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( 8 ) the business address of polar asset management partners , inc. is 401 bay street , suite 1900 , po box 19 , toronto , ontario m5h 2y4 , canada . polar asset management partners inc. , a company incorporated under the laws of ontario , canada , serves as the investment manager to polar multi strategy master fund , a cayman islands exempted company ( `` pmsmf `` ) and certain managed accounts ( together with pmsmf , the “ polar vehicles ” ) , with respect to the shares directly held by the polar vehicles . the table above does not include the shares of common stock underlying the private placement warrants held by our sponsor and cantor fitzgerald and the public warrants held by mr. meghji because these securities are not exercisable within 60 days of this report . changes in control not applicable . item 13. certain relationships and related transactions , and director independence certain relationships and related transactions in august 2015 , m iii llc purchased an aggregate 3,593,750 founder shares for an aggregate purchase price of $ 25,000 , or approximately $ 0.007 per share . on november 5 , 2015 we effectuated a 1.760-for-1 stock split in the form of a dividend . thereafter , we cancelled a portion of the shares issued in such split , resulting in an aggregate of 4,312,500 founder shares outstanding . 562,500 of the founder shares were forfeited upon the expiration of the underwriters ' over-allotment without exercise . as a result of the stock split and subsequent partial cancellations , the per-share purchase price decreased to $ 0.006 per share . m iii llc transferred to m iii lp a number of founder shares ( a portion of which were subsequently cancelled ) in april 2016 and it transferred additional founder shares to m iii llp in september 2016 , so that m iii lp currently holds 222,525 founder shares for an aggregate purchase price of $ 2,106.08 . the number of founder shares issued was determined based on the expectation that such founder shares would represent 20.0 % of the outstanding shares upon completion of our initial public offering ( excluding the private placement shares ) . in august 2015 , m iii llc transferred 20,000 founder shares to mr. hood , an independent director , and in october 2015 , m iii llc transferred an additional 20,000 founder shares to mr. marber , another independent director . in connection with the dividend , messrs. hood and marber transferred to m iii llc an aggregate of 30,400 founder shares so that they each retained 20,000 founder shares . our sponsor and cantor fitzgerald , pursuant to written agreements , purchased an aggregate of 460,000 private placement units at a price of $ 10.00 per unit ( a total of $ 4,600,000 ) in a private placement that closed simultaneously with the closing of our initial public offering . 340,000 private placement units were purchased by our sponsor ( 300,000 by m iii llc and 40,000 by m iii lp ) and 120,000 private placement units were purchased by cantor fitzgerald . in september 2016 , m iii llc transferred additional private placement units to m iii lp so that m iii llc currently holds 290,000 private placement units and m iii lp holds 50,000. the purchase price of the private placement units was added to the proceeds from our initial public offering and is held in the trust account . if we do not complete a business combination by july 12 , 2018 , the proceeds from the sale of the private placement units held in the trust account will be used to fund the redemption of our public shares ( subject to the requirements of applicable law ) . there will be no redemption rights or liquidating distributions with respect to our founder shares , private placement shares or warrants , which will expire worthless . the private placement units are identical to the units being sold in our initial public offering except the private placement warrants are non-redeemable and exercisable on a cashless basis so long as they are held by our sponsor or their affiliates or designees . in addition , for as long as the private placement warrants are held by cantor fitzgerald or its designees or affiliates , they may not be exercised after five years from the effective date of the registration statement relating to our initial public offering . if the private placement units are held by someone other than the initial holder , or its permitted transferees , the private placement warrants will be redeemable by us and exercisable by such holders on the same basis as the warrants included in the units sold in our initial public offering . 58 if any of our officers or directors becomes aware of a business combination opportunity that falls within the line of business of any entity to which he or she has then current fiduciary or contractual obligations story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report . certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties . special note regarding forward-looking statements all statements other than statements of historical fact included in this form 10-k including , without limitation , statements under “ management 's discussion and analysis of financial condition and results of operations ” regarding our financial position , business strategy and the plans and objectives of management for future operations , are forward-looking statements . story_separator_special_tag when used in this form 10-k , words such as “ anticipate , ” “ believe , ” “ estimate , ” “ expect , ” “ intend ” and similar expressions , as they relate to us or our management , identify forward-looking statements . such forward-looking statements are based on the beliefs of management , as well as assumptions made by , and information currently available to , our management . actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the sec . overview we are a blank check company incorporated on august 4 , 2015 as a delaware corporation and formed for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or similar business combination with one or more businesses . we intend to effectuate our initial business combination using cash from the proceeds of our initial public offering and a sale of warrants in a private placement that occurred simultaneously with the completion of our initial public offering , our capital stock , debt or a combination of cash , stock and debt . the issuance of additional shares of our stock in our initial business combination : ø may significantly dilute the equity interest of our stockholders ; ø may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded to our common stock ; ø could cause a change of control if a substantial number of shares of our common stock are issued , which may affect , among other things , our ability to use our net operating loss carry forwards , if any , and could result in the resignation or removal of our present officers and directors ; ø may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us ; and ø may decrease prevailing market prices for our common stock and or warrants . similarly , if we issue debt securities , it could result in : ø a decrease in the prevailing market prices for our common stock and or warrants . ø default and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt obligations ; ø acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants ( including , among others , those that require the maintenance of certain financial ratios or reserves ) without a waiver or renegotiation of that covenant ; ø our immediate payment of all principal and accrued interest , if any , if the debt security is payable on demand ; ø our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding ; ø our inability to pay dividends on our common stock ; ø using a substantial portion of our cash flow to pay principal and interest on our debt , which will reduce the funds available for dividends on our common stock if declared , expenses , capital expenditures , acquisitions and other general corporate purposes ; ø limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate ; ø increased vulnerability to adverse changes in general economic , industry and competitive conditions and adverse changes in government regulation ; and 45 ø limitations on our ability to borrow additional amounts for expenses , capital expenditures , acquisitions , debt service requirements , execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt . as indicated in the accompanying financial statements , at december 31 , 2016 and 2015 , we had approximately $ 150,969,529 and $ 31,691 , respectively , in cash . we expect to incur significant costs in the pursuit of our acquisition plans . we can not assure you that our plans to complete our initial business combination will be successful . story_separator_special_tag interest entities , which would have been established for the purpose of facilitating off-balance sheet arrangements . we have not entered into any off-balance sheet financing arrangements , established any special purpose entities , guaranteed any debt or commitments of other entities , or purchased any non-financial assets . contractual obligations we do not have any long-term debt , capital lease obligations , operating lease obligations or long-term liabilities , other than the portion of the underwriting commissions fee payable to cantor fitzgerald for its services in connection with our initial public offering which is due upon the consummation of the business combination in an amount equal to $ 6,000,000 significant accounting policies the preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and income and expenses during the periods reported . actual results could materially differ from those estimates . the company has not identified any significant accounting policies . management does not believe that any recently issued , but not yet effective , accounting pronouncements , if currently adopted , would have a material effect on the company 's financial statements . redeemable common stock all of the 15,000,000 shares of common stock sold as part of the units in our initial public offering and the private placement contain a redemption feature which allows for the redemption of such common stock under our liquidation or tender offer/stockholder approval provisions . the initial stockholders and cantor fitzgerald have
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results of operations we have neither engaged in any operations nor generated any revenues to date . our only activities from inception to december 31 , 2016 were organizational activities , and those necessary to prepare for our initial public offering and , since july 2016 , activities related to identifying an appropriate candidate for our initial business combination . we do not expect to generate any operating revenues until after the completion of our initial business combination . we have generated , and anticipate continuing to generate , non-operating income in the form of interest income on cash and securities held after our initial public offering . we anticipate that such non-operating income will be insignificant in view of the low interest rates on risk-free investments . there has been no significant change in our financial position and no material adverse change has occurred since the date of our audited financial statements included in our registration statement for our initial public offering . we expect to incur increased expenses as a result of being a public company ( for legal , financial reporting , accounting and auditing compliance ) , as well as for due diligence expenses . for the year ended december 31 , 2016 , we had a net loss of $ 11,283. for the period from august 4 , 2015 ( inception ) to december 31 , 2015 , we had a net loss of $ 809. our entire activity through december 31 , 2016 was in preparation for our initial public offering , which was consummated on july 12 , 2016 , and searching after the consummation of our initial public offering for a target for our initial business combination .
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our portfolio of offerings includes data management and analytics services ; other digital transformation services such as salesforce.com , sap hana , and digital learning services ; and it staffing services . with the july 13 , 2017 acquisition of infotrellis , we now operate in two reporting segmentsdata and analytics services ; and it staffing services . our data and analytics services are marketed on a global basis under the brand mastech infotrellis and are delivered largely on a project basis with on-site and off-shore resources . these capabilities and expertise were acquired through our acquisition of infotrellis . our it staffing business combines technical expertise with business process experience to deliver a broad range of staffing services in digital and mainstream technologies , as well as our other digital transformation services . both business segments provide their services across various industry verticals including : financial services ; government ; healthcare ; manufacturing ; retail ; technology ; telecommunications ; education ; and transportation . within each reporting segment we evaluate our revenues and gross profits largely by sales channel responsibility . in the past , we have disclosed revenues and gross profits by client type ( wholesale clients and retail clients ) . management 's emphasis on the breakdown of wholesale and retail client types has diminished over the last year as gross margin opportunities within each client type has changed considerably with the company 's focus on digital technologies . today , our analysis within our two reporting segments is multi-purposed and includes technologies employed , client relationships , and sales channel accountability . economic trends and outlook generally , our business outlook is highly correlated to general north american economic conditions . during periods of increasing employment and economic expansion , demand for our services tends to increase . conversely , during periods of contracting employment and / or a slowing domestic economy , demand for our services tends to decline . as the economy slowed during the last half of 2007 and recessionary conditions emerged in 2008 and during much of 2009 , we experienced less demand for our staffing services . during the second half of 2009 , we began to see signs of market stabilization and a modest pick-up in activity levels within certain sales channels and technologies and in 2010 , market conditions continued to strengthen over the course of the year . in 2011 through 2013 , activity levels continued to trend up in most technologies and sales channels . during 2014 and 2015 , we continued to see a steady flow of solid activity in our contract staffing business ; however , tightness in the supply side ( skilled it professionals ) of our business during these years negatively impacted our new assignment successes . solid activity levels in our contract staffing business continued in 2016 and 2017 , however , recruitment challenges remained due to the tightness in the supply of skilled it professionals . as we enter 2018 , we view growth in the job market and an expanding domestic and global economy as positive factors for both our it staffing services and data and analytics businesses . we expect supply side pressures to persist in both of our business segments , particularly continuing within the united states . in addition to tracking general economic conditions in the markets that we service , a large portion of our revenues is generated from a limited number of clients ( see item 1a , the risk factor entitled our revenues are highly concentrated and the loss of a significant client would adversely affect our business and revenues ) . accordingly , our trends and outlook are additionally impacted by the prospects and well-being of these specific clients . this account concentration factor may result in our results of operations deviating from the prevailing economic trends from time to time . 26 within our it staffing segment , a larger portion of our revenues has come from strategic relationships with systems integrators and other staffing organizations . additionally , many large end users of it staffing services are employing msp 's to manage their contractor spending . both of these dynamics may pressure our it staffing gross margins in the future . recent u.s. growth in advanced technologies ( social , cloud , analytics , mobility , automation ) is providing opportunities with our it staffing segment . however , supply side challenges are acute with respect to many of these technologies . recent developments on july 13 , 2017 , we completed our acquisition of the services division of canada-based infotrellis , inc. , a project-based consulting services company with specialized capabilities in data management and analytics . the acquisition is expected to significantly strengthen our capabilities to offer consulting and project-based delivery of digital transformation services . infotrellis , inc. is headquartered in toronto , canada , with offices in austin , texas and a global delivery center in chennai , india . the purchase agreement for the infotrellis acquisition totaled $ 55 million , with $ 35.75 million paid in cash at closing ( which was reduced by working capital adjustments of $ 861,000 ) and $ 19.25 million deferred over the two years after closing . the deferred purchase price is contingent upon the acquired business generating specified ebit ( earnings before interest and taxes ) targets during the first two years following closing . the funding for the transaction consisted of a combination of debt and equity . a new $ 65 million credit facility we established on july 13 , 2017 with pnc bank , n.a . ( pnc ) provided debt financing for the transaction , refinancing of our previously existing debt with pnc and additional borrowing capacity . the equity financing was completed through a $ 6.0 million private placement of newly-issued shares of our common stock to our founders and majority shareholders , ashok trivedi and sunil wadhwani . story_separator_special_tag this increase related to higher severance cost of $ 0.5 million and higher variable and stock-based compensation expense of 30 $ 0.3 million ; partially offset by $ 0.6 million of acquisition-related transaction expenses incurred in 2015. other income / ( expense ) components in 2016 , other income / ( expense ) consisted of interest expense of ( $ 462,000 ) and foreign exchange losses of ( $ 25,000 ) . in 2015 , other income / ( expense ) consisted of ( $ 293,000 ) of interest expense and $ 36,000 of foreign exchange gains . the increase in interest expense was due to higher average outstanding borrowings reflective of our debt financing of the hudson it acquisition in june 2015. net foreign exchange gains and losses in 2016 and 2015 reflect exchange rate variations between the indian rupee and u.s. dollar . income tax expense income tax expense for 2016 was $ 1.5 million and represented an effective tax rate on pre-tax income of 37.3 % compared to $ 1.7 million in 2015 , which represented an effective tax rate on pre-tax income of 37.8 % . a slightly lower aggregate state income tax rate was responsible for the slight improvement in 2016. liquidity and capital resources financial conditions and liquidity at december 31 , 2017 , we had outstanding bank debt , net of cash balances on hand , of approximately $ 36 million and approximately $ 13 million of borrowing capacity under our existing credit facility . during 2017 , our outstanding bank debt , net of cash balances on hand , increased by $ 27 million and is reflective of the debt financing related to our acquisition of infotrellis which closed on july 13 , 2017. historically , we have funded our business needs with cash generation from operating activities . in the data and analytics and it staffing services industries , investment in operating working capital levels ( defined as current assets excluding cash and cash equivalents minus current liabilities , excluding short-term borrowings ) is a significant use of cash . controlling our operating working capital levels by closely managing our accounts receivable balance is an important element of cash preservation . our accounts receivable days sales outstanding measurement ( dso ) was 58 days at year-end in both 2017 and 2016. cash provided by operating activities , our cash and cash equivalent balances on hand at december 31 , 2017 and current availability under our existing credit facility are expected to be adequate to fund our business needs over the next 12 months . below is a tabular presentation of cash flow activities for the periods discussed : replace_table_token_5_th operating activities cash provided by operating activities for the years ended december 31 , 2017 , 2016 and 2015 totaled $ 3.4 million , $ 2.3 million and $ 3.0 million , respectively . in 2017 , cash flows from operating activities included net income of $ 1.6 million and non-cash charges of $ 2.3 million , partially offset by an increase in operating working capital of $ 0.5 million . in 2016 , cash flows from operating activities included net income of $ 2.5 million and non-cash charges of $ 1.6 million , partially offset by an increase in operating working capital of $ 1.8 million . 31 factors contributing to cash flows from operating activities during the 2015 period included net income of $ 2.8 million and non-cash charges of $ 1.0 million , partially offset by an increase in operating working capital of $ 0.8 million . the 2017 increase in non-cash charges was largely due to the amortization of acquired intangible assets related to our infotrellis acquisition . additionally , 2017 operating working capital was favorably impacted by higher levels of accounts payable . we would expect operating working capital levels to increase should revenue growth continue in 2018. similar to prior years , such an increase would result in a reduction in cash generated from operating activities . we believe dso 's will remain close to year-end 2017 levels . investing activities cash used in investing activities for the years ended december 31 , 2017 , 2016 and 2015 totaled $ 36.0 million , $ 38,000 and $ 17.1 million , respectively . in 2017 , the acquisition of infotrellis was responsible for $ 34.8 million of cash usage , with capital expenditures of approximately $ 1.2 million accounting for the balance . in 2016 , capital expenditures of $ 105,000 were partially offset by the recovery of non-current deposits ( office lease deposits ) of $ 67,000. in 2015 , the acquisition of hudson it was responsible for $ 17.0 million of cash used in investing activities , with capital expenditures accounting for the balance . in 2017 , capital expenditures were largely related to system upgrade expenditures . financing activities in 2017 , cash provided by financing activities totaled $ 34.2 million and consisted of net borrowings under the company 's credit facilities of $ 28.6 million ; $ 6.0 million of proceeds from the issuance of common stock ; proceeds from the exercise of stock options of $ 0.1 million ; partially offset by payment of deferred financing costs and purchase of treasury stock totaling $ 0.5 million . in 2016 , cash used in financing activities totaled $ 2.3 million and included $ 2.6 million of debt repayments , partially offset by activities related to the exercising of stock options and the vesting of restricted shares , which collectively generated cash of $ 0.3 million . in 2015 , cash generated from financing activities totaled $ 12.4 million and included net increases in bank debt of $ 12.5 million and $ 0.1 million of excess tax benefits related to the exercising of stock options and the vesting of performance/restricted shares , partially offset by $ 0.2 million of stock repurchases . off-balance sheet arrangements we do not have any off-balance sheet arrangements . inflation we do not believe that inflation had a significant impact on our results of operations for the periods presented .
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results of operations as described above , since the july 13 , 2017 closing of the infotrellis acquisition , we operate in two reporting segments data and analytics services ; and it staffing services . the 2017 results of operations for our data and analytics services segment cover the period from the july 13 , 2017 closing through december 31 , 2017 , and all prior periods presented do not include any financial data for this segment . 27 below is a tabular presentation of revenues and gross profit margins by segment for the periods discussed : revenues & gross margin by segment ( revenues in millions ) replace_table_token_3_th below is a tabular presentation of operating expenses by sales , operations , amortization of acquired intangible assets and general and administrative categories for the periods discussed : selling , general & administrative ( s , g & a ) expense details ( amounts in millions ) replace_table_token_4_th 2017 compared to 2016 revenues revenues for the year ended december 31 , 2017 totaled $ 147.9 million , compared to $ 132.0 million for the year ended december 31 , 2016. this 12 % increase in revenues reflected a $ 9.2 million revenue contribution from our newly acquired data and analytics services segment and 5 % organic growth from our it staffing services segment . the data and analytics services segment was acquired through the july 13 , 2017 acquisition of infotrellis , inc. organic revenue growth in our it staffing services business was due to a 102-consultant expansion of our billable consultant-base , partially offset by lower consultant utilization and a lower average bill rate . utilization in 2017 was impacted by weather-related business disruptions and higher down-time in our 28 digital learning practice .
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factors that could cause or contribute to such differences include , but are not limited to , market prices for oil and natural gas , production volumes , estimates of proved reserves , capital expenditures , economic and competitive conditions , regulatory changes and other uncertainties , as well as those factors discussed below and elsewhere in this report , particularly in “ item 1a . risk factors ” and “ cautionary statement regarding forward-looking statements. ” in light of these risks , uncertainties and assumptions , the forward-looking events discussed may not occur . we do not undertake any obligation to update any forward-looking statements except as otherwise required by applicable law . in this section , references to “ jagged peak , ” “ the company , ” “ we , ” “ us ” and “ our ” refer to jagged peak energy inc. and its subsidiaries , after the initial public offering of jagged peak ( the “ ipo ” ) and , prior to the ipo , to jagged peak energy llc ( “ jpe llc ” ) . jagged peak energy inc. and our predecessor jagged peak was formed in september 2016 and , prior to the consummation of the ipo , did not have historical financial operating results . for purposes of this annual report , our accounting predecessor reflects the results of jpe llc , which was formed in 2013 to engage in the acquisition , development , exploration and exploitation of oil and natural gas reserves . in connection with the ipo , a corporate reorganization took place whereby jpe llc became a wholly owned subsidiary of jagged peak . overview we are an independent oil and natural gas company focused on the acquisition and development of unconventional oil and associated liquids-rich natural gas reserves . our operations are entirely located in the united states , within the permian basin of west texas . our primary area of focus is the southern delaware basin ; the delaware basin is a sub-basin of the permian basin . our acreage is located on large , contiguous blocks in the adjacent texas counties of winkler , ward , reeves and pecos , with significant original oil-in-place within multiple stacked hydrocarbon-bearing formations . we have assembled a portfolio of contiguous acreage in the core oil window of the southern delaware basin . this acreage is characterized by a multi-year , oil-weighted inventory of horizontal drilling locations that provide attractive growth and return opportunities . at december 31 , 2017 , our acreage position was approximately 75,200 net acres . we divide our current areas of operation into three distinct project areas : cochise , with approximately 12,900 net acres , whiskey river , with approximately 36,000 net acres , and big tex , with approximately 26,300 net acres . as of december 31 , 2017 , our estimated proved reserves were approximately 82.4 million mmboe , consisting of 79 % oil . we seek to maintain operational control of our properties in order to better execute on our strategy of enhancing returns through operational improvements and cost efficiencies . as the operator of approximately 97 % of our acreage , we have the flexibility to manage our development program , which allows us to optimize our field-level returns and profitability . market conditions our revenue , profitability and future growth are highly dependent on the prices we receive for our oil , natural gas and ngl production . compared to 2016 , our realized oil price for 2017 increased 18 % to $ 48.56 per barrel , our realized natural gas price increased 9 % to $ 2.52 per mcf , and our realized price for ngls increased by 60 % to $ 25.25 per barrel between these same periods . see “ sources of our revenues ” below for further information regarding our realized commodity prices . as the u.s. oil and gas industry continues to confront volatile commodity prices , we experience adverse effects on our business , financial condition , results of operations , operating cash flows , liquidity and ability to finance planned capital expenditures . lower prices may also reduce the amount of oil , natural gas and ngls that we can produce economically and therefore , potentially lower our oil , natural gas and ngl reserves . decreasing reserves may also reduce the borrowing base under our credit agreement , which is determined at the discretion of the lenders and is based on the collateral value of our 46 index to financial statements proved reserves . our ability to access capital markets may be restricted , which could have an impact on our flexibility to react to changing economic and business conditions . further , oversupply and high inventory storage levels could put downward pressure on commodity prices and have an adverse impact on our business partners , customers and lenders , potentially causing them to fail to meet their obligations to us . factors affecting the comparability of our results of operations our historical results of operations for the periods presented may not be comparable , either to each other or to our future results of operations , primarily for the reasons described below . incentive unit awards in conjunction with the closing of the ipo , we recognized equity-based compensation expense for : ( 1 ) a charge of $ 379.0 million related to management incentive units ( “ mius ” ) in jpe llc that vested at the time of the ipo ; and ( 2 ) a charge for the year ended december 31 , 2017 of $ 60.4 million related to shares of common stock transferred to jpe management holdings llc ( “ management holdco ” ) . please refer to note 6 , equity-based compensation , for additional information on equity-based compensation . story_separator_special_tag ” ) sources of our revenues our revenues are derived from the sale of our oil and natural gas production , including the sale of ngls that are extracted from our natural gas during processing . in 2017 , our production revenues were derived 91 % from oil sales , 3 % from natural gas sales and 6 % from ngl sales . our oil , natural gas and ngl revenues do not include the effects of derivatives . increases or decreases in our revenue , profitability and future production growth are highly dependent on the commodity prices we receive . oil , natural gas and ngl prices are market driven and have been historically volatile , and we expect that future prices will continue to fluctuate due to supply and demand factors , seasonality and geopolitical and economic factors . the following table presents our average realized commodity prices , the effects of derivative settlements on our realized prices , and certain major u.s index prices . replace_table_token_11_th while quoted nymex oil and natural gas prices are generally used as a basis for comparison within our industry , the prices we receive are affected by quality , energy content , location and transportation differentials for these products . see “ results of operations ” below for an analysis of the impact changes in realized prices had on our revenues . 48 index to financial statements in addition to sales of oil , natural gas , and ngls , we derive a minimal portion of our revenues from third-party sales of fresh water and produced water disposal services . these revenues are reflected as other operating revenues on the consolidated and combined statements of operations . production results the following table presents production volumes for 2017 , 2016 and 2015 : replace_table_token_12_th production volumes directly impact our results of operations as reservoir pressures decline , production from a given well or formation decreases . growth in our cash flow , future production and reserves will depend on our ability to continue to add production and proved reserves in excess of our production decline . accordingly , we plan to maintain our focus on adding reserves through drilling , as well as acquisitions . our ability to add reserves through drilling projects and acquisitions is dependent on many factors , including our ability to increase our levels of cash flow from operations , borrow or raise capital , obtain regulatory approvals , procure materials , services and personnel and successfully identify and consummate acquisitions . operating costs and expenses costs associated with producing oil , natural gas and ngls are substantial . some of these costs vary with commodity prices , some trend with the type and volume of production and others are a function of the number of wells we own . lease operating expenses . lease operating expenses ( “ loe ” ) are the costs incurred in the operation of producing properties and workover costs . expenses for utilities , direct labor , water transportation , injection and disposal , materials and supplies comprise the most significant portion of our loe . certain items , such as direct labor and materials and supplies , generally remain relatively fixed across broad production volume ranges , but can fluctuate depending on activities performed during a specific period . certain operating cost components are variable and increase or decrease as the level of produced hydrocarbons and water increases or decreases . we monitor our operations to ensure that we are incurring loe at an acceptable level , including monitoring our loe on a per boe basis to determine if any wells or properties should be shut in , repaired , recompleted or sold . this unit rate also allows us to monitor these costs in certain fields and geographic areas to identify trends and to benchmark against other producers . although we strive to reduce our loe , these expenses can increase or decrease on a per unit basis as a result of various factors as we operate our properties or make acquisitions and dispositions of properties . gathering and transportation expenses . gathering and transportation expenses largely consist of contractual costs to gather , transport and process our natural gas and ngls . these costs may fluctuate with increases or decreases in production volumes , contractual arrangements and changes in fuel and compression costs . production and ad valorem taxes . production taxes are paid on produced oil and natural gas based on a percentage of revenues from production sold . these taxes are calculated using fixed rates established by the state taxing authorities . in general , the production taxes we pay correlate to changes in our oil , natural gas and ngl revenues . we are also subject to ad valorem taxes in the counties where our production is located . ad valorem taxes are generally based on the valuation of our oil and natural gas properties , which also trend with oil and natural gas prices and vary across the different counties in which we operate . exploration expenses . exploration expenses consist of the costs of unsuccessful exploratory wells and delay rentals for leases on certain unproved properties . 49 index to financial statements depletion , depreciation , amortization and accretion . depletion , depreciation , amortization and accretion ( “ dd & a ” ) is primarily the systematic expensing of the capitalized costs incurred to acquire and develop oil and natural gas properties . we use the successful efforts method of accounting for oil and natural gas activities and , as such , we capitalize all costs incurred related to the acquisition , development , and successful exploration of oil and natural gas properties , and deplete these costs based on the related reserves . dd & a also includes straight-line depreciation of capitalized corporate assets and operations support equipment , as well as the accretion of asset retirement obligation ( “ aro ” ) liabilities . impairment of unproved oil and natural gas properties .
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results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 revenues oil and natural gas revenues . the following table provides the components of our production revenues for the years ended december 31 , 2017 and 2016 , as well as each period 's respective average prices and production volumes : replace_table_token_13_th ( 1 ) average prices shown in the table reflect prices before the effects of our realized commodity derivative transactions . as reflected in the table above , our total production revenue for 2017 was 254 % , or $ 191.1 million , higher than that of 2016 . the increase in 2017 compared to 2016 is due to higher sales volumes , along with higher realized commodity prices during 2017 . our aggregate production volumes in 2017 were 6,196 mboe , comprised of 80 % oil , 10 % natural gas and 10 % ngls . this represents an increase of 202 % from 2016 aggregate production volumes of 2,054 mboe . increased production volumes accounted for an approximate $ 147.8 million increase in year-over-year production revenues , while increase s in our total equivalent prices accounted for an approximate $ 43.3 million increase in year-over-year production revenues . production increases are largely related to our active drilling program , which added 46.1 net wells that began production during 2017 . oil sales increased 245 % , or $ 171.7 million , due to a 193 % increase in production volumes and an 18 % increase in the average realized price for 2017 compared to the prior year . natural gas sales increased 310 % , or $ 6.9 million , due to a 278 % increase in volumes in 2017 and a 9 % increase in the average sales price .
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we are operating in an environment characterized by both increasing complexity in global security and continuing economic pressures in the u.s. and globally . a significant component of our strategy in this environment is to focus on program execution , improving the quality and predictability of the delivery of our products and services , and placing security capability quickly into the hands of both our domestic and international customers at affordable prices . recognizing that our customers are resource constrained , we are endeavoring to develop and extend our portfolio domestically in a disciplined manner with a focus on adjacent markets close to our core capabilities , as well as growing our international sales . we continue to focus on affordability initiatives as demonstrated by our plan to close and consolidate several of our facilities as we announced in november 2013. we also expect to continue to invest in technologies to fulfill new mission requirements for our customers , and invest in our people so that we have the technical skills necessary to succeed without limiting our ability to return at least 50 % of free cash flow 1 to our investors in the form of dividends and share repurchases . we expect 2014 net sales will decline slightly from 2013 due to projected lower net sales at space systems and is & gs , partially offset by an anticipated increase in net sales at aeronautics . we expect our 2014 segment operating profit will also decrease from 2013 at a slightly higher percentage rate than the decline in net sales due an anticipated decrease in segment operating profit at each of our business segments , with the exception of aeronautics . accordingly , segment operating profit margin is also expected to be lower than 2013 levels . for additional information related to trends in net sales and operating profit at our business segments , see the business segment results of operations section below . industry considerations u.s. government funding constraints the u.s. government , our principal customer , continues to face significant fiscal and economic challenges such as financial deficits , budget uncertainty , increasing debt levels , and an economy with restrained growth . in order to address these challenges , the u.s. government continues to focus on discretionary spending , entitlement programs , taxes , and other initiatives to stimulate the economy , create jobs , and reduce the deficit . in doing so , the administration and congress must balance decisions regarding defense , homeland security , and other federal spending priorities in a constrained fiscal environment largely imposed by the budget control act of 2011 ( budget control act ) . the budget control act established limits on discretionary spending , which provided for reductions to planned defense spending of $ 487 billion over a 10 year period that began with government fiscal year ( gfy ) 2012 ( a u.s. government fiscal year starts on october 1 and ends on september 30 ) . the budget control act also provided for additional automatic spending reductions , known as sequestration , which went into effect on march 1 , 2013 , that would reduce planned defense spending by another $ 500 billion over a nine-year period that began in gfy 2013. these additional spending reductions are arbitrary as they would be applied across-the-board to numerous programs and contracts without regard to national priorities . while the defense budget will sustain the largest single reduction , other civil agencies and programs are also impacted by significant spending reductions . in light of the budget control act and deficit reduction pressures , it is likely that discretionary spending by the u.s. government will remain constrained for a number of years . 1 we define free cash flow as cash from operations as determined under u.s. generally accepted accounting principles ( gaap ) , less capital expenditures as presented on our statements of cash flows . 24 for gfy 2013 , which ended on september 30 , 2013 , sequestration resulted in a $ 37 billion reduction to the defense budget in addition to reductions as a result of the discretionary spending limits already imposed under the budget control act . the impacts of sequestration in gfy 2013 were less than originally expected due to congressional actions that reduced the cuts as well as the dod 's ability to allocate a portion of the reductions to prior year unobligated balances and multi-year investment appropriations . accordingly , we have experienced minimal impacts to date . in december 2013 , congress and the administration enacted the bipartisan budget act of 2013 ( bipartisan budget act ) . notably , the bipartisan budget act increased the limits on discretionary spending for gfy 2014 and gfy 2015 imposed by the budget control act , among other fiscal changes . in particular , the bipartisan budget act allows for approximately $ 63 billion of additional funding , including approximately $ 22 billion and $ 9 billion for defense spending during gfy 2014 and gfy 2015 , respectively , and similar amounts for nondefense programs over the same period . the revised defense spending limits are set at approximately $ 520 billion for gfy 2014 and approximately $ 521 billion for gfy 2015. this agreement allows for more certainty in the budget planning process and provides the dod the flexibility to better address its priorities . however , the bipartisan budget act retains the lower spending limits , including the across-the-board spending reduction methodology , for gfys 2016 through 2021 as provided for in the budget control act . as a result , there remains uncertainty regarding how sequester cuts beyond gfy 2015 will be applied as the dod and other agencies may have significantly less flexibility regarding how to allocate cuts in future years . while we have not yet seen the specific budget allocations by program , we continue to believe that our portfolio of products will continue to be well supported in a strategically focused allocation of budget resources . story_separator_special_tag during 2013 , we received an award to provide pac-3 missile defense equipment to kuwait . other international customers include japan , germany , the netherlands , taiwan , and the united arab emirates ( uae ) . in 2013 , we also finalized the multi-billion dollar award for the thaad missile defense system from the uae , which is the first international customer for this system . other countries in the middle east and the asia-pacific region have also expressed interest in our air and missile defense systems . in our mst business segment , we continue to experience international interest in the aegis ballistic missile defense system . we perform activities in the development , production , ship integration and test , and lifetime support for ships of international customers such as canada , japan , spain , korea , and australia . in 2013 , we received an award from japan to upgrade processors and other equipment on their ballistic missile defense ships . the littoral combat ship ( lcs ) is another significant program generating interest from potential international customers . status of the f-35 program the f-35 program consists of a development contract and multiple production contracts . the development contract is being performed concurrent with the production contracts . concurrent performance of development and production contracts is used for complex programs to test aircraft , shorten the time to field systems , and achieve overall cost savings . we expect the development portion of the f-35 program will be substantially complete in 2017 , with less significant efforts continuing into 2019. production of the aircraft is expected to continue for many years given the u.s. government 's current inventory objective of 2,443 aircraft for the air force , marine corps , and navy ; commitments from our eight international partners and two international customers ; as well as expressions of interest from other countries . on the development contract , the u.s. government continues to complete various operational tests , including ship trials , mission system evaluations , and weapons testing , with the aircraft surpassing 10,000 flight hours . in 2013 , we reduced the profit booking rate on the development contract after revising our estimate of fees that we expect to earn on the contract as well as our estimates of the remaining costs to complete the development contract . these revisions collectively reduced profit by $ 85 million during 2013 , which reflect the inception-to-date impact of the change in the profit booking rate . progress continues to be made on the production of aircraft . in 2013 , the f-35 program reached a significant milestone as we completed the assembly of the 100th aircraft . during 2013 , we delivered 35 aircraft to our domestic and international partners , resulting in total deliveries of 73 production aircraft as of december 31 , 2013. we have 93 production aircraft in backlog as of december 31 , 2013 , including orders from our international partners . 26 given the size and complexity of the f-35 program , we anticipate that there will be continual reviews related to aircraft performance , program schedule , cost , and requirements as part of the dod , congressional , and international partners ' oversight and budgeting processes . current program challenges include , but are not limited to , supplier and partner performance , software development , level of cost associated with lifecycle operations and sustainment , receiving funding for production contracts on a timely basis , executing future flight tests , and findings resulting from testing . portfolio shaping activities we continuously strive to strengthen our portfolio of products and services to meet the current and future needs of our customers . we accomplish this in part by our independent research and development activities , and through acquisition , divestiture , and internal realignment activities . internal realignments are designed to more fully leverage existing capabilities and enhance development and delivery of products and services . we selectively pursue the acquisition of businesses and investments at attractive valuations that will expand or complement our current portfolio and allow access to new customers or technologies . we have made a number of niche acquisitions of businesses and investments in affiliates during the past several years . we also may explore the divestiture of businesses . in pursuing our business strategy , we routinely conduct discussions , evaluate targets , and enter into agreements regarding possible acquisitions , divestitures , ventures , and equity investments . acquisitions we paid $ 269 million and $ 259 million in 2013 and 2012 for acquisition activities , primarily related to the acquisition of businesses . in 2013 , we acquired amor group , a united kingdom-based company specializing in information technology , civil government services , and the energy market . this acquisition is aligned with our strategy to grow international sales and has been included in our is & gs business segment . in 2012 , we acquired chandler/may , inc. ( chandler/may ) , cdl systems ltd. ( cdl ) , and procerus technologies , l.c . ( procerus ) . these companies specialize in the design , development , manufacturing , control , and support of advanced unmanned systems , which expand our offerings in support of our customers ' increased emphasis on advanced unmanned systems and are consistent with our strategy to maintain a portfolio of advanced technology options . these companies are part of our mst business segment where they have been integrated into our portfolio of unmanned systems and technologies to align their product and service offerings to the u.s. army . in 2011 , we paid $ 624 million for acquisition activities , primarily related to the acquisitions of qtc holdings inc. ( qtc ) and sim-industries b.v. ( sim-industries ) . qtc provides outsourced medical evaluation services to the u.s. government and has been included within our is & gs business segment .
