within our target market and throughout the state of texas . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > december 31 , 2016 to $ 1.4 billion for the year ended december 31 , 2017 , an increase of $ 516.8 million , or 55.9 % . 39 interest expense for the year ended december 31 , 2017 was $ 11.0 million compared to $ 5.6 million for the year ended december 31 , 2016 , an increase of $ 5.4 million , or 95.8 % . the year-over-year increase was due to growth of average interest bearing-liabilities of $ 475.4 million , or 64.2 % , primarily due to the increase in interest bearing liabilities assumed from sovereign and liberty and organic growth in average interest bearing deposits , advances from fhlb , and other borrowings . net interest margin and net interest spread were 3.77 % and 3.48 % , respectively , for the year ended december 31 , 2017 compared to 3.72 % and 3.47 % , respectively , for the year ended december 31 , 2016 . the increase in net interest margin by 5 basis points and increase in net interest spread by 1 basis point was due to an increase in the average yield earned on interest-bearing assets by 16 basis points which was offset by an increase in the average yield paid on interest-bearing liabilities by 15 basis points . the average interest earned on interest-bearing assets increase d to 4.39 % during the year ended december 31 , 2017 from 4.23 % for the year ended december 31 , 2016 . the average interest paid on interest-bearing liabilities increase d to 0.91 % during the year ended december 31 , 2017 from 0.76 % for the year ended december 31 , 2016 . the following table presents , for the periods indicated , an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities , the average amounts outstanding and the interest earned or paid on such amounts . the table also sets forth the average rate earned on interest-earning assets , the average rate paid on interest-bearing liabilities , and the net interest margin on average total interest-earning assets for the same periods . interest earned on loans that are classified as non-accrual is not recognized in income ; however , the balances are reflected in average outstanding balances for the period . for the years ended december 31 , 2017 and 2016 , interest income not recognized on non-accrual loans was minimal . any non-accrual loans have been included in the table as loans carrying a zero yield . 40 replace_table_token_5_th ( 1 ) includes average outstanding balances of loans held for sale of $ 2,493 , and $ 5,078 and deferred loan fees of $ 19 and $ 54 for the years ended december 31 , 2017 and 2016 , respectively . story_separator_special_tag the following table presents , for the periods indicated , the major categories of noninterest expense : replace_table_token_8_th noninterest expense for the year ended december 31 , 2017 increased $ 16.4 million , or 62.1 % , to $ 42.8 million compared to noninterest expense of $ 26.4 million for the same period in 2016 . the most significant components of the increase were as follows : salaries and employee benefits . salaries and employee benefits include payroll expenses , the cost of incentive compensation , benefit plans , health insurance and payroll taxes . the level of employee expense is impacted by the amount of direct loan origination costs which are required to be deferred in accordance with asc 310-20. salaries and employee benefits were $ 20.8 million for the year ended december 31 , 2017 , an increase of $ 6.5 million , or 45.3 % , compared to the same period in 2016 . the increase was primarily attributable to increased employee compensation of $ 5.9 million resulting from higher headcount including the addition of full-time equivalent employees related to the sovereign and liberty acquisitions and merit increases given to employees during the year ended december 31 , 2017 . incentive costs also increased $ 1.9 million which primarily included lender incentive increases of $ 573 thousand as a result of organic loan growth during the period and employee stock compensation increases of $ 711 thousand . employee benefits and payroll taxes also increased $ 391 thousand and $ 522 thousand , respectively , compared to the same period in 2016 . these increases in salaries and employee benefits were partially offset by direct origination costs previously mentioned which increased $ 2.2 million as a result of the growth in loans during the year ended december 31 , 2017 compared to the same period in 2016 . occupancy and equipment . occupancy and equipment expense includes lease expense , building depreciation and related facilities costs as well as furniture , fixture and equipment depreciation , small equipment purchases and maintenance expense . our expense associated with occupancy and equipment was $ 5.6 million for the year ended december 31 , 2017 compared to $ 3.7 million for the same period in 2016 . the increase of $ 1.9 million , or 53.2 % , was primarily due to the leasing of additional office space beginning june 1 , 2016 at the corporate headquarters location , additional lease expense associated with the opening of the turtle creek branch beginning in january 2017 , the addition of eight owned buildings and eight property leases from our acquisitions of sovereign and liberty in 2017 and one month of depreciation associated with the purchase of our corporate headquarters building in december 2017 . 44 professional fees . this category includes legal , investment bank , director , stock transfer agent fees and other public company services , information technology support , audit services and regulatory assessment expense . professional fees were $ 5.7 million for the year ended december 31 , 2017 , an increase of $ 2.9 million , or 102.3 % , compared to the same period in 2016 . this increase was primarily the result of legal and other professional services associated with the sovereign and liberty acquisitions . fdic assessment fees . fdic assessment fees were $ 1.2 million for the year ended december 31 , 2017 compared to $ 661 thousand for the same period during 2016 . the increase in fdic assessment fees is a result of the sovereign and liberty acquisitions and the resulting increase in average assets for the year ended december 31 , 2017 . other . this category includes operating and administrative expenses including loan operations and collections , supplies and printing , online and card interchange expense , atm/debit card processing , postage and delivery , bank-owned life insurance ( “ boli ” ) mortality expense , insurance and security expenses . other noninterest expense increased $ 2.3 million , or 123.8 % , to $ 4.1 million for the year ended december 31 , 2017 , compared to $ 1.8 million for the same period in 2016 primarily related to an increase in loan and collection expense of $ 652 thousand resulting from an increase in loan originations and renewals during 2017. additionally , atm and interchange expenses increased $ 247 thousand , insurance expenses increased $ 293 thousand and dues and memberships increased $ 225 thousand primarily as result of the sovereign and liberty acquisitions . income tax expense . the amount of income tax expense is a function of our pre-tax income , tax-exempt income and other nondeductible expenses . deferred tax assets and liabilities reflect current statutory income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled . as changes in tax laws or rates are enacted , deferred tax assets and liabilities are adjusted through the provision for income taxes . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . as of december 31 , 2017 , the company did not believe a valuation allowance was necessary . for the year ended december 31 , 2017 , income tax expense totaled $ 13.0 million , an increase of $ 6.6 million , or 101.5 % , compared to $ 6.5 million for the same period in 2016 . the increase was primarily attributable to the $ 9.2 million increase in net operating income from $ 19.0 million for the year ended december 31 , 2016 to $ 28.2 million for the same period in 2017 as well as a $ 3.1 million income tax expense adjustment to the company 's deferred tax asset related to the december 22 , 2017 enactment of the tax act . the sec issued staff accounting bulletin no . 118 ( “ sab 118 ” ) , which provides guidance on accounting for tax effects of the tax act .
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2017 highlights sovereign bancshares , inc. on august 1 , 2017 , we acquired sovereign , a texas corporation and parent company of sovereign bank . we issued 5,117,642 shares of its common stock and paid out $ 56.2 million in cash to sovereign in consideration for the acquisition . additionally , under the terms of the merger agreement , each of sovereign 's 24,500 shares of senior non-cumulative perpetual preferred stock , series c was converted into one share of our senior non-cumulative perpetual , series d preferred stock at the consummation of the acquisition . for further information , see note 22 - preferred stock in the accompanying notes to the consolidated financial statements included in item 8 of this report . we acquired an estimated $ 1.1 billion in assets and assumed $ 905.1 million of liabilities as a result of this acquisition as of the closing date . on august 8 , 2017 , we redeemed all 24,500 shares of the series d preferred stock at its liquidation value of $ 1,000 per share plus accrued dividends for a total redemption amount of $ 24.7 million . for further information , see note 24 – business combinations in the accompanying notes to the consolidated financial statements included in item 8 of this report . common stock offering on august 1 , 2017 , the company completed an underwritten common stock offering issuing 2,285,050 shares of the company 's common stock with $ 56.7 million in net proceeds after underwriting discounts and offering expenses . the company used a portion of the net proceeds of the offering to fund a portion of the consideration paid for the acquisition of liberty bancshares , inc. and for general corporate purposes . liberty bancshares , inc. on december 1 , 2017 , we acquired liberty , a texas corporation and parent company of liberty bank .
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basis of presentation these consolidated financial statements are prepared in accordance with united states generally accepted accounting principles ( u.s. gaap ) . the financial statements include davita healthcare partners inc. and its subsidiaries , partnerships and other entities in which it maintains a 100 % or majority voting interest , another controlling financial interest , story_separator_special_tag forward-looking statements this management 's discussion and analysis of financial condition and results of operations contain statements that are forward-looking statements within the meaning of the federal securities laws . this annual report on form 10-k contains forward-looking statements within the meaning of the federal securities laws . all statements that do not concern historical facts are forward-looking statements and include , among other things , statements about our expectations , beliefs , intentions and or strategies for the future . these forward-looking statements include statements regarding our future operations , financial condition and prospects , expectations for treatment growth rates , revenue per treatment , expense growth , levels of the provision for uncollectible accounts receivable , operating income , cash flow , operating cash flow , estimated tax rates , capital expenditures , the development of new dialysis centers and dialysis center acquisitions , government and commercial payment rates , revenue estimating risk and the impact of our level of indebtedness on our financial performance , including earnings per share , and incorporation of hcp 's operating results into the company 's consolidated operating results . these statements involve substantial known and unknown risks and uncertainties that could cause our actual results to differ materially from those described in the forward-looking statements , including , but not limited to , risks resulting from the concentration of profits generated by the continued downward pressure on average realized payment rates from , and a reduction in the number of patients under higher-paying commercial payor plans , which may result in the loss of revenues or patients , a reduction in , government payment rates under the medicare esrd program or other government-based programs , the impact of health care reform legislation that was enacted in the u.s. in march 2010 , changes in pharmaceutical or anemia management practice patterns , payment policies , or pharmaceutical pricing , legal compliance risks , including our continued compliance with complex government regulations , current or potential investigations by various government entities and related government or private-party proceedings , continued increased competition from large and medium-sized dialysis providers that compete directly with us , our ability to maintain contracts with physician medical directors , changing affiliation models for physicians , and the emergence of new models of care introduced by the government or private sector that may erode our patient base and reimbursement rates such as acos , ipas and integrated delivery systems , or to businesses outside of dialysis and hcp 's business , our ability to complete any acquisitions , mergers or dispositions that we might be considering or announce , or to integrate and successfully operate any business we may acquire or have acquired , including hcp , or to expand our operations and services to markets outside the u.s. , variability of our cash flows , risks arising from the use of accounting estimates , judgments and interpretations in our financial statements , loss of key hcp employees , potential disruption from the hcp transaction making it more difficult to maintain business and operational relationships with customers , partners , associated physicians and physician groups , hospitals and others , the risk that laws regulating the corporate practice of medicine could restrict the manner in which hcp conducts its business , the fact that hcp faces certain competitive threats that could reduce its profitability , the risk that the cost of providing services under hcp 's agreements may exceed our compensation , the risk that reductions in reimbursement rates and future regulations may negatively impact hcp 's business , revenue and profitability , the risk that hcp may not be able to successfully establish a presence in new geographic regions or successfully address competitive threats that could reduce its profitability , the risk that a disruption in hcp 's healthcare provider networks could have an adverse effect on hcp 's operations and profitability , the risk that reductions in the quality ratings of health maintenance organization plan customers of hcp could have an adverse effect on hcp 's business , or the risk that health plans that acquire health maintenance organizations may not be willing to contract with hcp or may be willing to contract only on less favorable terms , and the other risk factors set forth in part ii , item 1a . of this annual report on form 10-k. we base our forward-looking statements on information currently available to us , and we undertake no obligation to update or revise any forward-looking statements , whether as a result of changes in underlying factors , new information , future events or otherwise . the following should be read in conjunction with our consolidated financial statements and item 1. business . 76 davita healthcare partners inc. overview with our recent acquisition of hcp on november 1 , 2012 , we believe the company is well positioned to capitalize on anticipated trends in u.s. healthcare , including our continued growth opportunities in dialysis care services as well as growth in managed healthcare services , especially to the medicare-eligible population . as a result of the acquisition , the company now primarily operates two major lines of business and , to a lesser extent , various other ancillary services and strategic initiatives , which includes our international dialysis operations . our largest line of business is our u.s. dialysis and related lab services business , which is a leading provider of kidney dialysis services in the u.s. for patients suffering from chronic kidney failure , also known as esrd . story_separator_special_tag of $ 45 million . consolidated net revenues also increased by $ 477 million as a result of the acquisition of hcp on november 1 , 2012 and increased by approximately $ 188 million associated with the ancillary services and strategic initiatives driven primarily from growth in our pharmacy services and from our disease management services . consolidated revenues before the provision for uncollectible accounts related to patient service revenues for 2011 increased by approximately $ 536 million , or approximately 8.4 % , from 2010. consolidated net revenues for 2011 increased by approximately $ 512 million or approximately 8.2 % from 2010. this increase in consolidated net revenues was primarily due to an increase in dialysis and related lab services net revenues of approximately $ 397 million , principally due to strong volume growth from additional treatments from non-acquired growth and acquisitions including the acquisition of dsi , partially offset by a decline of $ 7 in the average dialysis revenue per treatment , primarily from a decrease in our medicare revenues as a result of operating in the new single bundled payment system and an increase in the provision for uncollectible accounts of $ 24 million . consolidated net revenues also increased as a result of an increase of approximately $ 122 million in the ancillary services and strategic initiatives net revenues driven primarily from growth in our pharmacy services and from our disease management services . consolidated operating income consolidated operating income of $ 1,297 million for 2012 increased by approximately $ 142 million , or 12.3 % , from 2011 which includes the $ 86 million legal settlement and related expenses and the $ 31 million of transaction expenses associated with the acquisition of hcp . excluding these items in 2012 , adjusted consolidated operating income would have increased by $ 259 million , or 22.4 % , primarily due to an increase in the dialysis and related lab services net revenues as a result of strong volume growth in revenue from additional treatments as a result of non-acquired growth and acquisitions , and from an increase in our average dialysis revenue per treatment of approximately $ 2 , partially offset by an increase in the provision for uncollectible accounts of $ 45 million . adjusted consolidated operating income also increased as a result of the acquisition of hcp on november 1 , 2012 , an overall decline in pharmaceutical costs mainly from a decline in the intensities of physician-prescribed pharmaceuticals , lower transaction and integration costs associated with the acquisition of dsi that occurred in 2011 and from productivity improvements . however , consolidated operating income was negatively impacted by an increase in the unit cost of epo , higher labor and benefit costs , an increase in our professional fees for compliance and legal initiatives , and for information technology matters and an increase in expenses and operating losses associated with our international expansion . consolidated operating income of $ 1,155 million for 2011 increased by approximately $ 161 million , or 16.2 % , from 2010. the increase in consolidated operating income in 2011 was primarily due to an increase in the dialysis and related lab services net revenues as a result of strong volume growth in revenue from additional 80 treatments as a result of non-acquired growth and acquisitions , partially offset by a decline in our average dialysis revenue per treatment of approximately $ 7 and an increase in the provision for uncollectible accounts of $ 24 million . consolidated operating income also increased as a result of overall lower pharmaceutical costs mainly from a decline in the intensities of physician-prescribed pharmaceuticals , additional operating income from the acquisition of dsi and from cost control initiatives . however , consolidated operating income was negatively impacted by higher labor and benefit costs , an increase in our professional fees for legal and compliance matters , and for information technology matters , transaction and integration costs associated with the acquisition of dsi , an increase in epo pharmaceutical costs and an increase in expenses associated with our international expansion . u.s. dialysis and related lab services business our u.s. dialysis and related lab service businesses is a leading provider of kidney dialysis services through a network of 1,954 outpatient dialysis centers throughout 44 states and district of columbia , serving a total of approximately 153,000 patients . we also provide acute inpatient dialysis services in approximately 970 hospitals . we estimate that we have approximately a 34 % market share in the u.s. based upon the number of patients that we serve . in 2012 , our overall network of u.s. outpatient dialysis centers increased by 145 centers primarily as a result of acquisitions of dialysis centers and from opening new dialysis centers . in addition , the overall number of patients that we serve in the u.s. increased by approximately 8.0 % as compared to 2011. all references in this document to dialysis and related lab services refer only to our u.s. dialysis and related lab services business . our dialysis and related lab services stated mission is to be the provider , partner and employer of choice . we believe our attention to these three stakeholdersour patients , our business partners , and our teammatesrepresents the major driver of our long-term performance , although we are subject to the impact of external factors such as government policy and physician practice patterns . accordingly , two principal non-financial metrics we track are quality clinical outcomes and teammate turnover . we have developed our own composite index for measuring improvements in our clinical outcomes , which we refer to as the davita quality index ( dqi ) . our clinical outcomes as measured by dqi have improved over each of the past several years which we believe directly decreases patient mortalities .
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results of operations hcp consolidated operating results for the year ended december 31 , 2012 , is comprised of operating results for the period november 1 , 2012 through december 31 , 2012 , were as follows : replace_table_token_11_th capitated membership information the table set forth below provides ( i ) the total number of managed care members to whom hcp provided healthcare services as of december 31 , 2012 , and ( ii ) the aggregate member months for the period november 1 , 2012 through december 31 , 2012. member months represent the aggregate number of months of healthcare services hcp has provided to managed care members during a period of time . replace_table_token_12_th in addition to the members above , hcp provided healthcare services to approximately 49,300 members as of december 31 , 2012 related to its magan jv , which is an unconsolidated entity that is accounted for as an equity investment , and approximately 97,800 member months for the period november 1 , 2012 through december 31 , 2012 . 92 revenues the following table provides a breakdown of hcp 's sources of revenues : replace_table_token_13_th patient care costs the following table reflects hcp 's patient care costs comprised of medical expenses , hospital expenses , clinic support and other operating costs : for the period november 1 , 2012 through december 31 , 2012 ( dollars in millions ) medical expenses $ 226 hospital expenses 52 clinic support and other operating costs 61 total $ 339 other operating expenses hcp 's general and administrative costs were $ 52 million , or 11 % , in 2012 for the period november 1 , 2012 through december 31 , 2012. hcp 's depreciation and amortization of $ 24 million for the period november 1 , 2012 through december 31 , 2012 reflects the expense based upon the fair value of equipment , leasehold improvements and intangible assets we recognized in the hcp acquisition .
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the future claims payments related to the workers story_separator_special_tag you should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements about our business and operations . our actual results may differ materially from those we currently anticipate as a result of the factors we describe under risk factors and elsewhere in this annual report on form 10-k. overview we are a provider of comprehensive home and community based services , which are provided primarily in the home , and focused on the dual eligible ( medicare/medicaid ) population . our services include personal care and assistance with activities of daily living , and adult day care . our consumers are primarily persons who are at risk of hospitalization or institutionalization , such as the elderly , chronically ill and disabled . our payor clients include federal , state and local governmental agencies , managed care organizations , commercial insurers and private individuals . we currently provide home and community based services to over 31,000 consumers through 129 locations across 22 states , including 5 adult day centers in illinois . over the course of 2014 , we served over 43,000 consumers . a summary of our financial results for 2014 , 2013 and 2012 is provided in the table below : replace_table_token_10_th historically our services were provided under agreements with state and local government agencies established to meet the needs of our consumers . our consumers are predominately dual eligible and as such are eligible to receive both medicare and medicaid funded home-based care . as a result of certain legislation enacted by the federal government , states are being incentivized to initiate dual eligible demonstration programs and other managed medicaid initiatives , which are designed to coordinate the services provided through these two programs , with the overall objectives to better coordinate service delivery and over the long term to reduce costs . increasingly states are implementing these managed care programs and as such are transitioning management of individuals such as our consumers to local and national managed care organizations . under these arrangements the managed care organizations have an economic incentive to provide home and community based services to consumers as a means to better manage the acute care expenditures of their membership . the home and community based services we provide include assistance with bathing , grooming , dressing , personal hygiene and medication reminders , and other activities of daily living . we provide these services on a long-term , continuous basis , with an average duration of approximately 20 months per consumer . our adult day centers provide a comprehensive program of skilled and support services and designated medical services for adults in a community-based group setting . services provided by our adult day centers include social activities , transportation services to and from the centers , the provision of meals and snacks , personal care and therapeutic activities such as exercise and cognitive interaction . we utilize a coordinated care model that is designed to improve consumer outcomes and satisfaction , as well as lower the cost of acute care treatment and reduce service duplication . we believe this coordinated care model to be especially valuable to managed care organizations that have economic responsibility for both home 41 and community services as well as acute care expenditures . over the long term , we believe this model will be a differentiator and as a result we expect to receive increased referrals from the managed care organizations . through our coordinated care model , we utilize our home care aides to observe and report changes in the condition of our consumers for the purpose of early intervention in the disease process , thereby preventing or reducing the cost of medical services by avoiding emergency room visits , and or reducing the need for hospitalization . we will coordinate the services provided by our team with those of other health care agencies as appropriate . changes in consumers ' conditions are evaluated by appropriately trained managers and referred to either appropriate medical personnel including the consumers ' primary care physicians or managed care organizations for treatment and follow-up . we believe this approach to the care to our consumers and the integration of our services into the broader healthcare continuum are attractive to managed care organizations and others who are ultimately responsible for the healthcare needs and costs of our consumers and over time will increase our business with them . we are investing in technology based solutions to support and facilitate our coordinated care model . we utilize an integrated voice response , ivr system and smart phones applications to communicate with the homecare aides . through these applications we are able to identify changes in health conditions with automated alerts forwarded to appropriate management team for triaging and evaluation . in addition , the technology is used to record basic transaction information about each visit including : start and end times to a scheduled shift , mileage reimbursement , text messages to the homecare aide and communication of basic payroll information . our plans for this technology include development of a web portal to provide the ability to communicate this basic information about individual clients to the managed care organizations . we are growing through selective acquisitions , based on an overall strategy to expand our presence in current markets and to expand our footprint in markets where the home and community business is moving to managed care organizations . we completed two acquisitions in december 2013 and june 2014 that expanded our presence in two existing markets and provided us with a base of operations in two new targeted managed care states . effective january 1 , 2015 , we acquired priority home health care , inc. , a company headquartered in cleveland , ohio and operating six offices in the cleveland , akron and columbus areas . story_separator_special_tag employees are also reimbursed for their travel time and related travel costs . general and administrative expenses our general and administrative expenses from continuing operations consist of expenses incurred in connection with our activities and as part of our central administrative functions . our general and administrative expenses from continuing operations consist principally of supervisory personnel , care coordination and office administration costs . these expenses include wages , payroll taxes and benefit-related costs ; facility rent ; operating costs such as utilities , postage , telephone and office expenses ; and bad debt expense . we have initiated efforts to centralize administrative tasks currently conducted at the branch locations . the costs related to these initiatives are included in the general and administrative expenses from continuing operations . other centralized expenses from continuing operations include administrative departments of accounting , information systems , human resources , billing and collections and contract administration , as well as national program coordination efforts for marketing and private duty . these expenses primarily consist of compensation , including stock-based compensation , payroll taxes , and related benefits ; legal , accounting and other professional fees ; rents and related facility costs ; and other operating costs such as software application costs , software implementation costs , travel , general insurance and bank account maintenance fees . depreciation and amortization expenses we amortize our intangible assets with finite lives , consisting of customer and referral relationships , trade names , trademarks and non-compete agreements , principally using accelerated methods based upon their estimated useful lives . depreciable assets consist principally of furniture and equipment , network administration and telephone equipment , and operating system software . depreciable and leasehold assets are depreciated or amortized on a straight-line method over their useful lives or , if less and if applicable , their lease terms . interest income legislation enacted in illinois entitles designated service program providers to receive a prompt payment interest penalty based on qualifying services approved for payment that remain unpaid after a designated period of time . as the amount and timing of the receipt of these payments are not certain , the interest income is recognized when received and reported in the statement of operations as interest income . while we may be owed additional prompt payment interest , the amount and timing of receipt of such payments remains uncertain and we have determined that we will continue to recognize prompt payment interest income when received . interest expense interest expense from continuing operations consists of interest costs on our credit facility , capital lease obligations and other debt instruments . 44 income tax expense all of our income from continuing operations is from domestic sources . we incur state and local taxes in states in which we operate . the differences from the federal statutory rate of 34.5 % and 35.0 % in 2014 and 2013 , respectively , are principally due to the inclusion of state taxes and the use of federal employment tax credits that lower our effective tax rate . discontinued operations discontinued operations consists of the results of operations , net of tax for our home health business that was sold effective march 1 , 2013 and the results of operations for an agency in pennsylvania that was sold on december 30 , 2013 and an agency in idaho that was closed in november 2012. story_separator_special_tag style= '' font-family : times new roman '' > net service revenues increased $ 21,626,000 , or 8.9 % , to $ 265,941,000 for 2013 compared to $ 244,315,000 for the same period in 2012. the increase was primarily due to a 6.8 % increase in average census and a related 8.7 % increase in billable hours . gross profit , expressed as a percentage of net service revenues , decreased to 25.5 % for 2013 , from 26.2 % in 2012. this decrease as a percent of revenue of 0.7 % is primarily due to increased wage costs for home care aides . 48 general and administrative expenses , expressed as a percentage of net service revenues decreased to 18.8 % for 2013 , from 19.0 % in 2012. general and administrative expenses increased to $ 50,118,000 in 2013 as compared to $ 46,362,000 in 2012. in 2013 , we had cost increases in administrative wages , an increase legal and consulting expenses for acquisitions and business development initiatives , increased telecom and technology related costs , an increase in management bonuses and an increase in bad debt expense . depreciation and amortization , expressed as a percentage of net service revenues , decreased to 0.8 % for 2013 , from 1.0 % in 2012. amortization of intangibles , which are principally amortized using accelerated methods , totaled $ 1,346,000 and $ 1,674,000 for 2013 and 2012 , respectively . interest income legislation enacted in illinois entitles designated service program providers to receive a prompt payment interest penalty based on qualifying services approved for payment that remain unpaid after a designated period of time . as the amount and timing of the receipt of these payments are not certain , the interest income is recognized when received and reported in the income statement caption , interest income . we received $ 185,000 in prompt payment interest in 2013 and $ 155,000 in 2012. while we may be owed additional prompt payment interest , the amount and timing of receipt of such payments remains uncertain and we have determined that we will continue to recognize prompt payment interest income when received . the state amended its prompt payment interest terms , effective july 1 , 2011 , which changed the measurement period for outstanding invoices from a 60-day to a 90-day outstanding period . interest expense , net interest expense was $ 674,000 and $ 1,723,000 for 2013 and 2012 , respectively . interest expense decreased $ 1,049,000 primarily due to a reduction in outstanding debt .
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results of operations year ended december 31 , 2014 compared to year ended december 31 , 2013 the following table sets forth , for the periods indicated , our consolidated results of operations . replace_table_token_12_th 45 net service revenues from state , local and other governmental programs accounted for 86.4 % and 94.1 % of net service revenues for 2014 and 2013 , respectively . managed care organizations accounted for 9.1 % and 1.0 % of net serve revenues in 2014 and 2013 respectively , with private duty and commercial payors accounting for the remainder of net service revenues . net service revenues increased $ 47,001,000 or 17.7 % , to $ 312,942,000 for 2014 compared to $ 265,941,000 for the same period in 2013. the increase was primarily due to a 15.7 % increase in average billable census , of which 45.6 % is same store census growth and 54.4 % is related to acquisitions . gross profit , expressed as a percentage of net service revenues , increased to 26.8 % for 2014 , from 25.5 % in 2013. the increase was primarily due to lower than anticipated workers ' compensation expense and recent acquisitions with higher margins . general and administrative expenses , expressed as a percentage of net service revenues increased to 19.8 % for 2014 , from 18.8 % in 2013. general and administrative expenses increased to $ 61,834,000 in 2014 as compared to $ 50,118,000 in 2013. the increase in general and administrative expenses was due to an increase in expenses related to our acquisitions , transaction costs for acquisitions and increased expenditures related to information technology , sarbanes-oxley compliance efforts and legal and consulting fees for the year ended december 31 , 2014 as compared to 2013. depreciation and amortization , expressed as a percentage of net service revenues , increased to 1.2 % from 0.8 % for the year ended december 31 , 2014 and 2013 , respectively .