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consolidated results of operations since our operating cycle is long-term and involves many types of contracts for the design , development , and manufacturing of products and related activities with varying delivery schedules , the results of operations of a particular year , or year-to-year comparisons of recorded sales and profits , may not be indicative of future operating results . the following discussions of comparative results among years should be viewed in this context . all per share amounts cited in these discussions are presented on a per diluted share basis , unless otherwise noted . our consolidated results of operations were as follows ( in millions , except per share data ) : replace_table_token_4_th amounts reported in other income , net ( primarily our share of earnings or losses from equity method investees ) on our statements of earnings are included in the segment operating profit and segment operating margins of our business segment results of operations but are excluded from the consolidated net sales and cost of sales tables below . net sales products sales are predominantly generated in our aeronautics , mfc , mst , and space systems business segments , and most of our services sales are generated in our is & gs and mfc business segments . our consolidated net sales were as follows ( in millions ) : replace_table_token_5_th substantially all of our contracts are accounted for using the percentage-of-completion method of accounting . under the percentage-of-completion method , we record net sales on contracts based upon our progress towards completion on a particular contract , as well as our estimate of the profit to be earned at completion .
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the company recognized $ 3,013 of revenue from this license agreement in the year ended september 30 , 2011. f-15 warranty reserve details of the estimated warranty reserve were as follows : replace_table_token_15_th the company establishes a warranty reserve based on anticipated warranty claims at the time product revenue is recognized . factors affecting warranty reserve levels include the number of units sold , anticipated cost of warranty repairs and anticipated rates of warranty claims . the company evaluates the adequacy of the provision for warranty costs each reporting period . in the fiscal year ended september 30 , 2011 story_separator_special_tag the discussion and analysis set forth below should be read in conjunction with the information presented in other sections of this annual report on form 10-k , including item 1. business , item 1a . risk factors , and item 8. financial statements and supplementary data. this discussion contains forward-looking statements which are based on our current expectations and industry experience , as well as our perception of historical trends , current market conditions , current economic data , expected future developments and other factors that we believe are appropriate under the circumstances . these statements involve risks and uncertainties that could cause actual results to differ materially from those suggested in the forward-looking statements . story_separator_special_tag 12.1 million in fiscal 2011 that will be a challenge to replace with similar orders in fiscal 2012. critical accounting policies and estimates we have identified the policies below as critical to our business operations and to understanding our results of operations . our accounting policies are more fully described in our financial statements and related notes located in item 8. financial statements and supplementary data. the impact and any associated risks related to these policies on our business operations are discussed in item 1a . risk factors and throughout management 's discussion and analysis of financial condition and results of operations when such policies affect our reported and expected financial results . the methods , estimates and judgments we use in applying our accounting policies , in conformity with generally accepted accounting principles in the united states , have a significant impact on the results we report in our financial statements . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . these estimates affect the carrying values of assets and liabilities . actual results may differ from these estimates under different assumptions or conditions . revenue recognition . the company derives its revenue primarily from two sources : ( i ) product revenues , and ( ii ) contract , license fee , other services , and freight . product revenues from customers , including resellers and system integrators , are recognized in the periods that products are shipped ( fob shipping point ) or received by customers ( fob destination ) , when the fee is fixed or determinable , when collection of resulting receivables is probable , and there are no remaining obligations for the company . most revenues to resellers and system 20 integrators are based on firm commitments from the end user ; as a result , resellers and system integrators carry little or no inventory . revenues from associated engineering and installation contracts are recognized based on milestones or completion of the contracted services . the company 's customers do not have the right to return product unless the product is found to be defective . in limited circumstances , product revenues may be recognized prior to shipment when , based on the company 's evaluation , criteria for recognizing revenue under bill and hold arrangements have been met . during the years ended september 30 , 2011 and 2010 , the company did not recognize any bill and hold revenue . the company licenses its technology to third parties . revenues from up-front license fees are evaluated for multiple elements , but are generally recognized ratably over the specified term of the particular license or agreement . revenues from ongoing per unit license fees are earned based on units shipped and are recognized in the period when the ultimate customer accepts the product , and collection is reasonably assured . share-based compensation . we account for share-based compensation in accordance with the provisions of financial accounting standards board ( fasb ) accounting standards codification ( asc ) 718 , compensationstock compensation ( asc 718 ) using the modified prospective method which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values . asc 718 requires the use of subjective assumptions , including expected stock price volatility and the estimated term of each award . we estimate the fair value of stock options granted using the black-scholes option-pricing model , which is then amortized on a straight-line basis over the requisite service periods of the awards , which is generally the vesting period . this model also utilizes the fair value of our common stock and requires that , at the date of grant , we use the expected term of the share-based award , the expected volatility of the price of our common stock over the expected term , the risk free interest rate and the expected dividend yield of our common stock to determine the estimated fair value . we determine the amount of share-based compensation expense based on awards that we ultimately expect to vest , reduced for estimated forfeitures . asc 718 requires forfeitures to be estimated at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from those estimates . allowance for doubtful accounts . our products are sold to customers in many different markets and geographic locations . we estimate our bad debt reserve on a case-by-case basis due to a limited number of customers . story_separator_special_tag gross profit gross profit for the year ended september 30 , 2011 was $ 15,929,451 , or 60 % of total revenues , compared to $ 9,173,791 , or 55 % of total revenues for the year ended september 30 , 2010. the increase in gross profit is primarily driven by increased revenues , increased fixed cost absorption and lower product cost due to higher volume purchases , partially offset by higher manufacturing overhead spending and amortization of prepaid expenses to support the large foreign government sale in the quarter ended march 31 , 2011. our products have varying gross margins , so product sales mix materially affects gross profit . in addition , the margins differ based on the channel of trade that we sell through . we continue to make product updates and changes , including raw material and component changes that may impact product costs . with product updates and changes , we have limited warranty cost experience and estimated future warranty costs can impact our gross 23 margins . we could also have increased competition in our market that could cause pricing pressure for us . we do not believe that historical gross profit margins should be relied upon as an indicator of future gross profit margins . selling , general and administrative expenses selling , general and administrative expenses for the year ended september 30 , 2011 increased $ 3,804,399 to $ 8,463,842 , or 32 % of total revenues , compared to $ 4,659,443 , or 28 % of total revenues , for the year ended september 30 , 2010. the increase is primarily due to $ 2,763,155 for sales commissions , primarily related to the large foreign government sale , $ 807,617 for bonus expense based on meeting annual performance targets , and $ 244,759 for salary and consulting expense primarily related to increased business development staffing . we incurred non-cash share-based compensation expenses of $ 335,796 and $ 380,688 in selling , general and administrative expenses in the fiscal years ended september 30 , 2011 and 2010 , respectively . the decrease in expenses is due to a number of options becoming fully vested . we may expend additional resources on marketing our products in future periods which may increase selling , general and administrative expenses . also , commission expense will fluctuate based on the level of commissionable sales incurred . research and development expenses research and development expenses increased $ 421,780 to $ 2,483,938 , or 9 % of total revenues , for the year ended september 30 , 2011 , compared to $ 2,062,158 , or 12 % of total revenues , for the year ended september 30 , 2010. this increase was primarily due to $ 309,782 in bonus expense for meeting annual performance targets , and $ 140,356 for staffing , partially offset by a $ 25,299 decrease in the impairment of intangible assets . included in research and development expenses for the year ended september 30 , 2011 was $ 60,919 of non-cash share-based compensation expenses , compared to $ 53,143 for the year ended september 30 , 2010. the increase is due to new option grants . during fiscal years 2011 and 2010 , we reviewed the ongoing value of our capitalized intangible assets and identified some of these assets as being no longer consistent with our business strategy . as a result of this review , we reduced the value of these patents by $ 22,551 and $ 47,850 for the fiscal years ended september 30 , 2011 and 2010 , respectively . research and development expenses vary period to period due to the timing of projects , the availability of funds , and the timing , extent and use of outside consulting , design and development firms . in fiscal 2011 , research and development expenses were primarily for in-house development , but we have , in the past , supplemented our in-house development with third-party consulting resulting in higher expenses . based on current plans and engineering staffing , we expect fiscal year 2012 research and development expenses to be comparable to expenditures made in fiscal year 2011. income from operations income from operations was $ 4,981,671 for the year ended september 30 , 2011 , compared to income from operations of $ 2,452,190 for the year ended september 30 , 2010 , primarily from increased revenue and improved margins . other income ( expense ) during the year ended september 30 , 2011 , we earned $ 32,354 of interest income on our cash balances compared to $ 903 in the year ended september 30 , 2010. the higher interest is due to transferring higher cash balances to interest bearing accounts during the current year . we also recorded other income of $ 14,721 in the 24 year ended september 30 , 2011 for proceeds from an insurance claim . in the year ended september 30 , 2010 , we recorded a $ 747,917 unrealized , non-cash gain on derivative revaluation related to changes in the estimated fair value of common stock warrant instruments that were classified as derivative liabilities , pursuant to asc 815-40. we did not have a similar gain during the year ended september 30 , 2011 , and we do not anticipate any gain or loss in future years because we no longer have common stock warrant instruments that are classified as derivative liabilities . net income our net income increased $ 2,039,289 to $ 5,022,902 , or $ 0.15 per diluted share for the year ended september 30 , 2011 , compared to net income of $ 2,983,613 , or $ 0.10 per diluted share , for the year ended september 30 , 2010. we recorded a tax provision of $ 75,190 and $ 166,771 for the years ended september 30 , 2011 and 2010 , respectively , as a result of taxable income generated during the year .
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overview we are a pioneer of highly intelligible , high clarity directed sound technologies and products . we aggressively seek to create and expand markets for our products , and we are increasing our focus on and investment in worldwide sales and marketing activities while we continue to innovate . in the fiscal year ended september 30 , 2011 , we generated record revenues of $ 26,506,821 compared to $ 16,694,075 in the year ended september 30 , 2010. we had the second consecutive profitable year in our company 's history , with net income increasing by 68 % from $ 2,983,613 in the year ended september 30 , 2010 compared to $ 5,022,902 in the year ended september 30 , 2011. these strong results were largely driven by a contract with a foreign government , which contributed $ 12,125,000 of the revenue in fiscal 2011. direct and indirect revenues from the u.s. military declined by 40 % in fiscal 2011 due to ongoing federal budget uncertainty . we increased our cash balance by $ 8,449,595 during fiscal 2011 through positive cash flow from operating activities and the exercise of warrants . future cash flows from operating activities are expected to fluctuate based on working capital requirements , operating expense levels and other factors . we believe we have adequate financial resources to fund operations for the next twelve months . in fiscal 2008 , we completed the development and introduced a new generation of lrad products called the lrad-x . our lrad-x product line uses directionality and focused acoustic output to clearly transmit critical information , instructions and warnings 1,500 meters and beyond . the lrad-x product line features improved voice intelligibility and is available in a number of packages that meet the military 's stringent environmental requirements in a number of packages and form factors .
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f-12 imh financial corporation notes to consolidated financial statements note 2 — significant accounting policies – continued cash and cash equivalents cash and cash equivalents story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with the sections of this form 10-k entitled “ risk factors , ” “ special note about forward-looking statements , ” “ business ” and our audited financial statements and the related notes thereto and other detailed information as of december 31 , 2019 and 2018 and for the years ended december 31 , 2019 and 2018 included elsewhere in this form 10-k. this discussion contains forward-looking statements reflecting current expectations about the future of our business that involve risks and uncertainties . actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors , including those discussed in the section entitled “ risk factors ” included elsewhere in this form 10-k. unless specified otherwise and except where the context suggests otherwise , references in this section to the “ company , ” “ we , ” “ us , ” and “ our ” refer to imh financial corporation and its consolidated subsidiaries . undue reliance should not be placed upon historical financial statements since they are not necessarily indicative of expected results of operations or financial condition for any future periods . overview of the business we are a real estate investment and finance company focusing on the commercial , hospitality , industrial and residential real estate markets . our current business focus is to re-establish the company 's access to significant investment capital in order to improve our operating performance . by increasing the level and quality of the assets in our portfolio , we believe that the company can grow and ultimately provide its shareholders with favorable risk-adjusted returns on its investments and ultimately provide enhanced opportunity for liquidity . factors affecting our financial results general economic conditions affecting the real estate industry the recent and rampant spread of covid-19 has caused restaurants , bars , entertainment centers and other public places across the country to shutter their operations . california has been particularly impacted by the spread of this virus . the state of california , in addition to several other states across the country , have enacted “ stay in place ” orders that restrict anything other than essential travel . the company expects other , and if not all , states will issue similar orders . in addition , many foreign countries , including the foreign countries where most of our hotel 's foreign guests reside , have issued travel bans or restrictions . on march 17 , 2020 , by order of the health officer of the county of sonoma , california , order no . c19-03 , all businesses with a facility in sonoma county were required to “ cease all activities. ” all travel in sonoma county , except for essential travel and essential activities , is prohibited . the order became effective at 12:00 a.m. on march 18 , 2020 and will continue in effect until 11:59 p.m. on april 7 , 2020 , or until it is extended , rescinded , superseded , or amended by the health officer of sonoma county . the company 's lone operating asset , a hospitality asset relying on room , event and restaurant revenue , is , located in sonoma county , california , is a hospitality asset relying on room , event and restaurant revenue . while the company believes that it is managing this asset prudently during these times , including by terminating non-essential vendor services and reducing other expenses where feasible , the continuance of the company 's ongoing operations are at substantial risk absent immediate fiscal policy relief coming from the federal or california state government . even in the event of a gradual loosening of travel restrictions , the company 's operations may have been negatively impacted to such a significant degree , the company may be unable to recover financially or operationally to continue operations . in addition to the effect the covid-19 pandemic is having on the operations of the company 's hotel , it is also expected to have a negative impact on the value of the company 's other real estate-related assets . while that negative impact may only be short-lived , due to the company 's severe liquidity issues , the company may be unable to sustain operations for a sufficient period of time to realize the resulting increase in the value of those assets . we have held certain reo assets for several years with the expectation that we would realize more significant appreciation in the values of those assets over time . while there has been an overall stabilization of values and increased values for certain of our reo assets , the increase in value has been less than anticipated . moreover , due to our lack of available cash flow , our investment opportunities have been limited . we continue to examine all material aspects of our business for areas of improvement and recovery on our assets including recoveries against guarantors . going concern considerations prior to the outbreak of the covid-19 virus in the united states , the board of directors of the company independently determined that it would be in the best interests of the shareholders of the company to consider , evaluate and possibly take action with respect to a re-capitalization of the company . accordingly , the board appointed a special committee consisting exclusively of independent members of the board of directors to formulate , establish , oversee and direct a process for the identification , evaluation and negotiation of any proposed recapitalization or alternative transaction . the special committee has retained outside advisors to 39 assist the members of the special committee in carrying out these responsibilities . story_separator_special_tag our estimate of impairment charges on reo held for sale , other real estate owned , and operating property assets largely depends on whether the particular assets are held for development or held for sale . this classification depends on various factors , including our intent to sell the property immediately or further develop and sell the property over time , and whether a formal plan of disposition has been adopted , among other factors . real estate held for sale is carried at the lower of carrying amount or fair value , less estimated selling costs , which is primarily based on supporting data from third-party valuation firms , market participant sources , and valid offers from third parties . reductions in the fair value of assets held for sale are recorded as impairment charges . real estate held for development is carried at the transferred value upon foreclosure , less cumulative impairment charges . impairment charges on real estate owned consist of charges to reo assets in cases where the estimated future undiscounted cash flows of the property is below current carrying value and the reduction in asset value is deemed to be other than temporary . we have sold and intend to actively market and sell substantially all of our reo assets , other than our operating properties , over the next 12 months as a means of raising additional capital to pursue our investment objectives and fund core operations . 41 story_separator_special_tag font style= '' font-family : inherit ; font-size:10pt ; '' > $ 1.5 million , resulting from a $ 2.6 million provision for credit loss on the onewest chase $ 12.3 million mezzanine note sold in the fourth quarter of 2019 at a discount . offsetting this provision for credit loss , we recorded cash recoveries of $ 1.1 million from guarantors on certain legacy loans during year ended december 31 , 2019 . for the year ended december 31 , 2018 , we recorded recoveries of investment and credit losses of $ 2.0 million primarily resulting from the cash and other assets recovered from guarantors on certain legacy loans . impairment of real estate owned . for the years ended december 31 , 2019 and 2018 , we recorded impairment of real estate owned of $ 1.5 million and $ 0.6 million , respectively , based on the fair value analysis of our reo portfolio . unrealized loss on derivatives . during the year ended december 31 , 2019 , the company recorded an unrealized loss of $ 0.3 million on an interest rate cap we acquired to mitigate the risk of rising interest rates based on a fair value analysis of this derivative instrument . during the year ended december 31 , 2018 , the company recorded an unrealized loss of $ 0.2 million . settlement and related costs . during the year ended december 31 , 2019 , the company made an accrual for loss on a settlement in connection with ongoing negotiations to settle a legal matter with the limited partners in one of its consolidated partnerships . pursuant to an offer made by the company to the limited partners , the company offered to buy the interests of limited partners for a cash payment of $ 1.3 million . 43 operating segments our operating segments reflect the distinct business activities from which revenues are earned and expenses incurred that is evaluated regularly by our executive management team in assessing performance and in deciding how to allocate resources . as of and for the years ended december 31 , 2019 and 2018 , the company 's reportable segments consisted of the following : hospitality and entertainment operations — consists of revenues less direct operating expenses , depreciation and amortization relating to our hotel , spa , and food & beverage operations . this segment also reflects the carrying value of such assets and the related financing and operating obligations . mortgage and reo – legacy portfolio and other operations — consists of the collection , workout and sale of new and legacy loans and reo assets , including financing of such asset sales , as well as the operating expenses ( if any ) , carrying costs and other related expenses of such assets . this segment also includes operating properties that do not represent a strategic operating objective of the company , such as broadway tower , and their rental revenue and tenant recoveries less direct property operating expenses ( maintenance and repairs , real estate taxes , management fees , and other operating expenses ) , depreciation and amortization from commercial real estate leasing operations , and the carrying value of such assets and the related financing and operating obligations . corporate and other — consists of our centralized general and administrative and corporate treasury activities . this segment also includes reclassifications and eliminations between the reportable operating segments and reflects the carrying value of corporate fixed assets and the related financing and operating obligations . a summary of the financial results for each of our operating segments during the years ended december 31 , 2019 and 2018 follows ( in thousands ) : hospitality and entertainment operations replace_table_token_5_th for the years ended december 31 , 2019 and 2018 , the hospitality and entertainment operations segment revenues were $ 7.6 million and $ 6.9 million , respectively , and contributed 58.0 % and 71.3 % , respectively , of total consolidated revenues . the year-over-year increase in hospitality and entertainment operations revenues is attributable to the macarthur place completing renovations and placing all rooms and food and beverage operations into service near the end of third quarter 2019 , which increased 44 revenues for the balance of 2019 as compared to 2018 when the property had many rooms out of service and limited food and beverage services .
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results of operations for the years ended december 31 , 2019 and 2018 the following discussion compares historical results of operations on a gaap basis for the fiscal years ended december 31 , 2019 and 2018 . unless otherwise noted , all comparative performance data included below reflects year-over-year comparisons . replace_table_token_3_th operating property revenue . for year ended december 31 , 2019 , we recorded $ 10.5 million in operating property revenue as compared to $ 6.6 million for the year ended december 31 , 2018 , an increase of $ 3.8 million or 57.6 % . the year-over-year increase in operating property revenue is attributable to 1 ) an increase in revenue from our macarthur place hotel , restaurant , and spa operations due to substantial completion of the renovation project in the fourth quarter of 2019 , and 2 ) $ 2.9 million in new revenues generated from the broadway tower commercial office rental operations which was acquired through foreclosure in may 2019 , and which was sold subsequent to december 31 , 2019. in 2018 , operating property revenues were generated solely from macarthur place , the revenues of which were negatively impacted in 2018 by the hotel renovation project . mortgage loan income . for the year ended december 31 , 2019 , income from mortgage loans was $ 1.9 million , a decrease of $ 0.7 million or 26.2 % from the year ended december 31 , 2018 .
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future events ; business conditions ; results of operations ; financial position business outlook trends ; and other information , may be forward-looking statements . words such as `` might , '' `` will , '' `` may , '' `` could , '' `` should , '' `` estimates , '' `` expects , '' `` continues , '' `` contemplates , '' `` anticipates , '' `` projects , '' `` plans , '' `` potential , '' `` predicts , '' `` intends , '' `` believes , '' `` forecasts , '' `` future , '' `` assumes , '' and variations of such words or similar expressions are intended to identify forward-looking statements . in particular , information appearing under “ risk factors ” and “ management 's discussion and analysis of financial condition and results of operations ” includes forward-looking statements . these statements are based on management 's expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed , or implied by , these forward-looking statements . factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include : the company 's success in obtaining , retaining , and selling additional services to customers ; the pricing of our products and services ; overall market and economic conditions , including interest rate and foreign currency trends , and technology trends ; adverse global economic conditions and credit markets and volatility in the countries in which we do business ( such as the adverse economic impact and related uncertainty caused by the united kingdom 's ( `` u.k. '' ) decision to leave the european union ( `` brexit '' ) ) ; auto sales and related industry changes ; competitive conditions ; changes in regulation ( including new regulations that restrict the manner and extent to which we can control access to our dms and other software applications and limit what , if anything , we may charge for integration with those applications ) ; changes in technology , security breaches , interruptions , failures , and other errors involving our systems ; availability of skilled technical employees/labor/personnel ; the impact of new acquisitions and divestitures ; employment and wage levels ; availability of capital for the payment of debt service obligations or dividends or the repurchase of shares ; any changes to our credit rating and the impact of such changes on our financing costs , rates , terms , debt service obligations , and access to capital market and working capital needs ; the impact of our indebtedness , our access to cash and financing , and our ability to secure financing or financing at attractive rates ; the onset of or developments in litigation involving contract , intellectual property , competition , stockholder , and other matters , and governmental investigations ; our ability to complete the divestiture of the digital marketing business ; and the ability of our significant stockholders and their affiliates to significantly influence our decisions , or cause us to incur significant costs . 26 there may be other factors that may cause our actual results , performance or achievements to differ materially from those expressed in , or implied by , the forward-looking statements . we can give no assurances that any of the events anticipated by the forward-looking statements will occur or , if any of them do , what impact they will have on our results of operations and financial condition . you should carefully read the factors described elsewhere in this document under `` risk factors '' in part i , item 1a in this annual report on form 10-k for a description of certain risks that could , among other things , cause our actual results to differ from these forward-looking statements . all forward-looking statements speak only as of the date of this annual report on form 10-k , even if subsequently made available by us on our website or otherwise , and are expressly qualified in their entirety by the cautionary statements included in this annual report on form 10-k. we disclaim any obligation to update or revise forward-looking statements that may be made to reflect new information or future events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events , other than as required by law . the following discussion should be read in conjunction with our consolidated financial statements and accompanying notes thereto included elsewhere herein . in this annual report on form 10-k , all references to `` we , '' `` our , '' and `` us '' refer collectively to cdk and its consolidated subsidiaries . 27 ( tabular amounts in millions , except per share amounts ) executive overview cdk global enables end-to-end automotive commerce across the globe . for over 40 years , we have served automotive retailers and original equipment manufacturers ( `` oems '' ) by providing innovative solutions that allow them to better connect , manage , analyze , and grow their businesses . our solutions automate and integrate all parts of the buying process , including the , acquisition , sale , financing , insuring , parts supply , repair , and maintenance of vehicles , in more than 100 countries around the world , for approximately 30,000 retail locations and most oems . we generate revenue primarily by providing a broad suite of subscription-based software and technology solutions for automotive retailers through our cdk north america and cdk international segments . we are focused on the use of software-as-a-service ( `` saas '' ) and mobile-centric solutions that are highly functional , flexible and fast . our flagship dealer management system ( `` dms '' ) software solutions are hosted enterprise resource planning applications tailored to the unique requirements of the retail automotive industry . our dms products facilitate the sale of new and used vehicles , consumer financing , repair and maintenance services , and vehicle and parts inventory management . story_separator_special_tag in our cdkna segment , we have the following sources of revenue : subscription : for software and technology solutions provided to automotive retailers and oems , which includes : dmss and layered applications , which may be installed on-site at the customer 's location , or hosted and provided on a saas basis , including ongoing maintenance and support ; interrelated services such as installation , initial training , and data updates ; and hardware on a service basis , meaning no specific assets are identified or a substantive right of substitution exists . on-site licenses and installation : dmss applications where the software is installed on-site at the customer 's location and interrelated services such as installation . transaction : fees per transaction to process credit reports , vehicle registrations , and automotive equity mining . other : consulting and professional services , sales of hardware , and other miscellaneous revenues . cdki revenues are generated primarily from subscription revenue , aside from the absence of layered applications , and on-site licenses and installation revenue , as described above . expenses . expenses generally relate to the cost of providing services to customers in our two reportable segments . in the cdkna and cdki segments , significant expenses include employee payroll and other labor-related costs , the cost of hosting customer systems , third-party costs for transaction-based solutions and licensed software utilized in our solution offerings , telecommunications , transportation and distribution costs , computer hardware , software , and other general overhead items . we also have some company-wide expenses attributable to management compensation and corporate overhead . potential material trends and uncertainties in our marketplace a number of material trends and or uncertainties in our marketplace could have either a positive or negative impact on our ability to conduct business , our results of operations , and or our financial condition . the following is a summary of trends or uncertainties that have the potential to affect our liquidity , capital resources , or results of operations : our revenues , operating earnings , and profitability have varied in the past as a result of these trends and uncertainties and are likely to continue to vary from quarter to quarter , which may lead to volatility in our stock price . these trends or uncertainties could occur in a variety of different areas of our business and the marketplace . changing market trends , including changes in the automotive marketplace , both in north america and internationally , could have a material impact on our business . from time to time , the economic trends of a region could have an impact on the volume of automobiles sold at retail within one or more of the geographic markets in which we operate . to 29 some extent , our business is impacted by these trends , either directly through a shift in the number of transactions processed by customers of our transactional business , or indirectly through changes in our customers ' spending habits based on their own changes in profitability . our presence in multiple markets internationally could pose challenges that would impact our business or results of operations . we currently operate in over 100 countries and derive a significant amount of our overall revenues from markets outside of north america . the geographic breadth of our presence exposes us to potential economic , social , regulatory , and political shifts . our ability to bring new solutions to market , research and develop , or acquire the data and technology that enables those solutions is important to our continued success . in addition , our strategy includes the selective pursuit of acquisitions that support or complement our existing technology and solution set . an inability to invest in the continued development of new solutions for the automotive marketplace , or an inability to acquire new technology or solutions due to a lack of liquidity or resources , could impair our strategic position . our success depends on our ability to maintain the security of our data and intellectual property , as well as our customers ' data . although we maintain a clear focus on data and system security , and we incur significant costs securing our infrastructure annually in support of that focus , we may experience interruptions of service or potential security issues that may be beyond our control . factors affecting comparability of financial results debt financing on june 18 , 2018 , we completed an offering of 5.875 % senior notes with a $ 500.0 million aggregate principal amount due in 2026 ( the `` 2026 notes '' ) . the net proceeds from the sale of the 2026 notes were used for general corporate purposes , which included share repurchases , dividends , acquisitions ( including our september 2018 acquisition of elead1one ( `` elead '' ) ) , repayments of debt , working capital and capital expenditures . on august 17 , 2018 , we entered into a five-year senior unsecured revolving credit facility , which was undrawn as of june 30 , 2019. the credit facility replaced the previous unsecured revolving credit facility agreement , which was undrawn as of june 30 , 2018. the revolving credit facility provides up to $ 750.0 million of borrowing capacity and includes a sub-limit of up to $ 100.0 million for loans in euro , pound sterling , and , if approved by the revolving lenders , other currencies . in addition , the revolving credit facility contains an accordion feature that allows for an increase in the available borrowing capacity of up to $ 100.0 million , subject to the agreement of lenders under the revolving credit facility or other financial institutions that become lenders to extend commitments as part of the increased revolving credit facility . borrowings under the revolving credit facility are available for general corporate purposes . the revolving credit facility will mature on august 17 , 2023 , subject to no more than two one -year extensions if lenders holding a majority of the revolving commitments approve such extensions .
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results of operations we review results on a constant currency basis to understand underlying business trends . to present these results on a constant currency basis , current period results for entities reporting in currencies other than the u.s. dollar were translated into u.s. dollars using the average monthly exchange rate for the comparable prior period . as a result , constant currency results neutralize the effects of foreign currency . fiscal 2019 compared to fiscal 2018 the following is a discussion of the results of our consolidated results of operations for fiscal 2019 and 2018 , respectively . for a discussion of our operations by segment , see `` analysis of reportable segments '' below . the table below presents consolidated statements of operations for the periods indicated and the dollar change and percentage change between periods . replace_table_token_3_th revenues . revenues for fiscal 2019 increased by $ 116.8 million as compared to fiscal 2018 . the cdkna segment contributed $ 151.3 million , partially offset by declines in the cdki segment of $ 34.5 million . the impact of foreign exchange rates on revenues was a decrease of $ 18.5 million . the foreign exchange rate impact was primarily due to the strength of the euro , canadian dollar , british pound , and south african rand against the u.s. dollar . cost of revenues . cost of revenues for fiscal 2019 increased by $ 45.3 million as compared to fiscal 2018 which includes a $ 24.7 million decrease for costs to fulfill that were deferred and costs related to revenue that was recognized prior to july 1 , 2018 upon adoption of asc 606. the constant currency impact of foreign exchange rates on cost of revenues was a decrease of $ 8.6 million .
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the amendments in this asu allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the tax cuts and jobs act . the new standard is effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . early adoption is permitted . in the fourth quarter of 2017 , the corporation elected early adoption of asu 2018-02. adoption of this standard resulted in a reclassification of $ 170,000 from accumulated other comprehensive income to story_separator_special_tag management 's discussion and analysis of the significant changes in the results of operations , capital resources and liquidity presented in the accompanying consolidated financial statements for codorus valley bancorp , inc. ( “ codorus valley ” or the “ corporation ” ) , a bank holding company , and its wholly owned subsidiary , peoplesbank , a codorus valley company ( “ peoplesbank ” ) , are provided below . codorus valley 's consolidated financial condition and results of operations consist almost entirely of peoplesbank 's financial condition and results of operations . current performance does not guarantee and may not be indicative of similar performance in the future . forward-looking statements management of the corporation has made forward-looking statements in this form 10-k. these forward-looking statements may be subject to risks and uncertainties . forward-looking statements include information concerning possible or assumed future results of operations of the corporation and its subsidiaries . when words such as “ believes , ” “ expects , ” “ anticipates , ” or similar expressions are used in this form 10-k , management is making forward-looking statements . note that many factors , some of which are discussed elsewhere in this report and in the documents that are incorporated by reference , could affect the future financial results of the corporation and its subsidiaries , both individually and collectively , and could cause those results to differ materially from those expressed in the forward-looking statements contained or incorporated by reference in this form 10-k. these factors include , but are not limited to , the following : ● operating , legal and regulatory risks ; ● credit risk , including an increase in nonperforming assets requiring loss provisions and the incurrence of carrying costs related to nonperforming assets ; ● interest rate fluctuations which could increase our cost of funds or decrease our yield on earning assets and therefore reduce our net interest income ; ● declines in the market value of investment securities considered to be other-than-temporary ; ● unavailability of capital when needed or availability at less than favorable terms ; ● unauthorized disclosure of sensitive or confidential client or customer information , whether through a breach of our computer systems or otherwise , may adversely affect the corporation 's operations , net income or reputation ; ● inability to achieve merger-related synergies , and difficulties in integrating the business and operations of acquired institutions ; ● a prolonged economic downturn or excessive inflation ; ● political and competitive forces affecting banking , securities , asset management and credit services businesses ; ● the effects of and changes in the rate of fdic premiums , including special assessments ; ● future legislative or administrative changes to u.s. governmental capital programs ; ● future changes in federal or state tax laws or tax rates ; ● enacted financial reform legislation , e.g. , dodd-frank wall street reform and consumer protection act , may have a significant impact on the corporation 's business and results of operations ; and ● the risk that management 's analyses of these risks and forces could be incorrect and or that the strategies developed to address them could be unsuccessful . the corporation undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report . 29 critical accounting estimates disclosure of codorus valley 's significant accounting policies is included in note 1 in the notes to the consolidated financial statements included in this form 10-k. some of these policies require management to make significant judgments , estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities . management makes significant estimates in determining the allowance for loan losses , valuation of foreclosed real estate , and evaluation of other-than-temporary impairment losses of securities . management considers a variety of factors in establishing allowance for loan losses such as current economic conditions , diversification of the loan portfolio , delinquency statistics , results of internal loan reviews , financial and managerial strength of borrowers , adequacy of collateral , ( if collateral dependent , or present value of future cash flows ) and other relevant factors . there is also the potential for adjustment to the allowance for loan losses as a result of regulatory examinations . foreclosed real estate is initially recorded at fair value minus estimated costs to sell at the date of foreclosure , establishing a new cost basis . appraisals are generally used to determine fair value . after foreclosure , management reviews valuations at least quarterly and adjusts the asset to the lower of cost or fair value minus estimated costs to sell . estimates related to the value of collateral can have a significant impact on whether or not management continues to accrue income on delinquent and impaired loans and on the amounts at which foreclosed real estate is recorded on the statement of financial condition . the corporation records its available-for-sale securities portfolio at fair value . fair values for these securities are determined based on methodologies in accordance with fasb accounting standards codification ( asc ) topic 820. fair values for debt securities are volatile and may be influenced by any number of factors , including market interest rates , prepayment speeds , discount rates , credit ratings and yield curves . fair values for debt securities are based on quoted market prices , where available . story_separator_special_tag the decrease is primarily a result of the issuance of 1,746,850 of common shares in the $ 34,500,000 public offering completed in december 2015. the corporation used the funds from the public offering to redeem the remaining $ 12,000,000 of shares of series b preferred stock issued under the u.s. treasury 's small business lending fund program , as reported on a form 8-k filed on february 19 , 2016. in addition , approximately $ 19,800,000 of the net proceeds were invested in the corporation 's bank subsidiary peoplesbank and the remaining proceeds were used for general corporate purposes . net interest income , which totaled $ 53,581,000 for the year ended december 31 , 2016 , represented an increase of $ 5,753,000 or 12 percent above net interest income of $ 47,828,000 for 2015. the growth in net interest income reflects the increased volume of interest-earning assets , primarily commercial loans ; however , the additional interest income from this new loan volume was partially offset by increased costs associated with the growth in core deposits and higher long-term borrowing costs . the loan loss provision for 2016 totaled $ 3,000,000 as compared to the loan loss provision of $ 3,500,000 for 2015 , a decrease of $ 500,000. the decrease in the provision was primarily a result of a reduction in net charge-offs of $ 1,246,000 in 2016 compared to 2015. the allowance for loan losses as a percentage of total period-end loans was 1.18 percent and 1.13 percent as of december 31 , 2016 and 2015 , respectively . the increased allowance for loan losses reflected both the overall commercial loan growth for 2016 , and the corporation 's analysis of the adequacy of the allowance based upon the size , composition , and risks to the loan portfolio , the level of specific reserves , and realized net charge-offs . noninterest income , excluding gains on sales of investment securities , for the year ended december 31 , 2016 , totaled $ 9,836,000 representing an increase of $ 1,281,000 or 15 percent compared to noninterest income of $ 8,555,000 for 2015. specific noninterest income increases included trust fees , income from mutual fund , annuity and insurance sales , service charges on deposits , income from bank owned life insurance and gains on sales of loans held for sale . gains on sales of investment securities for 2016 decreased $ 298,000 when compared to 2015 . 33 noninterest expense for the year ended december 31 , 2016 , totaled $ 41,623,000 representing an increase of $ 4,196,000 or 11 percent compared to $ 37,427,000 for 2015. higher costs associated with : personnel , charitable donations , external data processing , debit card processing , fdic insurance and other expenses , accounted for the majority of the increase . the primary driver of the aforementioned increase in noninterest expense was the expansion of our business and consumer banking services in our maryland and pennsylvania markets . the provision for income taxes for 2016 totaled $ 5,886,000 which was $ 1,073,000 or 22 percent above the provision for income taxes for 2015 of $ 4,813,000. the increase was due to higher pre-tax net income and a slight decrease in the amount of tax-exempt income . preferred stock dividends for 2016 were $ 16,000 , a decrease of $ 104,000 , compared to $ 120,000 in 2015. the preferred stock dividend rate for both years was 1 percent . on february 18 , 2016 , as reported on a form 8-k filed on february 19 , 2016 , the corporation redeemed the remaining $ 12,000,000 in outstanding shares of series b preferred stock issued under the u.s. treasury 's small business lending fund program , resulting in the reduction in dividends expense for the year . on december 31 , 2016 , total assets were $ 1.61 billion , representing an 11 percent increase compared to total assets of $ 1.46 billion as of december 31 , 2015. asset growth for 2016 occurred primarily in the commercial loan portfolio and was funded primarily by an increase in deposits . the growth in core deposits included a $ 37,694,000 increase in the average balance of noninterest bearing deposits for 2016 as compared to 2015. growing core deposits remains a particular focus of the corporation because the rates paid for such deposits are low , transactional activity on these deposits are a source of fee income , and a core deposit relationship provides the opportunity to cross-sell other financial products and services . the corporation excludes time deposits in its definition of core deposits . cash dividends paid on common shares for the year 2016 totaled $ 0.472 per share , as adjusted for stock dividends , representing an increase of $ 0.032 or 7 percent above the cash dividends of $ 0.440 , as adjusted , paid for the year 2015. the corporation distributed a 5 percent common stock dividend on december 13 , 2016 , the same common stock dividend percentage that was distributed in december 2015. as a result of profitable operations and the public offering of common stock as previously reported on form 8-ks filed on december 15 , 2015 and december 23 , 2015 , the corporation 's capital level remained sound as evidenced by capital ratios that exceed current regulatory requirements for well capitalized institutions . table 9 - capital ratios , following , shows that both the corporation and peoplesbank were well capitalized for all periods presented . 34 income statement analysis net interest income the corporation 's principal source of revenue is net interest income , which is the difference between ( i ) interest income on earning assets , primarily loans and investment securities , and ( ii ) interest expense incurred on deposits and borrowed funds . fluctuations in net interest income are caused by changes in both interest rates , and the volume and composition of interest rate sensitive assets and liabilities .
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financial highlights executive summary the corporation 's net income available to common shareholders ( earnings ) was $ 12,004,000 for the full year 2017 , compared to $ 13,086,000 of earnings in 2016 , a decrease of $ 1,082,000 or 8 percent . the decrease in net income and earnings per share for the year was primarily the result of a $ 2,755,000 reduction in the net deferred tax asset value due to the new corporate tax rate of 21 percent enacted as part of the tax cuts and jobs act . ● net interest income for 2017 increased $ 5,966,000 or 11 percent when compared to 2016 , primarily due to an increase in the volume of commercial loans . ● net interest margin ( tax-equivalent basis ) for 2017 was 3.84 percent , compared to 3.89 percent for 2016. the corporation continues to have success in growing lower cost core deposits , while maintaining reasonable yields on new loan growth in a highly competitive environment . the average yield on earning assets increased to 4.53 percent in 2017 as compared to 4.51 percent in 2016 and the cost of interest-bearing liabilities increased to 0.86 percent in 2017 , as compared to 0.76 percent in 2016 . ● the loan loss provision for 2017 increased $ 1,175,000 compared to 2016 , primary due to growth in commercial loans and an increase in net charge-offs in 2017 as compared to the prior year . ● noninterest income , excluding gains on sales of investment securities , for the year ended december 31 , 2017 , totaled $ 11,443,000 representing an increase of $ 1,607,000 or 16 percent compared to noninterest income of $ 9,836,000 for 2016. specific noninterest income increases included trust fees , service charges on deposits , income from bank owned life insurance and gains on sales of loans held for sale .
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charges of $ 433 million in 2017 for edison international parent and other and $ 33 million for sce from the re-measurement of deferred taxes as a result of the tax cuts and jobs act ( `` tax reform '' ) . for further information , see `` — tax reform '' below . see `` results of operations '' for discussion of sce and edison international parent and other results of operations . 2018 general rate case sce 's grc proceeding , for the three-year period 2018 – 2020 , is pending . sce has requested a revenue requirement of $ 5.534 billion for its test year of 2018 , a $ 106 million decrease from the 2017 grc authorized revenue requirement , and revenue requirements for the post-test years of 2019 and 2020 of $ 5.965 billion and $ 6.468 billion , respectively . in the absence of a 2018 grc decision , sce has recognized revenue in 2018 and is recognizing revenue in 2019 based on the 2017 authorized revenue requirement , adjusted for the july 2017 cost of capital decision and tax reform . the cpuc has approved the establishment of a grc memorandum account and the 2018 and 2019 revenue requirements adopted by the cpuc will be effective as of january 1 , 2018 and january 1 , 2019 , respectively . sce accounts for regulatory decisions in the discrete period in which they are received and , accordingly , will record the impact of the 2018 grc decision when a decision is received . sce can not predict the revenue requirements the cpuc will authorize or provide assurance on the timing of a final decision . 4 southern california wildfires and mudslides approximately 35 % of sce 's service territory is in areas identified as high fire risk by sce . multiple factors have contributed to increased wildfires , faster progression of wildfires and the increased damage from wildfires across sce 's service territory and throughout california . these include the buildup of dry vegetation in areas severely impacted by years of historic drought , lack of adequate clearing of hazardous fuels by responsible parties , higher temperatures , lower humidity , and strong santa ana winds . at the same time that wildfire risk has been increasing in southern california , residential and commercial development has occurred and is occurring in some of the highest-risk areas . such factors can increase the likelihood and extent of wildfires . in december 2017 and november 2018 , wind-driven wildfires impacted portions of sce 's service territory , causing substantial damage to both residential and business properties and service outages for sce customers . the largest of the 2017 fires , known as the thomas fire , originated in ventura county and burned acreage located in both ventura and santa barbara counties . the largest of the 2018 fires , known as the woolsey fire , originated in ventura county and burned acreage in both ventura and los angeles counties . according to cal fire information , the thomas fire burned over 280,000 acres , destroyed an estimated 1,063 structures , damaged an estimated 280 structures and resulted in two fatalities , while the woolsey fire burned almost 100,000 acres , destroyed an estimated 1,643 structures , damaged an estimated 364 structures and resulted in three fatalities . multiple lawsuits related to the thomas fire and the woolsey fire have been initiated against sce and edison international . some of the thomas fire-related lawsuits claim that sce and edison international have responsibility for the damages caused by the montecito mudslides based on a theory that sce has responsibility for the thomas fire and that the thomas fire proximately caused the montecito mudslides . according to santa barbara county initial reports , the montecito mudslides destroyed an estimated 135 structures , damaged an estimated 324 structures , and resulted in 21 fatalities , with two additional fatalities presumed . investigations into the causes of the 2017/2018 wildfire/mudslide events are ongoing and final determinations of liability would only be made during lengthy and complex litigation processes . even when investigations are still pending or liability is disputed , an assessment of likely outcomes , including through future settlement of disputed claims , may require a charge to be accrued under accounting standards . based on sce 's internal review into the facts and circumstances of each of the 2017/2018 wildfire/mudslide events and consideration of the risks associated with litigation , edison international and sce expect to incur a material loss in connection with the 2017/2018 wildfire/mudslide events and have accrued a charge , before recoveries and taxes , of $ 4.7 billion in the fourth quarter of 2018. this charge corresponds to the lower end of the reasonably estimated range of expected potential losses that may be incurred in connection with the 2017/2018 wildfire/mudslide events and is subject to change as additional information becomes available . edison international and sce will seek to offset any actual losses realized in connection with the 2017/2018 wildfire/mudslide events with recoveries from insurance policies in place at the time of the events and , to the extent actual losses exceed insurance , through electric rates . in the fourth quarter of 2018 , edison international and sce also recorded expected recoveries from insurance of $ 2.0 billion and expected recoveries through electric rates of $ 135 million , which is the ferc portion of the $ 4.7 billion charge it accrued . the net charge to earnings recorded was $ 1.8 billion after-tax . story_separator_special_tag in the absence of regulatory guidance specific to tax reform , sce used judgment to interpret prior cpuc and ferc decisions to determine which re-measurement amounts will be refunded to customers . at december 31 , 2017 , the implementation of tax reform for sce resulted in a reduction of deferred tax liabilities and an increase in regulatory liabilities of approximately $ 5.0 billion ( `` excess deferred taxes '' ) . a non-core charge of $ 33 million was recorded for the re-measurement of deferred taxes attributable to shareholder-funded activities in 2017 `` income tax expense . '' 6 changes in the allocation of deferred tax re-measurement between customers and shareholders will be reflected in the financial statements and adjusted prospectively as information becomes available . the cpuc issued a resolution in february 2019 holding that customers are only entitled to excess deferred taxes that were included when setting rates , and that all other deferred tax re-measurement belongs to shareholders . as a result of the resolution , sce will record a non-core income tax benefit of approximately $ 70 million in the first quarter of 2019. in the near term , tax reform will lower rates charged to customers , but will not have a meaningful impact to sce 's earnings . certain deferred tax liabilities reduce sce 's rate base . the re-measurement of deferred tax liabilities from the implementation of tax reform will not impact sce 's rate base initially . however , tax reform 's elimination of bonus depreciation and lower corporate tax rates will reduce cash flow from operations and increase rate base over time . in addition , as new plant is placed in service the lower federal corporate tax rate will result in lower deferred tax liabilities and , therefore , higher rate base . see `` —capital program . '' to the extent that edison international parent and other continue to produce pre-tax losses , tax reform will result in lower tax benefits . tax reform will also impact edison international 's liquidity . see `` liquidity and capital resources—edison international parent and other—net operating loss and tax credit carryforwards . '' electricity industry trends in addition to responding to the `` new normal '' of increased wildfire-activity in california , the electric power industry is also undergoing transformative change driven by technological advances , such as customer-owned generation , electric vehicles and energy storage , which is altering the nature of energy generation and delivery . california is committed to reducing its ghg emissions , improving local air quality and supporting continued economic growth . the state set goals to reduce ghg emissions by 40 percent from 1990 levels by 2030 and 80 percent from the same baseline by 2050. state and local air quality plans call for substantial improvements , such as reducing smog-causing nitrogen oxides 90 percent below 2010 levels by 2032 in the most polluted areas of the state . while these policy goals can not be achieved by the electric sector alone , the electric grid is a critical enabler of the adoption of new energy technologies that support california 's climate change and ghg reduction objectives . the grid is also key to enabling more customer choices with respect to new energy technologies , including fostering the adoption of electric vehicles . edison international expects to lead the transformation of the industry by building a modernized and more reliable grid , focusing on opportunities in clean energy and efficient electrification , and enabling customers ' technology choices . sce plans to enable the adoption of new energy technologies that mitigate wildfire risk and benefit customers of the electric grid while also helping california achieve its environmental goals . sce expects to achieve these objectives through improving the safety and reliability of the transmission and distribution network and helping customers make cleaner energy choices including enabling increased penetration of ders , electric transportation and energy efficiency programs . sce 's ongoing focus to drive operational and service excellence is intended to allow it to achieve these objectives safely while controlling costs and customer rates . sce 's focus on the transmission and distribution of electricity aligns with california 's policy supporting competitive power procurement markets . for more information on the grid development , see `` —capital program—grid development '' below . changes in the electric power industry are impacting customers and jurisdictions outside california as well . edison international believes that other states will also pursue climate change and ghg reduction objectives and large commercial and industrial customers will continue to pursue cost reduction and sustainability goals . edison energy provides energy services and managed portfolio solutions to commercial and industrial customers who may be impacted by these changes . edison energy seeks to provide advice in dealing with increasingly complex tariff and technology choices in order to support customers and their management of energy costs and risks . to provide a broader view of developments outside of sce , edison international has made several minority investments in emerging companies in areas related to the technology changes that are driving industry transformation , and may make additional investments in the future . these investments are not financially material to edison international . 7 capital program total capital expenditures ( including accruals ) , were $ 4.4 billion in 2018 and $ 3.8 billion in 2017. sce 's year-end rate base was $ 29.6 billion at december 31 , 2018 compared to $ 27.8 billion at december 31 , 2017. in the absence of a 2018 grc decision , sce has developed and is executing against a 2019 capital plan that will allow it to manage capital spending over the three year grc period to meet what is ultimately authorized while minimizing the risk of unauthorized spending . a component of this approach is to focus initial grid modernization spending on capital that provides safety and reliability benefits while deferring most spending that is primarily
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results of operations sce sce 's results of operations are derived mainly through two sources : earning activities – representing revenue authorized by the cpuc and ferc which is intended to provide sce a reasonable opportunity to recover its costs and earn a return on its net investment in generation , transmission and distribution assets . the annual revenue requirements are comprised of authorized operation and maintenance costs , depreciation , taxes and a return consistent with the capital structure . also , included in earnings activities are revenue or penalties related to incentive mechanisms , other operating revenue , and regulatory charges or disallowances . cost-recovery activities – representing cpuc- and ferc-authorized balancing accounts which allow for recovery of specific project or program costs , subject to reasonableness review or compliance with upfront standards . cost-recovery activities include rates which provide recovery , subject to reasonableness review of , among other things , fuel costs , purchased power costs , public purpose related-program costs ( including energy efficiency and demand-side management programs ) and certain operation and maintenance expenses . sce earns no return on these activities . 10 the following table is a summary of sce 's results of operations for the periods indicated . replace_table_token_8_th 1 expenses for the years ended december 31 , 2017 and 2016 , respectively , were updated to reflect the implementation of the accounting standard update for net periodic benefit costs related to the defined benefit pension and other postretirement plans . for further information , see note 1 in the `` notes to consolidated financial statements . '' 2 see use of non-gaap financial measures in `` management overview—highlights of operating results . ''
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generally , forward looking statements include words or phrases such as “ anticipates , ” “ believes , ” “ estimates , ” “ expects , ” “ intends , ” “ plans , ” “ projects , ” “ could , ” “ may , ” “ might , ” “ should , ” “ will ” and words and phrases of similar impact . the forward-looking statements include , but are not limited to , statements regarding future operations , industry trends or conditions and the business environment , and statements regarding future levels of or trends in business strategy and expectations , new business opportunities , cost control initiatives , business wins , market demand , revenue , operating expenses , capital expenditures , and financing . the forward-looking statements are made pursuant to safe harbor provisions of the private securities litigation reform act of 1995. numerous factors could cause actual results to differ materially from those in the forward-looking statements , including the following : ( i ) the availability to ctg of qualified professional staff , ( ii ) domestic and foreign industry competition for clients and talent , including technical , sales and management personnel , ( iii ) increased bargaining power of large clients , ( iv ) the company 's ability to protect confidential client data , ( v ) the partial or complete loss of the revenue the company generates from international business machines corporation ( ibm ) and sdi international ( sdi ) , ( vi ) the uncertainty of clients ' implementations of cost reduction projects , ( vii ) the effect of healthcare reform and initiatives , ( viii ) the mix of work between staffing and solutions , ( ix ) currency exchange risks , ( x ) risks associated with operating in foreign jurisdictions , ( xi ) renegotiations , nullification , or breaches of contracts with clients , vendors , subcontractors or other parties , ( xii ) the impact of current and future laws and government regulation , as well as repeal or modification of such , affecting the information technology ( it ) solutions and staffing industry , taxes and the company 's operations in particular , ( xiii ) industry and economic conditions , including fluctuations in demand for it services , ( xiv ) consolidation among the company 's competitors or clients , ( xv ) the need to supplement or change our it services in response to new offerings in the industry or changes in client requirements for it products and solutions , ( xvi ) the risks associated with acquisitions , ( xvii ) the ability to integrate soft company and tech-it , ( xviii ) actions of activist shareholders , and ( xix ) the risks described in item 1a of this annual report on form 10-k and from time to time in the company 's reports filed with the securities and exchange commission ( sec ) . industry trends the market demand for the company 's services is heavily dependent on it spending by major corporations , organizations and government entities in the markets and regions that we serve . the pace of technology advances and changes in business requirements and practices of our clients all have a significant impact on the demand for the services that we provide . competition for new engagements and pricing pressure has been strong . throughout 2017 and 2016 , many of our healthcare clients did not begin new projects when existing projects ended due to their capital constraints . the demand for the company 's it solutions business , primarily in our healthcare vertical market in north america improved in 2018 as spending increased along with the improving economy . additionally , the demand for our it staffing and other services from certain of our large staffing clients increased during 2018. the company primarily operates in one industry segment , providing it services to its clients . these services include it solutions and it and other staffing . with it solutions services , we generally take responsibility for the deliverables on a project and the services may include high-end consulting . when providing it and other staffing services , we typically supply personnel to our clients who then , in turn , take their direction from the client 's managers . the company at times provides administrative or warehouse employees to clients to supplement the it staffing resources we place at those clients . it solutions and it and other staffing revenue as a percentage of consolidated revenue for the three years ended december 31 , 2018 , 2017 , and 2016 is as follows : replace_table_token_9_th 17 the company promotes a majority of its services through five vertical market focus areas : t echnology service p roviders , m anufacturing , h ealthcare ( which includes services provided to healthcare providers , health insurers ( payer s ) , and life sciences companies ) , f inancial s ervices , and e nergy . the remainder of ctg 's revenue is derived from general markets . ctg 's revenue by vertical market as a percentage of consolidated revenue for the three years ended december 31 , 2018 , 2017 , and 2016 is as follows : replace_table_token_10_th the it services industry is extremely competitive and characterized by continuous changes in client requirements and improvements in technologies . our competition varies significantly by geographic region , as well as by the type of service provided . many of our competitors are larger than ctg , and have greater financial , technical , sales , and marketing resources . in addition , the company frequently competes with a client 's own internal it staff . our industry is being impacted by the growing use of lower-cost offshore delivery capabilities ( primarily india and other parts of asia ) . there can be no assurance that we will be able to continue to compete successfully with existing or future competitors or that future competition will not have a material adverse effect on our results of operations and financial condition . story_separator_special_tag additionally , the company recorded $ 2.0 million in acquisition related costs , and $ 0.7 million in severance . operating income in 2017 was reduced by a total of $ 2.0 million from unusually high utilization of the company 's self-insured medical plan , and severance . operating income from our european operations was $ 5.3 million in 2018 compared with $ 4.0 million in 2017. the increase in operating income in 2018 compared with 2017 is primarily due to strong demand for the company 's services in the european markets we serve , and the acquisition of soft company completed in february 2018 . 20 other income ( expense ) was 0.1 % of revenue in 2018 and 0 .0 % of revenue in 2017 . in 2018 and 2017 , the company recorded a non-taxable life insurance gain of approximately $ 0.8 and $ 0.4 million , respectively , as one of its former executives passed away in each year . the company 's effective tax rate ( etr ) is calculated based upon the full year 's operating results and various tax related items . the etr in 2018 was 224 % , while the 2017 etr was 80.1 % . the etr was high in 2018 primarily due to the company recording a valuation allowance for its deferred tax assets in the u.s. totaling $ 3.8 million as the company has recurring pre-tax losses in recent years , cumulative pre-tax losses from 2016 to 2018 , and uncertainty as to income in future years . the company also incurred approximately $ 0.7 million of tax associated with the gilti provisions of the 2017 tax cut and jobs act , and $ 0.3 million of tax from non-deductible acquisition related costs in our foreign operations . these items , which caused additional tax expense , were offset by a non-taxable life insurance gain , the reversal of the valuation for deferred tax assets in the united kingdom , the tax cuts and jobs act which reduced the us federal corporate tax rate to 21 % , and tax benefits for the work opportunity tax credit ( wotc ) and research and development tax credit ( r & d ) . the etr was high in 2017 primarily due to the effects of the tax cuts & jobs act which resulted in the company reducing its u.s. deferred tax assets by $ 1.7 million , and the adoption of asu 2016-09 , “ improvements to employee share-based payment accounting , ” which required the company to record additional tax expense of $ 0.3 million for shortfalls that would previously have been recorded to capital in excess of par value on the company 's consolidated balance sheet . this additional tax expense was partially offset by tax benefits for the work opportunity tax credit ( wotc ) and research and development tax credit ( r & d ) . net loss for 2018 was ( 0.8 ) % of revenue or $ ( 0.20 ) per diluted share , compared with net income of 0.3 % of revenue or $ 0.05 per diluted share in 2017. diluted earnings per share were calculated using 13.8 million weighted-average equivalent shares outstanding in 2018 and 15.3 million in 2017. the decrease in shares year-over-year is due to the company 's dutch auction tender offer where the company repurchased approximately 10 % of its outstanding shares in april 2018 . 2017 as compared with 2016 the company recorded revenue in 2017 and 2016 as follows : replace_table_token_14_th reimbursable expenses billed to clients and included in revenue totaled $ 3.3 million and $ 4.0 million in 2017 and 2016 , respectively . the decrease in reimbursable expenses year-over-year is primarily due to a reduction in the number of consultants in our healthcare vertical market , as many of those employees travel to client locations to perform services . the revenue decrease in north america in 2017 as compared with 2016 was primarily due to a significant decrease in demand for the company 's it staffing business , primarily in our technology service provider vertical market , and a decrease in demand for our it solutions services business , primarily in our healthcare vertical market . the revenue increase in europe is primarily due to strong demand for the company 's services in the european markets we serve . on a consolidated basis , it solutions revenue decreased $ 3.3 million or 3.5 % in 2017 as compared with 2016. beginning in late 2014 , the company began to see significant reductions in billable resources at a number of its larger healthcare clients which decreased it solutions revenue in the company 's healthcare vertical market as existing electronic health records ( ehr ) projects came to an end . this decrease in spending on healthcare it projects continued throughout 2017 for the clients that we serve . as part of our strategy to shift to non-ehr services , the company expanded its healthcare it business development team in 2017 with individuals who have experience selling healthcare it services such as advisory and technical services , outsourcing , and staff augmentation . however , in 2017 , this team as a whole was not successful in reducing our revenue losses in this vertical market and expanding the non-ehr healthcare related services we provide . 21 also on a consolidated basis , it and other staffing revenue decreased $ 20.3 million or 8.8 % during 2017 as compared with 2016. the it staffing decrease was primarily due to a decrease in demand from a number of the company 's largest staffing clients . additionally , there was a significant reduction in both requirements and billable rates for certain of the employees provided to our largest staffing client which began to impact the company in the 2016 fourth quarter . the company 's headcount was approximately 3,200 employees at december 31 , 2017 , which was a 7 % decrease from approximately 3,450 employees at december 31 , 2016. approximately 90 % of this headcount was for technical resources and 10 % for support positions .
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results of operations the table below sets forth percentage information calculated as a percentage of consolidated revenue as reported on the company 's consolidated statements of operations as included in item 8 , “ financial statements and supplementary data ” in this report . replace_table_token_12_th 2018 as compared with 2017 the company recorded revenue in 2018 and 2017 as follows : replace_table_token_13_th reimbursable expenses billed to clients and included in revenue totaled $ 3.2 million and $ 3.3 million in 2018 and 2017 , respectively . the revenue increase in north america in 2018 as compared with 2017 was primarily due to a significant increase in demand for the company 's it solutions business , primarily in our healthcare vertical market , and a modest increase in demand for our it staffing business , primarily in our technology services provider vertical market . the revenue increase in europe is primarily due to strong demand for the company 's services in the european markets we serve , and the acquisition of soft company on february 15 , 2018 , which has an annual revenue of approximately $ 30 million . on a consolidated basis , it solutions revenue increased $ 21.7 million or 23.7 % in 2018 as compared with 2017 . 2018 the increase is primarily due to an increase in it solutions services in europe and the addition of soft company , which was acquired on february 15 , 2018. soft company primarily specializes in providing it services to finance , insurance , telecom , and media services companies . the increase was also due in part to our strategy to shift to non-electronic health records ( ehr ) services in our healthcare vertical market . the company expanded its healthcare it business development team in 2018 with individuals who have experience selling healthcare it services such as advisory and technical services , outsourcing , and staff augmentation .