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the following table summarizes the consideration paid and the fair values of the assets acquired and liabilities assumed at the acquisition date for the ensighta acquisition ( in thousands ) : amount developed technology 3,378 deferred story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this annual report on form 10-k. in addition to historical financial information , the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those contained in or implied by any forward-looking statements . factors that could cause or contribute to these differences include those under “ risk factors ” included in part i , item 1a or in other parts of this report . overview we provide a comprehensive solution of products and services for detecting , preventing and resolving advanced cybersecurity threats . we have invented a purpose-built , virtual machine-based security platform that provides real-time protection to enterprises and governments worldwide against the next generation of cyber attacks . our technology approach represents a paradigm shift from how it security has been conducted since the earliest days of the information technology industry . the core of our purpose-built , virtual machine-based security platform is our virtual execution engine , to which we refer as our mvx engine , which identifies and protects against known and unknown threats that existing signature-based technologies are unable to detect . we believe it is imperative for organizations to invest in this new approach to security to protect their critical assets , such as intellectual property and customer and financial data , from the global pandemic of cybercrime , cyber espionage and cyber warfare . we were founded in 2004 to address the fundamental limitations of legacy signature-based technologies in detecting and blocking sophisticated cyber attacks . from 2004 to 2008 , we focused our efforts on research and development to build our virtual machine technology . we released our first product , the web threat prevention appliance , in 2008. our web threat prevention appliance is designed to analyze and block advanced attacks via the web . since that time , we have continued to enhance our product portfolio , releasing our email threat prevention appliance in 2011 and our file threat prevention appliance in 2012. our email and file threat prevention products address advanced threats that are introduced through email attachments and file shares . due to the scale of our customer deployments and our customers ' desire for deeper analysis of potential malicious software , we also provide management and analysis appliances , specifically our central management system and our forensic analysis system . we support and enhance the functionality of our products through our dynamic threat intelligence , or dti , cloud , a subscription service that offers global threat intelligence sharing and provides a closed-loop system that leverages the network effects of a globally distributed , automated threat analysis network . our over ten years of research and development in virtual machine technology , anomaly detection and associated heuristic algorithms has enabled us to provide signature-less threat protection against next-generation cyber attacks . we primarily market and sell our virtual machine-based security platform to global 2000 companies in a broad range of industries and governments worldwide . as of december 31 , 2013 , we had over 1,900 end-customers , including over 130 of the fortune 500. we have experienced rapid growth over the last several years , increasing our revenue at a compound annual growth rate of 139 % from 2010 to 2013. we have also increased our number of employees from 35 as of december 31 , 2008 to 1,679 as of december 31 , 2013. we expect to continue rapidly scaling our organization to meet the needs of our customers and to pursue opportunities in new and existing markets . we intend to continue to invest in the development of our sales and marketing teams , with a particular focus on expanding our network of international channel partners , opening sales offices , hiring key sales and marketing personnel and carrying out associated marketing activities in key geographies . as of december 31 , 2013 , we were selling our solution to end-customers in over 60 countries , 46 and we expect revenue from international sales to grow as a percentage of our overall revenue . we intend to continue to invest in our product development organization to enhance the functionality of our existing platform , introduce new products and subscriptions , and build upon our technology leadership . due to our continuing investments to scale our business , particularly internationally , reorganize our corporate structure for improved tax efficiency , pursue new opportunities , enhance our product functionality , introduce new products and build upon our technology leadership in advance of , and in preparation for , our expected increase in sales and expansion of our customer base , we are continuing to incur expenses in the near term for which we may not realize any long-term benefit . as a result , we do not expect to be profitable for the foreseeable future . during the years ended december 31 , 2013 , 2012 and 2011 , our revenue was $ 161.6 million , $ 83.3 million and $ 33.7 million , representing year-over-year growth of 94 % , 148 % and 186 % , respectively . our net losses were $ 120.6 million $ 35.8 million and $ 16.8 million during the years ended december 31 , 2013 , 2012 and 2011 , respectively . during the year ended december 31 , 2012 , approximately 80 % , 8 % and 8 % of our revenue came from the united states , asia pacific and japan ( apac ) , and europe , the middle east and africa ( emea ) , respectively . story_separator_special_tag for the years ended december 31 , 2013 , 2012 and 2011 , subscription and services revenue as a percentage of total revenue was 45 % , 37 % , and 26 % , respectively . while most of the growth in our subscription and services revenue during such years relates to the amortization of the initial subscription and services agreements , renewals of such agreements have also contributed to this growth . our renewal rate for subscriptions expiring in 2013 and 2012 was in excess of 90 % , and we expect to maintain high renewal rates in the future due to the significant value we believe these subscriptions and services add to the efficacy of our product portfolio . key business metrics we monitor the key business metrics set forth below to help us evaluate growth trends , establish budgets , measure the effectiveness of our sales and marketing efforts , and assess operational efficiencies . we discuss revenue and gross margin below under “ components of operating results. ” deferred revenue , billings , net cash flow provided by ( used in ) operating activities , and free cash flow are discussed immediately below the following table . replace_table_token_6_th deferred revenue . our deferred revenue consists of amounts that have been invoiced but have not yet been recognized as revenue as of the period end . for the year ended december 31 , 2013 , deferred revenue includes the addition of $ 16.1 million of deferred revenue assumed in connection with the mandiant acquisition . for the year ended december 31 , 2013 , deferred revenue includes the addition of $ 16.1 million of deferred revenue assumed in connection with the mandiant acquisition . the majority of our deferred revenue consists of the unamortized balance of revenue from sales of our email mps product , subscriptions to our dti cloud and email mps attachment/url engine , and support and maintenance contracts . because invoiced amounts for subscriptions and services can be for multiple years , we classify our deferred revenue as current or noncurrent depending on when we expect to recognize the related revenue . if the deferred revenue is expected to be recognized within 12 months , it is classified as current . otherwise , the deferred revenue is classified as noncurrent . we monitor our deferred revenue balance because it represents a significant portion of revenue to be recognized in future periods . billings . billings is a non-gaap financial metric that we define as revenue recognized in accordance with generally accepted accounting principles , or gaap , plus the change in deferred revenue from the beginning to the end of the period . for the year ended december 31 , 2013 , billings exclude the addition of $ 16.1 million of deferred revenue assumed in connection with the mandiant acquisition . we consider billings to be a useful metric for management and investors , as a supplement to the corresponding gaap measure , because billings drive deferred revenue , which is an important indicator of the health and visibility of trends in our business , and represents a significant percentage of revenue . however , it is important to note that other companies , including companies in our industry , may not use billings , may calculate billings differently , may have different billing frequencies , or may use other financial measures to evaluate their performance , all of which could reduce the usefulness of billings as a comparative measure . a reconciliation of billings to revenue , the most directly comparable financial measure calculated and presented in accordance with gaap , is provided below : 48 replace_table_token_7_th net cash provided by ( used in ) operating activities . we monitor net cash provided by ( used in ) operating activities as a measure of our overall business performance . our net cash provided by ( used in ) operating activities is driven in large part by sales of our products and from up-front payments for both subscriptions and support and maintenance services . monitoring net cash provided by ( used in ) operating activities enables us to analyze our financial performance without the non-cash effects of certain items such as depreciation , amortization , and stock-based compensation costs , thereby allowing us to better understand and manage the cash needs of our business . free cash flow . free cash flow is a non-gaap financial measure we define as net cash provided by ( used in ) operating activities less purchases of property and equipment and demonstration units . we consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by our business that , after the purchases of property and equipment and demonstration units , can be used by us for strategic opportunities , including investing in our business , making strategic acquisitions and strengthening our balance sheet if and when generated . however , it is important to note that other companies , including companies in our industry , may not use free cash flow , may calculate free cash flow differently , or may use other financial measures to evaluate their performance , all of which could reduce the usefulness of free cash flow as a comparative measure . a reconciliation of free cash flow to cash flow provided by ( used in ) operating activities , the most directly comparable financial measure calculated and presented in accordance with gaap , is provided below : replace_table_token_8_th factors affecting our performance market adoption . we rely on market education to raise awareness of today 's next-generation cyber attacks , articulate the need for our virtual machine-based security solution and , in particular , the reasons to purchase our products . our prospective customers often do not have a specific portion of their it budgets allocated for products that address the next generation of advanced cyber attacks .
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results of operations the following tables summarize our results of operations for the periods presented and as a percentage of our total revenue for those periods . the period-to-period comparison of results is not necessarily indicative of results for future periods . replace_table_token_9_th 52 replace_table_token_10_th comparison of the years ended december 31 , 2013 and 2012 revenue replace_table_token_11_th total revenue increased by $ 78.2 million , or 94 % , during the year ended december 31 , 2013 compared to the year ended december 31 , 2012 . the increase in product revenue was primarily driven by growth in our installed base of customers , which grew from 927 as of december 31 , 2012 to 1,964 as of december 31 , 2013 , as well as follow-on purchases from customers expanding their initial deployments of our product portfolio . our web threat prevention product continued to account for the largest portion of our product revenue as customers that purchase our product portfolio generally purchase more web threat prevention appliances than email threat prevention or file threat prevention appliances , reflecting the fact that their networks typically have more web entry points than email or file entry points to protect . in addition , revenue associated with our web threat prevention product is recognized upon shipment whereas revenue associated with our email threat prevention product is recognized ratably over the longer of the contractual term or the estimated period the customer is expected to benefit from the product . 53 revenue from the amortization of deferred subscription and services revenue related to initial customer purchases was $ 55.1 million and $ 25.1 million for the years ended december 31 , 2013 and 2012 , respectively .
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reits generally are not subject to federal income taxes at the corporate level as long as they pay stockholder dividends equivalent to 100 % of their taxable income . reits are required to distribute to stockholders at least 90 % of their taxable income . we own , directly or indirectly , 100 % of the interests of sunstone hotel partnership , llc ( the operating partnership ) , which is the entity that directly or indirectly owns our hotel properties . we also own 100 % of the interests of our taxable reit subsidiary , sunstone hotel trs lessee , inc. , which leases all of our hotels from the operating partnership , and engages third parties to manage our hotels . in addition , as of december 31 , 2010 , we owned 50 % of buyefficient , llc ( buyefficient ) , an electronic purchasing platform that allows members to procure food , operating supplies , furniture , fixtures and equipment . in january 2011 , we purchased the outside 50 % share in buyefficient for $ 8.6 million , and as a result , we are now the sole owner of buyefficient . we own primarily upper upscale and upscale hotels in the united states . as of december 31 , 2010 , we owned 31 hotels ( the 31 hotels ) . of the 31 hotels , we classify 29 as upscale or upper upscale , one as luxury and one as upper midscale as defined by smith travel research , inc. in addition to our wholly owned hotels , as of december 31 , 2010 , we owned a 38 % equity interest in a joint venture that owns the doubletree guest suites times square in new york , and we owned other non-hotel investments . in january 2011 , we purchased the outside 62 % equity interests in the doubletree guest suites times square joint venture for approximately $ 37.5 million . as a result , we are now the sole owner of the entity that owns the 460-room doubletree guest suites times square . the majority of our hotels are operated under nationally recognized brands such as marriott , fairmont , hilton and hyatt , which are among the most respected and widely recognized brands in the lodging industry . while we believe the largest and most stable segment of demand for hotel rooms is represented by travelers who prefer the consistent service and quality associated with nationally recognized brands , we also believe that in certain markets the strongest demand growth may come from travelers who prefer non-branded hotels that focus on highly customized service standards . we seek to own hotels in urban locations that benefit from significant barriers to entry by competitors . most of our hotels are considered business , convention , or airport hotels , as opposed to resort , leisure or extended-stay hotels . the hotels comprising our 31 hotel portfolio average 378 rooms in size . the demand for lodging generally fluctuates with the overall economy . we refer to these changes in demand as the lodging cycle , and we seek to employ a cycle-appropriate portfolio management strategy . during the recovery and growth phases of the lodging cycle , our strategy emphasizes active investment , both in terms of acquisitions of new hotels and selective renovations of our existing portfolio , while also balancing our liquidity and leverage policies . during the mature phase of the lodging cycle , our strategy emphasizes net hotel dispositions , and during cyclical declines , our strategy emphasizes capital preservation . through all phases of the lodging cycle , we seek to maximize the value of our portfolio through proactive asset management , which entails working closely with our third party hotel operators to develop plans and actions designed to enhance revenues , minimize operational expenses and maximize the appeal of our hotels to travelers . 27 during 2010 , we began to see improving business and consumer sentiment , which may point to an impending economic recovery , and which may lead to a period of positive fundamentals in the lodging industry . accordingly , we believe we are currently in the early stages of a recovery phase of the lodging cycle . consistent with our cycle-appropriate strategy , we believe that acquiring hotels now may likely create long-term value , and we expect to deploy a portion of our cash balance in 2011 towards selective hotel acquisitions . during 2010 , we selectively deployed a portion of our cash to fund certain transactions such as the purchase of two hotel loans for $ 4.0 million , which had a combined principal amount of $ 35.0 million , and the acquisition of the royal palm miami beach for a net purchase price of $ 117.6 million , excluding transaction costs . our acquisition program is aimed at generating attractive returns on our investment dollars , and therefore we may target lodging assets outside of the typical branded , urban , upper upscale profile represented by our existing portfolio in order to capitalize on opportunities which may arise . we intend to select the brands and operators for our hotels that we believe will lead to the highest returns . additionally , the scope of our acquisitions program may include large hotel portfolios or hotel loans . future acquisitions may be funded by our issuance of additional debt or equity securities , including our common and preferred op units , or by draws on our $ 150.0 million senior corporate credit facility entered into in november 2010. consistent with our cycle-appropriate strategy , during 2010 , we issued 19,500,000 shares of our common stock . net proceeds from this offering of approximately $ 190.6 million were contributed to our subsidiary , sunstone hotel partnership llc , which will use the proceeds for growth capital expenditures , future acquisitions and other general corporate purposes , including working capital . story_separator_special_tag which includes our corporate-level expenses , such as payroll and related costs , amortization of deferred stock compensation , severance expense , acquisition and due diligence costs , professional fees , travel expenses and office rent ; · depreciation and amortization expense , which includes depreciation on our hotel buildings , improvements , furniture , fixtures and equipment , along with amortization on our franchise fees and intangibles ; and · property and goodwill impairment losses expense , which includes the charges we have recognized to reduce the carrying value of assets on our balance sheets to their fair value and to write-off goodwill in association with our impairment evaluations . other revenue and expense . other revenue and expense consists of the following : · equity in net earnings ( losses ) of unconsolidated joint ventures , which includes our portion of net earnings or losses from our joint ventures ; · interest and other income , which includes interest we have earned on our restricted and unrestricted cash accounts , as well as any gains or losses we have recognized on sales of assets other than hotels ; · interest expense , which includes interest expense incurred on our outstanding debt , accretion of the senior notes , amortization of deferred financing fees , any write-offs of deferred financing fees , and any loan penalties and fees incurred on our debt ; · gain on extinguishment of debt , which includes the gain we recognized on the repurchase and cancellation of the senior notes ; · dividends paid on unvested restricted stock compensation , which includes dividends earned on our unvested restricted stock awards ; and , · preferred stock dividends and accretion , which includes dividends earned on our 8.0 % series a cumulative redeemable preferred stock ( series a preferred stock ) and series c cumulative convertible redeemable preferred stock ( series c preferred stock ) and redemption value accretion on our series c preferred stock . 29 factors affecting our operating results . the primary factors affecting our operating results include overall demand for hotel rooms , the pace of new hotel development , or supply , and the relative performance of our operators in increasing revenue and controlling hotel operating expenses . · demand . the demand for lodging generally fluctuates with the overall economy . in 2010 , following a two-year cyclical trough , we began to see signs of improving demand trends , and comparable portfolio revpar increased 2.6 % as compared to 2009. consistent with prior trends , we anticipate that lodging demand will continue to improve as the u.s. economy continues to strengthen . historically , cyclical troughs are followed by extended periods of relatively strong demand , resulting in a cyclical lodging growth phase . we expect hotel demand to strengthen in 2011 . · supply . the addition of new competitive hotels affects the ability of existing hotels to drive revpar and profits . the development of new hotels is largely driven by construction costs and expected performance of existing hotels . the recession and credit crisis which occurred in 2008 and 2009 served to restrict credit and tighten lending standards , which resulted in a meaningful curtailment of funding for new hotel construction projects . moreover , with demand still meaningfully below peak levels , new supply in many markets is difficult to justify economically . accordingly , we believe hotel development will be constrained until operating trends of existing hotels improve to levels where developer return targets can be achieved , and until the construction financing markets recover . given the one to three year timeline needed to construct a typical hotel , we expect a window of at least two to four years during which hotel supply , as indicated by the number of new hotel openings , will be below historical levels . · revenues and expenses . we believe that marginal improvements in revpar index , even in the face of declining revenues , are a good indicator of the relative quality and appeal of our hotels , and our operators ' effectiveness in maximizing revenues . similarly , we also evaluate our operators ' effectiveness in minimizing incremental operating expenses in the context of increasing revenues or , conversely , in reducing operating expenses in the context of declining revenues . with respect to improving revpar index , we continue to work with our hotel operators to optimize revenue management initiatives while taking into consideration market demand trends and the pricing strategies of competitor hotels in our markets . we also develop capital investment programs designed to ensure each of our hotels is well renovated and positioned to appeal to groups and individual travelers fitting target guest profiles . our revenue management initiatives are generally oriented towards maximizing adr even if the result may be lower occupancy than may be achieved through lower adr , as increases in revpar attributable to increases in adr may be accompanied by minimal additional expenses , while increases in revpar attributable to higher occupancy may result in higher variable expenses such as housekeeping , labor and utilities expense . thus , increases in revpar associated with higher adr may result in higher hotel ebitda margins . increases in revpar associated with higher occupancy may result in less ebitda margin improvement . with respect to maximizing operational flow through , we continue to work with our operators to identify operational efficiencies designed to reduce expenses while minimally affecting guest experience . key asset management initiatives include reducing hotel staffing levels , increasing the efficiency of the hotels , such as installing energy efficient management and inventory control systems , and selectively combining certain food and beverage outlets . our operational efficiency initiatives may be difficult to implement , as most categories of variable operating expenses , such as utilities and certain labor costs , such as housekeeping , fluctuate with changes in occupancy .
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operating results . the following table presents our operating results for our total portfolio for 2010 and 2009 , including the amount and percentage change in the results between the two periods . the table presents the results of operations included in the consolidated statements of operations , and includes the 31 hotels ( 11,722 rooms ) as of december 31 , 2010 and 29 hotels ( 10,966 rooms ) as of december 31 , 2009. income from discontinued operations for 2010 includes : the results of operations and the gain on extinguishment of debt for the eight hotels which secured the non-recourse mortgage with massachusetts mutual life insurance company ( the mass mutual eight hotels : renaissance atlanta concourse ; hilton huntington ; residence inn by marriott manhattan beach ; marriott provo ; courtyard by marriott san diego ( old town ) ; holiday inn downtown san diego ; holiday inn express san diego ( old town ) ; and marriott salt lake city ( university park ) ) , which were deeded back to the lender in november 2010 pursuant to our 2009 secured debt restructuring program ; the results of operations and the gain on extinguishment of debt for the marriott ontario airport , which was sold by the receiver in august 2010 pursuant to our 2009 secured debt restructuring program ; the gain on extinguishment of debt for the w san diego , which was deeded back to the lender in july 2010 pursuant to our 2009 secured debt restructuring program ; and the gain on extinguishment of debt for the renaissance westchester , which we reacquired in june 2010. loss from discontinued operations for 2009 includes the results of operations for the marriott napa valley , 30 marriott riverside , and hyatt suites atlanta northwest which were sold in 2009 , as well as the mass mutual eight hotels , marriott ontario airport , w san diego , and renaissance westchester which have been deconsolidated
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ii , item 8 of this form 10-k. certain reclassifications of amounts previously reported have been made to the accompanying consolidated financial statements in order to maintain consistency and comparability between periods presented . except to the extent that differences among operating segments are material to an understanding of our business taken as a whole , we present the discussion in management 's discussion and analysis of financial condition and results of operations on a consolidated basis . overview autonation , inc. , through its subsidiaries , is the largest automotive retailer in the united states . as of december 31 , 2011 , we owned and operated 258 new vehicle franchises from 215 stores located in the united states , predominantly in major metropolitan markets in the sunbelt region . our stores , which we believe include some of the most recognizable and well known in our key markets , sell 32 different brands of new vehicles . the core brands of vehicles that we sell , representing approximately 90 % of the new vehicles that we sold in 2011 , are manufactured by ford , toyota , nissan , general motors , honda , mercedes-benz , bmw , and chrysler . we offer a diversified range of automotive products and services , including new vehicles , used vehicles , parts and automotive repair and maintenance services ( also referred to as “ parts and service ” ) , and automotive finance and insurance products ( also referred to as “ finance and insurance ” ) , which includes the arranging of financing for vehicle purchases through third-party finance sources . we believe that the significant scale of our operations and the quality of our managerial talent allow us to achieve efficiencies in our key markets by , among other things , leveraging our market brands and advertising , improving asset management , implementing standardized processes , and increasing productivity across all of our stores . as of december 31 , 2011 , we had three operating segments : domestic , import , and premium luxury . our domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by general motors , ford , and chrysler . our import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by toyota , honda , and nissan . our premium luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by mercedes-benz , bmw , and lexus . the franchises in each segment also sell used vehicles , parts and automotive repair and maintenance services , and automotive finance and insurance products . for the year ended december 31 , 2011 , new vehicle sales accounted for approximately 54 % of our total revenue , but approximately 24 % of our total gross profit . used vehicle sales accounted for approximately 25 % of our total revenue , and approximately 12 % of our total gross profit . our parts and service and finance and insurance operations , while comprising approximately 20 % of total revenue , contributed approximately 63 % of our gross profit . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > december 31 , 2011 , and 48,499 units at december 31 , 2010 . we continue to monitor our new vehicle inventory levels closely based on current economic conditions and will adjust them as appropriate . in general , used vehicles that are not sold on a retail basis are liquidated at wholesale auctions . we record estimated losses on used vehicle inventory expected to be liquidated at wholesale auctions at a loss . our used vehicle inventory balance was net of cumulative write-downs of $ 0.9 million at december 31 , 2011 , and $ 0.4 million at december 31 , 2010 . parts , accessories , and other inventory are carried at the lower of acquisition cost ( first-in , first-out method ) or market . we estimate the amount of potential obsolete inventory based upon past experience and market trends . our parts , accessories , and other inventory balance was net of cumulative write-downs of $ 2.8 million at december 31 , 2011 , and $ 3.4 million at december 31 , 2010 . critical accounting policies and estimates we prepare our consolidated financial statements in conformity with accounting principles generally accepted in the united states , which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenue and expenses during the reporting period . we evaluate our estimates on an ongoing basis and we base our estimates on historical experience and various other assumptions we believe to be reasonable . actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements . set 24 forth below are the policies and estimates that we have identified as critical to our business operations and an understanding of our results of operations , based on the high degree of judgment or complexity in their application . goodwill goodwill is tested for impairment annually on april 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred . we completed our annual test for impairment of goodwill as of april 30 , 2011 , and no goodwill impairment charges resulted from the required impairment test . the goodwill impairment analysis is dependent on many variables used to determine the fair value of our reporting units . as discussed in note 5 of the notes to consolidated financial statements , we estimate the fair value of our reporting units using an “ income ” valuation approach , which discounts projected free cash flows of the reporting unit at a computed weighted average cost of capital as the discount rate . story_separator_special_tag any subsequent change in the fair value less cost to sell ( increase or decrease ) of each asset held for sale is reported as an adjustment to its carrying amount , except that the adjusted carrying amount can not exceed the carrying amount of the long-lived asset or disposal group at the time it was initially classified as held for sale . such valuations include estimations of fair values and incremental direct costs to transact a sale . the fair value measurements for our long-lived assets held for sale were based on level 3 inputs , which considered information obtained from third-party real estate valuation sources , or , in certain cases , pending agreements to sell the related assets . we had assets held for sale in continuing operations of $ 70.1 million at december 31 , 2011 , and $ 62.5 million at december 31 , 2010 . we recorded $ 1.1 million during 2011 and $ 2.5 million during 2010 of non-cash impairment charges associated with assets held for sale in continuing operations to reduce the carrying value of these assets to fair value less cost to sell . during 2011 , we also recorded $ 1.1 million of non-cash impairment charges related to a valuation adjustment for the cumulative depreciation not recorded during the held for sale period for continuing operations assets that were reclassified from held for sale to held and used during 2011. the 2011 and 2010 charges are recorded as a component of other expenses ( income ) , net in the consolidated income statements and are reported in the `` corporate and other '' category of our segment information . we had assets held for sale in discontinued operations of $ 49.5 million at december 31 , 2011 , and $ 53.8 million at december 31 , 2010 . we recorded $ 0.5 million during 2011 and $ 3.4 million during 2010 of non-cash impairment charges associated with assets held for sale in discontinued operations to reduce the carrying value of these assets to fair value less cost to sell . these charges are recorded as a component of loss from discontinued operations in the consolidated income statements . our impairment loss calculations contain uncertainties because they require us to make assumptions and to apply judgment to estimate future undiscounted cash flows and asset fair values , including forecasting useful lives of the assets . although we believe our property and equipment and assets held for sale are appropriately valued , the assumptions and estimates used may change and we may be required to record impairment charges to reduce the value of these assets . chargeback reserve revenue on finance and insurance products represents commissions earned by us for : ( i ) loans and leases placed with financial institutions in connection with customer vehicle purchases financed , ( ii ) vehicle service contracts sold , and ( iii ) insurance and other products sold . we primarily sell these products on a straight commission basis ; however we also participate in future underwriting profit on certain extended service contracts pursuant to retrospective commission arrangements , which are recognized as earned . we may be charged back for commissions related to financing , insurance , or vehicle protection products in the event of early termination of the contracts by customers ( “ chargebacks ” ) . these commissions are recorded at the time of the sale of the vehicles , net of an estimated liability for chargebacks . 26 we estimate our liability for chargebacks on an individual product basis using our historical chargeback experience , based primarily on cancellation data we receive from third parties that sell and administer these products . our estimated liability for chargebacks totaled $ 46.2 million at december 31 , 2011 , and $ 42.5 million at december 31 , 2010 . chargebacks are influenced by the volume of vehicle sales in recent years and increases or decreases in early termination rates resulting from cancellation of vehicle protection products , defaults , refinancings , payoffs before maturity , and other factors . while we consider these factors in the estimation of our chargeback liability , actual events may differ from our estimates , which could result in a change in our estimated liability for chargebacks . the increase in our liability for chargebacks is largely attributable to higher volume of vehicle sales in recent years , as well as an increase in customer cancellations of finance and insurance products . a 10 % change in our estimated chargebacks would have changed our estimated liability for chargebacks at december 31 , 2011 , by approximately $ 4.6 million . see note 19 of the notes to consolidated finance statements for further information regarding chargeback liabilities . self insurance reserves under our self insurance programs , we retain various levels of aggregate loss limits , per claim deductibles , and claims-handling expenses as part of our various insurance programs , including property and casualty , employee medical benefits , automobile , and workers ' compensation . costs in excess of this retained risk per claim may be insured under various contracts with third-party insurance carriers . we review our claim and loss history on a periodic basis to assist in assessing our future liability . the ultimate costs of these retained insurance risks are estimated by management and by third-party actuarial evaluation of historical claims experience , adjusted for current trends and changes in claims-handling procedures . our results could be materially impacted by claims and other expenses related to our self insurance programs if future occurrences and claims differ from these assumptions and historical trends . self insurance reserves totaled $ 58.2 million at december 31 , 2011 , and $ 64.0 million at december 31 , 2010 . a 10 % change in the volume of claims would have changed our estimated liability at december 31 , 2011 , by approximately $ 5.8 million . we believe our actual loss experience has not been materially different from our recorded estimates .
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results of operations we had net income from continuing operations of $ 284.2 million and diluted earnings per share of $ 1.93 in 2011 , as compared to net income from continuing operations of $ 235.3 million and diluted earnings per share of $ 1.48 in 2010 , and net income from continuing operations of $ 233.1 million and diluted earnings per share of $ 1.31 in 2009 . the 2011 results were impacted by a loss on debt extinguishment , including debt refinancing costs and the write-off of previously deferred debt issuance costs , of $ 2.2 million ( $ 1.4 million after-tax ) . the 2010 results were impacted by a loss on debt extinguishment , including debt refinancing costs and the write-off of previously deferred debt issuance costs , of $ 19.6 million ( $ 12.1 million after-tax ) . the 2009 results were impacted by a favorable tax adjustment of approximately $ 12.7 million , a net gain on asset sales and dispositions of $ 16.8 million ( $ 10.4 million after-tax ) , and a gain on senior note repurchases of $ 13.0 million ( $ 8.1 million after-tax ) . see notes 7 and 11 of the notes to consolidated financial statements for additional information . our results of operations for 2009 were also favorably impacted by the consumer assistance to recycle and save act of 2009 , 23 commonly referred to as “ cash for clunkers , ” that officially began in july 2009 and ended in august 2009. cash for clunkers stimulated consumer demand for new vehicles , and we sold approximately 12,500 new vehicles under the program . market conditions full-year u.s. industry new vehicle unit sales were 12.7 million in 2011 , as compared to 11.5 million in 2010 and 10.4 million in 2009 .
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overview kennametal inc. is a leading global manufacturer and supplier of tooling , engineered components and advanced materials consumed in production processes . we deliver productivity to customers seeking peak performance in demanding environments by providing innovative custom and standard wear-resistant solutions . to provide these solutions , we harness our knowledge of advanced materials and application development with a commitment to environmental sustainability . our solutions are built around industry-essential technology platforms . these include metalworking tools , engineered components , surface technologies and earth cutting tools that are mission-critical to the performance of our customers battling extreme conditions such as fatigue wear , corrosion and high temperatures . we believe that our reputation for manufacturing excellence , as well as our technological expertise and innovation we deliver in our products and services , help us to achieve a leading position in our primary markets ; general engineering , transportation , aerospace and defense , energy and earthworks . end users of our products include metalworking and machinery manufacturers and suppliers across a diverse array of industries , including the aerospace , defense , transportation , machine tool , light machinery and heavy machinery , as well as producers and suppliers in a number of equipment-intensive industries such as coal mining , road construction and quarrying , as well as oil and gas exploration , refining , production and supply . our end users ' applications range from airframes to mining operations , engines to oil wells and turbochargers to processing . we believe that we are one of the largest global providers of consumable metalcutting tools and tooling supplies . we entered fiscal 2013 after delivering record sales and profitability in our fiscal year end june 30 , 2012. as a result of these tough comparisons to prior year and a slowing of the macro-economic environment , our sales for 2013 decreased from the prior year . in fiscal 2013 , we saw sales declines in both of our segments and all geographic regions . for 2013 , sales were $ 2,589.4 million , a decrease of 5 percent compared to prior year sales of $ 2,736.2 million . operating income was $ 296.4 million , a decrease of $ 120.0 million compared to operating income of $ 416.4 million in 2012. the decrease in operating income was driven by lower sales volume , lower absorption of manufacturing costs related to reduced sales volume and an inventory reduction initiative , as well as unfavorable currency exchange rates . the decrease was partially offset by reduced operating expense . raw material costs stabilized in the current year and did not have a significant impact on profitability of the business . despite the depressed macro-economic conditions , we were able to maintain a double-digit operating margin of 11.4 percent in fiscal 2013. the company had earnings per diluted share ( eps ) of $ 2.52 in 2013. in fiscal 2013 , we continued the integration of deloro stellite holdings 1 limited ( stellite ) , which was acquired in march 2012. we achieved a critical milestone in our integration plan in may 2013 as we implemented our enterprise resource planning ( erp ) system into four key stellite operating sites . this implementation will allow us to accelerate future synergy opportunities , both commercial and operational . similar to the served end markets of our infrastructure segment , stellite experienced demand weakness throughout the year . we managed operating and integration costs to partially mitigate this adverse volume effect on operating results . moving into fiscal 2014 , we remain focused on driving further synergies between kennametal and stellite . we generated cash flow from operating activities of $ 284.2 million in the current year . we have actively managed our business portfolio by returning over $ 172.4 million to shareowners through share repurchases and dividends , repurchasing approximately 3 million shares , and increasing our dividend by 14 percent in july 2012. in addition , we made capital expenditures of $ 82.8 million during the year . we invested further in technology and innovation to continue delivering a high level of new products to our customers . research and development expenses included in operating expense totaled $ 39.7 million for 2013. in addition , we generated approximately 45 percent of our sales from new products in fiscal year 2013. enhanced operating structure implemented as of july 1 , 2013 at the start of fiscal 2014 , the company enhanced its organizational structure to align a broader base management team with customer-facing products and technology platforms , as well as to further increase cross-selling opportunities . this operating structure supports the company 's stated growth objectives across diverse market sectors , preserves the focus on customers and increases product innovation . 16 the company will continue to report results in each of the industrial and infrastructure segments , as well as by served end markets , while also providing expanded disclosures discussing technology-based sales for each segment . consistent with previous allocation methodologies , corporate expenses related to each segment will be classified accordingly . previously disclosed industrial and infrastructure segment results will be restated for certain sales reclassifications based on products and technologies and disclosed in future filings as appropriate . story_separator_special_tag in 2012 due to increased borrowings to fund the stellite acquisition and the issuance of $ 400 million of 2.65 percent senior unsecured notes due in 2019 , partially offset by lower interest rates on our borrowings resulting from the favorable effect of refinancing our 7.2 percent senior unsecured notes that matured last june with lower interest 3.875 % ten year senior unsecured notes maturing in 2022. the portion of our debt subject to variable rates of interest was approximately 6 percent and 46 percent at june 30 , 2013 and 2012 , respectively . the decrease in the portion of our debt subject to variable rates was due to the decrease in the balance outstanding on our revolving credit facility . story_separator_special_tag the aerospace and defense end markets ' sales growth is due to a significant increase in commercial aircraft production . sales growth in the general engineering end markets is attributable to new orders for industrial machinery as manufacturers have increased their capital spending , as well as increased metalworking machinery production driven by a reaccelerating economy . the transportation end markets sales growth was due to an overall increase in vehicle sales and production in the u.s. while we still saw growth in european transportation sales , many european markets have begun to decline due to the recent economic environment in europe . on a regional basis , sales increased by approximately 12 percent in europe and 12 percent in the americas and were relatively flat in asia due to strong comparisons to the prior year . the sales increase in europe and the americas was driven by growth in the general engineering and transportation end markets . in 2012 , industrial operating income was $ 283.2 million and reflects an increase in operating performance of $ 73.6 million from 2011. the primary drivers of the increase in operating income were higher organic sales of $ 134.8 million , operating expense control and lower restructuring costs , partially offset by higher raw material costs . industrial operating margin increased to 17.0 percent from 13.7 percent in 2011. infrastructure replace_table_token_6_th external sales of $ 1,117.5 million in 2013 increased by $ 48.7 million , or 5 percent , from 2012 . the increase in sales was attributed to acquisition growth of 15 percent , offset by an organic sales decrease of 8 percent , the impact of less business days of 1 percent and by unfavorable currency exchange rate effects of 1 percent . the organic decrease was driven by lower sales in the energy and earthworks markets of 11 percent and 6 percent , respectively . energy sales decreased due to delayed orders and lower drilling activity in oil and gas , primarily in north america . earthwork sales declined from persistently weak underground coal mining activity globally , as well as a delayed start to the north america road construction season due to the colder weather in the spring . on a regional basis , sales decreased by approximately 13 percent in the americas , 5 percent in europe and remained relatively flat in asia due to strong comparisons to the prior year . the sales decrease in the americas was driven by the energy markets and to a slightly lesser extent the earthworks markets , while the sales decrease in europe was driven by the energy markets . in 2013 , infrastructure operating income decreased $ 11.1 million from 2012. the primary drivers of the decrease in operating income were lower organic sales of $ 90.1 million , and lower related absorption of manufacturing costs from both lower sales as well as the impact of our inventory reduction efforts , partially offset by a decrease in stellite acquisition-related costs of $ 8.9 million and containment of discretionary spending . infrastructure operating margin decreased to 11.7 percent from 13.2 percent in the prior year . 19 external sales of $ 1,068.8 million in 2012 increased by $ 194.0 million , or 22 percent , from 2011. the increase in sales was attributed to organic sales increase of 11 percent , acquisition growth of 10 percent and the impact of more business days of 1 percent . the organic increase was driven by higher sales in the energy and earthworks markets of 13 percent and 10 percent , respectively . sales in the earthworks end markets increased due to strong mining demand from asia in the first half of 2012 , increased road maintenance in parts of europe and asia , and price actions partially offset by softening mining and construction market conditions in north america . energy related product sales grew due to increased shale production and increased natural gas production , partially offset by a decline in natural gas prices and reduced drilling activity . on a regional basis , sales excluding acquisition increased by approximately 21 percent in asia , 14 percent in europe and 9 percent in the americas . the sales increase in asia was driven by performance in the earthworks markets , while the growth in europe and the americas was driven by earthworks markets and to a slightly lesser degree , the energy markets . in 2012 , infrastructure operating income increased $ 19.9 million from 2011. the primary drivers of the increase in operating income were higher organic sales of $ 99.4 million , operating expense control and lower restructuring costs , partially offset by higher raw material costs . operating income included $ 8.9 million of acquisition related charges . infrastructure operating margin decreased to 13.2 percent from 13.9 percent in 2011 due to the recent stellite business acquisition . corporate replace_table_token_7_th in 2013 , corporate unallocated expense decreased $ 0.6 million , or 6.8 percent from 2012 . the decrease was driven by $ 1.9 million of lower pension expense , partially offset by $ 1.0 million of higher strategic project spending . in 2012 , corporate unallocated expense decreased $ 1.3 million , or 12.9 percent from 2011. the decrease was driven by $ 6.0 million of lower strategic project spending , partially offset by $ 1.2 million of lower foreign government subsidy income for certain research projects and the impact of a non-recurring reversal of an environmental liability in 2011. liquidity and capital resources cash flow from operations and borrowings against our five-year , multi-currency , revolving credit facility ( 2011 credit agreement ) are the primary sources of funding for capital expenditures and internal growth . during the year ended june 30 , 2013 , cash flow provided by operating activities was $ 284.2 million , driven by our operating performance , and we had outstanding borrowings on our 2011 credit agreement of $ 3.6 million .
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results of continuing operations sales sales of $ 2,589.4 million in 2013 decreased 5 percent from $ 2,736.2 million in 2012 as a result of an organic decline of 8 percent , 2 percent unfavorable effect from currency exchange and 1 percent fewer business days in 2013 , partially offset by a 6 percent increase from stellite . organic sales decreased in both segments and across most regions . drivers of the organic sales decline were general engineering of 12 percent , energy markets of 11 percent , earthworks of 6 percent and transportation of 5 percent , offset by an organic sales increase in aerospace and defense of 6 percent . sales of $ 2,736.2 million in 2012 increased 14 percent from $ 2,403.5 million in 2011 as a result of strong organic growth of 9 percent , business acquisition contribution of 4 percent and 1 percent more business days in 2012. organic sales increased in both segments and across most regions . organic sales growth drivers were energy markets of 13 percent , aerospace and defense of 13 percent , earthworks of 10 percent , general engineering of 8 percent and transportation of 6 percent . gross profit gross profit decreased $ 149.3 million to $ 845.0 million in 2013 from $ 994.3 million in 2012 . this decrease was primarily due to an organic sales decline of $ 217.5 million and lower related absorption of manufacturing costs from both lower sales as well as the impact of our inventory reduction efforts , partially offset by the gross profit benefit of owning stellite for a full year and cost containment efforts . the gross profit margin for 2013 was 32.6 percent compared to 36.3 percent in 2012. gross profit increased $ 109.9 million to $ 994.3 million in 2012 from $ 884.4 million in 2011. this increase was primarily due to an organic sales increase of $ 218.4
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amgen , inc. on september 29 , 2017 , the company story_separator_special_tag financial condition and results of operations the following discussion should be read in conjunction with the attached financial statements and notes thereto . this annual report on form 10-k , including the following sections , contains forward-looking statements within the meaning of the federal securities laws . these statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements . for a detailed discussion of these risks and uncertainties , see the “ risk factors ” section in item 1a of this annual report on form 10-k. we caution the reader not to place undue reliance on these forward-looking statements , which reflect management 's analysis only as of the date of this form 10-k. we undertake no obligation to update forward-looking statements , which reflect events or circumstances occurring after the date of this form 10-k. overview we are a clinical-stage , oncology-focused biopharmaceutical company pioneering a novel class of investigational antibody therapeutics based on our probody therapeutic technology platform . we use our platform to create proprietary cancer immunotherapies against clinically-validated targets , such as pd-l1 , and develop first-in-class cancer therapeutics against difficult-to-drug targets , such as cd166 . probody therapeutics are designed to take advantage of unique conditions in the tumor microenvironment to enhance the tumor-targeting features of an antibody and reduce drug activity in healthy tissues . our two lead programs , cx-072 , a wholly owned pd-l1-targeting probody therapeutic and cx-2009 , wholly owned cd166-targeting probody drug conjugate , are both currently being evaluated in phase 1/2 clinical trials . both cx-072 and cx-2009 are part of proclaim ( probody clinical assessment in man ) ( “ proclaim ” ) , an international umbrella clinical trial program that provides clinical trial sites with access to our novel therapies under one central protocol . we expect to disclose initial clinical data regarding cx-072 in mid-2018 and initial clinical data regarding cx-2009 in the second half of 2018. in addition to our proprietary programs , we are collaborating with strategic partners , including abbvie , amgen , bms , immunogen and others . the two most advanced programs from our collaborations are a probody therapeutic directed against ctla-4 , partnered with bms , and cx-2029 , a cd71 directed probody drug conjugate partnered with abbvie . bms is currently evaluating the ctla-4-directed probody therapeutic in a phase 1/2 clinical trial that it initiated in january 2018. we have initiated ind-enabling studies for cx-2029 . we anticipate an ind filing for cx-2029 in the first half of 2018 and expect to initiate a clinical trial shortly thereafter . in october 2016 , we initiated ind-enabling studies of cx-188 , our wholly owned pd-1-targeting probody therapeutic . we anticipate an ind filing in the second half of 2018 and expect to initiate a clinical trial shortly thereafter . we currently have three product candidates in clinical trials but we do not have any product candidates approved for sale , and we continue to incur significant research and development and general administrative expenses related to our operations . we are not profitable and have incurred losses in each year since our founding in 2008. our net loss was $ 43.1 million for the year ended december 31 , 2017. as of december 31 , 2017 , we had an accumulated deficit of $ 219.5 million . we expect to continue to incur significant losses for the foreseeable future . regulatory agencies , including the fda , regulate many aspects of a product candidate 's life cycle , including research and development and preclinical and clinical testing . we will need to commit significant time , resources , and funding to develop our two wholly owned product candidates in clinical trials , cx-072 and cx-2009 , as well as any additional product candidates for which we file inds in 2018 and beyond . we are unable to provide the nature , timing , and estimated costs of the efforts necessary to complete the development of our product candidates because , among other reasons , we can not predict with any certainty the pace of enrollment of our clinical trials , which is a function of many factors , including the availability and proximity of patients with the relevant condition . we currently have no manufacturing capabilities and do not intend to establish any such capabilities in the near term . as such , we are dependent on third parties to supply our product candidates according to our specifications , in sufficient quantities , on time , in compliance with appropriate regulatory standards and at competitive prices . 80 components of results of operations revenue our revenue to date has been primarily derived from non-refundable license payments , milestone payments and reimbursements for research and development expenses under our research , collaboration , and license agreements . we recognize revenue from upfront payments ratably over the term of our estimated period of performance under the agreement . in addition to receiving upfront payments , we may also be entitled to milestone and other contingent payments upon achieving predefined objectives . revenue from milestones , if they are nonrefundable and deemed substantive , is recognized upon successful accomplishment of the milestones . to the extent that non-substantive milestones are achieved and we have remaining performance obligations , milestones are deferred and recognized as revenue over the estimated remaining period of performance . reimbursements from pfizer and bms for research and development costs incurred under our research , collaboration and license agreements with them are classified as revenue . for the foreseeable future , we do not expect to generate any revenue from the sale of products unless and until such time as our product candidates have advanced through clinical development and obtained regulatory approval . story_separator_special_tag with the selection of its fourth target under our collaboration and license agreement with bms and the acceleration of the research timeline triggered by bms 's selection of a fourth target under the bms agreement , and a milestone payment of $ 10.0 million related to the ind filing for the ctla-4 directed probody therapeutic by bms in 2017. these increases were partially offset by a milestone payment of $ 2.0 million payment received in 2016 for the selection of ctla-4 ecn designation , and a decrease of $ 0.3 million related to research and development services provided to bms . the increase in revenue from immunogen of $ 12.5 million for the year ended december 31 , 2017 compared to the corresponding period in 2016 was a result of the recognition of $ 6.6 million for the delivery of a development and commercialization license to immunogen in connection with the immunogen agreement and the recognition of $ 5.9 million resulting from the immunogen amendment . see note 7 research and collaboration agreements under item 8 of this annual report on form 10-k for more details . the decrease in revenue from pfizer of $ 0.3 million for the year ended december 31 , 2017 compared to the corresponding period in 2016 was due to a reduction in the research and development services we provided to pfizer . we received a letter , dated march 5 , 2018 , from pfizer indicating that pfizer was terminating our collaboration in its entirety . such termination will become effective on the date that is 60 days after the date of the letter . as a result of such termination , we are no longer eligible to receive any future payments from our collaboration with pfizer 82 operating costs and expenses research and development expenses year ended december 31 , 2017 2016 change ( in thousands ) research and development $ 92,277 $ 54,755 $ 37,522 research and development expenses increased $ 37.5 million during the year ended december 31 , 2017 compared to the corresponding period in 2016. the increase was primarily attributable to the following : a non-cash charge of $ 10.7 million of in-process research and development expense recognized related to the amgen agreement ; $ 10.0 million sublicense payment made to ucsb triggered by the $ 200.0 million upfront payment made by bms in connection with our expanded collaboration ; $ 2.1 million of ucsb sublicense fees accrued as a result of the amgen agreement ; $ 1.0 million of ucsb sublicense fees recognized for our achievement of certain milestones required to be met to begin glp toxicology studies under the abbvie agreement and the ind filing for the ctla-4 directed probody therapeutic by bms ; an increase of $ 8.5 million in pharmacology studies and clinical trial expenses resulting from the advancement of cx-072 ( pd-l1 ) , cx-2009 ( cd166 ) and cx-2029 ( cd71 ) in 2017 ; an increase of $ 5.3 million in personnel-related expenses and allocation of it and facilities-related expenses due to an increase in headcount ; an increase of $ 1.7 million in consulting expenses due to the commencement of clinical trials in 2017 ; an increase of $ 0.6 million related to expenses incurred in acquiring a patent ; and an increase of $ 0.5 million in stock-based compensation resulting from increased headcount and an increase in the value of our stock . these increases were partially offset by : a decrease of $ 2.1 million in manufacturing expenses for our cx-072 and cx-2009 programs due to manufacturing activities occurring in 2016 in preparation for clinical trials in 2017 ; a decrease in laboratory supply expenses of $ 0.4 million ; and a decrease in program management expenses of $ 0.4 million . the following table summarizes our research and development expenses by program incurred during the respective periods : 83 replace_table_token_6_th general and administrative expenses year ended december 31 , 2017 2016 change ( in thousands ) general and administrative $ 25,605 $ 19,874 $ 5,731 general and administrative expense increased $ 5.7 million during the year ended december 31 , 2017 compared to the corresponding period in 2016. the increase was attributable to an increase of $ 1.4 million in personnel-related expenses and an increase of $ 1.0 million in recruitment fees due to an increase in headcount and temporary labor ; an increase in stock-based compensation of $ 1.0 million due to an increase in headcount and an increase in the value of our stock ; an increase of $ 1.2 million in consulting services expenses primarily due to an increase in tax and accounting compliance activities and investor relations expenses ; an increase in legal expenses of $ 0.8 million resulting from patent filings ; and an increase of $ 0.2 million in dues and subscriptions related to computer software . interest income and other income ( expense ) , net replace_table_token_7_th interest income interest income increased $ 1.9 million during the year ended december 31 , 2017 compared to the corresponding period in 2016. the increase was attributable to an increase in cash and cash equivalents and a decrease in the amortization of premiums on short-term investments resulting from a decrease in average investments in treasury bills . other income ( expense ) , net other income ( expense ) , net decreased $ 42 thousand during the year ended december 31 , 2017 compared to the corresponding period in 2016. the decrease was primarily attributable to a decrease in foreign currency losses resulting from the strengthening of the u.s. dollar against euros and british pound sterling .
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summary statement of cash flows the following table summarizes our cash flows for the periods presented : replace_table_token_10_th cash flows from operating activities during the year ended december 31 , 2017 , cash provided by operating activities was $ 170.4 million , which consisted of a net loss of $ 43.1 million , non-cash charges of $ 23.5 million , and an increase of $ 190.0 million in our net operating assets and liabilities . the non-cash charges primarily consisted of $ 1.6 million in depreciation and amortization , $ 11.3 million in stock-based compensation and a $ 10.7 million non-cash acquisition of in-process research and development asset charged to expense . the change in our net operating assets and liabilities of $ 190.0 million was primarily attributable to : an increase of $ 189.9 million in deferred revenue resulting from bms upfront payment of $ 200.0 million and $ 40.0 million received in connection with the collaboration we entered into with amgen in september 2017. these increases were partially offset by an increase in the recognition of revenue associated with upfront fees of $ 34.4 million under our various collaboration agreements , $ 6.6 million in recognized revenue from our delivery of a development and commercialization license to immunogen in connection with our collaboration agreement , and $ 5.9 million in recognized revenue from immunogen as a result of the immunogen amendment ; an increase in accrued and long-term liabilities of $ 9.2 million ; and an increase in other assets of $ 1.6 million ; partially offset by a decrease in accounts receivable of $ 8.0 million resulting primarily from the $ 10.0 million of milestone billing to bms for the ind filing of the ctla-4 directed probody therapeutic , offset by $ 2.0 payment received from bms relating to the 2016 milestone for the selection of ctla-4 ecn designation ; and a decrease of $ 2.4 million in
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no dividends or dividend equivalents may be paid in connection with a performance-based award unless and until the underlying performance conditions are story_separator_special_tag overview we are one of the leading providers of tax preparation services in the united states and canada . as measured by both the number of returns prepared and the number of retail offices , we are the third largest and fastest growing national retail preparer of individual tax returns in the united states and the second largest retail preparer of individual tax returns in canada . from 2001 through 2012 , we have grown the number of u.s. tax returns prepared in our offices from approximately 137,000 to nearly 1.8 million . our tax preparation services and related financial products are offered primarily through franchised locations , although we operate a very limited number of company-owned offices each tax season . all of the offices are operated under the liberty tax service brand . from 2001 through 2012 , we grew our number of tax offices from 508 to nearly 4,200. we and our franchisees operated 3,920 offices in the united states during the 2012 tax season , a 9.2 % increase over the 2011 tax season , when we operated 3,590 offices , which was itself a 9.3 % increase over the number of offices operated in the 2010 tax season . approximately 59 % of our revenue for fiscal year 2012 was derived from franchise fees , royalties and advertising fees , and for this reason , continued growth in our franchise locations is viewed by management as the key to our future performance . our revenue primarily consists of the following components : franchise fees : we earn franchisee fees from our franchisees and ads . our standard franchise fee per territory is $ 40,000 and we offer our franchisees flexible structures and financing options for franchise fees . we recognize franchise fees , net of a provision for franchise fee refunds , when our obligations to prepare the franchise for operation have been substantially completed . when we finance franchise fees , we record the franchise fees as deferred revenue until the franchisee has made a significant financial commitment ( payment of 20 % of the franchise fee ) and met certain other criteria . however , in 2011 we introduced a new franchise fee option that forgoes the initial franchise fee payment in favor of a higher royalty rate . our franchise fees for ad areas vary based on our assessment of the revenue potential of each ad area , and also depend on the performance of any existing franchisees within the ad area being sold . our ads generally receive 50 % of the franchise fees derived from territories located in their area . see `` item 1businessbusinessliberty 's franchise model . '' royalties : we earn royalty revenue from our franchisees . our franchise agreement requires franchisees to pay us a base royalty equal to 14 % of the franchisee 's tax preparation revenue , subject to certain specified minimums . franchisees acquiring territories under our new `` zero franchise fee '' alternative are required to pay us franchise royalties of 25 % through their first five tax seasons , and thereafter 14 % of their tax preparation revenue . over time , as our offices continue to `` season , '' we expect that our growth in revenue from royalties will continue to outpace our growth in revenue from franchise fees . we also expect to see steadier growth from our royalty revenue , but our franchise fee revenue may decrease if franchisees choose our `` zero franchise fee '' alternative . our ads generally receive 50 % of the royalties derived from territories located in their area . advertising fees : we earn advertising fee revenue from our franchisees . our franchise agreement requires all franchisees to pay us an advertising fee of 5 % of the franchisee 's tax preparation revenue , which we use primarily to fund collective advertising efforts . financial products : we offer two types of financial products : `` refund transfer '' products , such as ercs , which involve providing a means by which a customer may receive his or her refund more quickly and conveniently , and refund-based loans , such as rals and icas . we earn fees from the use of these financial products . after the 2012 tax season , we will no longer be able to offer rals through banks and other federally-insured financial institutions , and our ability to offer refund-based loans may therefore be limited . see `` item 1businessbusinesstax 48 preparation in the liberty system . '' however , we believe the negative effect of fewer refund-based loans will be offset by two factors . first , we believe that most customers who previously would have obtained loans have elected to purchase a refund transfer product , and that the continued availability of these products will enable us to experience similar financial product `` attachment rates '' as in prior years . second , as we continue to offer more of our financial products through our jth financial subsidiary , we expect to be able to realize more of the fee income associated with financial products ( although we will also incur greater expenses in connection with offering the products ) . tax preparation fees : we also earn tax preparation revenue directly from both the operation of company-owned offices and the provision of tax preparation services through our esmarttax online product . for purposes of this section and throughout this annual report , all references to `` fiscal 2012 , '' `` fiscal 2011 , '' and `` fiscal 2010 '' refer to our fiscal years ended april 30 , 2012 , 2011 , and 2010 , respectively . story_separator_special_tag we expect to grow that business , which we expect to enable us to ameliorate some of the less favorable economic terms we receive from our traditional providers by allowing us to receive fees associated with the products offered through jth financial . our use of jth 50 financial does involve increased costs in the form of technology and other administrative costs , but our fee structure for financial products should allow us to absorb those costs without any material adverse effect on our operating results . for a discussion of the risks attendant to our financial products , see `` item 1arisk factorsrisks related to regulation of our industry . '' story_separator_special_tag territories . the increase in ad sales reflects our increased success in closing sales of ad areas in fiscal 2011 , and the fact that the 2011 sales of ad areas included several more populous geographic areas that therefore had higher than average purchase prices . by contrast , the decrease in franchise territory sales in fiscal 2011 reflects a failure to close as many franchise sales in fiscal 2011 as in fiscal 2010. the increase in our royalties and advertising fees revenue in fiscal 2011 was caused primarily by the growth in our number of offices open for the 2011 tax season and in the number of returns prepared by those offices . the reduction in tax preparation fees in fiscal 2011 is the consequence of our operation of fewer company-owned offices during the 2011 tax season . the increase in the interest income we received in fiscal 2011 reflects the additional lending we made to our franchisees and ads for the acquisition of territories and areas and to our franchisees for working capital purposes . at april 30 , 2011 , our total amounts due from franchisees and ads were 17 % higher than at april 30 , 2010 . 53 operating expenses . the following table details the amounts and changes in our operating expenses in and from fiscal 2011 and fiscal 2010. replace_table_token_9_th excluding the loss of $ 5.6 million associated with our decision in fiscal 2010 to discontinue the use of our former online tax preparation software , our total operating expenses increased by $ 4.3 million in fiscal 2011 , or 7 % . the largest components of this increase were a 17 % increase in advertising expense due directly to the related increase in advertising fees , a $ 1.1 million increase in financial product rebates , which represents a portion of the fee income related to financial products that we elect to share with our franchisees ( subject to possible offset for their portion of any guaranty obligations we are required to satisfy in connection with the defaults by financial product customers ) , and a $ 1.3 million increase in the amount we accrued for bad debts . the latter two items accounted for most of the increase in our general and administrative expenses . we expended more on advertising in fiscal 2011 compared to fiscal 2010 primarily because when our franchisees pay us more in advertising fees as their revenue increases , we in turn increase our related spending . the increase in product rebate payments reflected an increase in the revenues we generated from financial products in fiscal 2011 , which we shared with our franchisees . other items . we also experienced a $ 3.4 million reduction in other income in fiscal 2011 , principally as a result of a decrease in net gains on short-term investments , which reflects the fact that we experienced gains associated with our short-term investments during fiscal 2010 that did not recur in fiscal 2011. moreover , we recognized $ 900,000 less in income associated with foreign currency transaction gains in 2011 compared to 2010. in addition , as shown below , because of our growth in operating income , our income tax expense increased 58 % in fiscal 2011. replace_table_token_10_th the increase in our effective tax rate from fiscal 2010 to fiscal 2011 was primarily a result of a greater percentage of our 2011 income before income taxes being earned in the united states , which is taxed at a higher rate than income earned in canada . net income . our net income increased by 43 % in fiscal 2011 , reflecting an increase in operating income of 74 % , and the fact that the increase in our revenues in fiscal 2011 grew faster than the increase in our operating expenses ( excluding the effect of the loss on discontinued use of software in fiscal 2010 ) . 54 liquidity and capital resources overview of factors affecting our liquidity seasonality of cash flow . our tax return preparation business is seasonal , and most of our revenues and cash flow are generated during the period from early february through april 30. following each tax season , from may 1 through early february of the following year , we rely significantly on excess operating cash flow from the previous season , from cash payments made by franchisees and ads who purchase new territories and areas prior to the next tax season and make cash payments in connection with those purchases , and on the use of our credit facility to fund our operating expenses and invest in the future growth of our business . our business has historically generated a strong operating cash flow from operations on an annual basis . we devote a significant portion of our cash resources during the off season to finance the working capital needs of our franchisees . we have also been incurring significant expenditures in the development of our nextgen project . credit facility . in february 2008 , jth tax , inc. entered into a revolving credit facility . this revolving credit facility , which provided for maximum allowable borrowings of $ 125 million , was replaced effective april 30 , 2012 with a new credit facility that consists of a $ 25 million term loan and a $ 105 million revolving credit facility .
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results of operations fiscal year 2012 compared to fiscal year 2011 revenues . the table below sets forth the components and changes in our revenue for the years ended april 30 , 2012 and 2011. replace_table_token_5_th our total revenues increased by 14 % in fiscal 2012 primarily due to a 39 % increase in financial products revenue , a 47 % increase in tax preparation fees , and a 8 % and 3 % increase in royalties and advertising fees , respectively . the substantial increase in financial products revenue was driven by the continuing growth of our subsidiary jth financial , and the fact that we originated substantially more of our customer financial products through this subsidiary in fiscal 2012 than in fiscal 2011. the change also incorporates the expansion of our ica program to seven states during the 2012 tax season . the increase in tax preparation fees was a consequence of our operation of more company-owned offices in 2012 than in 2011. the increase in royalties and advertising fees was caused primarily by continued growth in our number of offices open for the 2012 tax season and the number of returns prepared by those offices . the increase in franchise fees included a 35 % increase in area developer sales , which was due to fees recognized from selling 25 ad areas in 2012 as compared to only 16 ad areas in 2011 , offset in part by a 22 % decrease in revenue from franchise territory sales , which reflects in part the launch of our zero franchise fee option during fiscal 2012. during the 2012 tax season , approximately 160 franchises were operating in territories subject to the zero franchise fee option .