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at the time of settlement of a forward contract , realized gains or losses , if any , are recorded in foreign currency gains ( losses ) , net in the consolidated statements story_separator_special_tag overview we are one of the largest helicopter operators in the world and the longest operating helicopter transport operator in the u.s. , which is our primary area of operations . our helicopters are primarily used to transport personnel to , from and between , offshore installations , drilling rigs and platforms . in the years ended december 31 , 2014 , 2013 and 2012 , approximately 67 % , 60 % and 56 % , respectively , of our total operating revenues were earned in the u.s. gulf of mexico , and during the same periods , approximately 15 % , 18 % and 15 % , respectively , of our operating revenues were earned in alaska . we also provide helicopters and related services to third-party helicopter operators and foreign affiliates . we currently have customers in brazil , india , norway , spain and the united kingdom . the primary users of our helicopter services are international , major integrated and independent oil and gas exploration , development and production companies and bsee . in the years ended december 31 , 2014 , 2013 and 2012 , approximately 76 % , 75 % and 65 % , respectively , of our operating revenues were derived from helicopter services , including emergency search and rescue services , provided to customers primarily engaged in offshore oil and gas exploration , development and production activities . in addition to serving the oil and gas industry , we provide air medical services , utility services and alaska flightseeing tours , among other activities . as of december 31 , 2014 , we owned or operated a total of 160 helicopters , consisting of nine heavy helicopters , 62 medium helicopters , 37 light twin engine helicopters and 52 light single engine helicopters . as of december 31 , 2014 , we had commitments to purchase an additional 19 new helicopters consisting of ten aw189 heavy helicopters , four s92 heavy helicopters and five aw169 light twin helicopters . the aw189 helicopters and the s92 helicopters are scheduled to be delivered beginning 2015 through 2017 . delivery dates for the aw169 helicopters have yet to be determined . in addition , we had outstanding options to purchase up to an additional ten aw189 helicopters , five s92 helicopters and one aw139 medium helicopter . if these options were exercised , the helicopters would be scheduled for delivery in 2015 through 2018 . over the last several years , we saw an increase in ultra-deepwater and deepwater activity by our customers requiring transport services of helicopters with greater payloads and range . helicopters supporting air medical and search and rescue operations and other public uses also require new technology and safety improvements . we believe that our helicopter fleet , together with the commitments to acquire new helicopters described above and our continued efforts to upgrade our fleet and invest in new technologies , will enhance our competitive position in the market . helicopter replacement within the industry is impacted by the limited oems offering a full range of models and limited access to capital by smaller operators . we believe our cash flows from operating activities , revolving credit facility ( to the extent of our borrowing capacity thereunder ) and our strong relationships with oems will help position us to add new helicopters to our fleet and upgrade existing helicopters , thereby maintaining an asset base suitable for use within our own operations and for dry-leasing to other operators . we also leverage our strong relationships with oems to support growth in other services , such as selling specialty equipment and accessories for helicopters , and training . lines of service offshore oil and gas exploration , development and production support . the offshore oil and gas market is highly cyclical with demand linked to the price of oil and gas , which tends to fluctuate depending on many factors , including global economic activity and levels of inventory . in addition to the price of oil and gas , the availability of acreage and local tax incentives or disincentives and requirements for maintaining interests in leases affect activity levels in the oil and gas industry . price levels for oil and gas by themselves can cause additional fluctuations by inducing changes in consumer behavior . for the last eight years we have provided transportation services to government inspectors of offshore installations , drilling rigs and platforms . this contract was renewed in 2011 and is expected to run through 2016. as of december 31 , 2014 , 24 of our helicopters were operating under this contract with customer options to increase the number to up to 29 helicopters . brazil is among the most important markets for offshore oil and gas exploration and production activity world-wide . for example , petrobras brazil issued tenders for multi-year commitments to contract medium and heavy helicopters in january 2015. the u.s. energy information administration has stated that recent discoveries of large offshore , pre-salt oil deposits could transform brazil into one of the larger oil producers in the world . we committed to participate in this market by acquiring an ownership interest in aeróleo , a brazilian helicopter operator , in july 2011. see note 5 of the notes to consolidated financial statements in item 8 of this annual report on form 10-k for a detailed discussion of certain financial difficulties experienced by aeróleo thereafter . we also provide search and rescue services in the u.s. gulf of mexico on a subscription basis . we currently have three aw139 helicopters configured for this service and several subscribers . 32 dry-leasing . we enter into dry-lease arrangements for our helicopters to operators primarily located in international markets . story_separator_special_tag we generate a vast majority of our operating revenue from contracts supporting our oil and gas customers ' offshore production operations , which have long-term transportation requirements . a substantial portion of our remaining oil and gas revenue comes from transporting personnel to and from offshore drilling rigs , and we believe this capability allows us to take advantage of expansion in the global deepwater rig fleet . the production business is typically less cyclical than the exploration and development business because production platforms remain in place over the long-term and are relatively unaffected by economic cycles , as the marginal cost of lifting a barrel of oil once a platform is in position is low . if there are further declines in the price of oil and gas , there could be a delay or cancellation of planned offshore projects impacting our operations in future periods . over the last several months , the u.s. dollar has strengthened versus most of the world 's other major currencies , including a significant appreciation in value relative to the euro . two of the large helicopter oems are headquartered in europe and price many of their helicopters in euros . the majority of our unfunded capital commitments for new helicopters are euro-denominated commitments . the recent strengthening of the u.s. dollar against the euro lowers the amount of these unfunded commitments in u.s. dollar terms . such euro-denominated helicopter models have become less expensive for our competitors and potential competitors to acquire , which could lead to excess helicopter capacity and increased competition , in turn jeopardizing both pricing and utilization of our equipment . the relative devaluation of the euro could also destabilize residual values for certain euro-denominated helicopters . in addition , the strengthening of the u.s. dollar may impact the credit risk of , and the ability to make payments to us in u.s. dollars by , our dry-lease customers that set rates and receive payments in other currencies . we believe that we are well positioned to address the near term challenges . our balance sheet management and liquidity levels provide a stable foundation in the current market environment and will permit us to , together with operational efficiency improvements benefitting us and our customer , maintain and improve our customer relationships and competitive position . recent developments the current excess capacity of our medium helicopters continues to be higher than in recent periods . our fleet 's excess helicopters include those that are not otherwise under customer contracts , undergoing maintenance or dedicated for charter activity . although we take actions to minimize excess capacity , we expect a certain level of excess capacity at any given time in an aviation logistics business as a result of the evolving nature of customers ' needs . as a result of the higher excess capacity during the middle of the fourth quarter of 2014 , our operating revenues were negatively impacted . through fleet management initiatives , participation in competitive bids and pursuit of additional opportunities in the u.s. gulf of mexico and abroad , we are focused on maximizing the utilization of our fleet and mitigating the excess capacity in our medium helicopters . if we are not successful in securing sufficient new projects , we may experience a decline in the near-term utilization of our medium helicopters that may impact our near-term financial results including full period impact in the next few quarters . we have recently been awarded a number of new contracts in the u.s. gulf of mexico and brazil . some of those contracts have already begun , but most of them are not scheduled to begin until the second half of 2015 or early 2016. we were in a dispute with our partner in aeróleo with respect to our contractual shareholder rights in connection with any attempted sale or transfer of the other partner 's interests , which was being resolved through arbitration . on february 15 , 2014 , with our consent , definitive agreements were executed with respect to the transfer to a third party of the 50 % economic and 80 % voting interest held by our partner in aeróleo . as consideration for the transfer of interests and the other terms and conditions of the transaction , aeróleo will be required to make payments to affiliates of the transferring partner in the form of severance and partial repayment of shareholder loans that will likely require a $ 2.0 million capital infusion by us . the transaction remains subject to customary closing conditions , including approval of the court administering the estate of the beneficial owner of our partner in aeróleo . due to delays in obtaining such judicial approval , the transaction is now expected to close during the first half of 2015. as a result of the transaction , we expect to be required to consolidate the financial results of aeróleo upon consummation . since the acquisition of our interest in aeróleo , it has faced several challenges with respect to generating revenues from the helicopters that are dry-leased from us . see note 5 of the notes to consolidated financial statements in item 8 of this annual report on form 10-k for more information . a continuation of any combination of these financial difficulties , taken separately or together , may impede aeróleo 's ability to pay for the equipment lease obligations to us , necessitate an infusion of capital from us to allow aeróleo to continue to operate and , as a result , adversely impact our results of operations . due to liquidity issues experienced by aeróleo , as of december 31 , 2014 , we had deferred the recognition of $ 31.0 million of revenues from aeróleo . fleet developments and capital commitments in recent years , we have continued to focus on the modernization of our fleet and standardization of equipment . oil and gas companies typically require modern helicopters that offer enhanced safety features and greater performance .
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summary of cash flows replace_table_token_8_th operating activities cash flows provided by operating activities increased by $ 13.9 million during the year ended december 31 , 2014 compared with the year ended december 31 , 2013 . cash flows provided by operating activities increased by $ 50.5 million during the year ended december 31 , 2013 compared with the year ended december 31 , 2012 . the components of cash flows provided by operating activities during the years ended december 31 , 2014 , 2013 and 2012 were as follows : replace_table_token_9_th operating income before depreciation and gains on asset dispositions and impairments , net was $ 9.4 million higher for the year ended december 31 , 2014 compared with the year ended december 31 , 2013 , primarily due to a $ 29.0 million and $ 5.8 million increase in revenues from oil and gas and search and rescue activities , respectively . these increases were partially offset by a $ 2.3 million decrease in dry-leasing revenues and a $ 17.8 million and $ 5.1 million increase in operating expenses and administrative and general expenses , respectively . operating income before depreciation and gains on asset dispositions and impairments , net was $ 2.5 million higher for the year ended december 31 , 2013 compared with the year ended december 31 , 2012 , primarily due to a $ 36.8 million and $ 6.1 million increase in revenues from oil and gas and search and rescue activities , respectively . these increases were partially offset by a $ 10.3 million decrease in dry-leasing revenues , and a $ 7.0 million reduction in operating revenues from air medical services .
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the 2010 notes were placed at a 20 % discount from their face value and bore no interest except in case of an event of default , in which case they would bear interest at the rate of 18 % per annum . the principal and any interest due on the 2010 notes was due in 9 equal monthly installments starting in september 2010. subject to the satisfaction of certain customary conditions including the effectiveness of a registration statement and certain minimums on the amount and value of the shares of the company 's common stock traded on the over-the-counter bulletin board , the company could elect to pay amounts due on any installment date in either cash or shares of its common stock . any shares of its common stock that the company issued as payment on an installment date would have been issued at a price which would be equal to the lesser of $ 0.30 per share or 85 % of the average of the volume-weighted average prices of the company 's common stock on the over-the-counter bulletin board on each of the twenty trading days immediately preceding the applicable installment date . the company paid a finders ' fee of $ 64,000 and issued 1,400,000 broker 's warrants ( described below ) valued at $ 167,000 . the finder 's fee and fair value of the broker 's warrants was accounted for as deferred financing costs , and was being amortized over the term of the notes . during the year ended december 31 , 2011 , $ 66,267 of the deferred financing costs were amortized and the remaining balance of $ 38,626 was recognized as loss on settlement of debt . in february 2011 , the company negotiated an early settlement of $ 640,000 of the outstanding 2010 notes and the cancellation of 4,000,000 series a warrants , 3,200,000 series b warrants and 4,000,000 series c warrants . pursuant to the settlement agreement , the company paid $ 480,000 in cash , issued $ 240,000 in february 2011 notes . under the agreement , those holders released the company from the remaining obligations under the securities purchase agreement entered into during fiscal year 2010 , the 2010 security agreement and other conditions related to the issuance of the 2010 notes . in march 2011 , the company entered into a debt settlement and warrant extinguishment agreement to settle $ 83,333 of the 2010 notes and retire 625,000 series a warrants , 500,000 series b warrants and 625,000 series c warrants of the company by issuing to the 2010 note holder 641,023 shares of common stock and a new warrant to purchase up to 250,000 shares of common stock ( note 9 ) . in addition , the company has also entered into an agreement to settle the remaining $ 233,333 of the 2010 notes in exchange for 2,048,578 common shares ( note 9 ) . further , the company entered into an agreement with a former 2010 note holder to extinguish the 4,900,000 warrants related to the 2010 note to extinguish those warrants for a new warrant to purchase 1,000,000 shares of common stock and a new april 2011 note for $ 25,000 . f-22 during the year ended december 31 , 2011 , the company settled all of the outstanding 2010 notes . the settlement of the 2010 notes , was completed by cash payments , share and warrant issuances and the issuance of february 2011 notes . in aggregate the fair value of the consideration was $ 1,194,844 , which resulted in a gain on debt settlement of $ 307,136 . in addition , the negotiated early extinguishment of the series a , b and c warrants resulted in a gain of $ 290,500 . note 6 : loans payable as at december 31 , 2011 , there was an unsecured loan advance from a third party in the amount of $ 7,000 ( december 31 , 2010 - $ 425,000 ) , which is due on story_separator_special_tag the following discussion of our financial condition , changes in financial condition , plan of operations and results of operations should be read in conjunction with ( i ) our audited consolidated financial statements as at december 31 , 2011 and for the period from inception ( july 27 , 1999 ) to december 31 , 2011 and ( ii ) the section entitled “ business ” , included in this annual report . the discussion contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including , but not limited to , those set forth under “ risk factors ” and elsewhere in this annual report . 12 plan of operations as a vaccine component , the gene based tap technology has the potential to significantly improve the efficacy of both prophylactic and immunotherapeutic vaccines as it addresses a fundamental mechanism for t cell recognition and response . unlike other vaccine technologies that address only the initiation of immune responses , tap expression also has the unique ability to enhance the effector function of mature killer t cells . this enhancement of effector function is potentially complementary to any/all vaccine approaches that are designed to enhance cellular responses . therefore , we envisage establishing multiple collaborative partnerships as we progress gene-based tap development and research in the clinic . story_separator_special_tag the addition of a tap expression vector to patients already receiving a therapeutic vaccine could enhance the efficacy of these vaccines , as tap is designed to help killer t-cells kill tumor cells . this concept of enhancing the effector stage of an immune response differentiates tap technology from a wide list of immunotherapies currently in development , and offers a great opportunity for collaborations and partnerships . accordingly we believe that the use of tap expression vectors represents the next logical step in the development of more effective immunotherapies . in 2011 , we made significant progress with very few resources . our recent progress and our buildup of resources indicate that we will make even greater progress in 2012. on the technology and product pipeline side , management believes that the company is fundamentally strong and poised to be a leading company in a highly attractive and expanding market , a position reinforced by our recruitment of top-class managers , advisors and investors who all share our vision . story_separator_special_tag prior year . the current and prior year charges result from the fair valuation of shares issued to consultants and options granted to or earned by consultants during such periods . · general and administrative expenses were $ 306,000 in the year ended december 31 , 2011 compared to $ 203,000 in the prior year , with the increase resulting primarily from increased investor relations and travel expenses . · interest and finance charges were $ 679,000 during the fiscal year ended december 31 , 2011 compared to $ 1,241,000 during the prior fiscal year . current and prior period interest charges are primarily accretion of interest and the fair value of warrants issued with convertible notes . · management fees were $ 248,000 in the year ended december 31 , 2011 compared to $ 329,000 in the prior year , with the difference resulting primarily due to one less person in management in the current period offset somewhat by higher management fee paid to the current management . · management compensation – stock-based were $ 390,000 in the year ended december 31 , 2011 compared to $ 1,088,000 in the prior year . the current and prior year charges result from the fair valuation of options granted to management that were earned during the period . · professional fees were $ 438,000 in the year ended december 31 , 2011 compared to $ 1,174,000 in the prior year . the decrease from the prior year results due to lower legal fees incurred relating to debt issuance in the current period . · research and development costs during the fiscal year ended december 31 , 2011 were $ 204,000 compared to $ 290,000 during the prior fiscal year . this was due to higher technology licensing fee accrued for payment due to mayo clinic in the current period . during the fiscal year ended december 31 , 2011 , the company recorded a gain on settlement of debt in the amount of $ 318,000 relating to early settlement of 2010 convertible notes and settlement of trade payables for shares . the company also recorded a gain from extinguishment of the derivative share purchase warrants in the amount of $ 291,000 as determined by the fair value of the warrants at the date of settlement less the consideration attributed to the settlement of the warrants relating to the 2010 notes . there were no similar transactions in the prior period . our net loss for the year ended december 31 , 2011 was $ 2,029,000 or ( $ 0.04 ) per share , compared to a net loss of $ 3,533,000 or ( $ 0.09 ) per share in the prior period . the weighted average number of shares outstanding was 45,994,617 for the year ended december 31 , 2011 compared to 39,803,173 for the prior year . liquidity and capital resources the following table sets forth our cash and working capital as of december 31 , 2011 and 2010 : december 31 , 2011 december 31 , 2010 cash reserves $ 250,000 $ 24,000 working capital ( deficit ) $ ( 3,493,000 ) $ ( 3,958,000 ) 16 subject to the availability of additional financing , we intend to spend approximately $ 5,000,000 over the next twelve months in carrying out our plan of operations . at december 31 , 2011 , we had $ 250,000 of cash on hand and a working capital deficit of $ 3,493,000. as such , our working capital at december 31 , 2011 will not be sufficient to enable us to pay our general and administrative expenses , and to pursue our plan of operations over the next twelve months . we anticipate that we will require additional funding of approximately $ 5,000,000. our management is currently making significant efforts to secure the needed financing , but we have not yet secured any commitments with respect to such financing . if we are not able to obtain financing in the amounts required or on terms that are acceptable to us , we may be forced to scale back , or abandon , our plan of operations . various conditions outside of our control may detract from our ability to raise the capital needed to execute our plan of operations , including overall market conditions in the international and local economies . we recognize that the united states economy has suffered through a period of uncertainty during which the capital markets have been depressed from levels established twelve months ago , and that there is no certainty that these levels will stabilize or reverse . any of these factors could have a material impact upon our ability to raise financing and , as a result , upon our short-term or long-term liquidity . going concern we have no sources of revenue to provide incoming cash flows to sustain our future operations . as outlined above , our ability to pursue our planned business
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results of operations the following table sets out our consolidated losses for the periods indicated and reflects the restated december 31 , 2010 numbers as referenced by our 10-k/a filed october 14 , 2011 : replace_table_token_2_th restatement relating to classification and valuation of derivative liabilities for the years ended december 31 , 2010 14 management has restated the consolidated financial statements as of and for the year ended december 31 , 2010 relating to the company 's accounting for share purchase warrants issued as part of private placement transactions , consulting service agreements and debt settlement transactions . previously , the fair value of the share purchase warrants was determined using the black-scholes valuation model , or an alternate methodology , at the time of issuance and classified within shareholders ' equity . following discussions with our auditors , the company has reviewed the terms and conditions underlying its outstanding share purchase warrants and determined that the accounting for the warrants should be reviewed . specifically , the company had issued warrants to purchase our common stock that may require the company , or a successor , to purchase unexercised warrants for a cash amount equal to their fair value following the announcement of specified events defined as “ fundamental transactions ” ( e.g. , merger , sale of all or substantially all assets , tender offer , going private or share exchange ) . the cash settlement provisions require the use of the black-scholes model in calculating the cash payment value in the event of a fundamental transaction or a delisting . as a consequence of these provisions , management now believes that these share purchase warrants should be classified as a liability on our balance sheets and measured at fair value with the changes in fair value reported in results of operations at each reporting period .
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as a result of the progressive decline in the value of used tractors and our expectations that used tractor prices will not rebound in the near term , effective july 1 , 2016 we reduced the salvage values on our tractors story_separator_special_tag cautionary note regarding forward-looking statements item 7 , as well as other items of this annual report on form 10-k , contains certain statements that may be considered forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended , and such statements are subject to the safe harbor created by those sections and the private securities litigation reform act of 1995 , as amended . all statements , other than statements of historical or current fact , are statements that could be deemed forward-looking statements , including without limitation : any projections of earnings , revenues , or other financial items ; any statement of plans , strategies , and objectives of management for future operations ; any statements concerning proposed new services or developments ; any statements regarding future economic conditions or performance ; and any statements of belief and any statements of assumptions underlying any of the foregoing . in this item 7 , statements relating to future demand for and supply of new and used tractors and trailers ( including expected prices of such equipment ) , expected sources and adequacy of working capital and liquidity , future relationships , use , compensation , and availability with respect to third-party service providers , future driver market conditions , future allocation of capital , expected settlement of operating lease obligations , future asset sales and acquisitions , future insurance , litigation , and claims levels and expenses , future tax expense and deductions , future fuel management , expense , and the future effectiveness of fuel surcharge programs and price hedges , future interest rates and effectiveness of interest rate swaps , expected capital expenditures ( including the future mix of lease and purchase obligations ) , future trucking capacity , expected freight demand and volumes , future rates , future depreciation and amortization , future compliance with and impact of existing and proposed federal and state laws and regulations , future salaries , wages , and other employee benefit expenses , future earnings from and value of our investments , future customer relationships , future defaults under debt agreements , future performance of our subsidiaries , and future operating and maintenance expenses , among others , are forward-looking statements . such statements may be identified by their use of terms or phrases such as `` believe , '' `` may , '' `` could , '' `` expects , '' `` estimates , '' `` projects , '' `` anticipates , '' `` plans , '' `` intends , '' and similar terms and phrases . forward-looking statements are based on currently available operating , financial , and competitive information . forward-looking statements are inherently subject to risks and uncertainties , some of which can not be predicted or quantified , which could cause future events and actual results to differ materially from those set forth in , contemplated by , or underlying the forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in the section entitled `` item 1a . risk factors , `` set forth above . readers should review and consider the factors discussed in `` item 1a . risk factors , '' along with various disclosures in our press releases , stockholder reports , and other filings with the securities and exchange commission . all such forward-looking statements speak only as of the date of this annual report . you are cautioned not to place undue reliance on such forward-looking statements . we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in the events , conditions , or circumstances on which any such statement is based . executive overview results for 2016 were not as robust as the record earnings achieved in 2015 , where 2015 was the best annual results experienced in the company 's 31 year history . our operating ratio declined 460 basis points to 95.2 % . our adjusted operating ratio ( as defined below ) , a key measure of profitability in our industry , contracted 530 basis points to a 94.7 % . these declines were the result of overall softness in freight within the truckload segment , resulting in a slight decline in miles per tractor per week and a 3.9 % decrease in the average tractor count , even considering a 5.3 % increase in the number of team tractors , and average rates per total mile declining 2.2 cents per mile . cost in the truckload segment increased 8.3 cents per mile , primarily as a result of increased capital cost , resulting from the significant decline in used equipment values and related increase in depreciation . on the contrary , our non-truckload operations experienced growth in both revenue and profitability as we were able to take advantage of the market dynamics and realize the full year effect of several business model changes and new customers added in 2015. our consolidated financial results are summarized as follows : ● total revenue was $ 670.7 million , compared with $ 724.2 million for 2015 , and freight revenue ( excludes revenue from fuel surcharge ) was $ 610.8 million , compared with $ 640.1 million for 2015 ; ● operating income was $ 32.4 million , compared with operating income of $ 67.8 million for 2015 ; 36 ● net income was $ 16.8 million , or $ 0.92 per diluted share , compared with net income of $ 42.1 million , or $ 2.30 per diluted share , for 2015. net income for 2015 includes a one-time federal income tax story_separator_special_tag therefore , in times of increasing fuel prices , we do not recover as much as we are currently paying for fuel . in periods of declining prices , the opposite is true . fuel prices as measured by the doe averaged approximately $ 0.40 cents per gallon lower in 2016 compared with 2015 and $ 1.12 per gallon lower in 2015 compared to 2014. additionally , $ 16.7 million , $ 15.3 million , and $ 3.1 million were reclassified from accumulated other comprehensive ( loss ) income to our results from operations for the years ended december 31 , 2016 , 2015 , and 2014 , respectively , as additional fuel expense for 2016 , 2015 and 2014 , related to losses on fuel hedge contracts that expired . we evaluate these contracts for `` hedge effectiveness , '' which is the extent to which the hedge contract effectively offsets changes in cash flows that the contract was intended to offset . in addition to the amounts reclassified as a result of expired contracts , we recognized a reduction of fuel expense of $ 1.4 million relating to previously recognized fuel expense as a result of the expiration of the fuel hedge contracts for which the fuel hedging relationship was deemed to be ineffective on a prospective basis in 2014. as a result , the changes in fair value for those contracts were recorded as expense rather than as a component of other comprehensive loss . at december 31 , 2016 , all fuel hedge contracts were deemed to be effective and thus continue to qualify as cash flow hedges . there was no material ineffectiveness recorded on the contracts that existed at december 31 , 2016. the ineffectiveness was calculated using the cumulative dollar offset method as an estimate of the difference in the expected cash flows of the respective fuel hedge contracts compared to the changes in the all-in cash outflows required for the diesel fuel purchases . to measure the effectiveness of our fuel surcharge program , we subtract fuel surcharge revenue ( other than the fuel surcharge revenue we reimburse to independent contractors and other third parties , which is included in purchased transportation ) from our fuel expense . the result is referred to as net fuel expense . our net fuel expense as a percentage of freight revenue is affected by the cost of diesel fuel net of fuel surcharge collection , the percentage of miles driven by company tractors , our fuel economy , and our percentage of deadhead miles , for which we do not receive material fuel surcharge revenues . net fuel expense is shown below : replace_table_token_10_th total fuel expense decreased approximately $ 19.1 million , or 15.6 % , for the year ended december 31 , 2016 , compared with 2015. as a percentage of total revenue , total fuel expense decreased to 15.4 % of total revenue for the year ended december 31 , 2016 , from 16.9 % in 2015. as a percentage of freight revenue , total fuel expense decreased to 16.9 % of freight revenue for the year ended december 31 , 2016 , from 19.1 % in 2015. these decreases primarily related to lower fuel prices and an increase in our average fuel miles per gallon during 2016 as a result of purchasing equipment with more fuel-efficient engines . the decreases were partially offset by increased net losses from fuel hedging transactions of $ 16.7 million in 2016 compared to $ 13.9 million in 2015 . 40 net fuel expense increased $ 3.7 million , or 8.1 % , for the year ended december 31 , 2016 compared to 2015. as a percentage of freight revenue , net fuel expense increased 0.9 % for the year ended december 31 , 2016 compared to 2015. these increases primarily resulted from lower fuel surcharge recovery as a result of increased broker freight and the tiered reimbursement structure of certain fuel surcharge agreements . the increases were partially offset by improved miles per gallon due to new engine technology , internal fuel efficiency initiatives , and a greater percentage of miles driven by independent contractors . for the year ended december 31 , 2015 , total fuel expense decreased approximately $ 46.7 million , or 27.7 % , compared with 2014. as a percentage of total revenue , total fuel expense decreased to 16.9 % of total revenue for the year ended december 31 , 2015 , from 23.5 % in 2014. as a percentage of freight revenue , total fuel expense decreased to 19.1 % of freight revenue for the year ended december 31 , 2015 , from 29.2 % in 2014. these decreases primarily related to an increase in our average fuel miles per gallon during 2015 as a result of purchasing equipment with more fuel-efficient engines . the decreases were partially offset by net losses from fuel hedging transactions of $ 13.9 million in 2015 compared to $ 3.1 million in 2014. additionally , during the second quarter of 2014 we recognized an approximately $ 0.9 million fuel tax credit related to amended fuel tax returns for the years 2010 – 2013. net fuel expense increased $ 6.9 million , or 17.8 % , for the year ended december 31 , 2015 compared to 2014. as a percentage of freight revenue , net fuel expense increased 0.5 % for the year ended december 31 , 2015 compared to 2014. these increases primarily resulted from lower fuel surcharge recovery .
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results of consolidated operations the following table sets forth total revenue and freight revenue ( total revenue less fuel surcharge revenue ) for the periods indicated : revenue replace_table_token_7_th for 2016 , total revenue decreased $ 53.6 million , or 7.4 % , to $ 670.7 million from $ 724.2 million in 2015. freight revenue decreased $ 29.3 million , or 4.6 % , to $ 610.8 million for 2016 , from $ 640.1 million in 2015 , while fuel surcharge revenue decreased $ 24.3 million year-over-year . the decrease in freight revenue resulted from a $ 30.4 million decrease in freight revenue from our truckload segment and a $ 1.1 million increase in revenues from solutions . the decrease in 2016 truckload revenue relates to a decrease in average freight revenue per tractor per week of 2.2 % compared to 2015 and a decrease in our average tractor fleet of 3.9 % from 2015 , partially offset by a $ 1.7 million increase in freight revenue contributed by our temperature-controlled intermodal service offering . the decrease in average freight revenue per tractor per week is the result of a 1.3 % decrease , or 2.2 cents per mile , in average rate per total mile and a 0.6 % decrease in average miles per unit when compared to 2015. team driven units increased approximately 5.3 % to an average of approximately 1,000 teams in 2016 from approximately 950 teams in 2015. the increase in solutions ' revenue is primarily the result of improved coordination with our truckload segment , additional business from new customers added during the year , and the full year effect of a large customer added in 2015. for 2015 , total revenue increased $ 5.3 million , or 0.7 % , to $ 724.2 million from $ 719.0 million in 2014. freight revenue increased $ 61.9 million , or 10.7 % , to $ 640.1 million for 2015 , from $ 578.2 million in 2014 ,
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income taxes to qualify as a reit for federal income tax purposes , the company must meet a number of organizational and operational requirements , including a requirement that it currently distribute at least 90 percent of its adjusted taxable income to its shareholders . as a reit , the company generally is not subject to federal corporate income tax on that portion of its taxable f - 13 income that is currently distributed to shareholders . the company is subject to certain state and local taxes on its income and property , and to federal income and excise taxes on its undistributed taxable income . in addition , phl , which leases the company 's hotels from the operating partnership , story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report . pebblebrook hotel trust is a maryland real estate investment trust that conducts its operations so as to qualify as a reit under the code . substantially all of the operations are conducted through pebblebrook hotel , l.p. ( our `` operating partnership '' ) , a delaware limited partnership of which pebblebrook hotel trust is the sole general partner . in this report , we use the terms `` the company '' , `` we '' or `` our '' , to refer to pebblebrook hotel trust and its subsidiaries , unless the context indicates otherwise . overview the u.s. lodging industry continued to exhibit positive fundamentals in 2015 , though at more moderate levels than what was expected and experienced in previous years . the slowing global economy , weaker job gains , the strength of the u.s. dollar relative to other foreign currencies and softer international inbound travel demand are likely to produce more modest hotel demand growth for 2016. as a result of these factors and greater supply on average in many of the larger urban markets like new york and washington , d.c. , we expect that the urban markets will continue to under-perform the u.s. lodging industry 's revpar growth in 2016. we remain encouraged with the opportunities throughout our portfolio , as well as the momentum we have been gaining at our recently renovated and redeveloped hotels . we believe that our properties have opportunities to continue to achieve significant growth in their operating cash flows and long-term economic values . during the year ended december 31 , 2015 , we acquired two hotel properties , the 189 -room laplaya beach resort and laplaya beach club , in naples , florida , for $ 185.5 million and the 221 -room the tuscan fisherman 's wharf , a best western plus hotel , in san francisco , california for $ 122.0 million . we also increased the borrowing capacity of our senior unsecured revolving credit facility by $ 150.0 million to $ 750.0 million , and executed two new unsecured term loans and two new unsecured notes for aggregate proceeds of $ 325.0 million . in addition , we repaid all the mortgage loans of $ 162.3 million in aggregate on the nines , a luxury collection hotel , portland , intercontinental buckhead atlanta , skamania lodge and doubletree by hilton hotel bethesda -washington dc . while we do not operate our hotel properties , both our asset management team and our executive management team monitor and work cooperatively with our hotel managers by advising and making recommendations in all aspects of our hotels ' operations , including property positioning and repositioning , revenue and expense management , operations analysis , physical design , renovation and capital improvements , guest experience and overall strategic direction . through these efforts , we seek to improve property efficiencies , lower costs , maximize revenues and enhance property operating margins , which we expect will enhance returns to our shareholders . key indicators of financial condition and operating performance we measure hotel results of operations and the operating performance of our business by evaluating financial and non-financial metrics such as room revenue per available room ( `` revpar '' ) ; average daily rate ( `` adr '' ) ; occupancy rate ( `` occupancy '' ) ; funds from operations ( `` ffo '' ) ; and earnings before interest , income taxes , depreciation and amortization 33 ( `` ebitda '' ) . we evaluate individual hotel and company-wide performance with comparisons to budgets , prior periods and competing properties . adr , occupancy and revpar may be impacted by macroeconomic factors as well as regional and local economies and events . see `` non-gaap financial matters '' for further discussion of ffo and ebitda . hotel operating statistics the following table represents the key same-property hotel operating statistics for our wholly owned hotels for the years ended december 31 , 2015 and 2014 . replace_table_token_6_th the table above includes information from all of the hotels we owned as of december 31 , 2015 , except for the laplaya beach resort and laplaya beach club and the tuscan fisherman 's wharf , a best western plus hotel for the first and second quarters of both 2015 and 2014 and hotel vintage portland for the first quarter of both 2015 and 2014 because it was closed during the first quarter of 2015 for renovation and the prescott hotel san francisco for the fourth quarter of both 2015 and 2014 because it was closed during the fourth quarter of 2015 for renovation . the table above does not include the hotel results of the manhattan collection joint venture . these hotel results for the respective periods include information reflecting operational performance for some hotels prior to our ownership of those hotels . results of operations at december 31 , 2015 and 2014 , we had 31 and 29 wholly owned properties and leasehold interests , respectively . all properties owned during these periods have been included in our results of operations during the respective periods since their dates of acquisition . story_separator_special_tag the increase from the comparable properties is primarily a result of increases in revenues from our west coast properties as a result of increases in adr as well as an increase in revenue from hotel zetta , which was closed for renovation in late 2012 and , after re-opening in march 2013 , was ramping up operations throughout 2013. hotel operating expenses — total hotel operating expenses increased by $ 49.8 million . the comparable properties contributed $ 3.7 million of the increase , which is a result of cost increases resulting from increased revenues , partially offset by cost reduction initiatives , including closing and leasing restaurant space to third parties at the w boston , mondrian los angeles and w los angeles - west beverly hills . the remaining $ 46.1 million of the increase was contributed by the non-comparable properties . depreciation and amortization — depreciation and amortization expense increased by $ 12.8 million primarily due to the additional depreciation for the non-comparable properties . real estate taxes , personal property taxes , property insurance and ground rent — real estate taxes , personal property taxes , insurance and ground rent increased by $ 5.8 million primarily due to the 2013 and 2014 acquisitions , of which the hotel zephyr fisherman 's wharf , the prescott hotel san francisco , hotel palomar los angeles - beverly hills and the union station hotel , autograph collection are subject to ground or hotel leases . corporate general and administrative — corporate general and administrative expenses increased by $ 9.2 million primarily as a result of increases in non-cash share-based employee compensation costs . corporate general and administrative expenses consist of employee compensation costs , legal and professional fees , insurance , state franchise taxes and other expenses . hotel acquisition costs — hotel acquisition costs decreased by $ 1.4 million due to termination fees incurred in connection with the acquisition of the embassy suites san diego bay - downtown in january 2013 and transfer taxes related to the acquisition of the hotel zephyr fisherman 's wharf in december 2013. interest income — interest income remained consistent with the prior period . interest expense — interest expense increased by $ 3.4 million as a result of higher debt balances from mortgage assumptions in connection with the non-comparable properties . equity in earnings ( losses ) of joint venture — equity in earnings of joint venture increased $ 2.4 million due to increases in revenues as a result of increases in adr at the manhattan collection joint venture hotels . income tax ( expense ) benefit — income tax expense increased $ 2.0 million due to higher net income of our trs compared to the prior period . 36 non-controlling interests — non-controlling interests represent the allocation of income or loss of our operating partnership to the common units held by the ltip unit holders . non-controlling interests increased $ 0.4 million due to higher income allocation . distributions to preferred shareholders — distributions to preferred shareholders increased $ 2.1 million as a result of the issuance of series c preferred shares in september 2014. other comprehensive income ( loss ) — other comprehensive loss increased as a result of the change in the fair values of our interest rate swaps . non-gaap financial measures non-gaap financial measures are measures of our historical or future financial performance that are different from measures calculated and presented in accordance with u.s. gaap . we report ffo and ebitda , which are non-gaap financial measures that we believe are useful to investors as key measures of our operating performance . we calculate ffo in accordance with standards established by the national association of real estate investment trusts ( nareit ) , which defines ffo as net income ( calculated in accordance with u.s. gaap ) , excluding real estate related depreciation and amortization , gains ( losses ) from sales of real estate , impairments of real estate assets , the cumulative effect of changes in accounting principles and adjustments for unconsolidated partnerships and joint ventures . historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time . since real estate values instead have historically risen or fallen with market conditions , most industry investors consider presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves . by excluding the effect of real estate related depreciation and amortization including our share of the joint venture depreciation and amortization and gains ( losses ) from sales of real estate , both of which are based on historical cost accounting and which may be of lesser significance in evaluating current performance , we believe that ffo provides investors a useful financial measure to evaluate our operating performance . the following table reconciles net income ( loss ) to ffo and ffo available to common share and unit holders for the years ended december 31 , 2015 , 2014 and 2013 ( in thousands ) : replace_table_token_7_th ebitda is defined as earnings before interest , income taxes , depreciation and amortization . we believe that ebitda provides investors a useful financial measure to evaluate our operating performance , excluding the impact of our capital structure ( primarily interest expense ) and our asset base ( primarily depreciation and amortization ) . the following table reconciles net income ( loss ) to ebitda for the years ended december 31 , 2015 , 2014 and 2013 ( in thousands ) : 37 replace_table_token_8_th neither ffo nor ebitda represent cash generated from operating activities as determined by u.s. gaap and neither should be considered as an alternative to u.s. gaap net income ( loss ) , as an indication of our financial performance , or to u.s. gaap cash flow from operating activities , as a measure of liquidity . in addition , ffo and ebitda are not indicative of funds available to fund cash needs , including the ability to make cash distributions .