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in the digital sale , autonomy purchased ( i ) the shares of certain of imi 's subsidiaries through which imi conducted the digital business and ( ii ) certain assets of imi and its subsidiaries relating to our digital business . the financial position , operating results and cash flows of the domain name product line and the digital business , for all periods presented in this annual report on form 10-k , including the gains on the sales , have been reported as discontinued operations for financial reporting purposes . imi retained its technology escrow services business which had previously been reported in the former worldwide digital business segment along with the digital business and the domain name product line . the technology escrow services business is now reported in the north american business segment . additionally , on october 3 , 2011 , we sold our records management business in new zealand ( the `` new zealand business '' ) . the financial position , operating results and cash flows of the new zealand business , including the gain on the sale , for all periods presented , have been reported as discontinued operations for financial reporting purposes . also , in december 2011 , we committed to a plan to sell the italian business . the financial position , operating results and cash flows of the italian business , for all periods presented , have been reported as discontinued operations for financial reporting purposes . see note 14 to notes to consolidated financial statements . 29 consolidated statements of operations amounts for 2009 and 2010 were restated in connection with the government contract billing error more fully discussed in notes 2.y . and 10.h . to notes to consolidated financial statements . as a result , 2009 and 2010 consolidated statements of operations amounts related to : ( a ) storage , ( b ) service , ( c ) total revenues , ( d ) operating income , ( e ) income from continuing operations before provision for income taxes , ( f ) provision for income taxes , ( g ) income from continuing operations , ( h ) net income ( loss ) and ( g ) net income ( loss ) attributable to iron mountain incorporated have been changed throughout management 's discussion and analysis to conform to the restated figures . our revenues consist of storage revenues as well as service revenues . storage revenues , which are considered a key performance indicator for the information management services industry , consist primarily of recurring periodic charges related to the storage of materials or data ( generally on a per unit basis ) that are typically retained by customers for many years and have accounted for over 55 % of total consolidated revenues in each of the last three years . our annual revenues from these fixed periodic storage fees have grown for 23 consecutive years . service revenues are comprised of charges for related core service activities and a wide array of complementary products and services . included in core service revenues are : ( 1 ) the handling of records , including the addition of new records , temporary removal of records from storage , refiling of removed records and the destruction of records ; ( 2 ) courier operations , consisting primarily of the pickup and delivery of records upon customer request ; ( 3 ) secure shredding of sensitive documents ; and ( 4 ) other recurring services , including hybrid services and recurring project revenues . our complementary services revenues include special project work , customer termination and permanent withdrawal fees , data restoration projects , fulfillment services , consulting services , technology services and product sales ( including specially designed storage containers and related supplies ) . a by-product of our secure shredding and destruction services is the sale of recycled paper ( included in complementary services revenues ) , the price of which can fluctuate from period to period , adding to the volatility and reducing the predictability of that revenue stream . our consolidated revenues are also subject to variations caused by the net effect of foreign currency translation on revenue derived from outside the u.s. for the years ended december 31 , 2009 , 2010 and 2011 , we derived approximately 31 % , 32 % and 34 % , respectively , of our total revenues from outside the u.s. we recognize revenue when the following criteria are met : persuasive evidence of an arrangement exists , services have been rendered , the sales price is fixed or determinable and collectability of the resulting receivable is reasonably assured . storage and service revenues are recognized in the month the respective storage or service is provided , and customers are generally billed on a monthly basis on contractually agreed-upon terms . amounts related to future storage or prepaid service contracts for customers where storage fees or services are billed in advance are accounted for as deferred revenue and recognized ratably over the applicable storage or service period or when the service is performed . revenue from the sales of products , which is included as a component of service revenues , is recognized when products are shipped to the customer and title has passed to the customer . revenues from the sales of products have historically not been significant . cost of sales ( excluding depreciation and amortization ) consists primarily of wages and benefits for field personnel , facility occupancy costs ( including rent and utilities ) , transportation expenses ( including vehicle leases and fuel ) , other product cost of sales and other equipment costs and supplies . of these , wages and benefits and facility occupancy costs are the most significant . trends in total wages and benefits in dollars and as a percentage of total consolidated revenue are influenced by changes in headcount and compensation levels , achievement of incentive compensation targets , workforce productivity and variability in costs associated with medical insurance and workers compensation . story_separator_special_tag as a result of the review , we recorded a provisional goodwill impairment charge associated with our former worldwide digital business reporting unit in the amount of $ 255.0 million during the quarter ended september 30 , 2010. we finalized the estimate in the fourth quarter of 2010 , and we recorded an additional impairment of $ 28.8 million , for a total goodwill impairment charge of $ 283.8 million . based on a relative fair value basis , we allocated $ 85.9 million of this charge to the retained technology escrow services business which continues to be included in our continuing results of operations . our technology escrow services business had previously been reported in the former worldwide digital business segment along with the digital business and the domain name product line . the technology escrow services business is now reported in the north american business segment . our consolidated revenues and expenses are subject to variations caused by the net effect of foreign currency translation on revenues and expenses incurred by our entities outside the u.s. in 2009 , we saw decreases in both revenues and expenses as a result of the weakening of the british pound sterling , the canadian dollar and the euro against the u.s. dollar , based on an analysis of weighted average exchange rates for the comparable periods . in 2010 , we saw increases in both revenues and expenses as a result of the strengthening of the british pound sterling and the canadian dollar , slightly offset by a weakening of the euro , against the u.s. dollar , based on an analysis of weighted average exchange rates for the comparable periods . in 2011 , we saw increases in both revenues and expenses as a result of the strengthening of the british pound sterling , canadian dollar and euro , against the u.s. dollar , based on an analysis of weighted average exchange rates for the comparable periods . it is difficult to predict how much foreign currency exchange rates will fluctuate in the future and how those fluctuations will impact our consolidated statement of operations . due to the expansion of our international operations , these fluctuations have become material on individual balances . however , because both the revenues and expenses are denominated in the local currency of the country in which they are derived or incurred , the impact of currency fluctuations on our operating income and operating margin is partially mitigated . in order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations , we compare the percentage change in the results from one period to another period in this report using constant currency disclosure . the constant currency growth rates are calculated by translating the 2009 results at the 2010 average exchange rates and the 2010 results at the 2011 average exchange rates . prior to january 1 , 2010 , the financial position and results of operations of the operating subsidiaries of ime , our european business , were consolidated based on ime 's fiscal year ended october 31. effective january 1 , 2010 , we changed the fiscal year-end ( and the reporting period for consolidation purposes ) of ime to coincide with imi 's fiscal year-end of december 31. we believe that the change in accounting principle related to the elimination of the two-month reporting lag for ime is preferable because it results in more contemporaneous reporting of events and results related to ime . in accordance with applicable accounting literature , a change in a subsidiary 's year-end is treated as a change in accounting principle and requires retrospective application . the impact of the change was not material to the results of operations for the previously reported annual and interim periods prior to january 1 , 2010 , and , thus , those results have not been revised . there is , however , a charge of $ 4.7 million recorded to other ( income ) expense , net in the year ended december 31 , 2010 to recognize the immaterial differences arising from the change . 32 the following table is a comparison of underlying average exchange rates of the foreign currencies that had the most significant impact on our u.s. dollar-reported revenues and expenses : replace_table_token_11_th replace_table_token_12_th ( 1 ) corresponding to the appropriate periods based on the operating subsidiaries of ime 's fiscal year ended october 31. non-gaap measures adjusted operating income before depreciation , amortization and intangible impairments ( `` adjusted oibda '' ) adjusted oibda is defined as operating income before depreciation , amortization , intangible impairments and ( gain ) loss on disposal/write-down of property , plant and equipment , net . adjusted oibda margin is calculated by dividing adjusted oibda by total revenues . we use multiples of current or projected adjusted oibda in conjunction with our discounted cash flow models to determine our overall enterprise valuation and to evaluate acquisition targets . we believe adjusted oibda and adjusted oibda margin provide current and potential investors with relevant and useful information regarding our ability to generate cash flow to support business investment . these measures are an integral part of the internal reporting system we use to assess and evaluate the operating performance of our business . adjusted oibda does not include certain items that we believe are not indicative of our core operating results , specifically : ( 1 ) ( gain ) and loss on disposal/write-down of property , plant and equipment , net ; ( 2 ) intangible impairments ; ( 3 ) other expense ( income ) , net ; ( 4 ) cumulative effect of change in accounting principle ; ( 5 ) income ( loss ) from discontinued operations ; ( 6 ) gain ( loss ) on sale of discontinued operations ; and ( 7 ) net income ( loss ) attributable to noncontrolling interests . adjusted oibda also does not include interest expense , net and the provision ( benefit ) for income taxes .
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results of operations comparison of year ended december 31 , 2011 to year ended december 31 , 2010 and comparison of year ended december 31 , 2010 to year ended december 31 , 2009 ( in thousands ) : replace_table_token_16_th 41 replace_table_token_17_th ( 1 ) a $ 283.8 million non-cash goodwill impairment charge related to our former worldwide digital business reporting unit in the year ended december 31 , 2010 was recorded . we allocated $ 85.9 million of the charge to our retained technology escrow services business , included in our continuing results of operations ( included in operating expenses in 2010 ) . we allocated the remaining $ 197.9 million to the digital business ( included in loss from discontinued operations in 2010 ) . see notes 2.g . and 14 to notes to consolidated financial statements . ( 2 ) a $ 49.0 million non-cash goodwill impairment charge related to our western europe reporting unit in the year ended december 31 , 2011 was recorded . $ 46.5 million of the charge is included in our continuing results of operations ( included in operating expenses in 2011 ) . $ 2.5 million of the charge was allocated to the italian business and is included in loss from discontinued operations in 2011. see notes 2.g . and 14 to notes to consolidated financial statements . ( 3 ) see `` non-gaap measuresadjusted operating income before depreciation , amortization and intangible impairments , or 'adjusted oibda '' ' for the definition , reconciliation and a discussion of why we believe these measures provide relevant and useful information to our current and potential investors . revenue replace_table_token_18_th 42 replace_table_token_19_th ( 1 ) constant currency growth rates are calculated by translating the 2010 results at the 2011 average exchange rates and the 2009 results at the 2010 average exchange rates .
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2015-05 , “ customer 's accounting for fees paid in a story_separator_special_tag forward-looking statements this report contains forward-looking statements within the meaning of the private securities litigation reform act of 1995. these statements can be identified by the fact that they do not relate strictly to historical or current facts and may include statements concerning , among other things , the anticipated economic and business environment in our service area and elsewhere , credit quality and other financial and business matters in future periods , our future results of operations and financial position , our business strategy and plans and our objectives and future operations . we also may make forward-looking statements in our other documents filed with or furnished to the u.s. securities and exchange commission ( the “ sec ” ) . in addition , our senior management may make forward-looking statements orally to analysts , investors , representatives of the media and others . our forward-looking statements are based on numerous assumptions , any of which could prove to be inaccurate , and actual results may differ materially from those projected because of a variety of risks and uncertainties , including , but not limited to : 1 ) general economic conditions either nationally , internationally , or locally may be different than expected , and particularly , any event that negatively impacts the tourism industry in hawaii ; 2 ) unanticipated changes in the securities markets , public debt markets , and other capital markets in the u.s. and internationally ; 3 ) competitive pressures in the markets for financial services and products ; 4 ) the impact of legislative and regulatory initiatives , particularly the dodd-frank wall street reform and consumer protection act of 2010 ( the “ dodd-frank act ” ) and the new administration 's review of potential changes to such initiatives ; 5 ) changes in fiscal and monetary policies of the markets in which we operate ; 6 ) the increased cost of maintaining or the company 's ability to maintain adequate liquidity and capital , based on the requirements adopted by the basel committee on banking supervision and u.s. regulators ; 7 ) actual or alleged conduct which could harm our reputation ; 8 ) changes in accounting standards ; 9 ) changes in tax laws or regulations or the interpretation of such laws and regulations ; 10 ) changes in our credit quality or risk profile that may increase or decrease the required level of our reserve for credit losses ; 11 ) changes in market interest rates that may affect credit markets and our ability to maintain our net interest margin ; 12 ) the impact of litigation and regulatory investigations of the company , including costs , expenses , settlements , and judgments ; 13 ) any failure in or breach of our operational systems , information systems or infrastructure , or those of our merchants , third party vendors and other service providers ; 14 ) any interruption or breach of security of our information systems resulting in failures or disruptions in customer account management , general ledger processing , and loan or deposit systems ; 15 ) changes to the amount and timing of proposed common stock repurchases ; and 16 ) natural disasters , public unrest or adverse weather , public health , and other conditions impacting us and our customers ' operations . given these risks and uncertainties , investors should not place undue reliance on any forward-looking statement as a prediction of our actual results . a detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included under the section entitled “ risk factors ” in part i of this report . words such as “ believes , ” “ anticipates , ” “ expects , ” “ intends , ” “ targeted , ” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements . we undertake no obligation to update forward-looking statements to reflect later events or circumstances , except as may be required by law . critical accounting policies our consolidated financial statements were prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) and follow general practices within the industries in which we operate . the most significant accounting policies we follow are presented in note 1 to the consolidated financial statements . application of these principles requires us to make estimates , assumptions , and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes . most accounting policies are not considered by management to be critical accounting policies . several factors are considered in determining whether or not a policy is critical in the preparation of the consolidated financial statements . these factors include among other things , whether the policy requires management to make difficult , subjective , and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions . the accounting policies which we believe to be most critical in preparing our consolidated financial statements are those that are related to the determination of the reserve for credit losses , fair value estimates , leased asset residual values , and income taxes . reserve for credit losses a consequence of lending activities is that we may incur credit losses . the amount of such losses will vary depending upon the risk characteristics of the loan and lease portfolio as affected by economic conditions such as rising interest rates and the financial performance of borrowers . the reserve for credit losses consists of the allowance for loan and lease losses ( the “ allowance ” ) and the reserve for unfunded commitments ( the “ unfunded reserve ” ) . the allowance provides for probable and estimable losses 20 inherent in our loan and lease portfolio . story_separator_special_tag as a result , we have processes in place to monitor and periodically review the information provided to us by our third-party pricing service such as : 1 ) our third-party pricing service provides us with documentation by asset class of inputs and methodologies used to value securities . we review this documentation to evaluate the inputs and valuation methodologies used to place securities into the appropriate level of the fair value hierarchy . this documentation is periodically updated by our third-party pricing service . accordingly , transfers of securities within the fair value hierarchy are made if deemed necessary . 2 ) on a quarterly basis , management reviews the pricing information received from our third-party pricing service . this review process includes a comparison to non-binding third-party broker quotes , as well as a review of market-related conditions impacting the information provided by our third-party pricing service . we also identify investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume or frequency of trades relative to historic levels , as well as instances of a significant widening of the bid-ask spread in the brokered markets . as of december 31 , 2016 and 2015 , management did not make adjustments to prices provided by our third-party pricing service as a result of illiquid or inactive markets . 3 ) on a quarterly basis , management also selects a sample of securities priced by the company 's third-party pricing service and reviews the significant assumptions and valuation methodologies used by the pricing service with respect to those securities . based on this review , management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted . 4 ) on an annual basis , to the extent available , we obtain and review independent auditor 's reports from our third-party pricing service related to controls placed in operation and tests of operating effectiveness . we did not note any significant control deficiencies in our review of the independent auditor 's reports related to services rendered by our third-party pricing service . 5 ) our third-party pricing service has also established processes for us to submit inquiries regarding quoted prices . periodically , we will challenge the quoted prices provided by our third-party pricing service . our third-party pricing service will review the inputs to the evaluation in light of the new market data presented by us . our third-party pricing service may then affirm the original quoted price or may update the evaluation on a going forward basis . based on the composition of our investment securities portfolio , we believe that we have developed appropriate internal controls and performed appropriate due diligence procedures to prevent or detect material misstatements . see note 21 to the consolidated financial statements for more information on our fair value measurements . leased asset residual values lease financing receivables include a residual value component , which represents the estimated value of leased assets upon lease expiration . our determination of residual value is derived from a variety of sources , including equipment valuation services , appraisals , and publicly available market data on recent sales transactions for similar equipment . the length of time until lease termination , the cyclical nature of equipment values , and the limited marketplace for re-sale of certain leased assets , are important variables considered in making this determination . we update our valuation analysis on an annual basis , or more frequently as warranted by events or circumstances . when we determine that the fair value is lower than the expected residual value at lease expiration , the difference is recognized as an asset impairment in the period in which the analysis is completed . income taxes we determine our liabilities for income taxes based on current tax regulation and interpretations in tax jurisdictions where our income is subject to taxation . currently , we file tax returns in seven federal , state and local domestic jurisdictions , and four foreign jurisdictions . in estimating income taxes payable or receivable , we assess the relative merits and risks of the appropriate tax treatment considering statutory , judicial , and regulatory guidance in the context of each tax position . accordingly , previously estimated liabilities are regularly reevaluated and adjusted through the provision for income taxes . changes in the estimate of income taxes payable or receivable occur periodically due to changes in tax rates , interpretations of tax law , the status of examinations being conducted by various taxing authorities , and newly enacted statutory , judicial and regulatory guidance that impact the relative merits and risks of each tax position . these changes , when they occur , may affect the provision for income taxes as well as current and deferred income taxes , and may be significant to our statements of income and condition . management 's determination of the realization of net deferred tax assets is based upon management 's judgment of various future events and uncertainties , including the timing and amount of future income , as well as the implementation of various tax planning strategies to maximize realization of the deferred tax assets . a valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized . as of december 31 , 2016 and 2015 , we carried a valuation 22 allowance of $ 3.7 million and $ 3.9 million , respectively , related to deferred tax assets established in connection with our low-income housing investments . we are also required to record a liability , referred to as an unrecognized tax benefit ( “ utb ” ) , for the entire amount of benefit taken in a prior or future income tax return when we determine that a tax position has a less than 50 % likelihood of being accepted by the taxing authority .
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earnings summary net income for 2016 was $ 181.5 million , an increase of $ 20.8 million or 13 % compared to 2015 . diluted earnings per share were $ 4.23 in 2016 , an increase of $ 0.53 or 14 % compared to 2015 . our return on average assets was 1.15 % in 2016 , an increase of 9 basis points from 2015 , and our return on average shareholders ' equity was 15.79 % in 2016 , an increase of 97 basis points from 2015 . our higher net income in 2016 was primarily due to the following : net interest income was $ 417.6 million in 2016 , an increase of $ 23.5 million or 6 % compared to 2015. this increase was primarily due to a higher level of earning assets , including growth in both our commercial and consumer lending portfolios , and a marginally higher net interest margin . the higher level of earning assets was primarily due to higher deposit balances . in addition , we also recorded an additional $ 1.3 million of interest income in the first quarter of 2016 due to the full recovery of a non-performing commercial and industrial loan . our net interest margin was 2.83 % in 2016 , an increase of 2 basis points compared to 2015. the higher margin in 2016 was primarily due to our loans , which generally have higher yields than our investment securities , comprising a larger percentage of our earning assets compared to 2015. the higher margin in 2016 was also due in part to the aforementioned interest income recovery .
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annual additions to each participant 's account include a service credit ranging from 3 % - 5 % of compensation , depending on story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto and the comparative summary of selected financial data appearing elsewhere in this report . historical results and trends which might appear should not be taken as indicative of future operations . our results of operations and financial condition , as reflected in the accompanying consolidated financial statements and related footnotes , are subject to management 's evaluation and interpretation of business conditions , tenant performance , changing capital market conditions and other factors which could affect the ongoing viability of our tenants . discussion regarding our results of operations for fiscal year 2019 as compared to fiscal year 2018 is included in item 7 of our annual report on form 10-k for the year ended december 31 , 2019 , filed with the sec on february 27 , 2020. the covid-19 pandemic has resulted in a widespread health crisis , which has adversely affected international , national and local economies and financial markets generally , and has had an unprecedented negative effect on most of the commercial real estate industry . while the distribution of vaccinations and the recent trend in declining infection rates has provided us reasonable optimistic expectations , there remains significant uncertainty regarding the future impact of the pandemic . during 2020 , there were also fluctuations in oil and natural gas prices ; however , current prices show a partial recovery from the earlier lows . also , after much disruption , the financial markets have rebounded and are accessible . the discussions below , including without limitation with respect to outlooks and liquidity , are subject to the future effects of the covid-19 pandemic and the responses to curb its spread , and changes in energy prices , all of which continue to evolve , as well as the other risks described in this report . as such , as described in part i , item 1a entitled “ risk factors , ” it is uncertain as to the magnitude of the impact of the pandemic and fluctuations in energy prices , and such other risks , on our results of operations , cash flows , financial condition , or liquidity for fiscal year 2021 and beyond . 27 executive overview weingarten realty investors is a reit organized under the texas business organizations code . we , and our predecessor entity , began the ownership of shopping centers and other commercial real estate in 1948. our primary business is leasing space to tenants in the shopping centers we own or lease . these centers may be mixed-use properties that have both retail and residential components . we also provide property management services for which we charge fees to either joint ventures where we are partners or other outside owners . we operate a portfolio of rental properties , primarily neighborhood and community shopping centers , totaling approximately 30.2 million square feet of gross leasable area that is either owned by us or others . we have a diversified tenant base with two of our largest tenants each comprising only 2.6 % of base minimum rental revenues during 2020. at december 31 , 2020 , we owned or operated under long-term leases , either directly or through our interest in real estate joint ventures or partnerships , a total of 159 properties , which are located in 15 states spanning the country from coast to coast . we also owned interests in 22 parcels of land held for development that totaled approximately 11.5 million square feet at december 31 , 2020. we had approximately 3,500 leases with 2,700 different tenants at december 31 , 2020. rental revenue is primarily derived from operating leases with terms of 10 years or less , and may include multiple options , upon tenant election , to extend the lease term in increments up to five years . many of our leases have increasing minimum rental rates during the terms of the leases through escalation provisions . in addition , the majority of our leases provide for variable rental revenues , such as reimbursements of real estate taxes , maintenance and insurance and may include an amount based on a percentage of the tenants ' sales . our anchor tenants are supermarkets , value-oriented apparel/discount stores and other retailers or service providers who generally sell basic necessity-type goods and services . although there is a broad shift in shopping patterns , including internet shopping that continues to affect our tenants , we believe our anchor tenants , most of which have adopted omni-channel models which help drive foot traffic , combined with convenient locations , attractive and well-maintained properties , high quality retailers and a strong tenant mix , should lessen the effects of these conditions and maintain the viability of our portfolio . pandemic the covid-19 pandemic has dramatically impacted our business due largely to the extreme hardships facing our tenants . our tenants have been impacted greatly due to a number of factors , including federal , state and local governmental and legislative mandates to temporarily close and or limit the operations of non-essential businesses , as well as encouraging or mandating most people to shelter in place and general economic conditions . while all of our markets have embarked upon a reopening of select businesses , including retailers , service providers and restaurants , the impact of these measures on the ability of our tenants to pay rent is indeterminable at this time . many of our tenants have moved to include on-line sales with curbside pickup or delivery , including restaurants , apparel discounters and electronics . the grocery stores and other retailers with a grocery component that anchor the majority of our shopping centers have increased sales in this environment . the economy continues to gain traction in all of our markets with most of our tenants open for business . story_separator_special_tag due to the significant amount of capital available in the market , it has been difficult to participate at price points that meet our investment criteria . during 2020 , we acquired one grocery-anchored shopping center and other property , adding 94,000 square feet to the portfolio with an aggregate gross purchase price totaling $ 51.5 million . in december 2020 , we also acquired our partner 's 42.25 % interest in a center at an unconsolidated real estate joint venture for approximately $ 115.2 million and redeemed our 57.75 % interest in the related unconsolidated joint venture while simultaneously disposing of a wholly owned center to our former partner . the transaction resulted in the consolidation of the property in our consolidated financial statements . for 2021 , we expect to complete acquisition investments in the range of $ 50 million to $ 100 million ; however , there are no assurances that we will find suitable acquisition opportunities or , if found , whether and when the closing of the transaction will occur . new development and redevelopment we intend to continue to focus on identifying new development projects as another source of growth , as well as continue to look for redevelopment opportunities . the opportunities for additional new development projects are limited at this time primarily due to a lack of demand for new retail space . during 2020 , we invested $ 76.0 million in two mixed-use new development projects that are partially or wholly owned and a 30-story , high-rise residential tower at our river oaks shopping center in houston , texas , and we invested $ 9.6 million in redevelopment projects that were partially or wholly owned . during 2020 , we completed redevelopment projects , which added approximately 155,000 square feet to the portfolio with an incremental investment totaling $ 29.1 million . for 2021 , we expect our investment in new development and redevelopments to proceed as planned ; however , no assurance can be given as to the timing or cost to complete these developments due to a number of uncertainties , including the impact of the pandemic . 30 capital we strive to maintain a strong , conservative capital structure , which should provide ready access to a variety of attractive long and short-term capital sources . we carefully balance lower cost , short-term financing with long-term liabilities associated with acquired or developed long-term assets . subject to evolving market conditions , we continue to look for transactions that will strengthen our consolidated balance sheet and further enhance our access to various sources of capital , while reducing our cost of capital . during 2020 , we repurchased $ 32.1 million of our common shares . additionally , proceeds from our disposition program and cash generated from operations further strengthened our balance sheet in 2020. due to the current variability in the capital markets , there can be no assurance that favorable pricing and accessibility will be available in the future . operational metrics in assessing the performance of our centers , management carefully monitors various operating metrics of the portfolio . in light of current circumstance and the negative impact related to potentially uncollectible revenues , the operating metrics of our portfolio performed relatively well in 2020. we focused on collections and maintaining tenants to minimize the decline in same property net operating income ( `` spnoi '' ) . see non-gaap financial measures for additional information . our portfolio delivered the following operating results : ● signed occupancy of 92.9 % at december 31 , 2020 decreased from 95.2 % at december 31 , 2019 ; ● a decrease of 10.4 % in spnoi for the twelve months ended december 31 , 2020 over the same period of 2019 ; and ● rental rate increases of 9.2 % for new leases and 6.6 % for renewals for the twelve months ended december 31 , 2020. below are performance metrics associated with our signed and commenced occupancy , spnoi growth and leasing activity on a pro rata basis : replace_table_token_8_th three months ended twelve months ended december 31 , 2020 december 31 , 2020 spnoi ( 1 ) ( 12.1 ) % ( 10.4 ) % ( 1 ) see non-gaap financial measures for a definition of the measurement of spnoi and a reconciliation to net income attributable to common shareholders within this section of item 7 . 31 replace_table_token_9_th ( 1 ) average external lease commissions per square foot for the three and twelve months ended december 31 , 2020 were $ 7.39 and $ 7.04 , respectively . changing shopping habits , driven by rapid expansion of internet-driven procurement and accelerated by the pandemic , led to increased financial problems for many businesses , which has had a negative impact on the retail real estate sector . we continue to monitor the effects of these trends , including the impact of retail customer spending over the long-term . we believe the desirability of our physical locations , the significant diversification of our portfolio , both geographically and by tenant base , and the quality of our portfolio , along with its leading retailers and service providers that sell primarily grocery and basic necessity-type goods and services , position us well to mitigate the impact of these changes . additionally , most retailers have implemented omni-channel models that integrate on-line shopping with in-store experiences that has further reinforced the need for bricks and mortar locations . despite recent market disruption and tenant bankruptcies , we continue to believe there is long-term retailer demand for quality space within strong , strategically located centers . in 2020 , we experienced fluctuations in tenant demand for retail space due to , among other factors , announced bankruptcies and the repositioning of those spaces . currently , the future impact to occupancy is unknown due to the uncertainty and duration of the pandemic .
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results of operations currently , the covid-19 pandemic has created uncertainties surrounding the global economy and financial markets . additionally , as noted earlier , tenants have been markedly impacted by the pandemic , which has affected our results . as a result , the full magnitude of the pandemic and the ultimate effect upon our future revenues and operations is uncertain at this time . while we are cautiously optimistic there will be a gradual improvement in the retail environment resulting from the distribution of vaccinations and the related re-opening of the economy , we do not expect revenues and operations to return to pre-covid levels in the near term . comparison of the year ended december 31 , 2020 to the year ended december 31 , 2019 the following table is a summary of certain items in income from continuing operations from our consolidated statements of operations , which we believe represent items that significantly changed during 2020 as compared to the same period in 2019 : replace_table_token_10_th revenues the decrease in revenues of $ 52.7 million is attributable primarily to a decrease of $ 35.4 million for potentially uncollectible revenues associated primarily with the covid-19 pandemic and the impact of $ 28.4 million related to dispositions . our revenues have decreased $ 3.2 million from rent abatements and have also declined by approximately $ 3.0 million due primarily to the number of cash basis tenants and changes in rental rates and occupancy . partially offsetting this decrease is revenue from acquisitions of $ 17.3 million . depreciation and amortization the increase in depreciation and amortization of $ 14.3 million is attributable primarily to the $ 19.1 million impact of acquisitions and new developments and an increase of $ 1.8 million from other capital activities at our existing portfolio and redevelopment centers , which is partially offset by dispositions of $ 6.6 million .
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under these contracts , sce recovers the costs incurred through demonstration of compliance with its cpuc-approved long-term power procurement plans . sce has no residual interest in the entities and has not provided or guaranteed any debt or equity support , liquidity arrangements , performance guarantees or other commitments associated with these contracts other than the purchase 77 commitments described in note 9. as a result , there is no significant potential exposure to loss as a story_separator_special_tag management overview highlights of operating results edison international is the parent holding company of sce . sce is an investor-owned public utility primarily engaged in the business of supplying electricity . edison international is also the parent company of subsidiaries that are engaged in competitive businesses related to the delivery or use of electricity . such competitive business activities are currently not material to report as a separate business segment . references to edison international refer to the consolidated group of edison international and its subsidiaries . references to edison international parent and other refer to edison international parent and its nonutility subsidiaries , including eme . unless otherwise described all of the information contained in this annual report relates to both filers . replace_table_token_4_th edison international 's earnings are prepared in accordance with generally accepted accounting principles used in the united states . management uses core earnings internally for financial planning and for analysis of performance . core earnings ( losses ) are also used when communicating with investors and analysts regarding edison international 's earnings results to facilitate comparisons of the company 's performance from period to period . core earnings ( losses ) are a non-gaap financial measure and may not be comparable to those of other companies . core earnings ( losses ) are defined as earnings attributable to edison international shareholders less income or loss from discontinued operations and income or loss from significant discrete items that management does not consider representative of ongoing earnings , such as : exit activities , including lease terminations , sale of certain assets , early debt extinguishment costs and other activities that are no longer continuing ; asset impairments and certain tax , regulatory or legal settlements or proceedings . on december 17 , 2012 , eme and certain of its wholly-owned subsidiaries filed voluntary petitions for relief under chapter 11 of the u.s. bankruptcy code in the u.s. bankruptcy court for the northern district of illinois , eastern division . edison international considers eme to be an abandoned asset under generally accepted accounting principles , and , as a result , the operations of eme prior to december 17 , 2012 and for all prior years , are reflected as discontinued operations . 24 sce 's 2012 core earnings increased $ 253 million for the year primarily due to rate base growth and lower income taxes which reflect the implementation of the 2012 cpuc general rate case ( `` grc '' ) decision . sce also incurred incremental inspection and repair costs related to the outages at san onofre of $ 66 million , net of sce 's share of amounts received from mitsubishi heavy industries , inc. ( `` mhi '' ) , and $ 112 million in severance costs . severance costs are related to employee reductions at san onofre , as planned in the 2012 grc , and approved employee reductions for 2013 as sce works to optimize its cost structure and to minimize impacts on customer rates . these costs were partially offset by other operations and maintenance cost reductions . edison international parent and other 2012 core losses increased $ 51 million as a result of income tax benefits in 2011. core losses in 2012 also reflect higher income taxes , a write-down of an investment and higher operating expenses and interest costs . consolidated non-core items for 2012 and 2011 for edison international included : an after-tax earnings charge of $ 1.3 billion during the fourth quarter of 2012 due to the full impairment of the investment in eme as a result of the deconsolidation of eme , recognition of losses previously deferred in accumulated other comprehensive income , a provision for losses from the eme bankruptcy and tax impacts related to the expected future tax deconsolidation and separation of eme from edison international . see `` item 8. notes to consolidated financial statements—note 17. discontinued operations '' for further information . an after-tax earnings benefit of $ 231 million recorded in 2012 resulting from the regulatory treatment of 2009 – 2011 income tax repair deductions for income tax purposes as adopted in the 2012 grc decision . see `` results of operations—sce—income taxes '' for further discussion . an after-tax earnings charge of $ 37 million recorded in 2012 and $ 19 million recorded in 2011 resulting from edison international 's update to its estimated long-term california apportionment rate applicable to deferred income taxes as a result of changes related to eme . an after-tax earnings benefit of $ 31 million ( $ 65 million pre-tax gain ) recorded in 2012 attributable to edison capital 's sale of its lease interest in unit no . 2 of the beaver valley nuclear power plant to a third party for $ 108 million . an after-tax earnings charge of $ 16 million recorded in 2011 attributable to the write-down of a net investment in aircraft leases with american airlines . see `` results of operations '' for discussion of sce and edison international parent and other results of operations , including a comparison of 2011 results to 2010 . 2012 cpuc general rate case in november 2012 , the cpuc approved a final decision in sce 's 2012 grc , authorizing a base rate revenue requirement of approximately $ 5.7 billion . the decision results in an increase of approximately $ 470 million , excluding revenue related to nuclear refueling outages , over currently authorized revenue . the decision approves san onofre costs subject to refund and reasonableness review and includes a requirement to track those costs in a memorandum account . story_separator_special_tag in october 2012 , sce submitted to the nrc a response to the cal and restart plans for unit 2. the timing of restart of the units will be affected by the nature of and schedule for regulatory processes required by the nrc . there is no set or predetermined time period for approval of unit 2 's proposed restart , and , accordingly , there can be no assurance about the length of time the nrc may take to review sce 's request to restart or whether any such request will be granted in whole or in part . it is also possible that one or more amendments to the nrc operating license for san onofre might be required ( whether or not as a prerequisite to return a unit to safe operation ) . the nrc has been engaged in conducting a series of inspections , evaluations , reviews and public meetings about the causes of the steam generator malfunction and damage and to verify that sce has performed the actions described in the cal response and as otherwise required by its obligations as a nuclear operator . this process has included inspections and review by an nrc-appointed augmented inspection team . sce has been advised that the nrc 's office of investigations has initiated an investigation into the accuracy and completeness of information sce has provided to the nrc regarding the san onofre steam generators . should the nrc find a deficiency in sce 's performance or provision of information , sce could be subject to additional nrc actions , including the imposition of penalties , and the findings could be taken into consideration in the cpuc regulatory proceedings described below . 26 story_separator_special_tag style= '' padding-bottom:10px ; font-family : times new roman ; font-size:10pt ; '' > in 2005 , the cpuc authorized expenditures of approximately $ 525 million ( $ 665 million based on sce 's estimate after adjustment for inflation using the handy-whitman index ) for sce 's 78.21 % share of the costs to purchase and install the four new steam generators in units 2 and 3 and remove and dispose of their predecessors . sce has spent $ 601 million through december 31 , 2012 on the steam generator replacement project . these expenditures are included in the table above and remain subject to cpuc reasonableness review and approval . as a result of outages associated with the steam generator inspection and repair , electric power and capacity normally provided by san onofre are being purchased in the market by sce ( commencing on february 1 for unit 3 and march 5 for unit 2 ) . market power costs through december 31 , 2012 were approximately $ 300 million , net of avoided nuclear fuel costs , and are typically recoverable through the erra balancing account subject to cpuc reasonableness review , which will now take place as part of the cpuc 's order instituting investigation proceeding . future market power costs can not be estimated at this time due to uncertainties associated with when and at what output levels the units will or may be returned to service ; however , such amounts may be material . through december 2012 , sce 's share of incremental inspection and repair costs totaled $ 102 million for both units ( not including payments made by mhi as described below ) , and repairs to restart unit 2 at the reduced power levels described above were completed . the costs for unit 2 may increase following nrc review under the cal . total incremental repair costs associated with returning unit 3 to service , and returning both units to service at originally specified capabilities safely , remain uncertain . sce recorded its share of payments made to date by mhi ( $ 36 million ) as a reduction of incremental inspection and repair costs . sce believes that the actions taken and costs incurred in connection with the san onofre replacement steam generators and outages have been prudent . accordingly , sce considers its operating , capital , and market power costs , recoverable through base rates and the erra balancing account , as offset by third party recoveries where applicable . sce can not provide assurance that either or both units of san onofre will be returned to service , that the cpuc will not disallow costs incurred or order refunds to customers of amounts collected in rates , or that sce will be successful in recovering amounts from third parties . a delay in the restart of san onofre unit 2 beyond this summer may impact plans for future operations of both units . 28 disallowances of costs and or refund of amounts received from customers could be material and adversely affect sce 's financial condition , results of operations and cash flows . 2013 cost of capital application in june 2012 , the cpuc issued an order in the 2013 cost of capital proceeding consolidating sce 's 2013 application with the three other california investor-owned utilities ' applications and splitting the proceeding into two phases . the first phase addressed the 2013 ratemaking capital structure and cost of capital for the utilities . the second phase considers whether the current cost of capital adjustment mechanism should be continued or modified . in december 2012 , the cpuc issued a final decision in the ratemaking capital structure and cost of capital phase of sce 's 2013 cost of capital proceeding granting sce 's requested ratemaking capital structure of 43 % long-term debt , 9 % preferred equity and 48 % common equity . the decision adopted a return on common equity of 10.45 % and adopted long-term debt and preferred stock costs of 5.49 % and 5.79 % , respectively .
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cpuc review under california public utilities code section 455.5 , sce is required to notify the cpuc if either of the san onofre units has been out of service for nine consecutive months ( not including preplanned outages ) . sce provided such notice to the cpuc on november 1 , 2012 for unit 3 and december 6 , 2012 for unit 2. the cpuc is required within 45 days of sce 's notice for a particular unit to initiate an investigation to determine whether to remove from customer rates some or the entire revenue requirement associated with the portion of the facility that is out of service . from the initiation date of the investigation , such rates are collected subject to refund . under section 455.5 , any determination to adjust rates is made after hearings are conducted in connection with the utility 's next general rate case . if , after investigation and hearings , the costs associated with a unit are disallowed recovery because it is out of service and the unit is subsequently returned to service , rates may be readjusted to reflect that return to service after 100 continuous hours of operation . in october 2012 , in advance of sce 's required notification under section 455.5 , the cpuc issued an order instituting investigation that consolidates all san onofre issues in related regulatory proceedings and considers appropriate cost recovery for all san onofre costs , including among other costs , the cost of the steam generator replacement project , substitute market power costs , capital expenditures , operations and maintenance costs , and seismic study costs . the order requires that all san onofre-related costs incurred on and after january 1 , 2012 be tracked in a memorandum account and , to the extent included in rates , collected subject to refund .
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advertising costs – advertising and sales promotion costs were expensed at the time the advertising occured . advertising and sales promotion costs were $ 2.5 million and $ 7.0 million for the thirty-five weeks ended october 29 , 2011 and the fiscal year ended february 26 , 2011 , respectively . the company did not receive any allowances or credits from vendors in connection with the purchase or promotion of the vendor 's product story_separator_special_tag special note regarding forward-looking statements this annual report ( including but not limited to factors discussed below , in the “ management 's discussion and analysis of financial condition and results of operations , ” as well as those discussed elsewhere in this report ) includes forward-looking statements ( within the meaning of section 27a of the securities act of 1933 and section 21e of the securities and exchange act of 1934 ) and information relating to the company that are based on the beliefs of management of the company as well as assumptions made by and information currently available to management of the company . when used in this annual report , the words “ anticipate , ” “ believe , ” “ estimate , ” “ expect , ” “ intend , ” “ plan , ” and similar expressions , as they relate to the company or the management of the company , identify forward-looking statements . such statements reflect the current views of the company with respect to future events , the outcome of which is subject to certain risks , including among others , the restrictions contained in the plan , general economic and market conditions , possible disruptions in the company 's information or communication systems , higher than anticipated costs , unanticipated difficulties which may arise with respect to the company and other factors which may be outside the company 's control , many of which are described above in “ risk factors ” . should one or more of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , actual results or outcomes may vary materially from those described herein as anticipated , believed , estimated , expected , intended or planned . subsequent written and oral forward-looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere described in this annual report and other reports filed with the sec . disposition of the company 's and filene 's businesses prior to november 2 , 2011 , all of the company 's and filene 's business operations consisted primarily of running retail operations . as the economy worsened , sales continued to erode and , as a result , cash flow suffered and significant operational losses continued to threaten the on-going businesses . trade vendors tightened and or ceased providing credit terms . as a result , the company and filene 's projected that absent additional financing or measures to monetize certain assets , liquidity would come to an end . on november 2 , 2011 , syms and its subsidiaries filed voluntary petitions for relief under chapter 11 of the bankruptcy code . in response to the chapter 11 filing , the company implemented the liquidation basis of accounting effective on october 30 , 2011 , which was the beginning of the fiscal month closest to the petition date . net operating results from october 30 , 2011 to november 1 , 2011 were not material . the liquidation basis of accounting is appropriate when the liquidation of a company appears imminent and the net realizable value of its assets is reasonably determinable . under this basis of accounting , assets and liabilities are stated at their net realizable value and estimated costs through the liquidation date are provided to the extent reasonably determinable . the consolidated financial statements for the periods ended october 29 , 2011 and february 26 , 2011 were prepared on the going concern basis of accounting , which contemplated realization of assets and satisfaction of liabilities in the normal course of business . in the opinion of management , the accompanying consolidated statements of operations , shareholders ' equity and cash flows contain all adjustments , including normal recurring adjustments , necessary to present fairly the financial position of the company as of october 29 , 2011 and february 26 , 2011. critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires the appropriate application of certain accounting policies , many of which require us to make estimates and assumptions about future events and their impact on amounts reported in the financial statements and related notes . since future events and their impact can not be determined with certainty , the actual results will inevitably differ from the company 's estimates . such differences could be material to the financial statements . the company believes that its application of accounting policies , and the estimates inherently required by the policies , are reasonable . these accounting policies and estimates are reevaluated periodically , and adjustments are made when facts and circumstances dictate a change . historically , the company has found the application of accounting policies to be appropriate , and actual results have not differed materially from those determined using necessary estimates . the company has identified certain critical accounting policies that applied to the company 's financial reporting until the adoption of the liquidation basis of accounting on october 30 , 2011. these policies are described below . 9 merchandise inventory – merchandise inventories were stated at the lower of cost or market on a first-in , first-out ( fifo ) basis , as determined by the retail inventory method . under the retail method , inventory cost and the resulting gross margins were calculated by applying a cost to retail ratio between the costs of goods available for sale and the retail value of inventories . story_separator_special_tag this involved a process of estimating the extent to which each property had a fair value in excess of its tax basis ( a “ built in gain ” ) as of the date of emerging from bankruptcy on september 14 , 2012. at that point in time , the company believes there was a change in control of the company that imposed a restriction on the extent to which the company can use prior nols , except to the extent of a built in gain that existed as of the date of the change in control . story_separator_special_tag margin : 0pt 0 ; text-align : justify '' > the company 's gross profit excluded the cost of its distribution network . for the thirty-five weeks ended october 29 , 2011 and the twelve months ended february 26 , 2011 , the amounts incurred for the company 's distribution network that were classified in selling , general and administrative expenses and occupancy costs were $ 9.5 million and $ 19.0 million , respectively . selling , general and administrative expense ( “ sg & a ” ) for the thirty-five week period ended october 29 , 2011 were $ 76.1 million , or 29.5 % of net sales , compared to $ 124.4 million , or 27.9 % of net sales , for the twelve month period ended february 26 , 2011 . 11 advertising expense for the thirty-five week period ended october 29 , 2011 was $ 2.5 million as compared to $ 7.0 million for the twelve month period ended february 26 , 2011. during the course of fiscal year 2011 , the company refocused the level and timing of its advertising expenditures and campaigns by decreasing spending on radio , print and outdoor signage . occupancy costs ( net ) for the thirty-five weeks ended october 29 , 2011 was $ 43.1 million compared to $ 64.2 million for the twelve months ended february 26 , 2011. included as a reduction of net occupancy cost was rental income from third parties on real estate holdings incidental to the company 's retail operations . for the thirty-five weeks ended october 29 , 2011 and the twelve months ended february 26 , 2011 , the rental income was $ 1.4 million and $ 2.3 million , respectively . depreciation and amortization expense was $ 9.8 million and $ 14.6 million for the thirty-five weeks ended october 29 , 2011 and for the twelve months ended february 26 , 2011 , respectively . gain on disposition of assets for the thirty-five weeks ended october 29 , 2011 was $ 7.6 million due primarily to the gain on the sale and leaseback of the tampa , fl location , the sale of the store located in rockville , md and the proceeds of a partial condemnation of the property adjacent to the marietta , ga store , offset by the loss from the sale of the north randall , oh location . loss on disposition of assets for fiscal 2010 was $ 0.5 million , which was the net result of closing four stores , selling three stores and downsizing one store . the company recorded no asset impairment charge during the thirty-five weeks ended october 29 , 2011. asset impairment charges for fiscal 2010 were $ 4.3 million or 1.0 % of net sales . during fiscal 2010 , the company determined that six stores ' long-lived assets had been impaired . in addition , the company shifted most of its merchandise processing from its new jersey distribution center to its massachusetts distribution center , in order to reduce distribution costs . this shift resulted in a partial impairment of the new jersey facility . in conjunction with this move , an office in massachusetts was closed giving rise to a further impairment charge . other expenses for the thirty-five weeks ended october 29 , 2011 was $ 4.8 million , of which $ 1.5 million were estimated costs associated with the retro-fit of the park avenue , ny store , the settlement of the fulton , ny store lease obligation of $ 1.1 million and the settlement of the fifth avenue , ny store lease obligation of $ 2.6 million . the fifth avenue , ny store obligation of $ 2.6 million was subsequently reimbursed to the company and was later adjusted as part of the liquidation leases adjustment . the company recorded no restructuring charges during the thirty-five weeks ended october 29 , 2011. during fiscal 2010 , the company recorded $ 9.3 million of restructuring charges . the company opened one store and closed four stores during fiscal 2010. the company was required to continue to make lease payments on two of these closed stores , one through may 2012 and the other through september 2017. the company had recorded the present value of these payments as a restructuring charge , totaling approximately $ 7.2 million . in addition , as part of the integration of the syms and filene 's operations , a total of $ 2.1 million of information technology related professional fees , legal fees and severance costs associated with staffing level reductions , which were incurred and were recorded as restructuring charges in fiscal 2010. interest expense for the thirty-five weeks ended october 29 , 2011 and the twelve months ended february 26 , 2011 was $ 1.1 million and $ 1.4 million , respectively . these expenses were the result of borrowings on the company 's revolving credit facility during these periods . as a result of the above-noted items , the loss before income taxes for the thirty-five week period ended october 29 , 2011 was $ 29.6 million compared with $ 51.7 million for the twelve-month period ended february 26 , 2011. for the thirty-five weeks period ended october 29 , 2011 , the company wrote off its short-term and long-term deferred tax assets of approximately $ 46.3 million as a result of management making the determination that the recovery of the assets was not likely .
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results of operations for an entity reporting under the liquidation basis of accounting , the entity is required to present a statement of net assets ( which replaces a balance sheet ) , whereby the assets are reported at estimated realizable amounts and the liabilities are reported at estimated settlement amounts ; and a statement of changes in net assets in liquidation ( which replaces the statement of operations ) , which reports the estimated gains and losses on liquidation . the company began presenting its financial statements under the liquidation basis of accounting as of october 30 , 2011 and discontinued its retail operations on or about december 31 , 2011. because all retail operations have ceased as of december 31 , 2011 and the company is now focused on monitizing its real estate properties , the results of operations for the fiscal year ended march 2 , 2013 are not comparable to the fiscal year ended february 28 , 2012. during september 2012 , syms sold its miami , fl property , the building of which is 53,000 square feet , in a court-approved transaction . the net proceeds from the sale were approximately $ 4.1 million . during november 2012 , the company sold its houston , tx property , the building of which is 42,000 square feet , on an “ as-is , ” basis . the net proceeds from the sale were approximately $ 3.6 million . 10 during december 2012 , the company sold its fairfield , ct property , the building of which is 43,000 square feet , on an “ as-is ” basis . the lessor of the land exercised its option to terminate its leasehold interest with net proceeds from the sale of the property of $ 5.5 million paid to the company . during december 2012 , the company entered into an agreement to lease its unoccupied space at its elmsford , ny property .
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our norfolk southern railway company subsidiary operates approximately 19,500 miles of road 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 . we operate the most extensive intermodal network in the east and are a major transporter of coal , automotive and industrial products . throughout 2017 we further pursued our strategic plan , focused on a balanced approach of growth , increasing efficiency , and delivering a strong customer service product . we achieved a record-setting railway operating ratio for the year ( a measure of the amount of operating revenues consumed by operating expenses ) and delivered approximately $ 150 million of productivity savings , the direct result of our commitment to achieving the targets set forth in our plan . operational leverage allowed us to grow our business by providing a competitive service product to our customers while simultaneously driving productivity . in 2018 , we will continue to implement our balanced , dynamic strategic plan . we remain committed to consistently providing high levels of rail service and increasing the efficiency of our resources , thereby generating higher returns on capital and increasing shareholder value . story_separator_special_tag are expected to increase , primarily the result of pricing gains and higher fuel surcharge revenues . chemicals revenues were modestly higher in 2017 , following a decline in 2016. 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 . both periods reflected fewer shipments of crude oil from the bakken oil fields , and 2017 reflected lower shipments of coal ash ; in both periods , these reductions were partially offset by more shipments of plastics . the 2016 volume decline also reflected lower chlor-alkali and rock salt traffic , the result of market consolidations and softened demand . the 2016 volume decrease was offset in part by higher average revenue per unit , due to favorable mix as increased volumes of higher-rated plastics more than offset reduced fuel surcharge revenues . for 2018 , chemicals revenues are anticipated to increase , as average revenue per unit is expected to be higher , the effect of favorable mix influenced by increased volumes of higher-rated plastics and organic chemicals , as well as , overall pricing gains . we expect carload declines of liquefied petroleum gas to be offset by gains in plastics , industrial chemicals , and crude oil . one of our chemical customers , sunbelt chlor alkali partnerships ( sunbelt ) , filed in 2011 a rate reasonableness complaint before the stb alleging that our tariff rates for transportation of regulated movements are unreasonable . since april 1 , 2011 , we have been billing and collecting amounts based on the challenged tariff rates . in 2014 , the k 20 stb resolved this rate reasonableness complaint in our favor and in june 2016 , the stb resolved petitions for reconsideration . the matter remains decided in our favor ; however , the findings are still subject to appeal . we believe the estimate of any reasonably possible loss will not have a material effect on our financial position , results of operations , or liquidity . agriculture , consumer products , and government revenues were flat in 2017 after rising in 2016. 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 . the improvement in 2016 was driven by higher average revenue per unit , primarily the result of pricing gains , offset in part by lower fuel surcharge revenues . volumes decreased in 2016 , driven by weaker demand for feed shipments and the effects of customer sourcing changes on corn volumes , offset in part by an increase in soybean export shipments and higher food oil volumes driven by service improvements . for 2018 , agriculture , consumer products , and government revenues are expected to increase , driven by more shipments of ethanol , corn and feed products , and by increased average revenue per unit , primarily a result of pricing gains . metals and construction revenues rose in both periods , reflecting higher traffic volume and , for 2017 , higher average revenue per unit . in 2017 , 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 . the volume increase in 2016 was driven by higher demand for aggregates and iron and steel shipments , and more coil steel traffic due to customer sourcing changes . these increases were offset in part by lower demand for materials used in natural gas and oil drilling as a result of depressed commodity prices . average revenue per unit declined in 2016 , driven by lower fuel surcharge revenues and changes in traffic mix . for 2018 , metals and construction revenues are expected to rise , primarily driven by increased revenue per unit , a result of pricing gains and positive mix . traffic volume growth should result from the continued rise in frac sand shipments in addition to more shipments of steel related products . automotive revenues fell in 2017 , but rose in 2016. the decline 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 , driven by pricing gains and higher fuel surcharge revenue . story_separator_special_tag k 23 railway operating expenses railway operating expenses summarized by major classifications were as follows : replace_table_token_20_th in 2017 , we experienced an overall increase in expense compared to the prior year , reflecting higher fuel expense , incentive compensation , inflationary increases , and volume-related costs , partially offset by improved productivity and increased equity in earnings of certain investees as a result of the enactment of tax reform . in 2016 , expenses were lower across all categories driven largely from cost-control initiatives , lower fuel expense , the absence of restructuring costs incurred in 2015 , and service improvements . compensation and benefits increased in 2017 , reflecting changes in : incentive and stock-based compensation ( up $ 125 million ) higher health and welfare benefit rates for agreement employees ( up $ 62 million ) , pay rates ( up $ 43 million ) , increased overtime ( up $ 24 million ) , and employment levels ( down $ 81 million ) . in 2016 , compensation and benefits decreased , a result of changes in : employment levels , including overtime and trainees ( down $ 184 million ) , pension costs ( down $ 38 million ) , payroll taxes ( down $ 27 million ) , labor agreement payments in 2015 ( $ 24 million ) , pay rates ( up $ 34 million ) , health and welfare benefit costs for agreement employees ( up $ 35 million ) , which reflected higher rates , offset in part by favorability from reduced headcount , and bonus accruals ( up $ 59 million ) . our employment averaged 27,110 in 2017 , compared with 28,044 in 2016 , and 30,456 in 2015 . k 24 purchased services and rents includes the costs of services purchased from outside contractors , including the net costs of operating joint ( or leased ) facilities with other railroads and the net cost of equipment rentals . as previously discussed , this line item includes a $ 151 million benefit from the enactment of tax reform ( $ 36 million in purchased services and $ 115 million in equipment rents ) in the form of higher income of certain equity investees . replace_table_token_21_th the remaining increase in purchased services expense was a result of higher intermodal volume-related costs . the 2016 decrease reflected lower tcs operational costs , reduced repair and maintenance expenses , and decreased transportation activity costs , offset in part by 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 , decreased in both 2017 and 2016. in 2017 , in addition to the effects of tax reform , the decline was a result of lower automotive volume . in 2016 , the decrease was largely from improved network velocity , partly offset by higher rates and conventional intermodal volumes . fuel expense , which includes the cost of locomotive fuel as well as other fuel used in railway operations , increased in 2017 , but decreased in 2016. the change in both years was principally due to locomotive fuel prices ( up 22 % in 2017 and down 18 % in 2016 ) . locomotive fuel consumption decreased 1 % in 2017 despite an increase in volume of 5 % and declined 5 % in 2016 with a volume decrease of 3 % , both the direct result of our strategic initiative to increase fuel efficiency . we consumed approximately 458 million gallons of diesel fuel in 2017 , compared with 462 million gallons in 2016 and 487 million gallons in 2015. depreciation expense increased in 2017 , but decreased in 2016. both periods reflect growth in our roadway and equipment capital base as we continue to invest in our infrastructure and rolling stock . in 2016 , the decrease was a result of the effects of $ 63 million in accelerated depreciation related to the tcs restructuring in 2015. materials and other expenses decreased in both periods as shown in the following table . replace_table_token_22_th material usage declined in both periods , a result of lower freight car repairs associated with cost-control initiatives and improved asset utilization . k 25 casualties and other claims expenses include the estimates of costs related to personal injury , property damage , and environmental matters . the decrease in 2017 was the result of lower loss and damage , offset in part by unfavorable developments in personal injury cases . the increase in 2016 was primarily driven by higher derailment expenses . both declines in other expenses reflected more gains from the sale of operating properties ( up $ 42 million in 2017 and $ 37 million in 2016 ) . the 2016 decline was also driven by the absence of expenses that occurred in 2015 for relocating employees in connection with the closure of our roanoke , virginia office . income taxes income taxes in 2017 includes 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 . our tax benefit on 2017 income resulted in an effective rate of negative 72.8 % , which includes negative 106.5 % related to tax reform , compared with 35.4 % in 2016 and 36.3 % in 2015. both 2017 and 2016 benefited from favorable tax benefits associated with stock-based compensation and higher returns from corporate-owned life insurance . the 2016 and 2015 years also benefited from favorable reductions in deferred taxes for state tax law changes and certain business tax credits . we expect our effective tax rate to approximate 24 % on a go-forward basis .
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summarized results of operations replace_table_token_11_th on december 22 , 2017 , the tax cuts and jobs act ( “ tax reform ” ) was signed into law . for more information on the impact of tax reform , see note 3. as a result of the enactment of this law , “ purchased services and rents ” includes a $ 151 million benefit and “ income taxes ” includes a $ 3,331 million benefit , which added $ 3,482 million to “ net income ” and $ 12.00 to “ diluted earnings per share. ” the operating ratio was favorably impacted by 1.4 percentage points . the following table adjusts our 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 % ) . 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 effects of tax reform . 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 17 reconciliation of non-gaap financial measures replace_table_token_12_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_13_th the increases in net income for both comparisons resulted from higher income from railway operations . for 2017 , a 7 % increase in revenues was partially offset by a 4 % rise in adjusted operating expenses .