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debt summary debt as of december 31 , 2015 and december 31 , 2014 consisted of the following ( dollars in thousands ) : replace_table_token_9_th _ ( 1 ) borrowings bear interest at floating rates equal to , at our option , either ( i ) libor plus an applicable margin or ( ii ) an adjusted base rate ( as defined in the senior unsecured credit agreement ) plus an applicable margin . we have two six-month extension options . ( 2 ) borrowings under our term loan facilities bear interest at floating rates equal to , at our option , either ( i ) libor plus an applicable margin or ( ii ) a base rate plus an applicable margin . we entered into interest rate swaps to effectively fix the interest rate for the first term loan , the second term loan and the third term loan . at december 31 , 2015 and december 31 , 2014 , we had interest rate swaps on the full amounts outstanding . ( 3 ) the interest rate of 7.39 % represents a weighted-average interest rate of the three non-recourse mortgage loans assumed in conjunction with the acquisition of the nines , a luxury collection hotel , portland . on march 5 , 2015 , we repaid these mortgage loans . ( 4 ) loan premiums on assumed mortgages recorded in purchase accounting for the hotel zelos ( formerly hotel palomar san francisco ) , embassy suites san diego bay - downtown , hotel modera , and the nines , a luxury collection hotel , portland . 42 on october 6 , 2015 , we repaid the $ 48.6 million mortgage loan on the intercontinental buckhead atlanta . on november 6 , 2015 , we repaid the $ 28.9 million mortgage loan on the skamania lodge and the $ 34.1 million mortgage loan on the doubletree by hilton hotel bethesda -washington dc .
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lending activities are affected by the demand for funds and thus are influenced by interest rates , the number and quality of lenders and regional economic conditions . sources of funds for lending activities include deposits , borrowings , repayments on loans , cash flows from maturities of investment securities and income provided from operations . our earnings depend primarily on our level of net interest income , which is the difference between interest earned on our interest-earning assets , consisting primarily of loans and investment securities , and the interest paid on interest-bearing liabilities , consisting primarily of deposits , borrowed funds , and trust-preferred securities . net interest income is a function of our interest rate spread , which is the difference between the average yield earned on our interest-earning assets and the average rate paid on our interest- bearing liabilities , as well as a function of the average balance of interest-earning assets compared to interest-bearing liabilities . also contributing to our earnings is noninterest income , which consists primarily of service charges and fees on loan and deposit products and services , net gains and losses on sale of assets , and mortgage loan service fees . net interest income and noninterest income are offset by provisions for loan losses , general administrative and other expenses , including salaries and employee benefits and occupancy and equipment costs , as well as by state and federal income tax expense . the bank has a strong mortgage lending focus , with a large portion of its loan originations represented by single-family residential mortgages , which has enabled it to successfully market home equity loans , as well as a wide range of shorter term consumer loans for various personal needs ( automobiles , recreational vehicles , etc. ) . the bank has also focused on adding commercial loans to our portfolio , both real estate and non-real estate . we have made significant progress in this initiative . as of december 31 , 2020 , commercial real estate and commercial business loans represented 53.12 % and 19.15 % of the total loan portfolio , respectively . the purpose of this diversification is to mitigate our dependence on the residential mortgage market , as well as to improve our ability to manage our interest rate spread . recent acquisitions have added to our agricultural loans , which generally have shorter maturities and nominally higher interest rates . this has provided additional interest income and improved interest rate sensitivity . the bank 's management recognizes that fee income will also enable it to be less dependent on specialized lending and it maintains a significant loan serviced portfolio , which provides a steady source of fee income . as of december 31 , 2020 , we had mortgage servicing rights , net of $ 10.11 million compared to $ 8.74 million as of december 31 , 2019. gain on sale of loans also provides significant noninterest income in periods of high mortgage loan origination volumes . such income will be adversely affected in periods of lower mortgage activity . 21 fee income is also supplemented with fees generated from deposit accounts . the bank has a high percentage of non-maturity deposits , such as checking accounts and savings accounts , which allows management flexibility in managing its spread . non-maturity deposits and certificates of deposit do not automatically reprice as interest rates rise . management continues to focus on improving the bank 's earnings . management believes the bank needs to continue to concentrate on increasing net interest margin , other areas of fee income and control operating expenses to achieve earnings growth going forward . management 's strategy of growing the loan portfolio and deposit base is expected to help achieve these goals as follows : loans typically earn higher rates of return than investments ; a larger deposit base should yield higher fee income ; increasing the asset base will reduce the relative impact of fixed operating costs . the biggest challenge to the strategy is funding the growth of the statement of financial condition in an efficient manner . though deposit growth has been steady , it may become more difficult to maintain due to significant competition and possible reduced customer demand for deposits as customers may shift into other asset classes . other than short term residential construction loans , we do not offer “ interest only ” mortgage loans on residential 1-4 family properties ( where the borrower pays interest but no principal for an initial period , after which the loan converts to a fully amortizing loan ) . we also do not offer loans that provide for negative amortization of principal , such as “ option arm ” loans , where the borrower can pay less than the interest owed on their loan , resulting in an increased principal balance during the life of the loan . we do not offer “ subprime loans ” ( loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies , previous charge-offs , judgments , bankruptcies , or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios ) or alt-a loans ( traditionally defined as loans having less than full documentation ) . the level and movement of interest rates impacts the bank 's earnings as well . the federal open market committee decreased the federal funds target rate during the year ended december 31 , 2019 from 2.50 % to 1.75 % . the rate decreased from 1.75 % to 0.25 % during the year ended december 31 , 2020. the rate reductions add continued pressure on loan yields . covid-19 the company 's performance for the year ended december 31 , 2020 was strong due to higher mortgage banking operations , as a result of a historically low interest rate environment and substantial gains from loan sales . however , the company also continues to see the impact of the covid-19 pandemic and its consequences on our montana communities . story_separator_special_tag acquisitions the bank has used growth through mergers or acquisition , in addition to its strategy of organic growth . in january 2019 , the company acquired big muddy bancorp , inc. ( “ bmb ” ) , a montana corporation , and bmb 's wholly-owned subsidiary , the state bank of townsend , a montana chartered commercial bank ( “ sbot ” ) . sbot operated four branches in townsend , dutton , denton and choteau , montana . the transaction provided an opportunity to expand market presence and lending activities throughout the state . in january 2020 , eagle acquired western holding company of wolf point ( “ whc ” ) , a montana corporation , and whc 's wholly-owned subsidiary , western bank of wolf point ( “ wb ” ) , a montana chartered commercial bank . in the transaction , eagle acquired one retail bank branch in wolf point , montana . recent accounting pronouncements in february 2016 , the fasb issued asu no . 2016-02 , leases ( topic 842 ) intended to improve financial reporting regarding leasing transactions . the new standard affects all companies and organizations that lease assets . the standard requires organizations to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases if the lease terms are more than 12 months . the guidance also requires qualitative and quantitative disclosures providing additional information about the amounts recorded in the financial statements . the amendments in this update were effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years and was adopted by the company in the first quarter of 2019. the adoption of the standard did not have a significant impact on our consolidated financial statements . the company 's operating leases expire on various dates through 2028 and primarily relate to branch locations . as a result of adopting the lease standard on january 1 , 2019 , the company recorded right-of-use assets of $ 2.37 million and corresponding lease liabilities . the right-of-use assets are included in premises and equipment , net and the lease liabilities are included in accrued expenses and other liabilities on the consolidated statement of financial condition . in march 2017 , the fasb issued asu no . 2017-08 , receivables–nonrefundable fees and other costs ( subtopic 310-20 ) to shorten the amortization period for certain purchased callable debt securities held at a premium to the earliest call date . currently , entities generally amortize the premium as a yield adjustment over the contractual life of the security . the guidance does not change the accounting for callable debt securities held at a discount . for public business entities , the guidance is effective for fiscal years beginning after december 15 , 2018 , and interim periods within those fiscal years . the adoption of this standard in the first quarter of 2019 did not have a significant impact on our consolidated financial statements , as we typically do not invest in these types of securities . in august 2018 , the fasb issued asu no . 2018-13 , fair value measurement ( topic 820 ) to remove disclosure requirements that no longer are considered cost beneficial , modify/clarify specific requirements of certain disclosures and add disclosure requirements identified as relevant . the amendment became effective for the company on january 1 , 2020 and did not have a significant impact on the consolidated financial statements . in september 2016 , the fasb issued asu no . 2016-13 , financial instruments – credit losses ( topic 326 ) intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations . the standard requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience , current conditions and reasonable and supportable forecasts . financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates . the standard also requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses , as well as the credit quality and underwriting standards of an organization 's portfolio . these disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements . additionally , the standard amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration . 23 in october 2019 , the fasb amended the effective date of the standard . the amendments in this update are effective for fiscal years beginning after december 15 , 2022 , including interim periods within those fiscal years . an entity will apply the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective ( that is , a modified-retrospective approach ) . the company believes the amendments in this update will have an impact on the company 's consolidated financial statements and is continuing to evaluate the significance of that impact , even though the adoption date has been deferred . in that regard , we have established a working group under the direction of our chief credit officer and controller . the group is composed of individuals from the finance and credit administration areas of the company . we are currently developing an implementation plan , including assessment of processes , segmentation of the loan portfolio and identifying and adding data fields necessary for analysis . the adoption of this standard is likely to result in an increase in the allowance for loan losses as a result of changing from an “ incurred loss ” model to an “ expected loss ” model .
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results of operations comparison of operating results for the years ended december 31 , 2020 and 2019 net income eagle 's net income for the year ended december 31 , 2020 was $ 21.21 million compared to $ 10.8 7 million for the year ended december 31 , 2019. the increase of $ 10.34 million was due to an increase of $ 25.23 million in noninterest income and an increase in net interest income after loan loss provision of $ 3.88 million , partially offset by an increase in noninterest expense of $ 14.64 million and an increase in provision for income taxes of $ 4.13 million . basic and diluted earnings per share were $ 3.12 and $ 3.11 , respectively , for the year ended december 31 , 2020. basic and diluted earnings per share were both $ 1.69 for the prior period . net interest income net interest income increased to $ 43.17 million for the year ended december 31 , 2020 , from $ 38.79 million for t he year ended december 31 , 2019. this increase of $ 4.38 million , or 11.3 % , was the result of an increase in interest and dividend income of $ 3.14 million and a decrease in interest expense of $ 1.25 million . interest and dividend income total interest and dividend income was $ 49.65 million for the year ended december 31 , 2020 , compared t o $ 46.51 million fo r the year ended december 31 , 2019 , an increase of $ 3.14 million , or 6.8 % .
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note 13 — geographic information : net revenues and long-lived assets of the company for the fiscal years ended march 31 , 2020 and march 31 , 2019 are summarized below by geographic area ( in thousands ) . net revenues are attributed to geographic area based on the location of the customer . year ended march 31 , 2020 u.s. foreign consolidated net revenues $ 6,293 $ — $ 6,293 long-lived assets $ 252 $ 293 $ 545 year ended march 31 , 2019 u.s. foreign consolidated net revenues $ 8,982 $ — $ 8,982 long-lived assets $ 41 $ 119 $ 160 41 note 14 — leases the company leases office space in the u.s. and in hong kong as well as a copier in the u.s. these leases have remaining non-cancellable lease terms of three to five years . the company has elected not to separate lease and non-lease components for all leased assets . the company did not identify any events or conditions during the year ended march 31 , 2020 to indicate that a reassessment or re-measurement of the company 's existing leases was required . there were also no impairment indicators identified during the year ended march 31 , 2020 that required an impairment test for the company 's right-of-use assets or other long-lived assets in accordance with asc 360-10. as of march 31 , 2020 , the company 's current operating and finance lease liabilities were $ 241,000 and $ 1,000 , respectively , and its non-current operating and finance lease liabilities were approximately $ 234,000 and $ 4,000 , respectively . the company 's operating and finance lease right-of-use asset balances are presented in non-current assets . the net balance of the company 's operating and finance lease right-of-use assets as of march 31 , 2020 were approximately $ 442,000 and $ 5,000 , respectively . the components of lease costs , which were included in operating expenses in the company 's condensed consolidated statements of operations , were as follows : twelve months ended march 31 , 2020 2019 ( in thousands ) lease cost operating lease cost $ 254 $ — finance lease cost — — amortization of right-of-use assets — — interest on lease liabilities — — variable lease costs — — total lease cost 254 — the supplemental cash flow information related to leases are as follows : cash paid for amounts included in the measurement of lease liabilities : operating cash flows from operating leases 264 — operating cash flows from finance leases — — financing cash flows from finance leases 1 — right-of-use assets obtained in exchange for lease obligations : operating leases 650 — finance leases 5 — information relating to the lease term and discount rate are as follows : weighted average remaining lease term ( in months ) as of march 31 , 2020 as of march 31 , 2019 operating leases 26.0 — finance leases 50.2 — weighted average discount rate operating leases 7.50 % — finance leases 7.50 % — 42 replace_table_token_16_th note 15— subsequent event : the covid-19 outbreak in early 2020 has had a negative impact on the company 's operational and financial performance . however , the extent of this negative impact can not be reasonably estimated at this time . in april and may of 2020 , the company applied for and received aggregate loan proceeds in the amount of approximately $ 204,000 under the paycheck protection program ( `` ppp `` ) . the ppp , established as part of the coronavirus aid , relief and economic security act ( `` cares act `` ) , provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business . the loans and accrued interest are forgivable after eight weeks as long as the company uses the loan proceeds for eligible purposes , including payroll , benefits , rent and utilities , and maintains its payroll levels . the amount of loan forgiveness will be reduced if the company terminates employees or reduces salaries during the eight-week period and does not cure these terminations or reductions by june 30 , 2020 , as per the current guidance from the small business administration . the unforgiven portion of the ppp loan is payable over two years at an interest rate of 1 % , with a deferral of payments for the first six months . the company intends to use the proceeds for purposes consistent with the ppp . while the company currently believes its use of proceeds will meet the conditions for forgiveness of the loan , management can not provide assure that its actions will result in the forgiveness of the loan , in whole or in part . 43 item 9. changes in and disagreements with accou ntants on accounting and financial disclosure none . item 9a . controls and procedures evaluation of disclosure controls and procedures the company maintains disclosure controls and procedures ( as such term is defined in rules 13a-15 ( e ) and 15d — 15 ( e ) under the securities exchange act of 1934 , as amended ( story_separator_special_tag the following discussion of the company 's operations and financial condition should be read in conjunction with the financial statements and notes thereto included elsewhere in this annual report on form 10-k. in addition to historical information , the following discussion contains forward-looking statements that reflect the company 's plans , estimates and beliefs . the company 's actual results could differ materially from those contained in or implied by any forward-looking statements . story_separator_special_tag cash flows net cash used by operating activities was approximately $ 1.9 million for fiscal 2020 resulting from a $ 4.3 million loss generated during the period and a $ 0.2 million decrease in income taxes payable partially offset by a $ 1.6 million decrease in inventory , a $ 0.5 million decrease in deferred tax assets , a $ 0.2 million decrease in prepaid purchases , $ 0.1 million decrease in accounts receivable , a $ 0.1 million decrease in prepaid expenses and other current assets and a $ 0.1 million decrease in other assets . net cash provided by investing activities was $ 0.3 million primarily due to a decrease of investments in short term certificates of deposit . net cash used by financing activities was nil . credit arrangements letters of credit — the company utilizes the services of one of its banks to issue secured letters of credit on behalf of the company , as needed , on a 100 % cash collateralized basis . at march 31 , 2020 and march 31 , 2019 , the company had no letters of credit outstanding . short-term liquidity the company 's principal existing sources of cash are generated from operations . the company believes that its cash on hand and existing sources of cash will be sufficient to support its existing operations over the next 12 months . historically , a significant percentage of the company 's product sales were made under the direct import program . the direct importation of product by the company to its customers can significantly benefit the company 's liquidity because this inventory does not need to be financed by the company . in fiscal 2020 , there were approximately $ 47,000 of product sales imported directly to the company 's customers due to changes in the company 's key customers . as of march 31 , 2020 , there were no capital expenditure or other commitments other than the normal purchase orders used to secure product . 21 paycheck protection program loan in april and may of 2020 , the company applied for and received aggregate loan proceeds of approximately $ 0.2 million under the paycheck protection program ( “ ppp ” ) , established as part of the coronavirus aid , relief and economic security act ( “ cares act ” ) . the ppp loan accrues interest at 1 % and matures two years from the date of issuance , with a deferral of payments for the first six months . while the company intends to pursue the forgiveness of the ppp loan in accordance with the requirements and limitations under the cares act , no assurance can be provided that forgiveness of any portion of the ppp loan will be obtained . see note 15 “ subsequent events ” of the notes to the consolidated financial statements . off-balance sheet arrangements as of march 31 , 2020 , the company did not have any off-balance sheet arrangements as defined under the rules of the securities and exchange commission . critical accounting policies the discussion and analysis of the company 's financial condition and results of operations are based upon its consolidated financial statements , which have been prepared in accordance with accounting principles that are generally accepted within the united states . the preparation of the company 's financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . management considers certain accounting policies related to inventories , trade accounts receivables , impairment of long-lived assets , valuation of deferred tax assets , sales return reserves and sales allowance accruals to be critical policies due to the estimation processes involved in each . revenue recognition : sales to customers and related cost of sales are primarily recognized at the point in time when control of goods transfers to the customer . under the direct import program , title passes in the country of origin . under the domestic program , title passes primarily at the time of shipment . under both programs , the company recognizes revenues at the time title passes to the customer as this is when the company satisfies its performance obligation under the contracts with its customers . estimates for future expected returns are based upon historical return rates and netted against revenues . revenue is measured as the amount of consideration the company expects to receive in exchange for transferring goods . revenue is recorded net of customer discounts , promotional allowances , volume rebates and similar charges . when the company offers the right to return product , historical experience is utilized to establish a liability for the estimate of expected returns . sales and other tax amounts collected from customers for remittance to governmental authorities are excluded from revenue . the company adopted asc topic 606 effective april 1 , 2018. sales allowances , marketing support programs , promotions and other volume-based incentives which are provided to retailers and distributors are accounted for on an accrual basis as a reduction to net revenues in the period in which the related sales are recognized . prior to the adoption of asc topic 606 , the company followed the provisions of asc topic 605. the adoption of asc topic 606 did not have a material impact on revenue recognition as compared to revenue recognition provided under asc topic 605. if additional marketing support programs , promotions and other volume-based incentives are required to promote the company 's products subsequent to the initial sale , then additional reserves may be required and are accrued for when such support is offered . inventories . inventories are stated at the lower of cost or net realizable value .
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results of operations : the following table summarizes certain financial information for the fiscal years ended march 31 ( in thousands ) : replace_table_token_2_th results of operations — fiscal 2020 compared with fiscal 2019 net product sales — net product sales for fiscal 2020 were $ 6.1 million as compared to $ 8.6 million for fiscal 2019 , a decrease of $ 2.5 million , or 29.3 % as detailed below . the company 's sales were highly concentrated among three customers - walmart , amazon.com and fred meyer , where gross product sales to these customers were approximately 81.8 % and 84.2 % of the company 's total gross product sales in fiscal 2020 and fiscal 2019 , respectively . net product sales may be periodically impacted by adjustments made to the company 's sales allowance and marketing support accrual to record unanticipated customer deductions from accounts receivable or to reduce the accrual by any amounts which were accrued in the past but not taken by customers through deductions from accounts receivable within a certain time period . in the aggregate , these adjustments had the effect of increasing net product sales and operating income by approximately nil and $ 16,000 for fiscal 2020 and fiscal 2019 , respectively . net product sales are comprised primarily of the sales of houseware and audio products which bear the emerson ® brand name . the major elements which contributed to the overall decrease in net product sales were as follows : 19 i ) houseware product net sales decreased $ 1.3 million , or 37.2 % , to $ 2.3 mi llion in fiscal 2020 as compared to $ 3.6 million in fiscal 2019 , principally driven by a decrease in sales of microwave ovens , compact refrigerators and wine products . the year-over-year decreases were driven by lower year-over-year retail sell through on existing models and competitive pricing activity . ii ) audio product net sales were $ 3.8
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the words “ anticipate , ” “ preliminary , ” “ expect , ” “ believe , ” “ intend ” and similar expressions identify forward-looking statements . we believe these forward-looking statements are based upon reasonable assumptions . all such statements involve risks and uncertainties , and as a result , actual results could differ materially from those projected , anticipated , or implied by these statements . in view of such uncertainties , investors should not place undue reliance on our forward-looking statements since such statements may prove to be inaccurate and speak only as of the date when made . we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . this management 's discussion and analysis covers the continuing operations of the company , which are comprised of the production and sale of business forms and other business products . this management 's discussion and analysis includes the following sections : overview – an overall discussion regarding our company , the business challenges and opportunities we believe are key to our success , and our plans for facing these challenges relating to our continuing operations . critical accounting policies and estimates – a discussion of the accounting policies that require our most critical judgments and estimates relating to our continuing operations . this discussion provides insight into the level of subjectivity , quality , and variability involved in these judgments and estimates . this section also provides a summary of recently adopted and recently issued accounting pronouncements that have or may materially affect our business . results of operations – an analysis of our consolidated results of operations and segment results for the three years presented in our consolidated financial statements . this analysis discusses material trends within our continuing business and provides important information necessary for an understanding of our continuing operating results . liquidity and capital resources - an analysis of our cash flows and a discussion of our financial condition and contractual obligations . this section provides information necessary to evaluate our ability to generate cash and to meet existing and known future cash requirements over both the short and long term . references to 2021 , 2020 and 2019 refer to the fiscal years ended february 28 , 2021 , february 29 , 2020 and february 28 , 2019 , respectively . overview the company – our management believes we are the largest provider of business forms , pressure-seal forms , labels , tags , envelopes , and presentation folders to independent distributors in the united states . our business challenges – our industry is currently experiencing consolidation of traditional supply channels , product obsolescence , paper supplier capacity adjustments , and increased pricing and potential supply allocations due to demand/supply curve imbalance . technology advances have made electronic distribution of documents , internet hosting , digital printing and print-on-demand valid , cost-effective alternatives to traditional custom-printed documents and customer communications . improved equipment has become more accessible to our competitors due to the continued low interest rate environment . we face highly competitive conditions throughout our supply chain in an already over-supplied , price-competitive print industry . in addition to the risk factors discussed under the caption “ risk factors ” in item 1a of this annual report , some of the key challenges of our business include the following : covid-19 pandemic – the global spread of the novel strain of covid-19 has significantly impacted health and economic conditions throughout the united states and the world , including the markets in which we operate . in 18 response to covid-19 , federal , state and local authorities have recommended social distancing and have imposed various restrictions , including quarantine and isolation measures , mandatory closures of businesses deemed “ non-essential ” in certain jurisdictions . as of the date of this report , our plants continue to be deemed “ essential , ” largely due to our business 's support of many important sectors of the economy , including healthcare , government , food and beverage and banking . the u.s. economy continues to be significantly impacted by the covid-19 pandemic and parts of the economy have started to re-open as vaccinations become more prevalent , but remain subject to ongoing surges and local shutdowns , creating a very fluid economic environment . current governmental statistics have indicated an increase in economic activity that had previously been curtailed due to the covid-19 pandemic and efforts to contain it . these statistics provide evidence that various sectors continue to improve , while others have not , which we believe was reflected in our sequential sales increase and improvements in our gross profit margin and operational margin during the third quarter . even so , we expect the pandemic to continue to have a negative impact on our financial condition and operational results , on a comparative basis , until at least the end of this fiscal year based on the information currently available . while the impacts of the pandemic have been significant , our results of operations were within our forecasted parameters for the period ended february 28 , 2021. the following is a summary of our recent and anticipated actions in response to covid-19 and its impact on our business . ➣ cash/liquidity : we believe our strong liquidity position will help us mitigate the ongoing adverse impacts of covid-19 . on february 28 , 2021 we had $ 75.2 million in cash , in addition to $ 99.4 million available under our credit facility , if needed . story_separator_special_tag the weakening of the u.s. dollar will usually result in the dissipation of any pricing advantage that foreign imports have over domestic suppliers , which typically results in lower levels of imported papers and an increase in domestic exports . with increased pricing power , domestic paper producers can better control the supply of paper by eliminating capacity or changing the products produced on their large paper machines . the strengthening of the u.s. dollar usually has the opposite effect : more cheap imported paper ; less domestic exports ; and lower pricing power in the hands of domestic paper producers . domestic paper suppliers typically seek to balance supply and demand , including by ( if possible ) taking capacity out of the market , whether by taking production off-line or switching production to alternative paper products . generally , if mills are running at high capacity , suppliers are able to raise prices . for the latter part of fiscal year 2020 , with the strengthening of the u.s. dollar , imports began to flow back into the domestic marketplace . this development , along with continued slowing of domestic demand , resulted in renewed marketing of certain paper grades that previously had been placed on allocation . consequently , spot pricing became very competitive earlier this year . the uncoated paper market tightened this quarter as overall capacity reductions improved operating rates , and inventories declined , allowing domestic mills to begin price increases . u.s. mills have moved back to higher operating levels and pulp pricing has increased which will justify such increases . coated paper has shown some improvement due to several major closures , causing 20 operating rates to climb . as such , pricing during the second half of fiscal 2021 and into the beginning of fiscal 2022 is currently expected to increase . the covid-19 pandemic has reduced the demand for both coated and uncoated papers faster than previously expected in the first quarter of fiscal 2021 and paper companies idled some of their mills or converted to linerboard products to adjust supply and reduce inventory levels . as the economy has improved , demand has increased in the third quarter for coated and uncoated freesheet papers which has reduced the excess inventory in the market . it is unclear whether this is a temporary situation or if conditions could stretch for a more extended amount of time . regardless of these factors , many of which are cyclical , we continue to believe paper pricing will remain in a range which will not unfavorably impact our margins . additionally , the possibility of paper shortages in the market is not a major concern due to our primary material supplier 's commitment to the company . consistent with our historical practice , we intend to continue to focus on effectively managing and controlling our product costs through the use of forecasting , production and costing models , as well as working closely with our domestic suppliers to reduce our procurement costs , in order to minimize effects on our operational results . in addition , we will continue to look for ways to reduce and leverage our fixed costs . continued consolidation of our customers – our customers are distributors , many of which are consolidating or are being acquired by competitors . we continue to maintain a majority of the business we have had with our customers historically , but it is possible that these consolidations and acquisitions , which we expect to continue in the future , ultimately will impact our margins and sales . critical accounting policies and estimates in preparing our consolidated financial statements , we are required to make estimates and assumptions that affect the disclosures and reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . we evaluate our estimates and judgments on an ongoing basis , including those related to allowance for doubtful receivables , inventory valuations , property , plant and equipment , intangible assets , pension plan obligations , accrued liabilities and income taxes . we base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances . actual results may differ materially from these estimates under different assumptions or conditions . we believe the following accounting policies are the most critical due to their effect on our more significant estimates and judgments used in preparation of our consolidated financial statements . 21 pension plan – we maintain the pension plan for employees . included in our financial results are pension plan costs that are measured using actuarial valuations and requires the use of a number of assumptions . changes in these assumptions can result in different expense and liability amounts and future actual experience may differ significantly from current expectations . as our pension plan assets are invested in marketable securities , fluctuations in market values could potentially impact our funding status and associated liability recorded . the expected rate of return on assets was reduced from 7.00 % to 6.50 % . the 50 basis point reduction increased the fiscal year ending february 28 , 2022 pension expense by approximately $ 0.3 million similar to fluctuations in market values , a drop in the discount rate could potentially negatively impact our funded status , recorded pension liability and future contribution levels . during fiscal year 2021 the discount rate used to determine the net pension obligations for purposes of our consolidated financial statements remained at 2.65 % , the same rate used in fiscal year 2020. a drop in the discount rate could potentially negatively impact our funded status , recorded pension liability and future contribution levels . each 10 basis point change in the discount rate impacts our computed pension liability by about $ 0.8 million . also , continued changes in the mortality tables could potentially impact our funded status .