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we market and sell these insurance products in all 50 states , the district of columbia , the commonwealth of puerto rico and the u.s. virgin islands primarily through a network of independent insurance brokers . we have an experienced and cohesive management team , that has an average of over 25 years of relevant experience . many of our employees and members of our management team have also worked together for decades at other e & s insurance companies . we have one reportable segment , our excess and surplus lines insurance segment , which offers p & c insurance products through the e & s market . in 2017 , the percentage breakdown of our gross written premiums was 93.4 % casualty and 6.6 % property . our commercial lines offerings include construction , small business , excess casualty , energy , general casualty , professional liability , life sciences , product liability , allied health , health care , commercial property , management liability , environmental , inland marine , public entity and commercial insurance . we also write a small amount of homeowners insurance in the personal lines market , which in aggregate represented 3.9 % of our gross written premiums in 2017. our goal is to deliver long-term value for our stockholders by growing our business and generating attractive returns . we seek to accomplish this by generating consistent and attractive underwriting profits while managing our capital prudently . we have built a company that is entrepreneurial and highly efficient , using our proprietary technology platform and leveraging the expertise of our highly experienced employees in our daily operations . we believe our systems and technology are at the digital forefront of the insurance industry , allowing us to quickly collect and analyze data , thereby improving our ability to manage our business and reducing response times for our customers . we believe that we have differentiated ourselves from our competitors by effectively leveraging technology , vigilantly controlling expenses and maintaining control over our underwriting and claims management . factors affecting our results of operations the mlqs prior to our ipo in 2016 , a significant amount of our business had been reinsured through our mlqs with third-party reinsurers . this agreement allowed us to cede a portion of the risk related to certain lines of business that we underwrite in exchange for a portion of our direct written premiums on that business , less a ceding commission . the mlqs was subject to annual renewal ; however , we retained the right to adjust the amount of business we ceded on a quarterly basis in accordance with the terms of the mlqs . we monitored the ceding percentage under the mlqs and adjusted this percentage based on our projected direct written premiums and future business conditions in our industry . generally , we increased the ceding percentage when gross written premiums were growing more strongly relative to the growth rate of kinsale insurance 's capital position , and decreased the ceding percentage when kinsale insurance 's capital position was growing more strongly relative to the growth rate of gross written premiums . in periods of high premium rates and shortages of underwriting 43 capacity ( known as a hard market ) , the e & s market may grow significantly more rapidly than the standard insurance market as business may shift from the standard market to the e & s market dramatically . we entered into the mlqs in the middle of 2012. effective january 1 , 2013 , the mlqs had a ceding percentage of 45 % and a provisional ceding commission rate of 35 % . on january 1 , 2014 , we increased the ceding percentage under the mlqs from 45 % to 50 % and the provisional ceding commission rate from 35 % to 40 % . effective december 31 , 2014 , 45 % of the contract covering the period july 1 , 2012 to december 31 , 2013 ( the `` 2012 mlqs '' ) was commuted , and the remaining 55 % of this contract was commuted effective january 1 , 2015. effective january 1 , 2015 , the ceding percentage under the mlqs was 50 % and the provisional ceding commission rate was 41 % . the ceding percentage remained at 50 % until october 1 , 2015 , at which time we decreased the percentage to 40 % , while the provisional ceding commission rate remained at 41 % . a lower ceding percentage generally results in higher net earned premiums and a reduction in ceding commissions in future periods . effective january 1 , 2016 , we further reduced the ceding percentage from 40 % to 15 % while maintaining the provisional ceding commission rate at 41 % , and we commuted the mlqs covering the 2014 calendar year . we reduced the ceding percentage due to kinsale insurance 's capital position growing more strongly as a result of the profitability of the business relative to the growth rate of gross written premiums . as a result of the successful completion of our ipo in august 2016 , we terminated and commuted the mlqs contract on october 1 , 2016 , which covered the period january 1 , 2016 through september 30 , 2016 , and the mlqs was not renewed for the 2017 calendar year . effective january 1 , 2017 , the remaining mlqs was commuted covering the 2015 calendar year , and there are no remaining mlqs contracts outstanding . the effect of the mlqs on our results of operations is primarily reflected in our ceded written premiums , losses and loss adjustment expenses , as well as our underwriting , acquisition and insurance expenses . story_separator_special_tag as measured by amortized cost ( which excludes changes in fair value , such as changes in interest rates ) , the size of our investment portfolio is mainly a function of our invested equity capital along with premiums we receive from our insureds less payments on policyholder claims . net investment gains net investment gains are a function of the difference between the amount received by us on the sale of a security and the security 's amortized cost , as well as any `` other-than-temporary '' impairments recognized in earnings . 45 losses and loss adjustment expenses losses and loss adjustment expenses are a function of the amount and type of insurance contracts we write and the loss experience associated with the underlying coverage . in general , our losses and loss adjustment expenses are affected by : frequency of claims associated with the particular types of insurance contracts that we write ; trends in the average size of losses incurred on a particular type of business ; mix of business written by us ; changes in the legal or regulatory environment related to the business we write ; trends in legal defense costs ; wage inflation ; and inflation in medical costs . losses and loss adjustment expenses are based on an actuarial analysis of the estimated losses , including losses incurred during the period and changes in estimates from prior periods . losses and loss adjustment expenses may be paid out over a period of years . underwriting , acquisition and insurance expenses underwriting , acquisition and insurance expenses include policy acquisition costs and other underwriting expenses . policy acquisition costs are principally comprised of the commissions we pay our brokers , net of ceding commissions we receive on business ceded under certain reinsurance contracts . policy acquisition costs that are directly related to the successful acquisition of those policies are deferred . the amortization of such policy acquisition costs is charged to expense in proportion to premium earned over the policy life . other underwriting expenses represent the general and administrative expenses of our insurance business including employment costs , telecommunication and technology costs , the costs of our lease , and legal and auditing fees . we reduced the ceding percentage under the mlqs from 40 % to 15 % effective january 1 , 2016 , and subsequently terminated and commuted the mlqs effective october 1 , 2016. income tax expense currently all of our income tax expense relates to federal income taxes . kinsale insurance is generally not subject to income taxes in the states in which it operates ; however , our non-insurance subsidiaries are subject to state income taxes . the amount of income tax expense or benefit recorded in future periods will depend on the jurisdictions in which we operate and the tax laws and regulations in effect . among other things , the tax cuts and jobs act of 2017 ( `` tcja '' ) enacted on december 22 , 2017 lowers the federal corporate tax rate from 35 % to 21 % starting january 1 , 2018. our income tax expense for periods beginning in 2018 will be based on the federal corporate income tax rate in the tcja , and as a result , we expect our 2018 annual effective tax rate to be significantly lower than our current year effective tax rate . key metrics we discuss certain key metrics , described below , which provide useful information about our business and the operational factors underlying our financial performance . underwriting income is a non-gaap financial measure . we define underwriting income as net income , excluding net investment income , net investment gains and losses , and other income and expenses . see `` —reconciliation of non-gaap financial measures '' for a reconciliation of net income to underwriting income in accordance with gaap . loss ratio , expressed as a percentage , is the ratio of losses and loss adjustment expenses to net earned premiums , net of the effects of reinsurance . expense ratio , expressed as a percentage , is the ratio of underwriting , acquisition and insurance expenses to net earned premiums . combined ratio is the sum of the loss ratio and the expense ratio . a combined ratio under 100 % generally indicates an underwriting profit . a combined ratio over 100 % generally indicates an underwriting loss . 46 adjusted loss ratio is a non-gaap financial measure . we define adjusted loss ratio as the loss ratio , excluding the effects of the mlqs . for additional detail on the impact of the mlqs on our results of operations , see `` —factors affecting our results of operations — the mlqs . '' adjusted expense ratio is a non-gaap financial measure . we define adjusted expense ratio as the expense ratio , excluding the effects of the mlqs . for additional detail on the impact of the mlqs on our results of operations , see `` —factors affecting our results of operations — the mlqs . '' adjusted combined ratio is a non-gaap financial measure . we define adjusted combined ratio as the loss ratio , excluding the effects of the mlqs . for additional detail on the impact of the mlqs on our results of operations , see `` —factors affecting our results of operations — the mlqs . '' return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders ' equity during the period . our overall financial goal is to produce a return on equity in the mid-teens over the long-term . net retention ratio is the ratio of net written premiums to gross written premiums .
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results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 : replace_table_token_17_th ( 1 ) underwriting income is a non-gaap financial measure . see `` —reconciliation of non-gaap financial measures '' for a reconciliation of net income to underwriting income in accordance with gaap . 47 net income was $ 24.9 million for the year ended december 31 , 2017 compared to $ 26.2 million for the year ended december 31 , 2016 , a decrease of $ 1.3 million , or 4.8 % . our underwriting income was $ 28.2 million for the year ended december 31 , 2017 , compared to $ 34.3 million for the year ended december 31 , 2016 , a decrease of $ 6.1 million , or 17.7 % . the corresponding combined ratio was 84.0 % for the year ended december 31 , 2017 compared to 74.3 % for the year ended december 31 , 2016. as previously discussed , the mlqs was not renewed for the 2017 calendar year . excluding the effect of the 2016 mlqs , underwriting income was $ 35.0 million and the corresponding adjusted combined ratio was 76.8 % for the year ended december 31 , 2016. the decrease in our underwriting income , excluding the effect of the 2016 mlqs , was attributable to higher losses incurred from catastrophes and lower favorable development of reserves from prior accident years , offset in part by an increase in net earned premiums in 2017. premiums gross written premiums were $ 223.2 million for the year ended december 31 , 2017 compared to $ 188.5 million for the year ended december 31 , 2016 , an increase of $ 34.7 million , or 18.4 % .
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in japan , where our contractual terms with customers generally specify risk of loss and title transfers upon customer acceptance , revenue is recognized and the customer is billed upon receipt of written customer acceptance . revenue related to story_separator_special_tag executive summary veeco instruments inc. ( together with its consolidated subsidiaries , `` veeco , '' the `` company '' or `` we '' ) creates process equipment solutions that enable technologies for a cleaner and more productive world . we design , manufacture and market equipment primarily sold to make light emitting diodes ( `` leds '' ) and hard-disk drives , as well as for emerging applications such as concentrator photovoltaics , power semiconductors , wireless components , microelectromechanical systems ( mems ) , and other next-generation devices . veeco focuses on developing highly differentiated , `` best-in-class '' process equipment products for critical performance steps . our products feature leading technology , low cost-of-ownership and high throughput , offering a time-to-market advantage for our customers around the globe . core competencies in advanced thin film technologies , over 150 patents and decades of specialized process know-how helps us to stay at the forefront of these demanding industries . veeco 's led & solar segment designs and manufactures metal organic chemical vapor deposition ( `` mocvd '' ) and molecular beam epitaxy ( `` mbe '' ) systems and components sold to manufacturers of leds , wireless devices , power semiconductors , and concentrator photovoltaics , as well as to r & d applications . in 2011 we discontinued the sale of our products related to copper , indium , gallium , selenide ( `` cigs '' ) solar systems technology . veeco 's data storage segment designs and manufactures the critical technologies used to create thin film magnetic heads ( `` tfmhs '' ) that read and write data on hard disk drives . these technologies include ion beam etch ( ibe ) , ion beam deposition ( ibd ) , diamond-like carbon ( dlc ) , physical vapor deposition ( pvd ) , chemical vapor deposition ( cvd ) , and slicing , dicing and lapping systems . while these technologies are primarily sold to hard drive customers , they also have applications in optical coatings and other markets . veeco 's approximately 900 employees support our customers through product and process development , training , manufacturing , and sales and service sites in the u.s. , korea , taiwan , china , singapore , japan , europe and other locations . summary of results for 2011 selected financial highlights include : revenue increased 5 % to $ 979.1 million in 2011 from $ 930.9 million in 2010. led & solar revenues increased 4 % to $ 827.8 million from $ 795.6 million in 2010. data storage revenues increased 12 % to $ 151.3 million from $ 135.3 million in 2010 ; orders were down 27 % , to $ 817.9 million in 2011 , compared to $ 1,121.6 million in 2010 ; our gross margin increased slightly , to 48.4 % , for 2011 compared to 48.3 % for 2010. gross margins in led & solar decreased from 48.3 % in 2010 to 48.0 % , while data storage gross margins increased from 48.4 % to 50.7 % . our selling , general and administrative expenses increased to $ 95.1 million , up from $ 87.3 million in 2010 , remaining at about 10 % of net sales . our research and development expenses increased to $ 96.6 million from $ 56.9 million in 2010. research and development expenses were 10 % of net sales in 2011 , compared with 6 % in 2010 ; net income from continuing operations in 2011 was $ 190.5 million compared $ 277.2 million in 2010 ; diluted net income from continuing operations per share was $ 4.63 compared to $ 6.52 in 2010 . 30 business highlights of 2011 in 2011 , veeco achieved revenue of $ 979.1 million and net income from continuing operations of $ 190.5 million . during the first half of 2011 veeco experienced strong levels of business driven by growth in led , including new orders in excess of $ 300 million in second quarter of 2011. business conditions began to deteriorate mid-year due to oversupply in the led market and veeco 's bookings slowed dramatically in the third and fourth quarters of the year . veeco 's revenue increase in our led & solar segment was primarily due to penetration of new customers , including strong adoption of our mocvd technology by a rapidly expanding chinese customer base , increased market share , and the introduction of the industry 's first multi-chamber mocvd system , the maxbright . veeco 's data storage business delivered record revenue and profit levels as a result of strong technology alignment with our key customers , and our flexible manufacturing strategy . outlook veeco 's first quarter 2012 revenue is currently forecasted to be between $ 115 million and $ 140 million . earnings per share are currently forecasted to be between $ 0.04 and $ 0.25. we do n't see signs of near-term improvement in the led environment and the current overcapacity situation could mean that mocvd orders remain at these depressed levels for multiple quarters . in data storage , while overall market conditions are healthy , the continued consolidation of our customer base will likely mean that order patterns will fluctuate from quarter to quarter . the led industry is currently experiencing an overcapacity situation , evidenced by low tool utilization rates being reported by many key global customers . as a result , new orders for veeco 's mocvd systems declined sharply in both the third and fourth quarters of 2011 and we do not see signs of a near-term improvement in mocvd business conditions . in the short term , it is difficult for us to predict when the supply/demand of leds will return to equilibrium and what the demand for our mocvd products will be . story_separator_special_tag operating expenses selling , general and administrative expenses increased by $ 27.8 million or 46.8 % , from the prior year primarily to support the business ramp in our led & solar segment . selling , general and administrative expenses were 9.4 % of net sales in 2010 , compared with 21.1 % of net sales in the prior year . research and development expense increased $ 19.2 million or 50.8 % from the prior year , primarily due to continued product development in areas of high-growth for end market opportunities in our led & solar segment . as a percentage of net sales , research and development expense decreased to 6.1 % from 13.4 % in the prior year . amortization expense decreased $ 0.3 million or 6.9 % from the prior year . this decrease is mainly due to certain intangibles being fully amortized at the end of 2009. restructuring credit of $ 0.2 million for the year ended december 31 , 2010 , was attributable to a change in estimate in our data storage segment . restructuring expense of $ 4.5 million for the year ended december 31 , 2009 , consisted primarily of personnel severance costs of $ 3.1 million associated with the reduction of approximately 161 employees in our workforce . additionally , we took a $ 1.4 million charge during the second quarter of 2009 for costs associated with vacating a leased facility in camarillo , california and the related relocation of 27 employees . during 2009 , the company recorded a $ 0.3 million asset impairment charge . the charge was for property , plant and equipment no longer being utilized in our data storage segment . interest expense , net interest expense , net for 2010 was $ 6.6 million , comprised of $ 4.7 million in cash interest expense , $ 0.4 million in non-cash interest expense relating to net amortization of our short-term investments and $ 3.1 million in non-cash interest expense relating to our convertible debt , partially offset by $ 1.6 million in interest income earned on our cash and short-term investment balances . interest expense , net for 2009 was $ 6.9 million , comprised of $ 4.9 million in cash interest expense and $ 2.8 million in non-cash interest expense , partially offset by $ 0.8 million in interest income . the non-cash interest expense is related to accounting rules that requires a portion of convertible debt to be allocated to equity in 2010 and 2009 and accretion of debt discounts and amortization of debt premiums related to our short-term investments in 2010. income taxes the income tax provision attributable to continuing operations for the year ended december 31 , 2010 was $ 19.5 million or 6.6 % of income before taxes compared to $ 2.6 million or 327.5 % of income before taxes in the prior year . the 2010 provision for income taxes included $ 8.0 million relating to our foreign operations and $ 11.5 million relating to our domestic operations . the 2009 provision for income taxes included $ 1.6 million relating to our foreign operations and $ 1.0 million relating to our domestic operations . our effective tax rate in 2010 is lower than the statutory rate as a result of the reversal of our valuation allowance , which impacted the effective tax rate by approximately 28.0 % . 37 discontinued operations discontinued operations represent the results of the operations of our disposed metrology segment , which was sold to bruker on october 7 , 2010 , and our cigs solar systems business , which was discontinued on september 27 , 2011 , reported as discontinued operations . the 2010 results reflect an operational loss before taxes of $ 0.8 million and a gain on disposal of $ 156.3 million before taxes related to the metrology segment and an operational loss before taxes of $ 25.7 million related to the cigs solar systems business . the 2009 results reflect an operational loss before taxes of $ 2.7 million related to the metrology segment and an operational loss before taxes of $ 12.4 million related to the cigs solar systems business . liquidity and capital resources historically , our principal capital requirements have included the funding of acquisitions , working capital , capital expenditures and the repayment of debt . we traditionally have generated cash from operations and stock issuances . our ability to generate sufficient cash flows from operations is dependent on the continued demand for our products and services . cash and cash equivalents as of december 31 , 2011 was $ 217.9 million . this amount represents a decrease of $ 27.2 million from december 31 , 2010. we also had short-term investments and restricted cash of $ 273.6 million and $ 0.6 million , respectively , as of december 31 , 2011. a summary of the current year cash flow activity is as follows ( in thousands ) : replace_table_token_10_th cash provided by operations during the year ended december 31 , 2011 was $ 115.4 million compared to $ 194.2 million during the year ended december 31 , 2010. the $ 115.4 million cash provided by operations in 2011 included adjustments to the $ 128.0 million of net income for non-cash items , which increased the cash provided by net income by $ 76.9 million . the adjustments consisted of $ 44.4 million of discontinued operations , $ 12.9 million of depreciation and amortization , $ 12.8 million of non-cash equity-based compensation expense , $ 11.3 million of deferred income taxes , $ ( 10.4 ) million of excess tax benefits from stock option exercises , $ 3.3 million of loss on extinguishment of debt , $ 1.3 million of amortization of debt discount , $ 0.8 million of inventory write-offs and a $ 0.6 million asset impairment charge .
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results of operations years ended december 31 , 2011 and 2010 the following table shows our consolidated statements of income , percentages of sales and comparisons between 2011 and 2010 ( dollars in 000s ) : replace_table_token_6_th * not meaningful 32 net sales and orders net sales of $ 979.1 million for the year ended december 31 , 2011 , were up 5.2 % compared to 2010. the following is an analysis of sales and orders by segment and by region ( dollars in 000s ) : replace_table_token_7_th by segment , led & solar sales increased 4.1 % in 2011 primarily due to increases in shipments of our newest systems as compared to 2010 ( 3.9 % increase in mocvd reactor shipments from 2010 ) as a result of the high demand which slowed by the beginning of the second half 2011 for led applications . data storage sales also increased 11.8 % , primarily as a result of an increase in capital spending by data storage customers for capacity and technology buys . led & solar sales represented 84.5 % of total sales for the year ended december 31 , 2011 , down from 85.5 % in the prior year . data storage sales accounted for 15.5 % of net sales , up from 14.5 % in the prior year . by region , net sales increased by 10.0 % in asia pacific , primarily due to mocvd sales to hb led customers . in addition , sales in the americas increased 8.6 % and sales in emea decreased 37.4 % . we believe that there will continue to be year-to-year variations in the geographic distribution of sales .
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the acl for non-pcd loans is recorded through a charge to story_separator_special_tag critical accounting policies we follow accounting and reporting policies and procedures that conform , in all material respects , to gaap and to practices generally applicable to the financial services industry , the most significant of which are described in note 1 — summary of significant accounting policies of the notes to consolidated financial statements included in item 8. the preparation of consolidated financial statements in conformity with gaap requires management to make judgments and accounting estimates that affect the amounts reported for assets , liabilities , revenues and expenses on the consolidated financial statements and accompanying notes , and amounts disclosed as contingent assets and liabilities . while we base estimates on historical experience , current information and other factors deemed to be relevant , actual results could differ from those estimates . accounting estimates are necessary in the application of certain accounting policies and procedures that are particularly susceptible to significant change . critical accounting policies are defined as those that require the most complex or subjective judgment and are reflective of significant uncertainties , and could potentially result in materially different results under different assumptions and conditions . management has identified our most critical accounting policies and accounting estimates as : investment securities , allowance for credit losses and deferred income taxes . see note 1 — summary of significant accounting policies of the notes to consolidated financial statements included in item 8 for a description of these policies . adoption of the current expected credit loss ( cecl ) model on january 1 , 2020 , we adopted the new accounting standard , commonly known as cecl , which uses a current expected credit loss model for determining the acl . upon adoption , we recognized a day 1 increase in the acl of $ 6.4 million and a related after-tax decrease to retained earnings of $ 4.5 million . our day 1 acl under the new cecl model totaled $ 68.1 million , or 1.14 % of total loans compared to $ 61.7 million or 1.04 % of total loans under the incurred loss model at december 31 , 2019. at december 31 , 2020 , the acl totaled $ 84.2 million resulting in an acl to total loans coverage ratio of 1.43 % , up from 1.04 % at december 31 , 2019. excluding ppp loans , the acl to total loans coverage ratio was 1.48 % at december 31 , 2020. the acl and provision for credit losses include amounts and changes from both the all and reserve for unfunded loan commitments . recent accounting pronouncements see note 1 — summary of significant accounting policies of the notes to consolidated financial statements included in item 8 for information on recent accounting pronouncements and their expected impact , if any , on our consolidated financial statements . non-gaap financial measures under item 10 ( e ) of sec regulation s-k , public companies disclosing financial measures in filings with the sec that are not calculated in accordance with gaap must also disclose , along with each non-gaap financial measure , certain additional information , including a presentation of the most directly comparable gaap financial measure , a reconciliation of the non-gaap financial measure to the most directly comparable gaap financial measure , as well as a statement of the reasons why the company 's management believes that presentation of the non-gaap financial measure provides useful information to investors regarding the company 's financial condition and results of operations and , to the extent material , a statement of the additional purposes , if any , for which the company 's management uses the non-gaap financial measure . return on average tangible common equity , tangible common equity to tangible assets , and tangible common equity per common share constitute supplemental financial information determined by methods other than in accordance with gaap . these non-gaap measures are used by management , investors and analysts in the analysis of our performance . tangible common equity is calculated by subtracting preferred stock , goodwill , and other intangible assets from stockholders ' equity . tangible assets are calculated by subtracting goodwill and other intangible assets from total assets . other third parties , including banking regulators and investors , also exclude goodwill and other intangible assets from stockholders ' equity when assessing the capital adequacy of a financial institution . management believes the presentation of these financial measures and adjusting for the impact of these items provides useful supplemental information that is essential to a proper understanding of our financial results and operating performance . this disclosure should not be viewed as a substitute for results determined in accordance with gaap , nor is it necessarily comparable to non-gaap performance measures that may be presented by other companies . 36 the following tables provide reconciliations of the non-gaap measures with financial measures defined by gaap . return on average tangible common equity replace_table_token_1_th ( 1 ) utilized a 21 % federal statutory tax rate . tangible common equity to tangible assets and tangible common equity per common share replace_table_token_2_th 37 executive overview we are focused on providing core banking products and services , including customized and innovative banking and lending solutions , designed to cater to the unique needs of california 's diverse businesses , entrepreneurs and communities through our 29 full service branches in orange , los angeles , san diego , and santa barbara counties . through our over 600 dedicated professionals , we are committed to servicing and building enduring relationships by providing a higher standard of banking . we offer a variety of financial products and services designed around our target clients in order to serve all of their banking and financial needs . story_separator_special_tag as of december 31 , 2020 , we estimate we helped businesses that represent an aggregate workforce of more than 25,000 jobs through approvals of $ 262 million in ppp funds . the ppp provided an opportunity to differentiate ourselves by demonstrating how true service can make a meaningful difference . we assisted several existing clients with our high touch business framework in addition to successfully attracting many new clients who are consistent with the type of commercial customers that we target in our traditional business development efforts . we continue to work through the loan forgiveness process with our clients for round one ppp loans , all of which we expect will be substantially complete by the first half of 2021. paycheck protection program flexibility act of 2020 on october 7 , 2020 , the paycheck protection program flexibility act of 2020 ( “ flexibility act ” ) extended the deferral period for borrower payments of principal , interest , and fees on all ppp loans to the date that the sba remits the borrower 's loan forgiveness amount to the lender ( or , if the borrower does not apply for loan forgiveness , 10 months after the end of the borrower 's loan forgiveness covered period ) . the extension of the deferral period under the flexibility act automatically applied to all ppp loans . economic aid act the economic aid act became law december 27 , 2020 extending the sba authority to make ppp loans through march 31 , 2021. the sba issued an interim final rule ( ifr ) january 6 , 2021. the ifr allows for ppp first and second draw loans for eligible applicants . we have elected to continue our participation in the ppp and resumed the origination of ppp loans effective january 11 , 2021. borrower payment relief efforts we are committed to supporting our existing borrowers and customers during this period of economic uncertainty . we actively engaged with our borrowers seeking payment relief and waived certain fees for impacted clients . one method we deployed was to offer forbearance and deferments to qualified clients . for sfr mortgage loans , the forbearance period was initially 90 days in length and was patterned after the hud guidelines where applicable . with respect to our non-sfr loan portfolio , the forbearance and deferment periods were also initially 90 days in length and were permitted to be extended . many of our deferred loans reached the expiration of their initial 90-day deferral period and have or are nearing the expiration of their second 90 day deferral period . we are reviewing their current financial condition as we evaluate additional extension requests of deferral periods . for those commercial borrowers that demonstrate a continuing need for a deferral , we generally expect to obtain credit enhancements such as additional collateral , personal guarantees , and or reserve requirements in order to grant an additional deferral period . we expect the legacy sfr loans to continue with a higher percentage of forbearances due to the applicable consumer regulations , however , the sfr portfolio is well secured with an average portfolio ltv below 70 % . for a discussion of the risk factors related to covid-19 , please refer to part i , item 1a . - risk factors in this annual report . 39 the following table presents the composition of our loan portfolio for borrowers that received payment relief as of december 31 , 2020 : replace_table_token_3_th ( 1 ) excludes loans in forbearance that are current ( 2 ) excludes loans delinquent prior to covid-19 of the commercial loan balances on deferment as of december 31 , 2020 , $ 40.3 million are on their third deferment , $ 59.5 million are on their second deferment or under review , and $ 12.7 million are on their first deferment or under review . the loans on third deferment relate to one lending relationship and are well secured . our sfr mortgage portfolio has loans in both forbearance and deferral . as of december 31 , 2020 , sfr mortgage loans included $ 56.4 million of loans on forbearance and $ 82.4 million of loans on deferment . we continue to actively monitor and manage all lending relationships in order to support our clients and protect the bank . other efforts to support our community , we partnered with food finders to provide over 300,000 meals to our most vulnerable neighbors in southern california . we also made a donation to the los angeles fire department to help supply critical personal protective equipment to these first-responders . we developed online financial literacy classes for young adults and we sponsored five lafc blood drives in partnership with the american red cross and banc of california stadium . termination of lafc agreement on may 22 , 2020 , we entered into an agreement ( the “ termination agreement ” ) with the lafc to amend and terminate certain agreements that we previously entered into with lafc in 2017 ( the “ lafc agreements ” ) . among other things , the lafc agreements had granted us the exclusive naming rights to the banc of california stadium , a soccer stadium of lafc , as well as the right to be the official bank of lafc . pursuant to the lafc agreements , we agreed to pay lafc $ 100 million over a period of 15 years , of which $ 15.9 million had been recognized as expense from january 1 , 2018 through may 22 , 2020. in addition to the stated contract amount of $ 100 million , the lafc agreements had obligated us to pay for other annual expenses , which have averaged approximately $ 500 thousand per year . under the termination agreement , we agreed to restructure our partnership to allow lafc to expand its roster of sponsors and partners into categories that were previously exclusive to us under the lafc agreements and we stepped away from our naming-rights position on lafc 's soccer stadium .
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results of operations the following table presents condensed statements of operations for the periods indicated : replace_table_token_4_th ( 1 ) non-gaap measure . see non-gaap measures for reconciliation of the calculation . ( 2 ) ratio of dividends declared per common share to basic earnings per common share . management 's discussion and analysis of financial condition and results of operations generally includes tables with 3 year financial performance , accompanied by narrative for 2020 and 2019 periods . for further discussion of prior period financial results presented herein , refer to prior annual reports filed on form 10-k. 41 net interest income the following table presents interest income , average interest-earning assets , interest expense , average interest-bearing liabilities , and their corresponding yields and costs expressed both in dollars and rates , on a consolidated operations basis , for the years indicated : replace_table_token_5_th 42 ( 1 ) total loans are net of deferred fees , related direct costs and discounts , but exclude the allowance for loan losses . nonaccrual loans are included in the average balance . interest income includes net accretion of deferred loan ( fees ) and costs of $ 3.8 million , $ ( 916 ) thousand and $ 612 thousand and net discount accretion on purchased loans of $ 500 thousand , $ 364 thousand and $ 637 thousand for the years ended december 31 , 2020 , 2019 and 2018. total loans includes income from discontinued operations for the year ended december 31 , 2018 ( 2 ) includes average balance of fhlb and federal reserve bank stock at cost and average time deposits with other financial institutions . ( 3 ) includes average balance of boli of $ 110.6 million , $ 108.1 million and $ 105.8 million for the years ended december 31 , 2020 , 2019 and 2018 . ( 4 ) net interest income divided by average interest-earning assets . ( 5 ) total deposits is the sum of interest-bearing deposits and noninterest-bearing deposits .
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live and televised entertainment revenues consist principally of ticket sales to live events , sales of merchandise at these live events , television rights fees , sponsorships , and fees for viewing our pay-per-view and video-on-demand programming . consumer products revenues consist principally of direct sales of wwe produced home videos and magazine publishing and royalties or license fees related to various wwe themed products such as video games , toys and books . 19 table of content digital media revenues consist principally of advertising sales on our websites , sale of merchandise on our website through our wweshop internet storefront and sales of various broadband and mobile content . wwe studios revenues consist of receipts from the distribution of filmed entertainment . results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 ( dollars in millions ) story_separator_special_tag issues in both the current and prior years . magazine publishing cost of revenues decreased by $ 2.8 million , primarily as a result of a 25 % decrease in production . publishing profit contribution decreased to a profit of $ 0.2 million in the current year from a profit of $ 0.7 million in the prior year . home video revenues decreased $ 1.7 million in the current year as compared to the prior year , driven by a 7 % decrease in units shipped . this decrease was offset by favorable sell-through rates experienced during the current year as compared to the prior year . we released 28 titles in the current period as compared to 29 in the prior year . home video cost of revenues decreased by $ 0.8 million due to decreased duplication costs . home video profit contribution margin was 50 % in both the current and prior years . digital media the following chart provides performance results for our digital media segment ( dollars in millions , except average revenues per order ) : replace_table_token_9_th wwe.com revenues decreased $ 2.4 million in the current year as compared to the prior year , primarily due to a decrease in online advertising of $ 2.9 million . wwe.com cost of revenues increased by $ 0.8 million in the current year , driven by increased expenses related to streaming and sponsorships , in addition to $ 0.3 million less benefit from production tax incentives as compared to the prior year . wwe.com profit contribution margin decreased to 52 % in the current period from 65 % in the prior year . wweshop revenues increased $ 1.6 million in the current year as compared to the prior year , driven by a 13 % increase in the number of orders processed . wweshop cost of revenues increased by $ 1.8 million in the current year , primarily due to increased material costs of $ 0.7 million and increased shipping charges of $ 0.6 million , both driven by the increased revenue and number of orders . wweshop profit contribution margin decreased to 19 % in the current year from 23 % in the prior year , primarily due to increased discounts and promotional offers . 23 table of content wwe studios the following table provides detailed information on our wwe studios ' segment ( in millions ) : replace_table_token_10_th * production costs are presented net of the associated benefit of production incentives . revenue recognition for our feature films varies depending on the method of distribution and the extent of control the company exercises over the distribution and related expenses . we exercise significant control over our self-distributed films and as a result , we record distribution revenue and related expenses on a gross basis in our financial statements . third-party distribution partners control the distribution and marketing of our licensed films , as a result , we recognize revenue on a net basis after the third-party distributor recoups distribution fees and expenses and results have been reported to us . this typically occurs in periods subsequent to the initial release of the film . wwe studios revenues increased $ 1.3 million in the current year compared to the prior year driven by four newly released self-distributed films . in the current year , revenues from these newly released films and two self-distributed films released in the prior year increased $ 2.3 million , while revenues for our six licensed films decreased $ 1.0 million . at december 31 , 2011 , the company had $ 23.6 million ( net of accumulated amortization and impairment charges ) of feature film production assets capitalized on our balance sheet . we review and revise estimates of ultimate revenue and participation costs at each reporting period to reflect the most current information available . if estimates for a film 's ultimate revenue are revised and indicate a significant decline in a film 's profitability or if events or circumstances change that indicate we should assess whether the fair value of a film is less than its unamortized film costs , we calculate the film 's estimated fair value using a discounted cash flows model . after updating estimates of ultimate revenue and participation costs for current and pending releases to reflect lower than expected home video revenues and higher participation costs for certain releases , we noted significant declines in the expected profitability of certain films for which we prepared a discounted cash flow analysis to determine the fair value of the feature film production asset . this resulted in us recording impairment charges of $ 23.4 million during the year . these impairment charges represent the excess of the recorded net carrying value over the estimated fair value . 2 4 table of content the following is a listing of feature film impairments recorded during the year ended december 31 , 2011. there were no impairment charges recorded during 2010 ( in millions ) . story_separator_special_tag the infrastructure incentive was recorded as a reduction to the related asset , however , as the credit related to assets placed in service in prior years , a $ 1.7 million benefit was recorded in 2010 as a reduction to depreciation for previously recognized expense associated with the reduction of the related asset cost . our live and televised entertainment segment was impacted by declines in our live events and pay-per-view businesses , offset by higher television rights fees in both domestic and international markets . our consumer products segment experienced strong growth in our licensing business primarily driven by our new master toy licensee , mattel , offset by declines in our home video business . digital media revenues declined from the prior year , primarily as a result of declines in wireless and advertising revenues . 27 table of content our 2010 results were adversely impacted by the continued weakness in the overall economic environment . we believe that certain key metrics , including live event attendance and pay-per-view buys , were impacted by transitions within our talent roster . revenues derived from international sources represented 28 % and 27 % of total net revenues in 2010 and 2009 , respectively . live and televised entertainment the following chart provides performance results and key drivers for our live and televised entertainment segment : replace_table_token_16_th 28 table of content live events revenues decreased by $ 4.2 million in 2010 compared to 2009 primarily as a result of a decrease in attendance and 15 fewer north american events . our average attendance decreased to 6,300 as compared to 6,500 in 2009 , while international attendance decreased to 7,800 as compared to 8,500 in 2009. we believe this decline in attendance is primarily due to the transition within our talent roster . the decline in the number of domestic events is primarily due to touring logistics . cost of revenues for live events was adversely impacted by approximately $ 1.0 million in costs related to the icelandic volcano , as well as $ 1.0 million in higher venue related expenses , as we held ten additional events at premium venues in 2010 as compared to 2009 , which have higher associated costs . the live events profit contribution margin decreased to 26 % from 31 % in 2009. venue merchandise revenues were adversely impacted by the decreased attendance in 2010 as compared to the prior year . this decline was partially offset by a 2 % increase in per capita spending by our fans . cost of revenues for venue merchandise decreased by $ 0.7 million primarily due to decreased sales . the venue merchandise profit contribution margin was 43 % in 2010 as compared to 44 % in 2009. pay-per-view revenues reflect 3.6 million buys in 2010 as compared to 4.5 million buys in 2009. in 2010 , our premier annual pay-per-view event , wrestlemania xxvi , generated 0.9 million buys as compared to 1.0 million buys for wrestlemania xxv in 2009. as a result of the decreased buys , pay-per-view revenues decreased by $ 9.8 million in 2010 as compared to 2009. we believe this decline is due to the transition within our talent roster , the absence of several prominent members of our talent roster at certain pay-per-view events , the production of one less pay-per-view event in 2010 as compared to 2009 and weakness in the economy . this revenue decline was partially offset by an increase in the suggested domestic retail price of our non- wrestlemania pay-per-view events from $ 39.95 to $ 44.95 in january 2010. domestic buys , which generate a higher price per buy , represents 61 % of total buys in 2010 as compared to 63 % in 2009. pay-per-view cost of revenues decreased by $ 2.1 million in 2010 as compared to 2009 , due to the absence of one event and declines associated with decreased revenues . the pay-per-view profit contribution margin was 57 % in 2010 as compared to 59 % in 2009. television rights fees increased by $ 15.1 million in 2010 as compared to 2009 and reflect increases both in domestic and international markets . domestically , television rights fees increased by $ 8.8 million primarily due to favorable renewals of previous contracts , contractual increases with our television partners , new agreements with television partners and the production of four additional special episodes during 2010 as compared to 2009. internationally , television rights fees increased by $ 6.3 million primarily due to a favorable renewal of a contract with a key television partner and contractual increases with other television partners . television rights cost of revenues increased primarily due to increases in production costs of $ 4.0 million due to six additional tv episodes produced in 2010 and increased headcount for production staff . in addition , we received $ 0.7 million less in production tax credits in 2010 compared to 2009. television rights profit contribution margin increased to 45 % from 41 % in 2009. television advertising revenues are comprised of the sale of advertising on our canadian television programs and the sale of integrated sponsorship packages . in 2010 , television advertising revenues decreased by $ 1.8 million primarily due to a decline in sponsorship advertising revenue , driven by lower sponsorship sales related to pay-per-view events . television advertising cost of revenues increased primarily due to the higher costs associated with our integrated sponsorship packages . television advertising profit contribution margin decreased to 75 % from 88 % in 2009. wwe classics on demand , our subscription based video-on-demand service , generated 15 % lower revenues in 2010 reflecting a 15 % decline in average monthly domestic subscribers . we believe these declines in subscribers are a result of weakness in the economy .
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summary replace_table_token_6_th our live and televised entertainment segment revenues increased primarily due to the increased revenues in our pay-per-view and television rights businesses of 12 % and 4 % , respectively . our consumer products segment experienced a 5 % increase in licensing revenue , reflecting an increase in sales of both toys and video games as compared to the prior year . our wwe studios segment reflected a $ 1.3 million increase in revenue primarily due to the release of four self-distributed films in 2011 compared to two self-distributed films in 2010. profit contribution was negatively impacted by a $ 23.4 million impairment charge recorded in 2011 relating to our wwe studios ' business . in 2011 , we expanded efforts to create new programs in anticipation of increased distribution opportunities . as a result , we have incurred expenses associated with our emerging content and distribution efforts , including increased staffing to create new programs and legal and consulting fees of approximately $ 4 million . during 2012 , we expect to incur additional operating expenses in the range of $ 15 million to $ 20 million in support of these efforts . 2 0 table of content live and televised entertainment the following chart provides performance results and key drivers for our live and televised entertainment segment : replace_table_token_7_th 21 table of content live events revenues were essentially unchanged as compared to the prior year . in our north america live events business , we experienced an increase in sponsorship revenues of $ 1 . 2 million , which was offset by a decrease in revenues of $ 0.8 million due to 12 fewer events . cost of revenue for live events decreased by $ 1.2 million , reflecting decreases in talent-related expenses of $ 1.5 million due to the twelve fewer north american events . the live events profit contribution margin increased to 27 % from 26 % in the prior year .
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the following discussion also includes gross sales and currency exchange rate impact , non-gaap financial measures within the meaning of regulation g promulgated by the securities and exchange commission ( `` regulation g '' ) , to supplement the financial results as reported in accordance with gaap . gross sales represent sales to customers , excluding the impact of sales adjustments , such as trade discounts and other allowances . the currency exchange rate impact reflects the portion ( expressed as a percentage ) of changes in mattel 's reported results that are attributable to fluctuations in currency exchange rates . mattel uses these non-gaap financial measures to analyze its continuing operations and to monitor , assess , and identify meaningful trends in its operating and financial performance . these measures are not , and should not be viewed as , a substitute for gaap financial measures . refer to `` non-gaap financial measures '' in this annual report on form 10-k for a more detailed discussion , including a reconciliation of gross sales , a non-gaap financial measure , to net sales , its most directly comparable gaap financial measure . overview mattel is a leading global children 's entertainment company that specializes in the design and production of quality toys and consumer products . mattel 's products are among the most widely recognized toy products in the world . mattel 's mission is to `` create innovative products and experiences that inspire , entertain , and develop children through play . '' in order to deliver on this mission , mattel is focused on the following two-part strategy to transform mattel from a toy manufacturing company into an ip-driven , high-performing toy company : in the short- to mid-term , restore profitability by reshaping operations and regain topline growth by growing mattel 's power brands ( barbie , hot wheels , fisher-price and thomas & friends , and american girl ) and expanding mattel 's brand portfolio . in the mid- to long-term , capture the full value of mattel 's ip through franchise management and the development of mattel 's online retail and e-commerce capabilities . results of operations 2018 compared to 2017 consolidated results net sales for 2018 were $ 4.51 billion , an 8 % decrease , as compared to $ 4.88 billion in 2017 . net sales for 2018 were negatively impacted by 6 % from lower toys `` r '' us sales as a result of its liquidation . net loss for 2018 was $ 531.0 million , or $ 1.54 per share , as compared to a net loss of $ 1.05 billion , or $ 3.07 per share , in 2017 , primarily due to lower income tax expense , related to the establishment in the third quarter of 2017 of a valuation allowance on u.s. deferred tax assets that will likely not be realized , and a lower advertising and promotion rate . 27 the following table provides a summary of mattel 's consolidated results for 2018 and 2017 : replace_table_token_3_th ( a ) in accordance with asu 2017-07 , prior period amounts have been retrospectively adjusted , which resulted in a reclassification of $ 3.4 million of expense , net from other selling and administrative expenses to other non-operating expense , net for the year ended december 31 , 2017. sales net sales for 2018 were $ 4.51 billion , an 8 % decrease , as compared to $ 4.88 billion in 2017 . the following table provides a summary of mattel 's consolidated gross sales by brand results for 2018 and 2017 : replace_table_token_4_th gross sales were $ 5.08 billion in 2018 , a decrease of $ 438.6 million , or 8 % , as compared to $ 5.51 billion in 2017 , with an unfavorable impact from changes in currency exchange rates of 1 percentage point . the decrease in gross sales was a result of lower toy box and power brands sales , and included lower toys `` r '' us sales of 6 % . 28 the 3 % decrease in power brands gross sales was primarily due to lower sales of american girl products and fisher-price and thomas & friends products , partially offset by higher sales of barbie products . the 28 % decrease in american girl gross sales was primarily due to lower sales in proprietary retail and direct channels , a strategic shift away from the utilization of external distribution channels , and the sale of corolle in the first quarter of 2018. of the 13 % decrease in fisher-price and thomas & friends gross sales , 6 % was due to lower sales of fisher-price infant products and 5 % was due to lower sales of thomas & friends products . the 14 % increase in barbie gross sales was primarily driven by positive pos brand momentum . the 16 % decrease in toy box gross sales was due to lower sales of toy box partner brands and toy box owned brands products . of the 23 % decrease in toy box partner brands gross sales , 24 % was due to lower sales of cars products , primarily as a result of the 2017 cars 3 theatrical release , 5 % was due to lower sales of dc comics action figures products , and 5 % was due to lower sales of dc comics superhero girls products , partially offset by initial sales of jurassic world products of 21 % as a result of the 2018 theatrical release of jurassic world : fallen kingdom . of the 10 % decrease in toy box owned brands gross sales , 8 % was due to lower sales of mega products . cost of sales cost of sales as a percentage of net sales was 60.2 % in 2018 , as compared to 62.7 % in 2017 . story_separator_special_tag of the 14 % decrease in toy box owned brands gross sales , 8 % was due to lower sales of mega products and 4 % was due to lower sales of monster high products . 30 cost of sales decreased 9 % in 2018 , as compared to a 4 % decrease in net sales , primarily due to lower product and other costs and lower freight and logistics expenses . gross margin in 2018 increased primarily due to structural simplification savings and lower obsolescence expense , partially offset by input cost inflation of raw materials and plant labor . as a result of the toys `` r '' us net sales reversals in 2018 and 2017 , gross margin included the cost of sales for the inventory sold , but excluded the corresponding net sales . north america segment income was $ 221.3 million in 2018 , as compared to segment income of $ 98.5 million in 2017 , primarily due to higher gross margin and lower advertising and promotion expenses . international segment the following table provides a summary of percentage changes in net sales within the international segment in 2018 versus 2017 : replace_table_token_6_th the following table provides a summary of percentage changes in gross sales within the international segment in 2018 versus 2017 : replace_table_token_7_th ( a ) mattel reorganized its regional reporting structure in the first quarter of 2018. as a result , global emerging markets , which was previously disclosed as asia pacific , includes russia , turkey , the middle east , and africa , which were previously included within europe . prior period amounts have been reclassified to conform to the current period presentation . 31 the following table provides a summary of mattel 's gross sales by brand for the international segment for 2018 and 2017 : replace_table_token_8_th gross sales for the international segment were $ 2.31 billion in 2018 , a decrease of $ 191.3 million , or 8 % , as compared to $ 2.50 billion in 2017 , with an unfavorable impact from changes in currency exchange rates of 2 percentage points , lower toys `` r '' us sales of 2 % , and a negative impact from the slowdown in our china business of 4 % . the decrease in the international segment gross sales was due to lower toy box and power brands sales . the 3 % decrease in power brands gross sales was primarily due to lower sales of fisher-price and thomas & friends products , partially offset by higher sales of barbie products . of the 18 % decrease in fisher-price and thomas & friends products , 12 % was due to lower sales of fisher-price infant products and 6 % was due to lower sales of thomas & friends products . the 10 % increase in barbie gross sales was primarily driven by positive pos brand momentum . the 16 % decrease in toy box gross sales was primarily due to lower sales of toy box partner brands products . of the 27 % decrease in toy box partner brands gross sales , 29 % was due to lower sales of cars products , primarily as a result of the 2017 cars 3 theatrical release , and 5 % was due to lower sales of dc comics superhero girls products , partially offset by initial sales of jurassic world products of 18 % as a result of the 2018 theatrical release of jurassic world : fallen kingdom . cost of sales decreased 8 % in 2018 , as compared to a 7 % decrease in net sales , primarily due to lower product and other costs . gross margin in 2018 decreased as a result of higher input cost inflation of raw materials and plant labor and unfavorable foreign exchange , partially offset by structural simplification savings and price increases . international segment income was $ 9.1 million in 2018 , as compared to a segment loss of $ 5.9 million in 2017 , primarily due to lower advertising and promotion expenses and lower other selling and administrative expenses , partially offset by lower gross profit . 32 american girl segment the following table provides a summary of mattel 's gross sales by brand for the american girl segment for 2018 and 2017 : replace_table_token_9_th gross sales for the american girl segment were $ 341.2 million in 2018 , a decrease of $ 132.7 million , or 28 % , as compared to $ 473.9 million in 2017 . the decrease in american girl gross sales was primarily due to lower sales in proprietary retail and direct channels , a strategic shift away from the utilization of external distribution channels , and the sale of corolle in the first quarter of 2018. cost of sales decreased 45 % in 2018 , as compared to a 27 % decrease in net sales , primarily due to lower product and other costs and lower obsolescence expense . gross margin in 2018 increased as a result of lower obsolescence expense . american girl segment loss was $ 17.5 million in 2018 , as compared to segment loss of $ 73.0 million in 2017 , primarily due to lower other selling and administrative expenses and lower obsolescence expense . 2017 compared to 2016 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 22.4 % in 2016. the 2017 income tax provision included net tax expense of $ 454.4 million , primarily related to the establishment of a valuation allowance in the third quarter of 2017 on u.s. deferred tax assets that will likely not be realized and a provisional estimate of the impact of the u.s. tax act in the fourth quarter of 2017. the 2016 income tax provision included net tax benefits of $ 16.8 million primarily related to reassessments of prior years ' tax liabilities based on the status of audits and tax filings in various jurisdictions around the world , settlements , and enacted tax law changes , and the adoption of asu 2016-09 , improvements to employee share-based payment accounting
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consolidated results net sales for 2017 were $ 4.88 billion , an 11 % decrease , as compared to $ 5.46 billion in 2016 . net loss for 2017 was $ 1.05 billion , or a loss of $ 3.07 per diluted share , as compared to net income of $ 318.0 million , or earnings of $ 0.92 per diluted share , in 2016 . the net loss for 2017 was impacted by lower gross profit , a higher advertising rate , higher other selling and administrative expenses , higher interest expense , a $ 59.0 million non-operating expense related to the discontinuation of mattel 's venezuelan subsidiary , and a net tax expense of $ 454.4 million primarily related to the establishment of a valuation allowance on u.s. deferred tax assets that will likely not be realized and a provisional estimate of the impact of the u.s. tax act in the fourth quarter of 2017. the following table provides a summary of mattel 's consolidated results for 2017 and 2016 : replace_table_token_10_th ( a ) in accordance with asu 2017-07 , prior period amounts have been retrospectively adjusted , which resulted in a reclassification of $ 3.4 million and $ 8.4 million of expense , net from other selling and administrative expenses to other non-operating expense , net for the year ended december 31 , 2017 and 2016 , respectively . 33 sales net sales for 2017 were $ 4.88 billion , an 11 % decrease , as compared to $ 5.46 billion in 2016 . the following table provides a summary of mattel 's consolidated gross sales by brand results for 2017 and 2016 : replace_table_token_11_th gross sales were $ 5.51 billion in 2017 , a decrease of $ 559.6 million , or 9 % , as compared to $ 6.07 billion in 2016 , with a favorable impact from changes in currency exchange rates of 1 percentage point .
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we assess the development , commercialization and or partnering strategies with respect to each of our internal product candidates periodically based on several factors , including clinical trial results , competitive positioning , and funding requirements and resources . our core technology portfolio consists of our checkpoint antibody program , our heat shock protein ( `` hsp '' ) platform ( based on our hsp technologies ) , and our saponin platform ( based on our saponin adjuvant technologies ) . our checkpoint antibody program became part of our portfolio with the recent acquisition of 4-antibody ag , a private european-based biopharmaceutical company ( `` 4-ab '' ) . this acquisition ( the `` acquisition '' ) provided us with a technology platform for the rapid discovery and optimization of fully-human antibodies against a wide array of molecular targets . this platform has been applied to six immune checkpoint targets seeking therapeutic antibody check point modulators ( `` cpms '' ) to regulate immune response to cancers and other diseases . our proprietary antibody discovery engine , retrocyte display ® , is designed to generate high quality therapeutic antibody drug candidates quickly using a high-throughput approach incorporating human antibody libraries expressed in mammalian b-lineage cells . we currently have pre-clinical checkpoint antibody programs targeting gitr , ox40 , ctla-4 , pd-1 , tim-3 and lag-3 from 4-ab 's technologies . we have selected two gitr agonists and one ctla-4 antagonist to advance into pre-clinical development . we are targeting to identify development candidates for the other four checkpoint programs during 2014 , and to be in a position to file investigational new drug applications on four candidates within the next two years . within our hsp platform we are developing our prophage series cancer vaccines . our prophage series cancer vaccine are autologous therapies derived from cells extracted from the patient 's tumor . as a result , prophage series vaccines contain a precise antigenic ‘ fingerprint ' of a patient 's particular cancer and are designed to reprogram the body 's immune system to target only cells bearing this fingerprint , reducing the risk that powerful anti-cancer agents will target healthy tissue and cause debilitating side effects often associated with chemotherapy and radiation therapy . we believe that in contrast to many other autologous vaccines that are based on cellular preparations , the prophage series is based on a stable protein preparation produced via a relatively simple manufacturing process . our prophage series g vaccines are currently being studied in two different settings of glioblastoma multiforme , or gbm : newly diagnosed and recurrent disease . also within our hsp platform , is herpv , a recombinant , synthetic vaccine containing multiple antigens derived from the herpes simplex 2 virus . herpv is currently in a phase 2 clinical trial , and we believe it is one of the most clinically-advanced therapeutic vaccines for the treatment of genital herpes in clinical development . combining our heat shock protein technology and our qs-21 stimulon adjuvant , herpv represents a potential new approach to the treatment of genital herpes . rather than attempting to suppress the virus , which is what antivirals do , herpv has the potential to enable the individual 's own immune system to stop the virus from causing and transmitting disease without chronic treatment . in november 2013 , we released top line results from a phase 2 , randomized , double blind , multicenter clinical trial of herpv in hsv-2 positive genital herpes patients , which showed that the trial met its primary endpoint . we anticipate reporting additional study results assessing the efficacy of a booster injection of herpv during the first half of 2014. within our saponin platform is qs-21 stimulon ® adjuvant , or qs-21 stimulon . qs-21 stimulon is a saponin extracted from the bark of the quillaja saponaria tree , also known as the soapbark , an evergreen tree native to warm temperate central chile . qs-21 stimulon has become a key component in the development of investigational preventive vaccine formulations across a wide variety of infectious diseases , including several investigational therapeutic vaccines intended to treat cancer and degenerative disorders . qs-21 stimulon has been widely studied and approximately 50,000 patients have received vaccines containing the adjuvant . the key licensees of qs-21 stimulon are glaxosmithkline ( `` gsk '' ) and janssen alzheimer immunotherapy ( `` janssen ai '' ) . qs-21 stimulon is currently being studied in 21 vaccine indications , which include gsk 's phase 3 vaccine programs for rts , s for malaria , mage-a3 cancer immunotherapeutic for non-small cell lung cancer and melanoma and hz/su for shingles . in addition , janssen ai 's qs-21 stimulon adjuvant-containing vaccine candidate is in phase 2 trials for the treatment of alzheimer 's disease . if any of our partners ' products containing qs-21 stimulon successfully completes clinical development and receives approval for commercial sale , we are generally entitled to receive royalties for 10 years after commercial launch , with some exceptions . 39 in addition to our internal development efforts , we continue to pursue partnering opportunities . we are seeking partners for select products in our portfolio , which include herpv , qs-21 stimulon and the prophage g-series vaccines , g-100 and g-200 as well as our antibody therapeutic candidates . we are also exploring in-licensing , acquisitions and sponsored research opportunities . our business activities have included product research and development , intellectual property prosecution , manufacturing , regulatory and clinical affairs , corporate finance and development , business development , and support of our collaborations . research and development expenses for the years ended december 31 , 2013 , 2012 , and 2011 , were $ 13.0 million , $ 10.6 million , and $ 11.0 million , respectively . we have incurred significant losses since our inception . as of december 31 , 2013 , we had an accumulated deficit of $ 649.1 million . we have financed our operations primarily through the sale of equity and debt securities . story_separator_special_tag as of december 31 , 2013 , we had debt outstanding of $ 9.6 million in principal . on april 15 , 2013 , we entered into a securities exchange agreement with the holders of our 2006 notes whereby we exchanged all of the 2006 notes , including accrued and unpaid interest , for $ 10.0 million in cash , 2,500,000 shares of our common stock , and a contractual right to the proceeds of 20 % of our revenue interests from certain qs-21 stimulon partnered programs and a 0.5 % royalty on net sales of herpv . to finance the cash portion of this exchange we entered into two new debt arrangements . on april 15 , 2013 , we entered into a loan and security agreement with silicon valley bank for senior secured debt in the aggregate principal amount of $ 5.0 million ( the “ svb loan ” ) . the svb loan bears interest at a rate of 6.75 % per annum , payable in cash on the first day of each month with principal payments beginning november 2013 and ending with the final principal payment in april 2015. we also entered into a note purchase agreement with various investors for senior subordinated notes ( the “ subordinated notes ” ) in the aggregate principal amount of $ 5.0 million due in april 2015. the subordinated notes bear interest at a rate of 10 % per annum , payable in cash on the first day of each month in arrears . we also issued to the holders of the subordinated notes four year warrants to purchase 500,000 unregistered shares of our common stock at an exercise price of $ 4.41 per share . our cash and cash equivalents at december 31 , 2013 were $ 27.4 million , an increase of $ 5.9 million from december 31 , 2012 . we believe that , based on our current plans and activities , our cash balance of $ 27.4 million as of december 31 , 2013 , plus net proceeds of approximately $ 56.0 million received from the underwritten offering in february 2014 , and potential proceeds from license , supply , and collaborative agreements will be sufficient to satisfy our liquidity requirements through the first half of 2015. we continue to monitor the likelihood of success of our key initiatives and are prepared to discontinue funding of such activities if they do not prove to be feasible , restrict capital expenditures and or reduce the scale of our operations . we expect to attempt to raise additional funds in advance of depleting our current funds . in order to fund our operations beyond 2015 , we will need to contain costs and raise additional funds . we may attempt to raise funds by : ( 1 ) out-licensing technologies or products to one or more third parties , ( 2 ) renegotiating third party agreements , ( 3 ) selling assets , ( 4 ) securing additional debt financing and or ( 5 ) selling equity securities . our ability to successfully enter into any such arrangements is uncertain , and if funds are not available , or not available on terms acceptable to us , we may be required to revise our planned clinical trials , other development activities , capital expenditures , and or the scale of our operations . while we expect to attempt to raise additional funds in advance of depleting our current funds , we may not be able to raise funds or raise amounts sufficient to meet the long-term needs of the business . satisfying long-term liquidity needs may require the successful commercialization and or one or more partnering arrangements for ( 1 ) herpv and the prophage series vaccines , ( 2 ) vaccines containing qs-21 stimulon under development by our licensees , and or ( 3 ) potential other product candidates , each of which will require additional capital . our future cash requirements include , but are not limited to , supporting clinical trial and regulatory efforts and continuing our other research and development programs . since inception , we have entered into various agreements with institutions and clinical research organizations to conduct and monitor our clinical studies . under these agreements , subject to the enrollment of patients and performance by the applicable institution of certain services , we have estimated our total payments to be $ 52.6 million over the term of the studies . through december 31 , 2013 , we have expensed $ 50.5 million as research and development expenses and $ 49.4 million has been paid related to these clinical studies . the timing of expense recognition and future payments related to these agreements is subject to the enrollment of patients and performance by the applicable institution of certain services . we have also entered into sponsored research agreements related to our product candidates that required payments of $ 6.6 million , all of which have been paid as of december 31 , 2013 . we plan to enter into additional sponsored research agreements , and we anticipate significant additional expenditures will be required to advance our clinical trials , apply for regulatory approvals , continue development of our technologies , and bring our product candidates to market . part of our strategy is to develop and commercialize some of our product candidates by continuing our existing collaborative arrangements 43 with academic and collaborative partners and licensees and by entering into new collaborations . as a result of our collaborative agreements , we will not completely control the efforts to attempt to bring those product candidates to market . for example , we have various agreements with collaborative partners and or licensees that allow the use of our qs-21 stimulon adjuvant in numerous vaccines . these agreements grant exclusive worldwide rights in some fields of use and co-exclusive or non-exclusive rights in others . these agreements generally call for royalties to be paid to us on future sales of licensed vaccines that include qs-21 stimulon , which may or may not be achieved .
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historical results of operations year ended december 31 , 2013 compared to the year ended december 31 , 2012 revenue : we generated revenue of $ 3.0 million and $ 16.0 million during the years ended december 31 , 2013 and 2012 , respectively . revenue includes license fees and service revenue , and in 2012 , royalties earned . for the year ended december 31 , 2012 , we recognized revenue of $ 6.5 million through an expanded license agreement with gsk , which provided gsk with additional license rights in an undisclosed indication , and $ 6.25 million through a license of non-core technologies with an existing licensee that resulted in a buy-out of the current royalty stream related to the license . during each of the years ended december 31 , 2013 and 2012 , we recorded revenue of $ 1.6 million and $ 1.5 million , respectively , from the amortization of deferred revenue . our revenue for the year ended december 31 , 2012 primarily resulted from one-time payments received under amended license agreements and therefore is not indicative of future results . research and development : research and development expenses include the costs associated with our internal research and development activities , including compensation and benefits , occupancy costs , clinical manufacturing costs , costs of consultants , and administrative costs . research and development expense increased 23.1 % to $ 13.0 million for the year ended december 31 , 2013 from $ 10.6 million for the year ended december 31 , 2012 . increased expenses primarily relate to the increased activity in our herpv program as well as increased compensation expense related to bonuses for research and development personnel partially offset by decreased amortization expense . general and administrative : general and administrative expenses consist primarily of personnel costs , facility expenses , and professional fees .