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consolidated summary replace_table_token_4_th net sales . our net sales decreased from $ 438.4 million for fiscal year 2020 to $ 358.0 million for fiscal year 2021 , a decrease of 18.3 % . our sales for the period were significantly impacted by economic conditions driven by the covid-19 pandemic and resulted in a decrease in sales volume . the acquisition of infoseal , which was completed in december 2020 , is an integral part of our strategy to offset normal industry revenue declines due to print attrition and other changes . our acquisitions during fiscal years 2020 and 2021 positively impacted our net sales by approximately $ 12.5 million during fiscal year 2021. our net sales increased from $ 400.8 million for fiscal year 2019 to $ 438.4 million for fiscal year 2020 , an increase of 9.4 % . the increase in supply of cheaper foreign paper imports , due to the strengthening of the u.s. dollar , unseasonal weather conditions in parts of the country and domestic pricing levels , continued to provide the elements for a challenging marketplace . each of these factors negatively impacted sales . in particular , our competition was able to be more price-competitive due to the availability of cheaper materials , and some of our sales were negatively impacted by weather conditions . the acquisitions of integrated , which was completed in march 2019 , and flesh , which was completed in july 2019 , were integral parts of our strategy to offset normal industry revenue declines due to print attrition and other changes . our acquisitions during fiscal years 2020 and 2019 positively impacted our net sales by approximately $ 55.3 million during fiscal year 2020. cost of goods sold . our manufacturing costs decreased from $ 309.5 million for fiscal year 2020 to $ 254.2 million for fiscal year 2021 , or 17.9 % . our gross profit margin ( “ margin ” ) decreased slightly from 29.4
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the results of operations for the fiscal years ended june 30 , 2014 , 2013 and 2012 are not necessarily indicative of the results that may be expected for any future period . the following discussion should be read in combination with the consolidated financial statements and the notes thereto included in part ii , item 8 of this report and with the “ risk factors ” described in part i , item 1a of this report . overview we are a manufacturer , wholesaler and distributor of coffee , tea and culinary products . we are a direct distributor of coffee to restaurants , hotels , casinos , offices , qsr 's , convenience stores , healthcare facilities and other foodservice providers , as well as private brand retailers in the qsr , grocery , drugstore , restaurant , convenience store and independent coffeehouse channels . we were founded in 1912 , were incorporated in california in 1923 , and reincorporated in delaware in 2004. we operate in one business segment . since 2007 , farmer bros. has achieved growth primarily through the acquisition in 2007 of cbh , the parent company of cbi , a specialty coffee manufacturer and wholesaler , and the acquisition in 2009 from sara lee of certain assets used in connection with the dsd coffee business . corrections to previously issued financial statements as discussed in note 1 , `` summary of significant accounting policies—corrections to previously issued financial statements , '' and note 17 , “ selected quarterly financial data ( unaudited ) , ” of the notes to consolidated financial statements contained in part ii , item 8 of this report , subsequent to the issuance of our consolidated financial statements for the year ended june 30 , 2013 , we identified certain errors in the consolidated statements of operations and consolidated statements of cash flows . accordingly , we have corrected the accompanying consolidated statements of operations and consolidated statements of cash flows for the fiscal years ended june 30 , 2013 and 2012 and our unaudited quarterly financial data for each of the quarters in the fiscal year ended june 30 , 2013 and for the first three quarters in the fiscal year ended june 30 , 2014 , in order to comply with gaap . the corrections to the consolidated statements of operations include : 1. reclassification of fuel surcharges billed to customers previously netted against our fuel expenses in `` selling expenses '' to `` net sales '' ; 2. reclassification of certain labor and overhead expenses previously included in `` selling expenses '' and `` general and administrative expenses '' to `` cost of goods sold '' ; and 3. reclassification of `` net gains from sales of assets '' previously presented within `` other , net '' to a separate line item within `` income ( loss ) from operations . '' the corrections to the consolidated statements of cash flows include : 1. presentation of purchases of and proceeds from sales of trading securities held for investment on a gross basis instead of on a net basis as previously presented within the presentation of cash flows from operating activities ; and 2. reclassification of an increase in our derivative liabilities previously presented as a reduction in the net activity in “ short-term investments ” to a change in “ accrued payroll expenses and other current liabilities ” within the presentation of cash flows from operating activities . these errors had no impact on the amounts previously reported in our consolidated balance sheets . the impact of these corrections to the applicable line items in our consolidated financial statements is set forth in notes 1 and 17 of the notes to consolidated financial statements . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) . our significant accounting policies are discussed in note 1 to our consolidated financial statements , included herein at part ii , item 8. the preparation of these financial statements requires us to make estimates , judgments and assumptions that affect the 18 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 inventory valuation , including lifo reserves , the allowance for doubtful accounts , deferred tax assets , liabilities relating to retirement benefits , liabilities resulting from self-insurance , tax liabilities and litigation . we base our estimates , judgments and assumptions on historical experience and other relevant factors that are believed to be reasonable based on information available to us at the time these estimates are made . while we believe that the historical experience and other factors considered provide a meaningful basis for the accounting policies applied in the preparation of the consolidated financial statements , actual results may differ from these estimates , which could require us to make adjustments to these estimates in future periods . we believe that the estimates , judgments and assumptions involved in the accounting policies described below require the most subjective judgment and have the greatest potential impact on our financial statements , so we consider these to be our critical accounting policies . our senior management has reviewed the development and selection of these critical accounting policies and estimates , and their related disclosure in this report , with the audit committee of our board of directors . coffee brewing equipment and service we classify certain expenses related to coffee brewing equipment provided to customers as cost of goods sold . these costs include the cost of the equipment as well as the cost of servicing that equipment ( including service employees ' salaries , cost of transportation and the cost of supplies and parts ) and are considered directly attributable to the generation of revenues from our customers . story_separator_special_tag the portion of open hedging contracts that are not 100 % effective as cash flow hedges and those that are not designated as accounting hedges are marked to period-end market price and unrealized gains or losses based on whether the period-end market price was higher or lower than the price we locked-in are recognized in our results of operations . our risk management practices reduce but do not eliminate our exposure to changing green coffee prices . while we have limited our exposure to unfavorable green coffee price changes , we have also limited our ability to benefit from favorable price changes . further , our counterparties may require that we post cash collateral if the fair value of our derivative liabilities exceed the amount of credit granted by each counterparty , thereby reducing our liquidity . at june 30 , 2014 , as we had a net gain position in our coffee-related derivative margin accounts , none of the cash in these accounts was restricted . at june 30 , 2013 , we had $ 8.1 million in restricted cash representing cash held on deposit in margin accounts for coffee-related derivative instruments due to a net loss position in our coffee-related derivative margin accounts . changes in commodity prices could have a significant impact on cash deposit requirements under our broker and counterparty agreements . allowance for doubtful accounts we maintain an allowance for estimated losses resulting from the inability of our customers to meet their obligations . in fiscal 2014 , we reclassified $ 0.5 million of the allowance for doubtful long-term notes receivable to net with the corresponding notes receivable . due to improved collection of our outstanding receivables , in fiscal 2013 , we decreased the allowance for doubtful accounts by $ 0.8 million , however , in fiscal 2014 we increased the allowance for doubtful accounts by $ 0.1 million . inventories inventories are valued at the lower of cost or market . we account for coffee , tea and culinary products on the last in , first out ( “ lifo ” ) basis , and coffee brewing equipment parts on the first in , first out ( `` fifo '' ) basis . we regularly evaluate our inventories to determine whether market conditions are appropriately reflected in the recorded carrying value . at the end of each quarter , we record the expected effect of the liquidation of lifo inventory quantities , if any , and record the actual impact at fiscal year-end . an actual valuation of inventory under the lifo method is made only at the end of each fiscal year based on the inventory levels and costs at that time . if inventory quantities decline at the end of the fiscal year compared to the beginning of the fiscal year , the reduction results in the liquidation of lifo inventory quantities carried at the cost prevailing in prior years . this lifo inventory liquidation may result in a decrease or increase in cost of goods sold depending on whether the cost prevailing in prior years was lower or higher , respectively , than the current year cost . inventories increased at the end of fiscal 2014 compared to fiscal 2013 and , therefore , no beneficial effect of liquidation of lifo inventory quantities was recorded in cost of goods sold in fiscal 2014. we recorded $ 1.1 million and $ 14.2 million in beneficial effect of lifo inventory liquidation in cost of goods sold in the fiscal years ended june 30 , 2013 and 2012 , respectively , which reduced net loss for the fiscal years ended june 30 , 2013 and 2012 by $ 1.1 million and $ 14.2 million , respectively . 20 capacity utilization we calculate our utilization for all of our manufacturing facilities on an aggregate basis based on the number of product pounds manufactured during the actual number of production shifts worked during an average week , compared to the number of product pounds that could be manufactured based on the maximum number of production shifts that could be operated during the week ( assuming three shifts per day , seven days per week ) , in each case , based on our current product mix . utilization rates for our manufacturing facilities were approximately 65 % , 58 % and 43 % during the fiscal years ended june 30 , 2014 , 2013 and 2012 , respectively . since most of our customers do not commit to long-term firm production schedules , we are unable to forecast the level of customer orders with certainty to maximize utilization of manufacturing capacity . as a result , our manufacturing facility capacity utilization generally remains less than 100 % . in order to meet increased customer demand , we may be required to move production between facilities or increase staffing , including through temporary labor and overtime . we believe that we currently have sufficient capacity to accommodate our current manufacturing needs . impairment of goodwill and indefinite-lived intangible assets we perform our annual impairment test of goodwill and or other indefinite-lived intangible assets as of june 30 . goodwill and other indefinite-lived intangible assets are not amortized but instead are reviewed for impairment annually , as well as on an interim basis if events or changes in circumstances between annual tests indicate that an asset might be impaired . testing for impairment of goodwill is a two-step process . the first step requires us to compare the fair value of our reporting units to the carrying value of the net assets of the respective reporting units , including goodwill . if the fair value of a reporting unit is less than its carrying value , goodwill of the reporting unit is potentially impaired and we then complete step two to measure the impairment loss , if any .
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results of operations fiscal years ended june 30 , 2014 and 2013 overview in fiscal 2014 , green coffee commodity prices continued to fall during the first two quarters and rose sharply in the third quarter and fuel costs remained high . our average cost of green coffee purchased fell from $ 1.70 per pound in fiscal 2013 to $ 1.46 per pound in fiscal 2014. in fiscal 2014 , we continued our hedging strategy intended to reduce the impact of changing green coffee commodity prices through the purchase of exchange-traded coffee-related derivative instruments for our own account and at the direction of customers under commodity-based pricing arrangements . to address the ongoing high fuel costs , in fiscal 2014 , we continued to bill our customers fuel surcharges . we continued our efforts to improve efficiencies by consolidating our coffee blends while maintaining original roasting profiles , resulting in a reduction in the number of coffee blends by 22. we also continued to optimize and simplify our product portfolio by discontinuing over 400 sku 's . we completed the integration of the enterprise resource planning system in all of our facilities under one common software platform . we continued to improve our real-estate asset management by divesting underutilized properties .
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the holder of the series a and series b preferred stock has agreed to convert the preferred stock into common stock upon the completion of the company 's ipo . the holders of the company 's outstanding shares of preferred stock agreed to waive the adjustment to the conversion price of the preferred stock upon the issuances of the third and fourth note . all outstanding shares of series a and series b preferred stock and accrued dividends on these shares were converted into common stock upon the company 's ipo on february 14 , 2019. the company amended its articles of incorporation on february 19 , 2019 and no longer has preferred shares authorized under the amended articles of incorporation . adoption of 2012 long term incentive plan in november 2012 , the company 's board and stockholders adopted the 2012 long term incentive plan ( the “ 2012 stock plan ” ) . the 2012 stock plan is designed to enable the company to offer employees , officers , directors and consultants , as defined , an opportunity to acquire a proprietary interest in the company . the types of awards that may be granted under the 2012 stock plan include stock options , stock appreciation rights , restricted stock , and other stock-based awards subject to limitations under applicable law . all awards are subject to approval by the company 's board . the 2012 stock plan reserves shares of common stock for issuance in accordance with the 2012 stock plan 's terms . total number of shares reserved and available for issuance under the plan were 789,745 shares . as of december 31 , 2018 , 14,745 shares remained available for grant under the 2012 stock plan . adoption of 2018 stock plan in june 2018 , the company 's board and stockholders adopted the 2018 stock plan . the 2018 stock plan is designed to enable the company to offer employees , officers , directors and consultants , as defined , an opportunity to acquire a proprietary interest in the company . the types of awards that may be granted under the 2018 stock plan include stock options , stock appreciation rights , restricted stock , and other stock-based awards subject to limitations under applicable law . all awards are subject to approval by the company 's board . the 2018 stock plan reserves shares of common stock for issuance in accordance with the 2018 stock plan 's terms . total number of shares reserved and available for issuance under the plan is 3,000,000 shares . as of december 31 , 2018 , 780,000 shares remained available for grant under the 2018 stock plan . restricted stock during the years ended december 31 , 2018 and 2017 , the company recorded $ 533,550 and $ 570,536 , respectively , in stock-based compensation for the restricted shares previously issued . during the years ended december 31 , 2018 and 2017 , 177,500 shares vested each period and at december 31 , 2018 , 127,500 shares which immediately vested upon completion of the company 's ipo . as of december 31 , 2018 , unamortized expense related to the restricted stock grant was $ 264,451 . 61 stock options the following table summarizes stock option activities for the years ended december 31 , 2018 : replace_table_token_15_th during the year ended december 31 , 2018 , the company granted its employees 2,220,000 options to purchase the company 's common stock with an exercise price of $ 1.75 per share , for a term of 10 years , and a vesting period of 4 years . the options have an aggregated grant date fair value of $ 2,694,567 that was calculated using the black-scholes option-pricing model . variables used in the black-scholes option-pricing model include : ( 1 ) discount rate of 2.77 % based on the daily yield curve rates for u.s. treasury obligations , ( 2 ) expected life of 6.25 years based on the simplified method provided in staff accounting bulletin , ( 3 ) expected volatility range from 84.5 % to 84.7 % based on the historical volatility of comparable companies ' stock , ( 4 ) no expected dividends and ( 5 ) fair market value of the company 's stock at $ 1.67 per share which value was determined by the company 's board after reviewing and considering , among other factors , a valuation report issued by an independent appraisal firm . on october 1 , 2017 , the company granted options to story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the related notes appearing elsewhere in this form 10-k. this discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties , including those set forth under “ cautionary statement about forward-looking statements. ” actual results and experience could differ materially from the anticipated results and other expectations expressed in our forward-looking statements as a result of a number of factors , including but not limited to those discussed in this item and in item 1a - “ risk factors. ” 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 “ risk factors ” and elsewhere in this form 10-k. overview soliton , inc. was incorporated in the state of delaware on march 27 , 2012. we are a medical technology company focused on developing and commercializing products utilizing our proprietary designed acoustic shockwave technology platform referred to as rap . we are a pre-revenue stage company with our first product currently being developed for the removal of tattoos . story_separator_special_tag we have completed the study treatments and all patient follow-up visits and expect to conclude this study by mid-2019 . results of operations for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 below is a summary of the results of operations : replace_table_token_4_th research and development . r & d expenses increased by $ 704,471 compared to the same period in 2017 , primarily due to increases in contract engineering expenses of $ 879,643 , salaries and related expenses of $ 270,270 , which is largely due to personnel expenses allocated more to r & d in the current period than in the prior period , and license and other expenses of $ 61,073. these increases were offset by decreases in animal research expenses of $ 252,600 and clinical trial expenses of $ 253,915. sales and marketing . s & m expenses increased by $ 213,313 compared to the same period in 2017 , primarily due to an increase in expenses related to social media development of $ 215,486 offset by decreases in fees for our scientific advisory board ( “ sab ” ) and other conference related expenses of meetings of $ 2,173. we include our sab fees in s & m because they primarily advise on our product launch and marketing decisions related to dermatologists and prospective patients . general and administrative . g & a expenses increased by $ 105,844 compared to same period in 2017 primarily due to increase in stock compensation expenses of $ 352,079 , driven primarily by the increase in expenses related to the granting of stock options , membership fee expenses of $ 16,293 , it expenses of $ 52,758 , investor relations expenses of $ 45,039 and accounting and other professional expenses of $ 93,241. these expenses were offset by decreases in salaries and related expenses of $ 325,692 , primarily due to the accrual of bonuses in the first quarter of 2017 that were forgiven in 2018 , travel expenses of $ 100,511 , which were higher in the prior year due to the clinical trials that were being conducted in that period requiring significant travel to the trial site , and other expenses of $ 27,363. other ( income ) expenses . other ( income ) expenses increased by $ 820,271 compared to the same period in 2017 mainly due to increase in interest expense of $ 819,671 , which was a result of additional convertible and non-convertible notes issued during 2018 . 43 liquidity and capital resources since our inception , we have financed our operations through private placements of common stock , convertible preferred stock , convertible and non-convertible bridge notes , and our ipo . our cash and cash equivalents as of december 31 , 2018 was $ 133,435. on february 19 , 2019 , we consummated our ipo . in the ipo , we sold a total of 2,172,591 shares of common stock at a purchase price of $ 5.00 per share for gross proceeds of $ 10,862,955 and net proceeds of approximately $ 9,700,000. in connection with the closing of the ipo , our convertible notes ( and related accrued interest ) of $ 11,784,987 were converted into 6,825,391 shares of our common stock and accrued dividends of $ 4,773,480 were converted into 954,696 shares of our common stock . we expect to continue to invest in our research and development efforts to support our current initiatives . we will not generate revenue until our commercial rap units are cleared by the fda and sold . we estimate our current cash resources , including the approximate $ 9,700,000 of net proceeds from the ipo is sufficient to fund our operations into but not beyond february 2020. we also recognize we will need to raise additional capital in order to continue to execute our business plan , including obtaining regulatory clearance for our products currently under development and commercializing and generating revenues from products under development . there are no assurances that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to us . a failure to raise sufficient capital , generate sufficient product revenues , control expenditures and regulatory matters , among other factors , will adversely impact our ability to meet our financial obligations as they become due and payable and to achieve our intended business objectives . if we are unable to raise sufficient additional funds , we will have to scale back our operations . story_separator_special_tag style= '' vertical-align : bottom ; width:87 % ; '' > 2019 103,737 2020 108,429 thereafter 36,668 total future minimum lease payments $ 248,834 purchase commitments as of december 31 , 2018 , we had no non-cancellable purchase obligations to contract manufacturers and suppliers . unrecognized tax benefits as of december 31 , 2018 , we have not recorded a provision for income taxes in our financial statements as we have been in a loss position since inception and we can not be more certain than not that we will be able to recognize the income tax benefit from our net operating loss carry forward in the future . off-balance sheet arrangements as of december 31 , 2018 , we did not have any relationships with unconsolidated entities or financial partnerships , such as entities often referred to as structured finance or special purpose entities , established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes . jobs act accounting election the jumpstart our business startups act of 2012 , or the jobs act , exempts an “ emerging growth company ” such as us from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards . the jobs act provides that a company can elect to opt out of the extended transition period and
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summary of cash flows the following table summarizes our cash flows for the year ended december 31 , 2018 and 2017 , respectively : replace_table_token_5_th cash flows for the years ended december 31 , 2018 and 2017 operating activities . net cash used in operating activities was $ 4,599,677 during the year ended december 31 , 2018 , and consisted of a net loss of $ 9,314,936 , which was offset by a net change in operating assets and liabilities of $ 3,525,912 and by non-cash items of $ 1,189,347. the change in operating assets included an increase in prepaid expenses of $ 2,787 offset by a net increase in liabilities of $ 3,528,699 , comprised of increases in accounts payable of $ 1,387,383 , accrued liabilities of $ 1,143,139 , accrued interest - related party and non-related party of $ 1,000,693 and a decrease in deferred rent of $ 2,516. the increase in accounts payable was largely due to extended payment terms established with several vendors during our ipo process . the increase in accrued liabilities was driven primarily by salary deferrals for management of $ 406,875 that was enacted to conserve operating cash and the remaining balance is attributed to accruals for various vendors . the increase in accrued interest-related party is due to the issuance of the related party convertible notes and the calculation of interest thereon .
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under mcdonald 's conventional franchise arrangement , franchisees provide a portion of the capital required by initially investing in the equipment , signs , seating and décor of their restaurant business , and by reinvesting in the business over time . the company generally owns the land and building or secures long-term leases for both company-operated and conventional franchised restaurant sites . this maintains long-term occupancy rights , helps control related costs and assists in alignment with franchisees enabling restaurant performance levels that are among the highest in the industry . in certain circumstances , the company participates in the reinvestment for conventional franchised restaurants in an effort to accelerate implementation of certain initiatives . under mcdonald 's developmental license arrangement , licensees provide capital for the entire business , including the real estate interest , and the company generally has no capital invested . in addition , the company has an equity investment in a number of affiliates ( primarily in japan and china ) that invest in real estate and operate or franchise restaurants within a market . mcdonald 's is primarily a franchisor and believes franchising is paramount to delivering great-tasting food , locally-relevant customer experiences and driving profitability . franchising enables an individual to be his or her own employer and maintain control over all employment-related matters , marketing and pricing decisions , while also benefiting from the financial strength and global experience of mcdonald 's . however , directly operating restaurants is important to being a credible franchisor and provides company personnel with restaurant operations experience . in company-operated restaurants , and in collaboration with franchisees , mcdonald 's further develops and refines operating standards , marketing concepts and product and pricing strategies , so that only those that the company believes are most beneficial are introduced in the restaurants . mcdonald 's continually reviews its mix of company-operated and franchised restaurants to help optimize overall performance , with a goal to be approximately 95 % franchised over the long term . the company 's revenues consist of sales by company-operated restaurants and fees from restaurants operated by franchisees . revenues from conventional franchised restaurants include rent and royalties based on a percent of sales along with minimum rent payments , and initial fees . revenues from restaurants licensed to affiliates and developmental licensees include a royalty based on a percent of sales , and generally include initial fees . fees vary by type of site , amount of company investment , if any , and local business conditions . these fees , along with occupancy and operating rights , are stipulated in franchise/license agreements that generally have 20-year terms . the business is structured into the following segments that combine markets with similar characteristics and opportunities for growth , and reflect how management reviews and evaluates operating performance : u.s. - the company 's largest segment . international lead markets - established markets including australia , canada , france , germany , the u.k. and related markets . high growth markets - markets that the company believes have relatively higher restaurant expansion and franchising potential including china , italy , korea , the netherlands , poland , russia , spain , switzerland and related markets . foundational markets & corporate - the remaining markets in the mcdonald 's system , most of which operate under a largely franchised model . corporate activities are also reported within this segment . for the year ended december 31 , 2017 , the u.s. , international lead markets and high growth markets accounted for 35 % , 32 % and 24 % of total revenues , respectively . in analyzing business trends , management reviews results on a constant currency basis and considers a variety of performance and financial measures which are considered to be non-gaap , including comparable sales and comparable guest count growth , systemwide sales growth , return on incremental invested capital ( `` roiic '' ) , free cash flow and free cash flow conversion rate , as described below . constant currency results exclude the effects of foreign currency translation and are calculated by translating current year results at prior year average exchange rates . management reviews and analyzes business results in constant currencies and bases most incentive compensation plans on these results because the company believes this better represents its underlying business trends . comparable sales and comparable guest counts are key performance indicators used within the retail industry and are indicative of the impact of the company 's initiatives as well as local economic and consumer trends . increases or decreases in comparable sales and comparable guest counts represent the percent change in sales and transactions , respectively , from the same period in the prior year for all restaurants , whether operated by the company or franchisees , in operation at least thirteen months , including those temporarily closed . some of the reasons restaurants may be temporarily closed include reimaging or remodeling , rebuilding , road construction and natural disasters . comparable sales exclude the impact of currency translation , and , beginning in 2017 , also exclude sales from venezuela due to its hyper-inflation . management generally identifies hyper-inflationary markets as those markets whose cumulative inflation rate over a three-year period exceeds 100 % . comparable sales are driven by changes in guest counts and average check , which is affected by changes in pricing and product mix . typically , pricing has a greater impact on average check than product mix . the goal is to achieve a relatively balanced contribution from both guest counts and average check . systemwide sales include sales at all restaurants . while franchised sales are not recorded as revenues by the company , management believes the information is important in understanding the company 's financial performance because these sales are the basis on which the company calculates and records franchised revenues and are indicative of the financial health of the franchisee base . story_separator_special_tag in addition to the customer-relevant changes in the restaurants , the company has enhanced financial value through its refranchising efforts , g & a cost savings initiatives and cash return to shareholders . in 2017 , the company achieved its target to refranchise 4,000 restaurants , a full year ahead of the original target date . mcdonald 's is currently 92 % franchised , with a long-term goal of approximately 95 % . the transition to a more heavily franchised business model is benefiting the company 's performance , as the rent and royalty income received from franchisees provides a more predictable and stable revenue stream with significantly lower operating costs and risks . this includes a less g & a and capital intensive structure as franchisees are responsible for supporting and reinvesting in their businesses . under this more heavily franchised structure , growing comparable sales will be the strongest driver of operating income growth and returns . through execution of the velocity growth plan , mcdonald 's is serving more customers more often . in 2018 , the company remains aggressively focused on executing its ambitious plan to unlock more of its potential and drive long-term sustainable growth . mcdonald 's corporation 2017 annual report 15 our velocity growth plan also includes the company doing its part to further embed certain social and environmental issues into the core of our business , which we refer to as our scale for good . as one of the world 's largest restaurant companies , our scale for good highlights our commitment to global priorities that are consistent with our strategic priorities and provides an opportunity to collaborate with our franchisees and suppliers to drive meaningful progress . we believe it is important for customers to feel good about visiting mcdonald 's restaurants and eating our food in order to continue to drive each of the pillars within our strategy . while we 're committed to addressing many challenges facing society today , we 're elevating a few global priorities that reflect analysis of major social and environmental impacts of our food and our business and the material environmental and social issues that matter most to our customers , employees , franchisees , suppliers and stakeholders . our four global priorities are : beef sustainability , packaging and recycling , commitment to families and our investment in people . beyond these global priorities , we will continue to drive progress on our goals and commitments across key social and environmental topics such as climate change , diversity , animal health and welfare , and supporting families and farmers . 2017 financial performance the company 's 2017 financial performance demonstrates that the velocity growth plan is working . by focusing on the aforementioned three pillars , and the identified growth accelerators , the company achieved its best comparable sales performance in six years . in 2017 , global comparable sales increased 5.3 % and global comparable guest counts increased 1.9 % , with positive results achieved in all segments . comparable sales in the u.s. increased 3.6 % and comparable guest counts increased 1.0 % . the growth in comparable sales and guest counts was supported by the full breadth of our menu , including national beverage value offerings , strong performance of core menu items featured under the mcpick 2 platform as well as signature crafted premium sandwiches and other menu innovations . comparable sales in the international lead segment increased 5.3 % and comparable guest counts increased 2.3 % , reflecting positive performance across all of the segment , led by the u.k. and canada . in the high growth segment , comparable sales increased 5.3 % and comparable guest counts increased 1.8 % . this performance reflects positive results across most of the segment , led by china . comparable sales in the foundational markets increased 9.0 % and comparable guest counts increased 3.3 % , led by strong performance in japan and latin america , as well as solid results across the remainder of the segment . in addition to improved comparable sales and guest count performance , the company achieved the following financial results in 2017 : consolidated revenues decreased 7 % ( 8 % in constant currencies ) as positive comparable sales were more than offset by the impact of refranchising . systemwide sales increased 7 % ( 7 % in constant currencies ) . consolidated operating income increased 23 % ( 23 % in constant currencies ) , which benefited from a gain on the sale of the company 's businesses in china and hong kong . operating margin , defined as operating income as a percent of total revenues , increased from 31.5 % in 2016 to 41.9 % in 2017 . diluted earnings per share of $ 6.37 increased 17 % ( 17 % in constant currencies ) . cash provided by operations was $ 5.6 billion . capital expenditures of $ 1.9 billion were allocated mainly to reinvestment in existing restaurants and , to a lesser extent , to new restaurant openings . across the system , about 900 restaurants ( including those in our developmental licensee and affiliated markets ) were opened . free cash flow was $ 3.7 billion ( see reconciliation in exhibit 12 ) . one-year roiic was 1,671.8 % and three-year roiic was 93.1 % for the period ended december 31 , 2017 . excluding the gain from the sale of businesses in china and hong kong , as well as significant investing cash inflows from strategic refranchising initiatives , one year and three year roiic were 48.3 % and 43.6 % , respectively ( see reconciliation in exhibit 12 ) . the company increased its quarterly cash dividend per share by 7 % to $ 1.01 for the fourth quarter , equivalent to an annual dividend of $ 4.04 per share . the company returned $ 7.7 billion to shareholders through share repurchases and dividends for the year .
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consolidated operating results replace_table_token_4_th n/m not meaningful impact of foreign currency translation on reported results while changes in foreign currency exchange rates affect reported results , mcdonald 's mitigates exposures , where practical , by purchasing goods and services in local currencies , financing in local currencies and hedging certain foreign-denominated cash flows . in 2017 , results reflected the stronger euro , offset by the weaker british pound . in 2016 and 2015 , results were negatively impacted by weaker foreign currencies . impact of foreign currency translation on reported results replace_table_token_5_th net income and diluted earnings per common share in 2017 , net income increased 11 % ( 11 % in constant currencies ) to $ 5.2 billion and diluted earnings per common share increased 17 % ( 17 % in constant currencies ) to $ 6.37 . foreign currency translation had no impact on diluted earnings per share . in 2016 , net income increased 3 % ( 6 % in constant currencies ) to $ 4.7 billion and diluted earnings per common share increased 13 % ( 16 % in constant currencies ) to $ 5.44 . foreign currency translation had a negative impact of $ 0.11 on diluted earnings per share . results in 2017 reflected stronger operating performance , g & a savings and improved performance in japan , which enabled the reversal of a valuation allowance on a deferred tax asset in japan . 2017 results included approximately $ 700 million of net tax cost associated with the tax act , reflecting provisional amounts related to the deemed repatriation charge of approximately $ 1.2 billion , partly offset by a benefit of approximately $ 500 million resulting from the revaluation of deferred tax assets and liabilities to the lower enacted u.s. corporate tax rate of 21 % .
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26 in some cases , you can identify forward-looking statements by terminology such as ' ‘ may , '' ' ‘ will , '' `` should , '' ' ‘ could , '' ' ‘ expects , '' ' ‘ plans , '' ' ‘ intends , '' ' ‘ anticipates , '' ' ‘ believes , '' ' ‘ estimates , '' ' ‘ predicts , '' ' ‘ potential , '' or ' ‘ continue '' or the negative of such terms or other comparable terminology . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance , or achievements . moreover , neither we nor any other person assumes responsibility for the accuracy and completeness of such statements . readers are cautioned not to place undue reliance on these forward-looking statements , which speak only as of the date hereof . we are under no duty to update any of the forward-looking statements after the date of this report . this section of the report should be read together with footnotes of the company audited financials . the audited statements of operations for the years ended december 31 , 2019 and 2018 are compared in the sections below . general overview gbt technologies inc ( f/k/a gopher protocol inc. , the “ company ” , “ we ” , “ us ” , “ our ” , “ gopher ” , “ gopher protocol ” , “ goph ” , “ gtch ” , or “ gbt ” ) was incorporated on july 22 , 2009 under the laws of the state of nevada and is headquartered in santa monica , california . the company is creating and patenting innovative mobile microchip ( ics ) and software technologies based on the gopherinsight technology platform . effective august 5 , 2019 , the company changed its name from gopher protocol inc. to gbt technologies inc. the company also offers prepaid cellular phone minutes for both domestic and international carriers . in addition , the company offers cellular activation ( activating sim cards with wireless carriers ) to create additional users ( consumers ) on those networks and provides check processing , verification and recovery solutions for small to medium sized businesses . the company has historically derived revenues from ( i ) the provision of it services ; ( ii ) from the operations of the assets that include the sale of phones , phone card products , prepaid cellular phone minutes and cellular activation and ( iii ) from the licensing of its technology . on march 16 , 2018 ( “ closing date ” ) , the company entered into and closed an asset purchase agreement dated march 1 , 2018 ( the “ ecs purchase agreement ” ) with ecs prepaid llc ( “ ecs ” ) , a missouri limited liability company , pursuant to which the company purchased certain assets from ecs , including , but not limited to , the processing prepaid platform , servers , pos terminals , customer list , a processing software program and goodwill , in consideration of $ 1,100,000 of which $ 100,000 was paid on the closing date and the balance is to be paid pursuant to a secured promissory note in the amount of $ 1,000,000 ( the “ ecs note ” ) . in addition , the company issued 500,000 shares of common stock of the company ( the “ ecs shares ” ) and warrants to purchase 500,000 shares of common stock ( the “ ecs warrants ” ) . the ecs warrants were assigned by ecs to dennis winfrey . the ecs warrants are exercisable for a period of five years at a fixed exercise price of $ 1.85 per share and contain standard anti-dilution protection . under the esc note , which is secured by the assets acquired by the company from ecs , the company is required to make ten equal payments of $ 100,000 commencing on april 15 , 2018. the company may prepay the ecs note at any time without penalty . the ecs note is a short-term debt obligation that is material to the company . on april 2 , 2018 ( “ closing date ” ) , the company entered into and closed an asset purchase agreement ( the “ electronic purchase agreement ” ) with electronic check services inc. ( “ electronic check ” ) , a missouri corporation , pursuant to which the company purchased certain assets from electronic check , including , but not limited to , assets associated with software that validates written check authenticity , in consideration of $ 75,000 paid on the closing date . in addition , the company issued 250,000 shares of common stock of the company ( the “ electronic shares ” ) and warrants to purchase 250,000 shares of common stock ( the “ electronic warrants ” ) . the electronic warrants were assigned by electronic check to dennis winfrey , the shareholder of electronic check . the electronic warrants are exercisable for a period of five years at a fixed exercise price of $ 2.70 per share and contain standard anti-dilution protection . on april 2 , 2018 , the company entered into and closed an asset purchase agreement ( the “ central purchase agreement ” ) with central state legal services inc. ( “ central ” ) , a missouri corporation , pursuant to which the company purchased certain assets from central , including , but not limited to , assets associated with the a system to recover funds from returned checks , in consideration of $ 25,000 paid on the closing date . derron winfrey , the coo of the company , is a director and president of electronic check and central . derron winfrey 's parents are the shareholders of check and central . on or around november 10 , 2017 , ugopherservices experienced a suspension of operations on the terminals that the company acquired in its acquisition on september 1 , 2017 from rwj advanced marketing llc . story_separator_special_tag on february 6 , 2019 , the company entered into a letter agreement with gopher protocol costa rica sociedad de responsabilidad limitada , a costa rican company ( “ gopher cr ” ) and a 50 % owned subsidiary of the company , pursuant to which the company sold 30,000,000 shares of mobiquity technologies , inc. , a new york corporation ( “ mobiquity ” ) to gopher cr in the principal amount of $ 5,000,000 secured by all of the assets of gopher cr payable with 10 % interest on the two-year anniversary . on may 10 , 2019 , the company entered into a membership interest purchase agreement with geal pursuant to which the company acquired 49 % of the membership interest in advangelists , llc ( the “ avng interest ” ) in consideration of the assumption of a promissory note payable by geal to the former owners of the avgn interest with an outstanding balance of $ 7,475,000 ( the “ avng note ” ) and cancellation of an outstanding promissory note payable by geal to the company in the amount of $ 1,200,000 originally issued on march 1 , 2019. concurrently , the company entered into a membership interest purchase agreement with mobiquity pursuant to which the company sold the avng interest to mobiquity in consideration of mobiquity assuming the avng note and mobiquity amending the terms of the remaining mobiquity warrant providing for cashless exercise . 28 the company paid 60,000,000 of its mobiquity shares as partial consideration for the purchase of gbt technologies , s. a. on august 6 , 2019 , mobiquity delivered a counter signed letter agreement dated august 2 , 2019 pursuant to which the company exchanged 120,000,000 mobiquity warrants into 20,000,000 shares of mobiquity common stock , which resulted in the company holding 60,000,000 shares of mobiquity common stock . on september 10 , 2019 , the company entered into ( i ) a stock purchase agreement with mobiquity pursuant to which the company agreed to return 15,000,000 shares of mobiquity common stock to mobiquity in exchange for 110,000 shares of common stock of the company , ( ii ) a stock purchase agreement with marital trust gst subject u/w/o leopold salkind ( “ salkind trust ” ) pursuant to which the company agreed to sell 7,000,000 shares of mobiquity common stock to salkind trust in consideration of $ 67,200 , ( iii ) stock purchase agreement with dr. gene salkind ( “ salkind ” ) pursuant to which the company agreed to sell 28,000,000 shares of mobiquity common stock to salkind in consideration of $ 268,000 and ( iv ) a stock purchase agreement with deepanker katyal ( “ katyal ” ) pursuant to which the company agreed to sell 10,000,000 shares of mobiquity common stock to katyal in consideration of 90,000 shares of common stock of the company . the closing of the agreements occurred on september 13 , 2019. as a result of these transactions , the company realized a loss on the sale of mobiquity common stock of $ 3,673,595. at december 31 , 2019 , the company owned no shares of mobiquity common stock . gbt technologies , s.a. ( “ gbt ” ) on september 14 , 2018 , the company entered into an exclusive intellectual property license and royalty agreement ( the “ gbt license agreement ” ) with gbt , a fully compliant and regulated cryptocurrency exchange platform that currently operates in costa rica as a decentralized cryptocurrency platform , pursuant to which , among other things , the company granted to gbt an exclusive , royalty-bearing right and license relating intellectual property relating to systems and methods of converting electronic transmissions into digital currency as reflected in that certain patent filed with the united stated patent and trademark office on or about june 14 , 2018 ( efs id : 32893586 ; application number : 16008069 ; collectively , the “ digital currently technology ” ) . pursuant to the gbt license agreement , the company granted gbt an exclusive worldwide license to use the digital currency technology to make , use , sell , lease or otherwise commercialize and dispose of products and devices utilizing the digital currently technology . under the terms of the gbt license agreement , the company is entitled to receive a royalty payment of 2 % of gross revenue of each licensed product sold by gbt during the period starting in which revenue is first generated using the licensed products and continuing for five years thereafter . upon signing the gbt license agreement , gbt paid the company $ 300,000 , which is nonrefundable . the company has recognized the $ 300,000 as revenue during the year ended december 31 , 2018. upon gbt making available for sale ( the “ commercial event ” ) an ico ( initial coin offering ) ( the “ coin ” ) , gbt will make a payment to the company in the amount of $ 5,000,000. further , upon the commercial event , gbt will grant the company the ability to acquire 30 % of the coin at a 30 % discount of such offering price of the coin . the gbt license agreement commenced as of the signing date and , unless terminated in accordance with the termination provisions of the gbt license agreement , shall remain in force until the expiration of the patent pertaining to the digital currency technology ; provided that the right to use trade secrets shall survive the expiration of the gbt license agreement provided the company has not terminated . prior to the signing of the gbt license agreement , gbt advanced $ 200,000 to the company , which the parties have agreed will be applied toward the $ 5,000,000 fee when it becomes due . the $ 200,000 is recorded as unearned revenue at december 31 , 2019 in the accompanying consolidated balance sheet . as of the date of this filing , the commercial event has not yet occurred .