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recent accounting pronouncements in may 2014 , the financial accounting standards board ( `` fasb `` ) issued accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers story_separator_special_tag story_separator_special_tag 31 , 2017 and 2016 . comparison of financial condition at december 31 , 2017 and 2016 total assets . total assets increased $ 50.7 million , or 10.5 % , to $ 531.9 million at december 31 , 2017 from $ 481.2 million at december 31 , 2016. the growth in assets was concentrated in our loan portfolio which increased by $ 67.4 million , or 20.2 % , and was funded by $ 37.3 million of additional net advances from the fhlbb , $ 15.7 million in deposit growth and $ 7.1 million from maturities and principal payments from the investment portfolio . premises and equipment increased by $ 2.4 million in 2017. cash and cash equivalents and loans held for sale decreased by $ 6.0 million and $ 5.1 million in 2017 , respectively . investment securities . investment securities , all of which are classified as available for sale , decreased $ 7.1 million , or 10.3 % , to $ 61.6 million at december 31 , 2017 from $ 68.6 million at december 31 , 2016. at december 31 , 2017 , investment securities represented 11.6 % of total assets compared to 14.3 % at december 31 , 2016. this decrease is a consequence of our strategic shift to investing a higher proportion of interest-earning assets in loans . investment securities as a percentage of total assets are currently at the low end of our target range of 10 % - 15 % . we expect to make investment purchases in 2018 as part of our plan to continue to increase our interest-earning assets . loans held for sale . we are actively involved in the secondary mortgage market and designate the majority of our residential first mortgage loan production for sale . total originations of one-to four-family residential mortgage loans for sale in the secondary mortgage market were $ 398.7 million in 2017 and $ 404.5 million in 2016. loan originations in 2017 included first eastern for the entire year while loan originations in 2016 included first eastern for the six-month period subsequent to its acquisition on july 1 , 2016. if the company had owned first eastern for all of 2016 , originations of loan for sale in the secondary market would have decreased by 32 % in 2017 compared to 2016 based on first eastern 's originations in 2016 prior to the acquisition . this decrease is principally due to lower loan refinancing activity in 2017 and a decline in the percentage of loan originations that were sold in the secondary market from 93 % in 2016 to 88 % in 2017. for the years ended december 31 , 2017 and 2016 , refinanced residential mortgage loans accounted for 28 % and 45 % , respectively , of total residential loan production . the decrease in loan refinancing activity in 2017 is due to the rise in mortgage rates during the year . at december 31 , 2017 , loans held for sale , which consist of closed residential first mortgage loans which the bank intends to sell to investors , totaled $ 25.4 million compared to $ 30.5 million at december 31 , 2016. included in loans held for sale at december 31 , 2017 are $ 6.5 million of loans not readily saleable to fannie mae or freddie mac due to one or more exceptions to their requirements . the bank expects to sell these loans in 2018. net loans . net loans increased $ 67.4 million , or 20.2 % , to $ 400.4 million at december 31 , 2017 from $ 333.0 million at december 31 , 2016. included in this increase are $ 38.1 million of organic growth in real estate secured loans , as well as increases of $ 19.7 million in commercial and industrial loans due to the purchase of loan participations and $ 9.8 million in consumer loans due to purchases of student loans and auto loans . the increase during 2017 in real estate secured loans occurred in all categories of such loans led by commercial real estate loans , which increased by $ 13.4 million and residential real estate loans , which increased by $ 19.5 million . this growth reflects the continuation of strong local market conditions aided by the favorable interest rate environment that prevailed throughout the year as well as our strategic focus on loan growth . the increase in commercial and industrial loans relates entirely to loan participations with a super-regional bank . these loans are with local franchisees of a major international fast food retailer . student loan purchases represent refinanced loans originated by an online lender specializing in the origination of student loans . auto loan purchases represent primarily loans to undocumented immigrants originated by a third party specializing in such loans . mortgage servicing rights . mortgage servicing rights ( “ msrs ” ) decreased $ 2.1 million to $ 6.4 million at december 31 , 2017 from $ 8.5 million at december 31 , 2016. this decrease was primarily due to the sale in july 2017 of the rights to service $ 379.0 million in loans . this sale was completed consistent with our strategic goal of managing the size of the loan serving portfolio due to existing regulatory capital considerations . the decrease caused by sale of msrs was partially offset by new originations , net of amortization , of $ 1.2 million and a $ 334,000 partial reversal of the valuation allowance . this reversal resulted from an increase in the fair value of msrs due to a decrease in the discount rate from 14 % to 13 % and slower projected loan prepayment speeds . we serviced $ 771.4 million in loans for others at december 31 , 2017 compared to $ 1,046.6 million at december 31 , 2016. deposits . story_separator_special_tag for the year ended december 31 , 2017 for the year ended december 31 , 2016 compared to compared to year ended december 31 , 2016 year ended december 31 , 2015 increase ( decrease ) total increase ( decrease ) total due to changes in increase due to changes in increase ( in thousands ) volume rate ( decrease ) volume rate ( decrease ) interest-earning assets : loans $ 2,341 $ 320 $ 2,661 $ 2,158 $ ( 208 ) $ 1,950 investment securities 161 ( 56 ) 105 ( 267 ) 23 ( 244 ) interest-earning deposits ( 114 ) 63 ( 51 ) 114 ( 36 ) 78 total interest-earning assets 2,388 327 2,715 2,005 ( 221 ) 1,784 interest-bearing liabilities : savings accounts 6 8 14 12 14 26 now accounts ( 33 ) 77 44 25 64 89 money market accounts 51 53 104 ( 33 ) ( 15 ) ( 48 ) term certificates ( 16 ) 65 49 98 ( 8 ) 90 total interest-bearing deposits 8 203 211 102 55 157 fhlbb advances 114 179 293 7 86 93 total interest-bearing liabilities 122 382 504 109 141 250 change in net interest income $ 2,266 $ ( 55 ) $ 2,211 $ 1,896 $ ( 362 ) $ 1,534 interest and dividend income . interest and dividend income , inclusive of tax equivalent adjustments on municipal securities , increased $ 2.7 million , or 18.8 % , to $ 17.1 million in 2017 compared to $ 14.4 million in 2016. this increase was due to the growth in the average balance of interest-earning assets between years of $ 54.2 million and an increase in average yield of 17 basis points from 3.50 % in 2016 to 3.67 % in 2017. the increase in yield is a consequence of the company 's continuing emphasis on loan growth . at december 31 , 2017 , net loans and loans held for sale comprised 80.1 % of total assets compared to 75.5 % at december 31 , 2016. interest expense . interest expense increased $ 504,000 , or 31.4 % , to $ 2.1 million in 2017 compared to $ 1.6 million in 2016. this increase was primarily due to an increase of $ 16.4 million in the average balance of interest-bearing liabilities and a 12 basis points increase in the cost of funds from 0.49 % in 2016 to 0.61 % in 2017. this increase was primarily caused by greater utilization of fhlbb advances to fund loan growth and the 43 basis points increase in this source of funds due to multiple increases by the federal reserve board in the federal funds rate . the cost of deposits increased 6 basis points from 0.46 % in 2016 to 0.52 % in 2017 reflecting the impact of rising deposit rates in the local market . \ net interest income . net interest income increased $ 2.2 million , or 17.6 % , to $ 14.8 million in 2017 compared to $ 12.6 million in 2016. this improvement resulted from the growth in average interest-earning assets of $ 54.2 million and an increase in the net interest margin of 11 basis points to 3.22 % in 2017 from 3.11 % in 2016. provision for loan losses . based on the application of our loan loss methodology , as described in the notes to the consolidated financial statements presented elsewhere in this report , we recorded a provision for loan losses of $ 540,000 in 2017 and $ 103,000 in 2016. we experienced steady improvement in our asset quality measures including loan charge-offs , non-accrual loans , classified assets and delinquency data in recent years and maintained our favorable asset quality measures in 2017. the increase of $ 437,000 in the provision for loan losses between years is primarily a result of the increase in portfolio loans of $ 57.8 million during 2017. the allowance for loan losses as a percentage of total loans at december 31 , 2017 was 0.92 % compared to 0.97 % at december 31 , 2016. net gain on sale of mortgage loans . the net gain on sale of mortgage loans decreased $ 1.3 million to $ 9.2 million in 2017 compared to $ 10.4 million in 2016. during 2017 , we sold $ 403.8 million of residential mortgage loans compared to $ 403.6 million in 2016 , which included only six months of loan sales attributable to first eastern . in 2016 , the company elected the fair value option in accounting for loans held for sale . related fair value adjustments are accounted for as a component of the net gain on the sale of mortgage loans as are changes in the fair value of mortgage banking derivatives . the decrease in loan sale gains experienced in 2017 43 is primarily due to these fair value adjust ments . the decrease in fair value adjustments for loans held for sale and mortgage banking derivatives in 2017 is due to both lower fourth quarter volume of interest rate lock commitments and smaller average gains . other non-interest income . non-interest income , excluding the net gain on sale of mortgage loans , decreased $ 837,000 to $ 3.8 million in 2017 compared to $ 4.6 million in 2016. in 2016 , we recognized a bargain purchase gain of $ 1.3 million in connection with the acquisition of first eastern and a gain of $ 486,000 on a life insurance settlement . exclusive of these items , other non-interest income increased $ 909,000 , or 31.5 % , to $ 3.8 million in 2017 from $ 2.9 million in 2016. the principal cause of this improvement was a $ 1.0 million increase in 2017 in net mortgage servicing fees .
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financial condition and results of operations . this section is intended to help readers understand the financial performance of randolph bancorp , inc. and its subsidiary through a discussion of the factors affecting its financial condition at december 31 , 2017 and december 31 , 2016 , and its results of operations for the years then ended . this section should be read in conjunction with the consolidated financial statements of randolph bancorp , inc. and notes thereto that appear elsewhere in this report . overview our results of operations depend primarily on net interest income and gains on the sale of mortgage loans . net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on interest-bearing liabilities . our interest-earning assets consist primarily of residential mortgage loans , commercial real estate loans , commercial and industrial loans , home equity loans and lines of credit , construction loans , consumer loans and investment securities . interest-bearing liabilities consist primarily of deposit accounts and borrowings from the federal home loan bank of boston ( “ fhlbb ” ) . gains on the sale of mortgage loans result from the sale of such loans in the secondary mortgage market . the amount of these gains is dependent on the volume of our loan originations . critical accounting policies certain of our accounting policies are important to the presentation of our financial condition , since they require management to make difficult , complex or subjective judgments , some of which may relate to matters that are inherently uncertain . estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances . facts and circumstances which could affect these judgments include , but are not limited to , changes in interest rates , changes in the performance of the economy and changes in the financial condition of borrowers .
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we own and operate the nation 's largest refining system through 16 refineries , located in the gulf coast , mid-continent and west coast regions of the united states , with an aggregate crude oil refining capacity of approximately 3.0 mmbpcd . our refineries supply refined products to resellers and consumers across the united states . we distribute refined products to our customers through transportation , storage , distribution and marketing services provided largely by our midstream segment . we believe we are one of the largest wholesale suppliers of gasoline and distillates to resellers in the united states . we have three strong brands : marathon ® , speedway ® and arco ® . the branded outlets , which primarily include the marathon brand , are established motor fuel brands across the united states available through approximately 6,800 branded outlets operated by independent entrepreneurs in 35 states , the district of columbia and mexico . we believe our retail segment operates the second largest chain of company-owned and operated retail gasoline and convenience stores in the united states , with approximately 3,920 convenience stores , primarily under the speedway brand , and 1,065 direct dealer locations , primarily under the arco brand , across the united states . we primarily conduct our midstream operations through our ownership interests in mplx and andx , which own and operate crude oil and light product transportation and logistics infrastructure as well as gathering , processing , and fractionation assets . as of december 31 , 2018 , we owned , leased or had ownership interests in approximately 16,600 miles of crude oil and refined product pipelines to deliver crude oil to our refineries and other locations and refined products to wholesale and retail market areas . we distribute our refined products through one of the largest terminal operations in the united states and one of the largest private domestic fleets of inland petroleum product barges . our integrated midstream energy asset network links producers of natural gas and ngls from some of the largest supply basins in the united states to domestic and international markets . our midstream gathering and processing operations include : natural gas gathering , processing and transportation ; and ngl gathering , transportation , fractionation , storage and marketing . our assets include approximately 9.9 bcf/d of gathering capacity , 11.0 bcf/d of natural gas processing capacity and 790 mbpd of fractionation capacity as of december 31 , 2018 . our operations consist of three reportable operating segments : refining & marketing ; retail ; and midstream . each of these segments is organized and managed based upon the nature of the products and services they offer . see item 1. business for additional information on our segments . refining & marketing – refines crude oil and other feedstocks at our 16 refineries in the west coast , gulf coast and mid-continent regions of the united states , purchases refined products and ethanol for resale and distributes refined products largely through transportation , storage , distribution and marketing services provided largely by our midstream segment . we sell refined products to wholesale marketing customers domestically and internationally , to buyers on the spot market , to our retail business segment and to independent entrepreneurs who operate primarily marathon ® branded outlets . retail – sells transportation fuels and convenience products in the retail market across the united states through company-owned and operated convenience stores , primarily under the speedway brand , and long-term fuel supply contracts with direct dealers who operate locations mainly under the arco brand . midstream – transports , stores , distributes and markets crude oil and refined products principally for the refining & marketing segment via refining logistics assets , pipelines , terminals , towboats and barges ; gathers , processes and transports natural gas ; and gathers , transports , fractionates , stores and markets ngls . the midstream segment primarily reflects the results of mplx and andx , our sponsored master limited partnerships . 55 recent developments andeavor acquisition on october 1 , 2018 , we completed the andeavor acquisition . under the terms of the merger agreement , andeavor stockholders had the option to choose 1.87 shares of mpc common stock or $ 152.27 in cash per share of andeavor common stock . the merger agreement included election proration provisions that resulted in approximately 22.9 million shares of andeavor common stock being converted into cash consideration and the remaining 128.2 million shares of andeavor common stock being converted into stock consideration . andeavor stockholders received in the aggregate approximately 239.8 million shares of mpc common stock valued at $ 19.8 billion and approximately $ 3.5 billion in cash in connection with the andeavor acquisition . through the andeavor acquisition , we acquired the general partner and 156 million common units of andx , which is a publicly traded mlp that was formed to own , operate , develop and acquire logistics assets . andeavor was a highly integrated marketing , logistics and refining company operating primarily in the western and mid-continent united states . andeavor 's operations included procuring crude oil from its source or from other third parties , transporting the crude oil to one of its 10 refineries , and producing , marketing and distributing refined products . its marketing system included more than 3,300 stations marketed under multiple well-known fuel brands including arco ® . also , as noted above , we acquired the general partner and 156 million common units of andx , a leading growth-oriented , full service , and diversified midstream company which owns and operates networks of crude oil , refined products and natural gas pipelines , terminals with crude oil and refined products storage capacity , rail loading and offloading facilities , marine terminals including storage , bulk petroleum distribution facilities , a trucking fleet and natural gas processing and fractionation complexes . this transaction combined two strong , complementary companies to create a leading nationwide u.s. downstream energy company . story_separator_special_tag headwinds from a four-year high in average gasoline prices during 2018 offset the gasoline demand support from continuing economic growth and slowing fleet fuel efficiency gains . meanwhile , distillate demand was up for the second consecutive year on continuing economic growth in 2018 , rising 5.2 percent from 2017 to the highest level since 2007 and the third highest u.s. demand level ever . truck tonnage posted its largest annual increase since 1998 , rising 6.6 percent year over year in 2018 , while port container traffic ( at the 10 largest u.s. ports ) , grew 4.5 percent year over year in 2018 ( through november ) . the margin on merchandise sold at our convenience stores historically has been less volatile and has contributed substantially to our retail segment margin . almost half of our retail margin was derived from merchandise sales in 2018 . this percentage decreased from 2017 due to the addition of long-term fuel supply contracts with direct dealers and fuel only locations as part of the andeavor acquisition . our retail convenience stores offer a wide variety of merchandise , including prepared foods , beverages and non-food items . inventories are carried at the lower of cost or market value . costs of refined products and merchandise are stated under the lifo inventory costing method and aggregated on a consolidated basis for purposes of assessing if the cost basis of these inventories may have to be written down to market values . as of december 31 , 2018 , market values for refined products exceed their cost basis and , therefore , there is no lcm inventory market valuation reserve at the end of the year . based on movements of refined product prices , future inventory valuation adjustments could have a negative effect to earnings . such losses are subject to reversal in subsequent periods if prices recover . midstream our midstream segment transports , stores , distributes and markets crude oil and refined products , principally for our refining & marketing segment . the profitability of our pipeline transportation operations primarily depends on tariff rates and the volumes shipped through the pipelines . the profitability of our marine operations primarily depends on the quantity and availability of our vessels and barges . the profitability of our light product terminal operations primarily depends on the throughput volumes at these terminals . the profitability of our fuels distribution services primarily depends on the sales volumes of certain refined products . the profitability of our refining logistics operations depends on the quantity and availability of our refining logistics assets . a majority of the crude oil and refined product shipments on our pipelines and marine vessels and the refined product throughput at our terminals serve our refining & marketing segment and our refining logistics assets and fuels distribution services are used solely by our refining & marketing segment . as discussed above in the refining & marketing section , mplx and andx , which are reported in our midstream segment , have various long-term , fee-based commercial agreements related to services provided to our refining & marketing segment . under these agreements , mplx and andx have received various commitments of minimum throughput , storage and distribution volumes as well as commitments to pay for all available capacity of certain assets . the volume of crude oil that we transport is directly affected by the supply of , and refiner demand for , crude oil in the markets served directly by our crude oil pipelines , terminals and marine 59 operations . key factors in this supply and demand balance are the production levels of crude oil by producers in various regions or fields , the availability and cost of alternative modes of transportation , the volumes of crude oil processed at refineries and refinery and transportation system maintenance levels . the volume of refined products that we transport , store , distribute and market is directly affected by the production levels of , and user demand for , refined products in the markets served by our refined product pipelines and marine operations . in most of our markets , demand for gasoline and distillate peaks during the summer driving season , which extends from may through september of each year , and declines during the fall and winter months . as with crude oil , other transportation alternatives and system maintenance levels influence refined product movements . ngl and natural gas prices are volatile and are impacted by changes in fundamental supply and demand , as well as market uncertainty , availability of ngl transportation and fractionation capacity and a variety of additional factors that are beyond our control . our midstream segment profitability is affected by prevailing commodity prices primarily as a result of processing or conditioning at our own or third‑party processing plants , purchasing and selling or gathering and transporting volumes of natural gas at index‑related prices and the cost of third‑party transportation and fractionation services . to the extent that commodity prices influence the level of natural gas drilling by our producer customers , such prices also affect profitability . 60 results of operations the following discussion includes comments and analysis relating to our results of operations for the years ended december 31 , 2018 , 2017 and 2016 . the 2018 amounts include the results of andeavor from the october 1 , 2018 acquisition date forward . this discussion should be read in conjunction with item 8. financial statements and supplementary data and is intended to provide investors with a reasonable basis for assessing our historical operations , but should not serve as the only criteria for predicting our future performance . consolidated results of operations replace_table_token_28_th ( a ) we adopted asu 2014-09 , revenue - revenue from contracts with customers ( “ asc 606 ” ) as of january 1 , 2018 , and elected to report certain taxes on a net basis .
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executive summary results select results for 2018 and 2017 are reflected in the following table . the 2018 amounts include the results of andeavor from the october 1 , 2018 acquisition date forward . replace_table_token_25_th net income attributable to mpc decreased $ 652 million , or $ 1.42 per diluted share , in 2018 compared to 2017 . increased income from operations was more than offset by the absence of a tax benefit of $ 1.5 billion resulting from the tcja in 2017 and increased net income attributable to noncontrolling interests in 2018 . refer to the results of operations section for a discussion of financial results by segment for the three years ended december 31 , 2018 . 56 mplx and andx on february 1 , 2018 , we contributed our refining logistics assets and fuels distribution services to mplx in exchange for $ 4.1 billion in cash and approximately 114 million newly issued mplx units . immediately following the dropdown , our idrs were cancelled and our economic general partner interest was converted into a non-economic general partner interest , all in exchange for 275 million newly issued mplx common units . mplx financed the cash portion of the february 1 , 2018 dropdown with its $ 4.1 billion 364 -day term loan facility , which was entered into on january 2 , 2018. on february 8 , 2018 , mplx issued $ 5.5 billion in aggregate principal amount of senior notes in a public offering . mplx used $ 4.1 billion of the net proceeds of the offering to repay the 364-day term-loan facility . the remaining proceeds were used to repay outstanding borrowings under mplx 's revolving credit facility and intercompany loan agreement with us and for general partnership purposes .
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during the year ended december 31 , 2019 , $ 49,500 of principal and $ 1,980 of interest of the convertible note payable was converted into 32,622,223 shares of the company 's common stock . r ) on january 18 , 2019 , the company entered into a convertible promissory note with a non-related party for $ 100,000 of which $ 5,000 was an original issue discount and $ 5,000 was paid directly to third parties resulting in cash proceeds to the company of $ 90,000 . the note is due on january 16 , 2020 and bears interest on the unpaid principal balance at a rate of 8 % per annum . stringent pre-payment terms apply ( from 10 % to 30 % , dependent upon the timeframe of repayment during the note 's term ) and any part of the note which is not paid when due shall bear interest at the rate of 24 % per annum from the due date until paid . the note may be converted by the lender at any time after 180 days of the date of issuance into shares of company 's common stock at a conversion price equal to 64 % of the average 2 lowest trading prices during the 10-trading day period prior to the conversion date . on july 17 , 2019 , the embedded conversion option qualified for derivative accounting and bifurcation under asc 815-15. the initial fair value of the conversion feature was $ 239,668 and resulted in a discount to the note payable of $ 90,000 and an initial derivative expense of $ 149,668 . due to the note being in default , the remaining discount was accelerated and recognized to interest expense . during the year ended december 31 , 2019 , $ 4,508 of principal and $ 179 of interest was converted into 5,207,600 shares of the company 's common stock . there also was an unfulfilled conversion during the period due to lack of authorized shares , further triggering default and penalties were assessed in the amount of $ 65,500 recorded in accrued interest . s ) on january 29 , 2019 , the company entered into a convertible promissory note with a non-related party for $ 60,000 of which $ 3,000 was an original issue discount and $ 8,000 was paid directly to third parties resulting in cash proceeds to the company of $ 49,000 . the note is due on january 22 , 2020 and bears interest on the unpaid principal balance at a rate of 8 % per annum . stringent pre-payment terms apply ( from 10 % to 30 % , dependent upon the timeframe of repayment during the note 's term ) and any part of the note which is not paid when due shall bear interest at the rate of 18 % per annum from the due date until paid . the note may be converted by the lender at any time after 180 days of the date of issuance into shares of company 's common stock at a conversion price equal to the lower of 64 % of the average 2 lowest trading prices during the 10-trading day period prior to the conversion date or $ 0.12 . on july 28 , 2019 , the embedded conversion option qualified for derivative accounting and bifurcation under asc 815-15. the initial fair value of the conversion feature was $ 640,053 and resulted in a discount to the note payable of $ 49,000 and an initial derivative expense of $ 591,053 . during the year ended december 31 , 2019 , the company defaulted on the note , resulting in a default penalty of $ 214,690 added to the principal of the note . due to the note being in default , the remaining discount was accelerated and recognized to interest expense . during the year ended december 31 , 2019 , $ 8,640 of the convertible note payable was converted into 7,500,000 shares of the company 's common stock . there also was an unfulfilled conversion during the period due to lack of authorized shares , further triggering default and penalties were assessed in the amount of $ 294,000 recorded in accrued interest . 45 t ) on february 1 , 2019 , the company entered into a convertible promissory note with a non-related party for $ 50,000 of which $ 5,000 was an original issue discount resulting in cash proceeds to the company of $ 45,000 . the note is due on october 22 , 2019 and bears interest on the unpaid principal balance at a rate of 12 % per annum and a default interest rate of 24 % per annum . the note may be converted by the lender at any time after the date of issuance into shares of company 's common stock at a conversion price equal 50 % of the lowest trading price during the 20-trading day period prior to the conversion date . as the closing sales price fell below $ 0.03 , an additional 15 % discount was attributed to the conversion price . during the year ended december 31 , 2019 , the company defaulted on the note , resulting in a default penalty of $ 106,526 added to the principal of the note . the embedded conversion option qualified for derivative accounting and bifurcation under asc 815-15. the initial fair value of the conversion feature was $ 158,142 and resulted in a discount to the note payable of $ 50,000 and an initial derivative expense of $ 113,142 . due to the note being in default , the remaining discount was accelerated and recognized to interest expense . story_separator_special_tag during the year ended december 31 , 2019 , $ 2,196 of story_separator_special_tag executive overview on august 31 , 2016 , pct ltd entered into a securities exchange agreement ( the “ exchange agreement ” ) with paradigm convergence technologies corporation , a nevada corporation ( “ paradigm ” ) . pursuant to the terms of the exchange agreement , paradigm became the wholly-owned subsidiary of pct ltd after the exchange transaction . pct ltd is a holding company , which through paradigm is engaged in the business of marketing new products and technologies through licensing and joint ventures . pct ltd had not recorded revenues for the two fiscal years prior to its acquisition of paradigm and was dependent upon financing to continue basic operations . paradigm has recorded revenue since it initiated operations in 2012 ; however , those revenues have not been sufficient to finance operations , recording annual net losses of $ 16,578,564 and $ 3,182,483 for the years ended december 31 , 2019 and 2018. pct ltd remains dependent upon additional financing to continue operations . the company intends to raise additional financing through private placements of its common/preferred stock and debt financing . we expect that we would issue such stock pursuant to exemptions to the registration requirements provided by federal and state securities laws . the purchasers and manner of issuance will be determined according to our financial needs , as discussed below , and the available exemptions to the registration requirements of the securities act of 1933. we also note that if we issue more shares of our common stock , then our stockholders may experience dilution in the value per share of their common stock . 25 the expected costs for the next twelve months include : continuation of commercial launch of non-toxic sanitizing , disinfecting and sterilizing products and technologies with a strong emphasis on health care facilities , including hospitals , nursing homes , assisted living facilities , clinics and medical , dental and veterinarian offices ; continued research and development on product generation units including those designed for on-site deployment at customers ' facilities ; accelerated research and development and initial commercialization on applications of the products in the agricultural sector , most specifically with respect to abatement of a specific crop disease crisis caused by a bacterium in the u.s. and elsewhere ; acquiring available complementary technology rights ; payment of short-term debt ; hiring of additional personnel in 2020 ; and general and administrative operating costs . management projects these costs to total approximately $ 2,700,000. to minimize these costs , the company intends to maintain its practice of controlling operating overheads with efficient facilities commitments , generally below market salaries and consulting fees , and rigorous prioritization of expenditure requirements . based on its understanding of the commercial readiness of its products and technologies , the capabilities of its personnel ( current and being hired ) , established business relationships and the general market conditions , management believes that the company expects to be covering its fixed operating expenses ( “ burn rate ” ) by the end of the third quarter of 2020. liquidity and capital resources replace_table_token_7_th the company recorded a net loss of $ 16,578,564 and had a working capital deficit of $ 14,065,748 for the year ended december 31 , 2019. we have recorded significant incremental increases in revenues from operations since inception and we are establishing ongoing source of revenue sufficient to cover our operating costs . during 2019 and 2018 the company relied on raising equity capital and borrowing from stockholders and third parties to fund its ongoing day-to-day operations and its corporate overhead . as december 31 , 2019 we had $ 67,613 in cash compared to $ 4,893 in cash at december 31 , 2018. we had total liabilities of $ 14,290,486 at december 31 , 2019 compared to $ 3,141,401 at december 31 , 2018. total assets decreased by $ 472,213 to $ 4,374,775 at december 31 , 2019 compared to $ 4,846,988 at december 31 , 2018. this decrease is primarily from depreciation and amortization recorded on intangible assets and property and equipment during the year ended december 31 , 2019 and a decrease in prepaid expenses . this was offset by increases in cash and accounts receivable . 26 total liabilities increased by $ 11,149,085 to $ 14,290,486 at december 31 , 2019 compared to $ 3,141,401 at december 31 , 2018. this increase is primarily additions to convertible notes payable ( net of discount ) of approximately $ 633,819 , derivative liabilities of $ 10,194,897 and to accrued expenses of approximately $ 527,668 related to accrued expenses of mostly interest during the year ended december 31 , 2019. our current cash flow is not sufficient to meet our monthly expenses of approximately $ 225,000 and to fund future research and development . we intend to rely on additional debt financing , loans from existing shareholders and private placements of common/preferred stock for additional funding ; however , there is no assurance that additional funding will be available . we do not have material commitments for future capital expenditures . however , we can not assure that we will be able to obtain short-term financing , or that sources of such financing , if any , will continue to be available , and if available , that they will be on favorable terms . during the next 12 months we anticipate incurring additional costs related to the filing of exchange act periodic reports . we believe we will be able to meet these costs through funds provided by management , significant stockholders and or third parties . we may also rely on the issuance of our common stock in lieu of cash to convert debt or pay for expenses . the table below presents information regarding cash flows : replace_table_token_8_th commitments and obligations at december 31 , 2019 the company recorded notes payable totaling
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results of operations replace_table_token_9_th revenues increased to $ 708,405 for the year ended december 31 , 2019 compared to $ 266,122 for the year ended december 31 , 2018. the revenue increases for 2019 were due to the increased volume of fluids sold , the sale of fluid producing equipment , licensing revenue from epa sub registration , and placing equipment under the company 's 2- and 3-year systems service agreements during the year . total operating expenses decreased to $ 2,390,341 for the 2019 year compared to $ 2,934,065 for the 2018 year . the total operating expense decrease for 2019 was due to a decrease in general and administrative expenses and a reduction in other operating activities due to limited availability of cash , and was somewhat offset by an increase in cost of sales . cost of sales increased as a result of increased sales in 2019 over 2018 . 27 general and administrative expenses decreased to $ 1,922,941 for the 2019 year compared to $ 2,509,924 for the 2018 year . the decrease in general and administrative expense for 2019 was mainly due to a decrease in stock-based compensation expenses incurred to consultants . research and development expenses decreased to $ 6,149 for the 2019 year compared to $ 14,000 for the 2018 year . research and development expenses were expected to be higher in 2019 , but due to difficulties in financing such research and development , we did , in fact , decrease our research and development expense during the year . depreciation and amortization expenses increased to $ 338,028 for the 2019 year compared to $ 336,708 for the 2018 year . depreciation and amortization expenses increased in 2019 due to placing equipment into service during the year and amortization of new intangible assets .
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