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results of operations : year ended december 31 , 2019 and december 31 , 2018 a comparison of the statements of operations for the year ended december 31 , 2019 and 2018 is as follows : replace_table_token_5_th 31 sales for the year ended december 31 , 2019 were $ 19,277,058 , compared to $ 14,507,869 for the year ended december 31 , 2018. the increase of $ 4,769,189 or 32.9 % was a result of increased sales generated from a new contract from our ugo subsidiary . our gross margins for the year ended december 31 , 2019 were 5.3 % , compared to 7.8 % for the same period in 2018. the change in the gross margin was due to licensing revenue generated during the year ended december 31 , 2018 that had a very high gross margin . operating expenses for the year ended december 31 , 2019 were $ 177,067,794 , compared to $ 46,539,037 for the same period in 2019. the increase of $ 131,528,757 or 282.6 % was due to the fair value of warrants issued of $ 120,476,603 as a result of anti-dilution provisions in certain warrants previously issued and a charge $ 48,631,534 related to the impairment of assets during the year ended december 31 , 2019 compared to a charge of $ 7,132,286 during 2018 ; offset by i ) a decrease in common stock issued for services that went from $ 13,641,225 for the year ended december 31 , 2018 to $ 235,900 for the same period in 2019 ; ii ) a decrease in warrants issued for services that went from $ 7,881,028 for the year ended december 31 , 2018 to $ 766,804 for the same period in 2019 ; and iii ) a decrease in a charge of $ 11,750,000 during 2018 related to the buyout of a profit participation agreement with guardian llc .
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the company expects the fair value of the mortgage-backed securities to recover as the mortgage-backed securities approach their maturity dates or sooner story_separator_special_tag general management 's discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the company . the information contained in this section should be read in conjunction with the consolidated financial statements and accompanying notes thereto contained in item 8 of this form 10-k and the other sections contained in this form 10-k. this section contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . these measures include net interest income on a fully tax equivalent basis and net interest margin on a fully tax equivalent basis . management uses these non-gaap measures in its analysis of the company 's performance . the tax equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a 34 % tax rate . management believes that it is a standard practice in the banking industry to present net interest income and net interest margin on a fully tax equivalent basis , and accordingly believes that providing these measures may be useful for peer comparison purposes . these disclosures should not be viewed as substitutes for the results determined to be in accordance with gaap , nor are they necessarily comparable to non-gaap performance measures that may be presented by other companies . critical accounting policies the company has established various accounting policies that govern the application of accounting principles generally accepted in the united states of america in the preparation of the company 's consolidated financial statements . the company has identified policies that due to judgments , estimates and assumptions inherent in those policies are critical to an understanding of the company 's consolidated financial statements . these policies relate to the methodology for the determination of the allowance for loan losses , the valuation of investment securities , the valuation of real estate owned ( “ reo ” ) and foreclosed assets , goodwill valuation and the calculation of income taxes . these policies and the judgments , estimates and assumptions are described in greater detail in subsequent sections of management 's discussions and analysis contained herein and in the notes to the consolidated financial statements contained in item 8 of this form 10-k. in particular , note 1 of the notes to consolidated financial statements , “ summary of significant accounting policies , ” describes generally the company 's accounting policies . management believes that the judgments , estimates and assumptions used in the preparation of the company 's consolidated financial statements are appropriate given the factual circumstances at the time . however , given the sensitivity of the company 's consolidated financial statements to these critical accounting policies , the use of other judgments , estimates and assumptions could result in material differences in the company 's results of operations or financial condition . allowance for loan losses the allowance for loan losses is maintained at a level sufficient to provide for probable loan losses based on evaluating known and inherent risks in the loan portfolio . the allowance is provided based upon the company 's ongoing quarterly assessment of the pertinent factors underlying the quality of the loan portfolio . these factors include changes in the size and composition of the loan portfolio , delinquency levels , actual loan loss experience , current economic conditions and detailed analysis of individual loans for which full collectability may not be assured . the detailed analysis includes techniques to estimate the fair value of loan collateral and the existence of potential alternative sources of repayment . the allowance consists of specific , general and unallocated components . the specific component relates to loans that are considered impaired . for loans that are classified as impaired , an allowance is established when the discounted cash flows or collateral value of the impaired loan is lower than the carrying value of that loan . the general component covers non-impaired loans based on the company 's risk rating system and historical loss experience adjusted for qualitative factors . the company calculates its historical loss rates using the average of the last four quarterly 24-month periods . the company calculates and applies its historical loss rates by individual loan types in its portfolio . these historical loss rates are adjusted for qualitative and environmental factors . an unallocated component is maintained to cover uncertainties that the company believes have resulted in incurred losses that have not yet been allocated to specific elements of the general and specific components of the allowance for loan losses . such factors include uncertainties in economic conditions and in identifying triggering events that directly correlate to subsequent loss rates , changes in appraised value of underlying collateral , risk factors that have not yet manifested themselves in loss allocation factors and historical loss experience data that may not precisely correspond to the current portfolio or economic conditions . the unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio . the appropriate allowance level is estimated based upon factors and trends identified by the company as of the date of the filing of the financial statements . 47 when available information confirms that specific loans or portions thereof are uncollectible , identified amounts are charged against the allowance for loan losses . story_separator_special_tag evidence based on future events will generally be less objective as it is based on future expectations and therefore is generally less verifiable or not verifiable at all . factors considered in evaluating whether a decline in value is other-than-temporary include , ( a ) the length of time and the extent to which the fair value has been less than amortized cost , ( b ) the financial condition and near-term prospects of the issuer and ( c ) the company 's intent and ability to retain the investment for a period of time . other factors that may be considered include the ratings by recognized rating agencies ; capital strength and other near-term prospects of the issuer and recommendation of investment advisors or market analysts . in situations in which the security 's fair value is below amortized cost but it continues to be probable that all contractual terms of the security will be satisfied , the decline is solely attributable to noncredit factors , and the company asserts that it has positive intent and ability to hold that security to maturity , no otti is recognized . valuation of reo and foreclosed assets real estate properties acquired through foreclosure or by deed-in-lieu of foreclosure are recorded at fair value less estimated costs to sell . fair value is generally determined by management based on a number of factors , including third-party appraisals of fair value in an orderly sale . accordingly , the valuation of reo is subject to significant external and internal judgment . any differences between management 's assessment of fair value , less estimated costs to sell , and the carrying value of the loan at the date of acquisition are charged to the allowance for loan losses . at the acquisition date , any write ups , where the fair value less estimated costs to sell exceeds the loan basis , are first recovered through the allowance for loan losses if there was a prior charge-off and then applied to any outstanding accrued interest . if no prior charge-off or accrued interest is present , the amount is recorded as gain on transfer of reo . management periodically reviews reo values to determine whether the property continues to be carried at the lower of its recorded book value or fair value , net of estimated costs to sell . any further decreases in the value of reo are considered valuation adjustments and trigger a corresponding charge to non-interest expense in the consolidated statements of income . expenses from the maintenance and operations of reo are included in other non-interest expense . goodwill valuation goodwill is initially recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired . goodwill is presumed to have an indefinite useful life and is tested , at least annually , for impairment at the reporting unit level . the company has one reporting unit , the bank , for purposes of computing goodwill . all of the company 's goodwill has been allocated to this single reporting unit . the company performs an annual review in the third quarter of each year , or more frequently if indications of potential impairment exist , to determine if the recorded goodwill is impaired . if the fair value exceeds the carrying value , goodwill at the reporting unit level is not considered impaired and no additional analysis is necessary . if the carrying value of the reporting unit is higher than its fair value , there is an indication that impairment may exist and additional analysis must be performed to measure the amount of impairment loss , if any . the amount of impairment is determined by comparing the implied fair value of the reporting unit 's goodwill to the carrying value of the goodwill in the same manner as if the reporting unit was being acquired in a business combination . specifically , the company would allocate the fair value to all of the assets and liabilities of the reporting unit , including unrecognized intangible assets , in a hypothetical analysis that would calculate the implied fair value of goodwill . if the implied fair value of goodwill is less than the recorded goodwill , the company would record an impairment charge for the difference . a significant amount of judgment is involved in determining if an indicator of impairment has occurred . such indicators may include , among others : a significant decline in our expected future cash flows ; a sustained , significant decline in our stock price and market capitalization ; a significant adverse change in legal factors or in the business climate ; adverse action or assessment by a regulator ; and unanticipated competition . any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on the company 's consolidated financial statements . income taxes the company estimates tax expense based on the amount it expects to owe various tax authorities . accrued taxes represent the net estimated amount due or to be received from taxing authorities . in estimating accrued taxes , management assesses the relative merits and risks of the appropriate tax treatment of transactions taking into account statutory , judicial and regulatory guidance in the context of our tax position . 49 we determine our deferred income taxes using the balance sheet method , under which the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities , and changes in tax rates and laws are recognized in the period in which they occur . deferred income tax expense or benefit is recorded based on changes in deferred tax assets and liabilities between periods . the company records net deferred tax assets to the extent these assets will more likely than not be realized .
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fiscal year 2015 marked the 92 nd anniversary since the bank began operations in 1923. the historical emphasis had been on residential real estate lending . since 1998 , however , the company has been diversifying its loan portfolio through the expansion of its commercial and construction loan portfolios . at march 31 , 2015 , commercial and construction loans represented 78.2 % of total loans . commercial lending , including commercial real estate loans , typically has higher credit risk , greater interest margins and shorter terms than residential lending which can increase the loan portfolio 's profitability . the primary business strategy of the company is to provide comprehensive banking and related financial services within its primary market area . the company 's goal is to deliver returns to shareholders by managing problem assets , increasing higher-yielding assets ( in particular commercial real estate and commercial business loans ) , increasing core deposit balances , reducing expenses , hiring experienced employees with a commercial lending focus and exploring expansion opportunities . the company seeks to achieve these results by focusing on the following objectives : focusing on asset quality . the company is focused on monitoring existing performing loans , resolving nonperforming loans and selling foreclosed assets . the company has aggressively sought to reduce its level of nonperforming assets through write-downs , collections , modifications and sales of nonperforming loans and real estate owned . the company has taken proactive steps to resolve its nonperforming loans , including negotiating repayment plans , forbearances , loan modifications and loan extensions with borrowers when appropriate , and accepting short payoffs on delinquent loans , particularly when such payoffs result in a smaller loss than foreclosure .
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overview : viad corp ( viad or the company ) operates in three reportable business segments : marketing & events u.s. , marketing & events international and travel & recreation group . the marketing & events group , comprised of global experience specialists , inc. and affiliates ( ges ) , specializes in all aspects of the design , planning and production of face-to-face events , immersive environments and brand-based experiences for clients , including show organizers , corporate brand marketers and retail shopping centers . in addition , the marketing & events group provides a variety of immersive , entertaining attractions and brand-based experiences , sponsored events , mobile marketing and other branded entertainment and face-to-face marketing solutions for clients and venues , including shopping malls , movie studios , museums , leading consumer brands and casinos . the travel & recreation group segment consists of brewster inc. ( brewster ) , glacier park , inc. ( glacier park ) and alaskan park properties , inc. ( alaskan park properties ) . brewster provides tourism products and experiential services in the canadian rockies in alberta and in other parts of western canada . brewster 's operations include the banff gondola , columbia icefield glacier adventure , motorcoach services , charter and sightseeing services , tour boat operations , inbound package tour operations and hotel operations . glacier park operates five lodges , three motor inns and one four-season resort hotel and provides food and beverage operations , retail operations and tour and transportation services in and around glacier national park in montana and waterton lakes national park in alberta , canada . glacier park is an 80 percent owned subsidiary of viad . alaskan park properties operates the denali backcountry lodge , which is the largest of three lodges located within denali national park and preserve in alaska , and the denali cabins , which are located near the entrance to denali national park and preserve . in addition to lodging , alaskan park properties also provides food and beverage operations and package tour and transportation services in and around denali national park and preserve . story_separator_special_tag revenues was primarily due to new show wins , positive show rotation of approximately $ 4 million and same-show growth , which more than offset 2010 first quarter revenues from a major project for the 2010 winter olympic games in canada . operating results for 2011 reflect higher compensation expenses , including merit increases and the elimination of temporary wage reductions , as compared to 2010. although the marketing & events group has a diversified revenue base and long-term contracts for future shows , its revenues are affected by general economic and industry-specific conditions . the prospects for individual shows tend to be driven by the success of the industry related to those shows . in general , the exhibition and event industry is experiencing modest improvement . following quarterly declines from the third quarter of 2008 through the first quarter of 2010 , marketing & events u.s. base same-show revenues were essentially flat in the 2010 second quarter and have increased in each of the following six quarters . for 2012 , management expects u.s. same-show revenues to increase at a mid-single digit rate and that show rotation will not have a meaningful impact on revenues as revenue from non-annual shows during 2012 is expected to be comparable to revenues from non-annual shows that took place during 2011. additionally , management anticipates that foreign currency exchange rate variances versus 2011 will have an unfavorable impact on the marketing & events group 's 2012 revenues and operating income of approximately $ 9 million and $ 500,000 , respectively . management remains focused on improving the profitability of the marketing & events u.s. segment through continued integration and consolidation of operations to increase capacity utilization and reduce costs . consequently , management expects to record additional restructuring charges of approximately $ 1.5 million in the first quarter of 2012 as a result of the continued reorganization activities . additional restructuring charges may be incurred as further cost structure improvements are made . the marketing & events group is subject to multiple collective-bargaining agreements that affect labor costs , about one-third of which expire each year . although labor relations between the company and labor are currently stable , disruptions during future contract negotiations could occur , with the possibility of an adverse impact on the operating results of the marketing & events group . travel & recreation group . revenues for the travel & recreation group segment were $ 101.8 million , up 15.3 percent compared to 2010 revenues of $ 88.3 million . segment operating income was $ 20.2 million , up 1.6 percent from 2010 segment operating income of $ 19.9 million . segment operating margins were 19.8 percent in 2011 compared to 22.5 percent in 2010. as discussed above , results in this segment were impacted by exchange rate variances during 2011 , resulting in increases of $ 4.3 million and $ 1.3 million in revenues and segment operating income , respectively , as compared to 2010. excluding exchange rate variances , 2011 revenues increased by $ 9.2 million , or 10.5 percent , primarily due to the acquisitions of st. mary lodge & resort and grouse mountain lodge , which are located near glacier national park , as well as organic revenue growth at brewster . the company acquired the 145-room grouse mountain lodge on january 5 , 2011 for $ 10.5 million in cash and the 115-room st. mary lodge & resort on june 29 , 2011 for $ 15.3 million in cash . brewster realized growth across all of its lines of business with the exception of its transportation business , which had higher 2010 revenues resulting from charter contracts related to the winter olympic and paralympic games . story_separator_special_tag the improved results as compared to 2009 were also the result of higher revenues , overhead reductions and productivity improvements driven by the company 's lean initiatives . net income attributable to viad for 2010 was $ 443,000 , or $ 0.02 per diluted share , compared to a loss of $ 104.7 million , or $ 5.25 per diluted share , in 2009. these results include income from discontinued operations of $ 262,000 , or $ 0.01 per diluted share , in 2010 and $ 679,000 , or $ 0.03 per diluted share , in 2009 relating to obligations associated with previously sold operations . during 2010 , foreign exchange rate variances resulted in increases in revenues and segment operating income of $ 8.7 million and $ 1.1 million , respectively , as compared to 2009. viad conducts its foreign operations primarily in canada and the united kingdom and to a lesser extent in certain other countries . 20 the following table summarizes the effects of foreign exchange rate variances on revenues and segment operating results from viad 's significant international operations : replace_table_token_9_th accordingly , viad 's results were primarily impacted by the strengthening of the canadian dollar relative to the u.s. dollar . future decreases in the exchange rates may adversely impact overall expected profitability and historical period to period comparisons when operating results are translated into u.s. dollars . marketing & events group . revenues for the marketing & events u.s. segment were $ 571.0 million for 2010 , up 0.4 percent compared to $ 568.4 million in 2009. the increase was primarily due to positive show rotation of $ 15 million in revenue , mostly offset by reductions in brand marketer spending and a base same-show revenue decline of one percent . management defines base same-show revenue as revenue from exhibitions and events that occur in the same quarter and same city every year . base same-shows represented 37.1 percent of marketing & events u.s. segment revenues in 2010. the 2010 segment operating loss was $ 15.2 million , compared to a loss of $ 22.1 million in 2009. the improved operating results were primarily the result of higher revenues , overhead reductions of approximately $ 10 million versus 2009 and productivity improvements driven by the company 's lean initiatives , partially offset by higher accruals for performance-based incentives ( which were not significant in 2009 ) and pricing pressures . revenues for the marketing & events international segment were $ 197.8 million for 2010 , up 14.6 percent compared to $ 172.6 million in 2009. segment operating income was $ 10.1 million in 2010 , compared to $ 9.2 million in 2009. as discussed above , results in this segment were impacted by exchange rates during 2010 , resulting in increases of $ 4.3 million in revenue and $ 519,000 in segment operating income , as compared to 2009. excluding exchange rate variances , 2010 revenues increased by $ 20.8 million , or 12.1 percent , and operating income increased by $ 343,000 , or 3.7 percent . the increase in revenue primarily resulted from market share gains , improving industry trends , a major project for the 2010 winter olympic games in canada and positive show rotation of $ 3 million . the improved operating income was primarily the result of higher revenues , partially offset by performance-based incentives and the reinstatement of full wages after a temporary reduction in 2009. travel & recreation group . revenues for the travel & recreation group segment were $ 88.3 million , up 17.2 percent compared to 2009 revenues of $ 75.3 million . segment operating income was $ 19.9 million , up 16.6 percent from 2009 operating income of $ 17.1 million . as discussed above , results in this segment were impacted by exchange rate variances during 2010 , resulting in increases of $ 4.4 million and $ 538,000 in revenues and segment operating income , respectively , as compared to 2009. excluding exchange rate variances , 2010 revenues increased by $ 8.6 million , or 11.4 percent , primarily due to initiatives to capture incremental spend per guest as well as stronger demand for the company 's tourism services that was partly related to the centennial anniversary of glacier national park and the 2010 winter olympic and paralympic games . during 2010 , approximately 73 percent of revenue and 79 percent of segment operating income generated in the travel & recreation group segment was derived through its canadian operations . these operations are largely affected by foreign customer visitation , and , accordingly , increases in the value of the canadian dollar compared to other currencies could adversely affect customer volumes , revenue and segment operating income from the travel & recreation group segment . corporate activities . corporate activities expense of $ 6.4 million in 2010 increased from $ 5.6 million in 2009. this increase was primarily due to higher performance-based compensation expense in 2010 as compared to performance-based compensation expense reversals in 2009 , partially offset by lower consulting fees in 2010. impairment losses . in 2010 , viad recorded impairment losses of $ 302,000 related to other intangible assets and certain property and equipment at the travel & recreation group . in 2009 , viad recorded impairment losses of $ 116.9 million , including $ 112.3 million related to the non-cash write-down of goodwill and other intangible assets at the marketing & events group , $ 1.7 million related to touring exhibit assets at the marketing & events group and $ 2.9 million related to the write-down of a non-strategic real estate asset held for sale at the travel & recreation group as of december 31 , 2009 . 21 restructuring charges . in 2010 , viad recorded gross restructuring charges of $ 5.0 million compared to $ 15.4 million in 2009 primarily related to reorganization activities in the marketing & events group , comprised of the elimination of certain positions as well as facility consolidations . in 2010 , viad also reversed restructuring reserves of $ 814,000 versus $ 1.3
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financial highlights the following 2011 financial highlights are presented in accordance with accounting principles generally accepted in the united states of america ( gaap ) : viad corp ( consolidated ) total revenues of $ 942.4 million , an increase of 11.6 percent from 2010 revenues net income attributable to viad of $ 9.2 million compared to $ 443,000 in 2010 diluted income per share of $ 0.45 compared to $ 0.02 in 2010 acquisitions of grouse mountain lodge , st. mary lodge & resort and denali backcountry lodge and denali cabins for $ 10.5 million , $ 15.3 million and $ 15.3 million , respectively restructuring charges totaling $ 3.8 million primarily related to reorganization activities in the marketing & events group , comprised of the elimination of certain positions and facility consolidations income from discontinued operations of $ 451,000 related to the reversal of certain liabilities associated with previously sold operations cash and cash equivalents were $ 100.4 million as of december 31 , 2011 debt was $ 3.2 million as of december 31 , 2011 marketing & events u.s. revenues of $ 631.4 million , an increase of 10.6 percent from 2010 revenues segment operating loss of $ 6.3 million , as compared to a loss of $ 15.2 million in 2010 marketing & events international revenues of $ 218.6 million , an increase of 10.5 percent from 2010 revenues segment operating income of $ 11.4 million compared to $ 10.1 million in 2010 16 travel & recreation group revenues of $ 101.8 million , an increase of 15.3 percent from 2010 revenues segment operating income of $ 20.2 million , as compared to $ 19.9 million in 2010 non-gaap measures : the following discussion includes a presentation of adjusted ebitda and income before impairment losses , which are utilized by management to measure the profit and performance of viad 's operations and to facilitate period to period comparisons .
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this should not result in a change in practice because the guidance that is being superseded was never effective . the amendments in this topic are effective for financial statements issued for annual periods beginning after december 15 , 2016 , and interim periods within those annual periods . the company does not expect the implementation of this asu to have a material impact on our consolidated financial statements . 2. inventories inventories consist of the following : replace_table_token_20_th finished goods includes inventory that has been shipped , but for which all revenue recognition criteria has not been met , of approximately $ 0.1 million and $ 0.1 million as of september 30 , 2016 and september 30 , 2015 , respectively . 42 3. accumulated other comprehensive loss the components of accumulated other comprehensive loss are as story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations and other portions of this filing contain forward-looking information that involves risks and uncertainties . our actual results could differ materially from those anticipated by the forward-looking information . you should review the “ special note regarding forward looking statements ” and “ risk factors ” sections of this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . the following discussion should be read in conjunction with our financial statements and the related notes included elsewhere in this filing overview of fiscal 2016 story_separator_special_tag style= '' line-height:120 % ; padding-bottom:8px ; text-align : left ; text-indent:36px ; font-size:10pt ; '' > for fiscal year 2016 compared to fiscal year 2015 , the hpp segment sg & a spending increase of $ 1.0 million is primarily attributed to increases of : $ 0.7 million in management bonuses , $ 0.2 million for salaries , wages and employee benefits , and $ 0.2 million of outside consulting expenses , partially offset by a net gain of $ 0.4 million on insurance proceeds from an officer life insurance policy and a $ 0.3 million decrease in the cash surrender value of the underlying officers life insurance policies . for fiscal year 2016 compared to fiscal year 2015 , the ts segment sg & a spending increase of approximately $ 1.2 million is substantially the result of an increase in our u.s. division of $ 1.6 million primarily attributed to variable selling expenses and management bonuses , partially offset by spending decreases of $ 0.4 million and $ 0.1 million in our u.k. and german divisions , respectively . the spending decrease in germany is primarily attributed to lower selling expenses and the decrease in the u.k. is attributed to lower administrative costs . other income/expenses the following table details our other income/expenses for the years ended september 30 , 2016 and 2015 : replace_table_token_12_th income taxes the company recorded an income tax expense of approximately $ 1.0 million , which reflected an effective tax expense rate of 27.7 % for the year ended september 30 , 2016 , which was lower than the statutory rate due in part to the tax benefit from research and development credits . for the year ended september 30 , 2015 , the income tax expense was approximately $ 0.2 million , which reflected an effective tax rate of 1,414 % . the significantly high effective tax rate was due to the company having a small profit with no tax benefit recorded for the substantial loss in the u.k. due to the fact that a full valuation allowance is maintained against the deferred tax asset . as of september 30 , 2016 , management assessed the positive and negative evidence in the u.s operations , and estimated that we will have sufficient future taxable income to utilize the existing deferred tax assets . significant objective positive evidence included the cumulative profits that we realized in recent fiscal years . this evidence enhances our ability to consider other subjective evidence such as our projections for future growth . other factors that we considered are the likelihood for continued royalty income in future years , and our expectation that the ts segment will continue to be profitable in future years . on the basis of this evaluation , as of september 30 , 2016 , we have concluded that our u.s. deferred tax asset is more likely than not to be realized . it should be noted however , that the amount of the deferred tax asset realized could be adjusted in future years , if estimates of taxable income during the carryforward periods are reduced , or if there is objective negative evidence in the form of cumulative losses . we continue to maintain a full valuation allowance against our u.k. deferred tax assets as we have experienced cumulative losses and do not have any indication that the operation will be profitable in the future to an extent that will allow us to utilize much of our net operating loss carryforwards . to the extent that actual experience deviates from our assumptions , our projections would be affected and hence our assessment of realizability of our deferred tax assets may change . liquidity and capital resources our primary source of liquidity is our cash and cash equivalents , which increased by approximately $ 1.9 million to $ 13.1 million as of september 30 , 2016 from $ 11.2 million as of september 30 , 2015 . at september 30 , 2016 , cash equivalents totaled $ 0.5 million of this amount . 17 significant sources of cash for the year ended september 30 , 2016 included net income of approximately $ 2.6 million , an increase in deferred revenues of approximately $ 1.8 million , an increase in pension and retirement plans liabilities of $ 0.6 million , depreciation of approximately $ 0.6 million , and an increase in other assets of approximately 0.6 million . story_separator_special_tag in some instances professional service contracts include a customer acceptance provision , in which case revenue is deferred until we have evidence of customer acceptance . we recognize revenue from usage based royalty contracts upon confirmation from the customer of shipment of the system produced pursuant to the royalty agreement . we recognize revenue from multiple element arrangements in accordance with accounting standards codification ( `` asc '' ) 605-25 , multiple element arrangements . we evaluate multiple element arrangements to determine if separate units of accounting exist , and if so , we allocate revenue to each element based upon the relative selling price of each element . asc 605-25 establishes a hierarchy for determining the amount to allocate to each separate deliverable in an arrangement . we determine selling price using vendor specific objective evidence ( “ vsoe ” ) , if it exists ; or , if vsoe does not exist , third party evidence ( “ tpe ” ) of fair value is applicable ; otherwise , we use the best estimate of selling price ( “ besp ” ) . the objective of besp is to determine the price at which the company would transact if the element was sold on a standalone basis . management 's determination of besp involves several factors including budgeted profit margins , and cost to complete services . we recognize revenue from third party service contracts as either gross sales or net sales in accordance with asc 605-45 , principal agent considerations , which requires us to determine if the company is acting as a principal party to the transaction or simply acting as an agent or broker . under asc 605-45 , the assumption of the risks and rewards under the arrangement are considered indicators of principal parties to the arrangement . we record revenue as gross when it is a principal party to the arrangement and net of cost when we are acting as a broker or agent . under gross sales recognition , the entire selling price is recorded in revenue and our cost to the third-party service provider or vendor is recorded in cost of goods sold . under net sales recognition , the cost to the third-party service provider or vendor is recorded as a reduction to revenue resulting in net sales equal to the gross profit on the transaction . the following policies are applicable to our major categories of segment revenue transactions : hpp segment revenue hpp segment revenue is derived from the sale of integrated hardware and software , maintenance , and other services 19 through the multicomputer and myricom product lines . multicomputer product revenue is generally recognized when product is shipped , provided that all revenue recognition criteria are met . service revenue consists principally of warranty and royalty revenue . revenue generated from extended warranty contracts is recognized as services are performed over the term of the contract , provided all other revenue recognition criteria have been met we recognize revenue from usage based royalty contracts upon confirmation from the customer of shipment of the system produced pursuant to the royalty agreement . myricom revenue is derived from the sale of products , which are comprised of both hardware and embedded software which is essential to the products functionality , and post contract maintenance and support . revenue from multiple element arrangements is recognized in accordance with asc 605-25. we evaluate multiple element arrangements to determine if separate units of accounting exist , and if so , we allocate revenue to each element based upon the relative selling price of each element . we determine selling price using besp . management 's determination of besp is based on several factors , including , but not limited to , internal costs and gross margin objectives . accordingly revenue for post contract maintenance and support is recognized over the implied maintenance period of three years , and revenue for product sales is recognized upon delivery assuming all other revenue recognition criteria have been met . ts segment revenue ts segment revenue is derived from the sale of hardware , software , professional services , maintenance contracts and third party service contracts . ts product revenue is generally recognized when product is shipped , provided that all revenue recognition criteria are met . service revenue consists of professional services which generally include implementation , installation , and training services . revenue generated from standalone professional services is recognized as the services are completed , provided all other revenue recognition criteria have been met . our standard sales agreements generally do not include customer acceptance provisions . however , in certain instances when arrangements include a customer acceptance provision or there is uncertainty about customer acceptance , revenue is deferred until we have evidence of customer acceptance . revenue derived from the sale of products , which are comprised of both hardware and software , and professional services is recognized in accordance with asc 605-25. we evaluate multiple element arrangements to determine if separate units of accounting exist , and if so , we allocate revenue to each element based upon the relative selling price of each element . we determine selling price using besp . management 's determination of besp is based on several factors , including , but not limited to , internal costs and gross margin objectives . accordingly revenue for professional services is recognized as services are completed , and revenue for product sales is recognized upon delivery assuming all other revenue recognition criteria have been met . we also recognize ts segment revenue from certain third party service contracts , which are evaluated to determine whether such service revenue should be recorded as gross sales or net sales in accordance with asc 605-45. we evaluate all third party service contracts to determine whether we act as a principal in the transaction and assume the risks and rewards of ownership or if we are simply acting as an agent or broker .
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results of operations revenue increase d by approximately $ 14.1 million , or 16 % , to $ 103.4 million for the twelve months ended september 30 , 2016 versus $ 89.3 million for the twelve months ended september 30 , 2015 . our gross profit margin percentage increase d overall , from 21 % of revenues for the twelve months ended september 30 , 2015 to 24 % for the twelve months ended september 30 , 2016 . we generated operating income of approximately $ 3.8 million for the fiscal year ended september 30 , 2016 compared to $ 0.2 million of operating income for the fiscal year ended september 30 , 2015 . the following table details our results of operations in dollars and as a percentage of sales for the fiscal years ended : replace_table_token_3_th revenues revenue increase d by approximately $ 14.1 million , or 16 % , to $ 103.4 million for the twelve months ended september 30 , 2016 versus $ 89.3 million for the twelve months ended september 30 , 2015 . our hpp segment revenue increase d by approximately $ 2.4 million and our ts segment revenue increase d by approximately $ 11.7 million . hpp segment revenue change by product line for the twelve months ended september 30 was as follows : replace_table_token_4_th the hpp segment revenue increase of $ 2.4 million is attributed to : ( i ) $ 0.8 million in royalties on high-speed processing boards related to production of aircraft ; ( ii ) $ 1.1 million of additional part shipments to support the production of high-speed processing boards ; and ( iii ) $ 0.5 million of additional myricom product revenue . 14 ts segment revenue change by product line for the twelve months ended september 30 was as follows : replace_table_token_5_th the ts segment revenue increases in our u.s. and u.k. divisions of $ 11.7 million and $ 2.5
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the total purchase price has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows : replace_table_token_23_th the company does not consider the acquisitions completed during fiscal years 2014 , 2013 , and 2012 to be material to its consolidated results of operations ; therefore , the company is not presenting pro forma financial information of operations . the company has also determined that the presentation of the results of operations for each of those acquisitions , from the date of acquisition , is impracticable due to the integration of the operations upon acquisition . as of december 28 , 2014 the allocation of purchase prices for acquisitions completed in fiscal years 2013 and 2012 were final . the preliminary allocations of the purchase prices for acquisitions completed in fiscal year 2014 were based upon initial valuations . the company 's estimates and assumptions underlying the initial valuations are subject to the collection of information necessary to complete its valuations within the measurement periods , which are up story_separator_special_tag this annual report on form 10-k , including the following management 's discussion and analysis , contains forward-looking information that you should read in conjunction with the consolidated financial statements and notes to consolidated financial statements that we have included elsewhere in this annual report on form 10-k. for this purpose , any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements . words such as “ believes , ” “ plans , ” “ anticipates , ” “ expects , ” “ will ” and similar expressions are intended to identify forward-looking statements . our actual results may differ materially from the plans , intentions or expectations we disclose in the forward-looking statements we make . we have included important factors above under the heading “ risk factors ” in item 1a above that we believe could cause actual results to differ materially from the forward-looking statements we make . we are not obligated to publicly update any forward-looking statements , whether as a result of new information , future events or otherwise . accounting period our fiscal year ends on the sunday nearest december 31. we report fiscal years under a 52/53 week format . under this method , certain years will contain 53 weeks . each of the fiscal years ended december 28 , 2014 , december 29 , 2013 and december 30 , 2012 included 52 weeks . the fiscal year ending january 3 , 2016 will include 53 weeks . the extra week during fiscal year 2015 will be included in the third quarter . overview of fiscal year 2014 during fiscal year 2014 , we continued to see good performance from acquisitions , investments in our ongoing technology and sales and marketing initiatives . our overall revenue in fiscal year 2014 increase d $ 79.6 million , or 4 % , as compared to fiscal year 2013 , reflecting an increase of $ 42.3 million , or 4 % , in our human health segment revenue and an increase of $ 37.3 million , or 4 % , in our environmental health segment revenue . the increase in our human health segment revenue during fiscal year 2014 was primarily due to growth in our diagnostics market from our newborn and prenatal screening and infectious disease testing solutions as well as from our medical imaging business ' new wireless cassette detector . the increase in our environmental health segment revenue during fiscal year 2014 was primarily due to an increase in our services revenue , which included our onesource multivendor service offerings within our laboratory service market . in our human health segment during fiscal year 2014 as compared to fiscal year 2013 , we experienced growth in our diagnostics business as birth rates increased and from continued expansion of our prenatal , newborn and infectious disease screening solutions in emerging markets such as china and brazil , as well as from increased demand for our medical imaging business ' new wireless cassette detector used in diagnostic imaging and veterinary applications . in the research market we experienced growth related to our informatics , radiometric detection , and high-content screening offerings , as well as our microfluidics technology licensing program . this growth in the research market was partially offset by declines in some products in our research market due to weakness in the global academic end market , specifically in europe , as well as the expiration of certain patents in our licensing portfolio . as the rising cost of healthcare continues to be one of the critical issues facing our customers , we anticipate that the benefits of providing earlier detection of disease , which can result in savings of long-term health care costs as well as create better outcomes for patients , are increasingly valued and we expect to see continued growth in these markets . in our environmental health segment , our laboratory services business offers services designed to enable our customers to increase efficiencies and production time , while reducing maintenance costs , all of which continue to be critical for our customers . during fiscal year 2014 , we continued to experience growth in our laboratory services business , which included the addition of new customers to our onesource multivendor service offering . these increases were partially offset by decreased demand across some of our products in the environmental and industrial markets , primarily in the asian industrial end markets . we anticipate that the continued development of contaminant regulations and corresponding testing protocols will result in increased demand for efficient , analytically sensitive and information rich testing solutions . story_separator_special_tag acquisition related costs for integration , contingent consideration and other costs added an incremental expense of $ 0.1 million for fiscal year 2014 , as compared to $ 0.2 million for fiscal year 2013 . in addition to the factors noted above , the decrease in gross margin was primarily the result of unfavorable changes in product mix , with an increase in sales of lower gross margin product offerings , pricing pressure , and negative impacts from foreign exchange rates . these items were partially offset by increased sales volume and cost containment and productivity initiatives . 2013 compared to 2012 . cost of revenue for fiscal year 2013 was $ 1,181.4 million , as compared to $ 1,143.7 million for fiscal year 2012 , an increase of approximately $ 37.8 million , or 3 % . as a percentage of revenue , cost of revenue increase d to 54.8 % in fiscal year 2013 from 54.3 % in fiscal year 2012 , resulting in a decrease in gross margin of approximately 43 basis points to 45.2 % in fiscal year 2013 from 45.7 % in fiscal year 2012 . amortization of intangible assets increase d and was $ 52.0 million for fiscal year 2013 , as compared to $ 50.7 million for fiscal year 2012 . the mark-to-market adjustment for postretirement benefit plans was a loss of $ 0.8 million for fiscal year 2013 , as compared to $ 3.7 million for fiscal year 2012 . stock-based compensation expense was $ 1.3 million for both fiscal years 2013 and 2012 . the amortization of purchase 30 accounting adjustments to record the inventory from certain acquisitions was $ 0.2 million for fiscal year 2013 , as compared to $ 5.2 million for fiscal year 2012 . acquisition related costs for integration , contingent consideration and other costs added an incremental expense of $ 0.2 million for fiscal year 2013 . in addition to the factors noted above , the decrease in gross margin was primarily the result of pricing pressure and unfavorable changes in product mix with an increase in sales of lower gross margin product offerings , partially offset by productivity improvements . selling , general and administrative expenses 2014 compared to 2013 . selling , general and administrative expenses for fiscal year 2014 were $ 659.3 million , as compared to $ 581.9 million for fiscal year 2013 , an increase of approximately $ 77.4 million , or 13 % . as a percentage of revenue , selling , general and administrative expenses increase d and were 29.5 % in fiscal year 2014 , compared to 27.0 % in fiscal year 2013 . amortization of intangible assets decrease d and was $ 33.1 million for fiscal year 2014 , as compared to $ 36.9 million for fiscal year 2013 . the mark-to-market adjustment for postretirement benefit plans was a loss of $ 67.1 million for fiscal year 2014 , as compared to income of $ 18.1 million for fiscal year 2013 . stock-based compensation expense increase d and was $ 12.5 million for fiscal year 2014 , as compared to $ 11.9 million for fiscal year 2013 . during fiscal year 2014 , we recorded a benefit of $ 2.3 million for cost reimbursements related to a particular site , of which $ 1.2 million was for future monitoring and mitigation activities , as compared to an expense of $ 4.6 million for environmental costs for fiscal year 2013 . acquisition related costs for integration , contingent consideration and other costs added an incremental expense of $ 0.4 million for fiscal year 2014 and $ 1.1 million for fiscal year 2013 . in addition to the above items , the increase in selling , general and administrative expenses was primarily the result of costs related to growth investments , particularly in emerging territories , partially offset by cost containment and productivity initiatives . 2013 compared to 2012 . selling , general and administrative expenses for fiscal year 2013 were $ 581.9 million , as compared to $ 627.4 million for fiscal year 2012 , a decrease of approximately $ 45.5 million , or 7 % . as a percentage of revenue , selling , general and administrative expenses decrease d and were 27.0 % in fiscal year 2013 , compared to 29.8 % in fiscal year 2012 . amortization of intangible assets decrease d and was $ 36.9 million for fiscal year 2013 , as compared to $ 38.9 million for fiscal year 2012 . the mark-to-market adjustment for postretirement benefit plans was income of $ 18.1 million for fiscal year 2013 , as compared to a loss of $ 27.9 million for fiscal year 2012 . stock-based compensation expense decrease d and was $ 11.9 million for fiscal year 2013 , as compared to $ 18.6 million for fiscal year 2012 . environmental charges related to a particular site for increased monitoring and mitigation activities were $ 4.6 million during the fourth quarter of fiscal year 2013. acquisition related costs for integration , contingent consideration and other costs added an incremental expense of $ 1.1 million for fiscal year 2013 and $ 0.3 million for fiscal year 2012 . in addition to the factors noted above , the decrease in selling , general and administrative expenses was primarily the result of cost containment and productivity initiatives . research and development expenses 2014 compared to 2013 . research and development expenses for fiscal year 2014 were $ 121.1 million , as compared to $ 132.4 million for fiscal year 2013 , a decrease of $ 11.3 million , or 8.5 % . as a percentage of revenue , research and development expenses decrease d to 5.4 % in fiscal year 2014 , as compared to 6.1 % in fiscal year 2013 . amortization of intangible assets increase d and was $ 0.6 million for fiscal year 2014 , as compared to $ 0.3 million for fiscal year 2013 .
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fiscal year 2013 , as compared to net cash used in the investing activities of our continuing operations of $ 82.8 million for fiscal year 2012 , a decrease of $ 81.1 million . proceeds from dispositions of property , plant and equipment was $ 52.2 million for fiscal year 2013 , primarily due to the sale of a building located in boston , massachusetts for net proceeds of $ 47.6 million . capital expenditures for fiscal year 2013 were $ 39.0 million , primarily for manufacturing equipment and other capital equipment purchases , which included $ 5.9 million of capital improvements to leased buildings , which have been funded by the lessor , as described below in our financing lease obligations . for fiscal year 2013 , we used $ 15.7 million of net cash for acquisitions and investments , as compared to $ 40.9 million used in fiscal year 2012 . financing activities . net cash used in the financing activities of our continuing operations was $ 154.2 million for fiscal year 2013 , as compared to net cash used in the financing activities of our continuing operations of $ 44.2 million for fiscal year 2012 , a change of $ 110.0 million . for fiscal year 2013 , we repurchased 3.6 million shares of our common stock , including 127,544 shares of our common stock pursuant to our equity incentive plans , for a total cost of $ 127.4 million , including commissions . this compares to repurchases of 82,186 shares of our common stock pursuant to our equity incentive plans , for a total cost of $ 2.1 million , including commissions , for fiscal year 2012 . this use of cash in fiscal year 2013 was partially offset by proceeds from the issuance of common stock under stock plans of $ 20.3 million .
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59 6. goodwill and intangible assets the following tables summarize the changes in the carrying amount of goodwill ( in thousands ) : replace_table_token_24_th there was no impairment of goodwill for the fiscal years ended february 3 , 2018 , january 28 , 2017 and january 30 , 2016. the following table summarizes the gross carrying amount , accumulated amortization and the net carrying amount of intangible assets ( in thousands ) : replace_table_token_25_th replace_table_token_26_th there was no impairment of intangible assets for the fiscal years ended february 3 , 2018 , january 28 , 2017 and january 30 , 2016. amortization expense of intangible assets for the fiscal years ended february 3 , 2018 , january 28 , 2017 and january 30 , 2016 was $ 0.1 million , $ 0.1 million and $ 0.9 million . amortization expense of intangible assets is recorded in selling , general and story_separator_special_tag financial condition and results of operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this document . this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those discussed in “ item 1a risk factors. ” see the cautionary note regarding forward-looking statements set forth at the beginning of part i of the annual report on form 10-k. fiscal 2017—a review of this past year in fiscal 2017 , we continued to see strong sales results carrying forward from the latter half of fiscal 2016 driven by key brands and fashion trends in the market , as well as returns on our consistent investments in the training of our sales associates . our focus remains centered on the customer ; including launching over 150 new brands during fiscal 2017 bringing continued uniqueness in our product offerings and providing us with growth drivers for the future . the full year comparable sales for fiscal 2017 increased 5.9 % . operating margins increased from the prior year due primarily to leverage of our occupancy costs and product margin improvements . though store growth was less in fiscal 2017 than in the prior year , we continued to make investments in our north america store footprint adding 12 new stores during fiscal 2017. we also added 5 new stores to our blue tomato operations in europe and 2 new stores to our fast times operations in australia . as a leading lifestyle retailer we continue to differentiate ourselves through our distinctive brand offering and diverse product selection , as well as the unique customer experience across all our platforms . we have made investments over several years to integrate the digital and physical channels creating a seamless shopping experience for our customer , which we believe is critical for our long-term financial performance . we are continuing to deliver our on-line orders in north america from our stores , which has provided significant improvements in speed of delivery to our customers and the overall experience . in store fulfillment is a key part of strategy that we believe will drive long term market share by leveraging the strengths of our store sales team , providing better and faster service to customers , improving product margins , and providing additional selling opportunities . the following table shows net sales , operating profit , operating margin and diluted earnings per share for fiscal 2017 compared to fiscal 2016. fiscal 2017 results include $ 3.8 million in net sales related to the recognition of deferred revenue due to changes in our stash loyalty program estimated redemption rate and $ 3.4 million in our provision for income taxes due to a valuation allowance against our deferred tax assets in austria partially offset by $ 0.5 million related to u.s. federal tax legislation . the combined impact of these items reduced net income and earnings per share by $ 0.5 million and $ 0.02 respectively . replace_table_token_7_th ( 1 ) fiscal 2017 was a 53-week period and fiscal 2016 was a 52-week period . the increase in net sales was driven primarily by a 5.9 % comparable sales increase and the net addition of 13 stores ( 19 new stores offset by 6 store closures ) . the increase in comparable sales was driven by an increase in transactions , partially offset by a decrease in dollars per transaction . dollars per transaction decreased due to a decrease in units per transaction , partially offset by an increase in average unit retail . operating margin increased in fiscal 2017 compared to fiscal 2016 primarily as a result of gross margin improvements . 26 fiscal 2018—a look at the upcoming year we are entering 2018 with six consecutive quarters of positive comparable sales growth behind us and strong brand and fashion trends in the business . in 2018 , our focus will be on continued execution of our core culture and brand strategies as well as strategic investments centered on long-term quality growth . these investments will be largely focused on the continued roll-out of our new customer engagement suite , continued investment in our people , and other investments focused on creating operational efficiencies and enhancing the customer experience . as we are closer to our targeted number of stores in north america , we expect that total store count growth in fiscal 2018 will be less than in fiscal 2017. in europe and australia , we continue to believe we have growth ahead and our planning 7 stores , consistent with the 7 we opened in fiscal 2017. in fiscal 2018 , we expect our cost structure will grow at a slower rate than 2017 , primarily tied to the impact on 2017 growth of incentive compensation and expense initiatives across the organization . we anticipate inventory levels per square foot will grow roughly in-line with sales growth . story_separator_special_tag story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > gross profit was $ 275.0 million for fiscal 2016 compared to $ 268.6 million for fiscal 2015 , an increase of $ 6.4 million , or 2.4 % . as a percentage of net sales , gross profit decreased 50 basis points in fiscal 2016 to 32.9 % . the decrease was primarily driven by a 40 basis point impact due to deleveraging of our store occupancy costs . selling , general and administrative expenses selling , general and administrative ( “ sg & a ” ) expenses were $ 235.3 million for fiscal 2016 compared to $ 222.5 million for fiscal 2015 , an increase of $ 12.8 million , or 5.8 % . sg & a expenses as a percent of net sales increased by 40 basis points in fiscal 2016 to 28.1 % . the increase was primarily driven by 30 basis points from the deleveraging of store costs primarily related to wages and 30 basis point increase in corporate costs primarily related to wages partially offset by 20 basis point decrease in impairment of long-lived assets compared to fiscal 2015. net income net income for fiscal 2016 was $ 25.9 million , or $ 1.04 per diluted share , compared with net income of $ 28.8 million , or $ 1.04 per diluted share , for fiscal 2015. our effective income tax rate for fiscal 2016 was 35.6 % compared to 37.2 % for fiscal 2015. the decrease in the effective tax rate for fiscal 2016 compared to fiscal 2015 was primarily due to the tax impact of our foreign operations . seasonality and quarterly results as is the case with many retailers of apparel and related merchandise , our business is subject to seasonal influences . as a result , we have historically experienced , and expect to continue to experience , seasonal and quarterly fluctuations in our net sales and operating results . our net sales and operating results are typically lower in the first and second quarters of our fiscal year , while the back-to-school and winter holiday periods in our third and fourth fiscal quarters historically have accounted for the largest percentage of our annual net sales . quarterly results of operations may also fluctuate significantly as a result of a variety of factors , including the timing of store openings and the relative proportion of our new stores to mature stores , fashion trends and changes in consumer preferences , calendar shifts of holiday or seasonal periods , changes in merchandise mix , timing of promotional events , general economic conditions , competition and weather conditions . 30 the following table sets forth selected unaudited quarterly consolidated statements of income data . the unaudited quarterly information has been prepared on a basis consi stent with the audited consolidated financial statements included elsewhere herein and includes all adjustments that we consider necessary for a fair presentation of the information shown . this information should be read in conjunction with our audited co nsolidated financial statements and the notes thereto . the operating results for any fiscal quarter are not indicative of the operating results for a full fiscal year or for any future period and there can be no assurance that any trend reflected in such results will continue in the future . replace_table_token_9_th replace_table_token_10_th liquidity and capital resources our primary uses of cash are for operational expenditures , inventory purchases and capital investments , including new stores , store remodels , store relocations , store fixtures and ongoing infrastructure improvements . historically , our main source of liquidity has been cash flows from operations . the significant components of our working capital are inventories and liquid assets such as cash , cash equivalents , current marketable securities and receivables , reduced by accounts payable and accrued expenses . our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or within several days of the related sale , while we typically have longer payment terms with our vendors . at february 3 , 2018 and january 28 , 2017 , cash , cash equivalents and current marketable securities were $ 121.9 million and $ 78.8 million . working capital , the excess of current assets over current liabilities , was $ 179.9 million at the end of fiscal 2017 , an increase of 30.6 % from $ 137.8 million at the end of fiscal 2016. the increase in cash , cash equivalents and current marketable securities in fiscal 2017 was due primarily to cash provided by operating activities of $ 65.5 million , partially offset by $ 24.1 million of capital expenditures primarily related to the opening of 19 new stores and 20 remodels and relocations . 31 the following table summarizes our cash flows from operating , investing and financing activities ( in thousands ) : fiscal 2017 fiscal 2016 fiscal 2015 total cash provided by ( used in ) operating activities $ 65,514 $ 48,458 $ 49,321 investing activities ( 63,970 ) ( 51,515 ) 64,730 financing activities 1,273 ( 20,077 ) ( 91,472 ) effect of exchange rate changes on cash and cash equivalents 977 218 ( 278 ) increase ( decrease ) in cash and cash equivalents $ 3,794 $ ( 22,916 ) $ 22,301 operating activities net cash provided by operating activities increased by $ 17.0 million in fiscal 2017 to $ 65.5 million from $ 48.5 million in fiscal 2016. net cash provided by operating activities decreased by $ 0.8 million in fiscal 2016 to $ 48.5 million from $ 49.3 million in fiscal 2015. our operating cash flows result primarily from cash received from our customers , offset by cash payments we make for inventory , employee compensation , store occupancy expenses and other operational expenditures . cash received from our customers generally corresponds to our net sales .
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results of operations the following table presents selected items on the consolidated statements of income as a percent of net sales : replace_table_token_8_th fiscal 2017 results compared with fiscal 2016 net sales fiscal 2017 was a 53-week period and fiscal 2016 was a 52-week period . net sales for fiscal 2017 include an additional week and comparable sales are calculated using the comparable sales for the comparable 53-week period . 28 net sales were $ 927.4 million for fiscal 2017 compared to $ 836.3 million for fiscal 2016 , an increase of $ 91.1 million or 10.9 % . the increase reflected a $ 48.6 million increase due to comparable sales and a $ 23.6 million increase due to the net addition of 13 stores ( made up of 12 new stores in north america , 5 new stores in europe , and 2 new stores in australia offset by 6 store closures ) . net sales include $ 10.3 million related to the additional week in the 53-week period and a $ 6.3 million increase due to changes in foreign currency rates . by region , north america sales increased $ 73.9 million or 9.8 % and other international s ales increased $ 17.2 million or 20.8 % during fiscal 2017 compared to fiscal 2016. the 5.9 % increase in comparable sales was primarily driven by an increase in comparable transactions partially offset by a decrease in dollars per transaction . dollars per transaction decreased due to a decrease in units per transaction partially offset by an increase in average unit retail . comparable sales were primarily driven by an increase in men 's apparel followed by women 's apparel . these increases were partially offset by decreases in comparable sales primarily in accessories followed by hardgoods and then footwear . for information as to how we define comparable sales , see “ general ” above .
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specialty services projects include construction site excavation and drainage , drilling and blasting for excavation , foundations for multi-family homes , parking structures and other commercial concrete projects . residential projects include concrete foundations for single-family homes . on october 2 , 2019 , the company consummated the acquisition of plateau and entered into a credit agreement with the financial institutions from time to time party thereto as lenders , bmo harris bank n.a. , as administrative agent , bank of america , n.a. , as syndication agent , and bmo capital markets corp. and bofa securities , inc. , as joint lead arrangers and joint book runners . the credit agreement provides the company with senior secured debt financing in an amount up to $ 475 million in the aggregate with a maturity date of october 2 , 2024. we have determined that with the acquisition of plateau we now have three reportable segments : heavy civil , specialty services and residential . refer to note 9 - debt for a discussion of our financing arrangements and note 21 - segment information for a discussion of reportable segments and related financial information . market outlook and trends heavy civil —sterling 's heavy civil construction business is primarily driven by federal , state and municipal funding . federal funds , on average , provide 50 % of annual state department of transportation ( dot ) capital outlays for highway and bridge projects . several of the states in sterling 's key markets have instituted actions to further increase annual spending . in november 2018 , various state and local transportation measures were passed securing , and in some cases increasing , funding of $ 1.57 billion in california , $ 1.27 billion in texas , $ 528.5 million in arizona , $ 128.2 million in colorado and $ 87 million in utah . in october 2018 , the federal aviation administration reauthorized $ 3.35 billion annually for the next five years . this reauthorization also includes more than $ 1 billion a year for airport infrastructure grants and about $ 1.7 billion for disaster relief . in addition to the state locally funded actions , this is in the fourth year of the five-year $ 305 billion 2015 federally funded fixing america 's surface transportation ( “ fast ” ) act that increased the annual federal highway investment by 15.1 % over the five-year period from 2016 to 2020. with the fast act set to expire next year , the federal government is currently working towards a bipartisan federal infrastructure bill ( america 's transportation infrastructure act ) that would both increase and solidify funding for the next five years . should the federal government approve this incremental infrastructure investment , it would be an additional growth catalyst ; however , it would be unlikely to create a significant business impact before late 2020 or 2021. specialty services —sterling 's specialty services business is primarily driven by investments from end users and developers . key end users , including amazon and home depot , have begun implementing publicly announced multi-year capital infrastructure campaigns . in our primary market in the southeastern united states , and specifically georgia , the availability rate is at 11 % and for six consecutive quarters over 20 million square feet of new construction has commenced . in our key commercial markets forecasted net absorption continues to be positive , with more space leased than supplied to the market . the outlook for multifamily vacancy rate continues to be below its long-term average , supporting continued growth and specifically strong markets in our footprint . additionally , the positive lending environment has sustained continued new development within our specialty services space . residential —continuing revenue growth of the company 's residential construction business is directly related to the growth of new home starts in its key markets . the company 's core customer base is primarily made up of leading national home builders as well as regional and custom home builders . the company has continued its expansion of the residential business into the houston market and surrounding areas . 23 backlog at december 31 , 2019 , our backlog of construction projects , made up of our heavy civil and specialty services segments , was $ 1.1 billion , as compared to $ 850.7 million at december 31 , 2018 . the contracts in backlog are typically completed in 6 to 36 months . contracts in which we are the apparent low bidder for projects ( “ unsigned low-bid awards ” ) are excluded from backlog until the contract is executed by our customer . unsigned low-bid awards were $ 273.5 million at december 31 , 2019 and $ 292.7 million at the end of 2018 . the combination of our backlog and unsigned low-bid awards , which we refer to as “ combined backlog ” totaled $ 1.3 billion and $ 1.1 billion as of december 31 , 2019 and 2018 , respectively . backlog includes $ 161.4 million and $ 33.6 million attributable to our share of estimated revenues related to joint ventures where we are a noncontrolling joint venture partner at december 31 , 2019 and 2018 , respectively . we anticipate that approximately 70 % of our backlog will be recognized as revenues during 2020 , with substantially all remaining recognized in the twelve months following . contracts-in-progress which were not substantially complete totaled approximately 200 and 150 at december 31 , 2019 and 2018 , respectively . these contracts are of various sizes , of different expected profitability and in various stages of completion . the nearer a contract progresses toward completion , the more visibility we have in refining our estimate of total revenues ( including incentives , delay penalties and change orders ) , costs and gross profit . thus , gross profit as a percent of revenues can increase or decrease from comparable and sequential quarters due to variations among contracts and depending upon the stage of completion of contracts . story_separator_special_tag proceeds from the sale of property and equipment totaled $ 1.3 million for 2019 with an associated net gain of $ 0.5 million , reflecting our continuing initiative to optimize utilization of our existing fleet of equipment based on current and projected workloads , while supplementing our fleet with leased and financed equipment as needed . financing activities— during 2019 , net cash provided by financing activities was $ 320.9 million compared to net cash used of $ 18.0 million in the prior year . in 2019 , the cash provided by financing activities was driven by the $ 430 million of cash received from our credit facility , which was utilized , in part , to fund the plateau acquisition , the repayment of our $ 67.1 million remaining balance on our oaktree facility , and to pay $ 10.7 million of debt issuance costs . the financing cash inflow was partially offset by the use of cash for an additional $ 20.5 million of repayments on debt ( primarily consisting of a $ 10 million repayment on the revolving credit facility , $ 7.5 million of repayments on the oaktree facility and $ 2.4 million of deferred cash payments for the tealstone acquisition ) , $ 7.4 million of distributions to the company 's noncontrolling interest partners , and $ 3.2 million for the purchase of treasury stock . 28 credit facilities , debt , and other capital general —in addition to our available cash , cash equivalents and cash provided by operations , from time to time we use borrowings to finance acquisitions , our capital expenditures and working capital needs . credit facility —on october 2 , 2019 , the company , as borrower , and certain of its subsidiaries , as guarantors , entered into a credit agreement ( the “ credit agreement ” ) with bmo harris bank n.a. , as administrative agent ( the “ agent ” ) , bank of america , n.a. , as syndication agent , and bmo capital markets corp. and bofa securities , inc. , as joint lead arrangers and joint book runners . the credit agreement provides the company with senior secured debt financing in an amount up to $ 475 million in the aggregate , consisting of ( i ) a senior secured first lien revolving credit facility ( the “ revolving credit facility ” ) in an aggregate principal amount of $ 75 million ( with a $ 75 million limit for the issuance of letters of credit and a $ 15 million sublimit for swing line loans ) and ( ii ) a senior secured first lien term loan facility ( the “ term loan facility ” ) in the amount of $ 400 million ( collectively , the “ credit facility ” ) . the obligations under the credit facility are secured by substantially all assets of the company and the subsidiary guarantors , subject to certain permitted liens and interests of other parties . the credit facility will mature on october 2 , 2024. the company obtained the credit facility in order to facilitate the transactions contemplated by the plateau acquisition , including refinancing existing indebtedness of the company , finance capital expenditures , finance working capital , finance acquisitions permitted under the credit agreement , finance other general corporate purposes and fund certain fees and expenses associated with the closing of the credit facility and the plateau acquisition . on december 2 , 2019 , the credit agreement was amended to modify ( i ) the applicable margins with respect to base rate and libor borrowings under the credit facility , ( ii ) the required amounts of mandatory prepayments of the credit facility with excess cash flow , ( iii ) the amounts of scheduled principal payments quarterly and at maturity on the term loan facility , and ( iv ) the applications of partial prepayments of the term loan facility on a ratable , weighted basis among all remaining scheduled principal payments on the term loan facility . the modifications in ( i ) - ( iii ) mentioned above were pursuant to the customary “ market flex ” rights contained in the fee letter related to the credit agreement . the revolving credit facility bears interest at either the base rate plus a margin ( 4.75 % and 3.50 % per annum , respectively at december 31 , 2019 ) , or one- , two- , three- , six- or , if available , twelve-month libor plus an applicable margin ( 1.74 % and 4.50 % per annum , respectively at december 31 , 2019 , using a one-month libor rate ) , at the company 's election . in addition to interest on debt borrowings , we are assessed quarterly commitment fees on the unutilized portion of the facility as well as letter of credit fees on outstanding instruments . interest under the revolving credit facility is payable ( i ) with respect to libor borrowings , on the last day of each applicable interest period ( one , two , three , six or twelve months ) , unless the applicable interest period is longer than three months , then on each day occurring every three months after the commencement of such interest period , and on the maturity date , and ( ii ) with respect to base rate borrowings , on the last day of every calendar quarter and on the maturity date . at december 31 , 2019 , we had $ 20 million of outstanding borrowings under the facility , providing $ 55 million of available capacity . during 2019 , our weighted average interest rate on borrowings under the facility was approximately 5.73 % . the revolving credit facility may be repaid in whole or in part at any time , with final payment of all principal and interest then outstanding due on october 2 , 2024. interest under the term loan facility is payable at the same frequencies and bears interest at the same rate options as the revolving credit facility .
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consolidated results summary— for 2019 , the company had operating income of $ 37.8 million , income before income taxes of $ 14.5 million , net income attributable to sterling common stockholders of $ 39.9 million and net income per diluted share attributable to sterling common stockholders of $ 1.47 . consolidated financial highlights for 2019 as compared to 2018 are as follows : replace_table_token_3_th nm – not meaningful . revenues— revenues increase d $ 88.6 million , or 8.5 % in 2019 compared to the prior year . the increase is primarily attributable to the inclusion of three months of revenue totaling $ 84.6 million from the acquired plateau operations in 2019 . gross profit— gross profit decrease d $ 2.5 million , or 2.3 % , in 2019 compared to the prior year . the company 's gross margin as a percent of revenue decreased to 9.6 % in 2019 , as compared to 10.6 % in the prior year . in december 2019 , sterling was able to come to an interim agreement related to a 2014 project involving the construction of three separate bridges in texas that had suffered from significant schedule delays and cost overruns due to major owner design flaws . this agreement enabled sterling to recover approximately $ 17 million in costs to date related to these delays and defined a better dispute resolution process along with agreed upon rates for potential future delays . as part of this agreement , sterling agreed to work on all three bridges simultaneously ( versus doing one at a time ) to accelerate the final completion schedule . this revised schedule has significantly increased the amount of labor , equipment and infrastructure required to complete the project under the new terms of the agreement and resulted in a reduction of gross profit in the quarter of $ 10.2 million , or $ 0.36 per diluted share .
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these amendments provide that an unrecognized tax benefit , or a portion thereof , should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward , a similar tax loss , or a tax credit carryforward , except that to the extent that a net operating loss carryforward , a similar tax loss , or a tax credit carryforward is not available at the reporting date to settle story_separator_special_tag the following discussion is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition , results of operations , liquidity and other factors that have affected our reported results of operations and financial condition or may affect our future results or financial condition . 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 thousand , or 20 % , to $ 3.9 million for the year 2014 from $ 4.9 million for the year 2013. interest expense on deposits decreased $ 513 thousand primarily due to a 15 basis point decrease in the cost of deposits and a $ 19.2 million decline in the average balance of deposits . the decreases in the average balance and average cost of deposits reflected the maturities of certificates of deposit bearing higher rates . interest expense on fhlb advances decreased $ 105 thousand primarily due to a decrease of 16 basis points in the average cost of fhlb advances . the decrease in the average cost of fhlb advances was due to the maturities of $ 10.5 million of fhlb advances with an average interest rate of 3.54 % which were replaced by $ 17.0 million of new advances with an average interest rate of $ 1.26 % . no interest expense was recognized on the senior debt during 2014 , compared to $ 355 thousand of interest expense recognized during 2013. as a result of the modification of the senior debt in august 2013 , which was accounted for as a troubled debt restructuring , the carrying amount of the senior debt exceeded total expected cash payments due under the modified agreement , including accrued and future interest payable , resulting in a gain on debt restructuring . a portion , related to the future interest , of this gain was deferred and was being recognized as we made interest payments on the modified senior debt . as a result , no interest expense has been recorded with respect to this modified senior debt since the completion of the debt restructuring in august 2013. the entire balance of the senior debt was repaid in october 2014. accordingly , the remaining deferred gain on debt restructuring of $ 365 thousand was taken into income in the fourth quarter of 2014. analysis of net interest income net interest income is the difference between income on interest-earning assets and the expense on interest-bearing liabilities . net interest income depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them . the following table sets forth average balances , average yields and costs , and certain other information for the periods indicated . all average balances are daily average balances . the yields set forth below include the effect of deferred loan fees , and discounts and premiums that are amortized or accreted to interest income or expense . we 34 do not accrue interest on loans 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_20_th ( 1 ) amount is net of deferred loan fees , loan discounts , and loans in process , and includes loans receivable held for sale . ( 2 ) includes default rate margin that was in effect to august 22 , 2013. no interest expense was recognized on the senior debt post restructuring because the floating interest rate on the remaining modified loan did not exceed the floor rate of 6 % post modification . paid off in october 2014 . ( 3 ) includes compounding on past due interest . interest on the debentures was brought current in october 2014 . ( 4 ) net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities . ( 5 ) net interest rate margin represents net interest income as a percentage of average interest-earning assets . 35 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 . story_separator_special_tag the company has performed an analysis of the potential impact of section 382 related to the recapitalization that occurred on august 22 , 2013 and the equity issuance on october 16 , 2014 , and has determined that the company did not undergo an ownership change as of either date and any potential limitations imposed under section 382 do not currently apply . comparison of financial condition at december 31 , 2014 and 2013 total assets total assets were $ 350.9 million at december 31 , 2014 , which represented an increase of $ 18.4 million , or 6 % , from december 31 , 2013. during 2014 , net loans held for investment increased by $ 28.8 million , loans receivable held for sale increased by $ 19.5 million , securities increased by $ 7.7 million and cash and cash equivalents decreased by $ 37.4 million as we invested excess federal funds in securities and loans in order to grow total interest income and improve the yield on interest-earning assets . securities available-for-sale in march 2014 , we purchased $ 8.6 million of mortgaged-backed securities and $ 1.9 million of u.s. government and federal agency securities with an average yield of 2.23 % . loans receivable held for sale loans receivable held for sale at december 31 , 2014 totaled $ 19.5 million , consisting of multi-family loans . we had no loans receivable held for sale at december 31 , 2013. during the fourth quarter of 2014 , in order to comply with regulatory loan concentration limits , we transferred $ 22.8 million of loans receivable held for investment , primarily multi-family loans , to held for sale and have begun marketing these loans for sale . we sold $ 3.3 million during the fourth quarter of 2014 and recorded a net gain on sale of loans of $ 19 thousand . loans receivable held for investment our gross loan portfolio increased by $ 26.8 million to $ 283.6 million at december 31 , 2014 from $ 256.8 million at december 31 , 2013. the increase in our loan portfolio during 2014 consisted of an increase of $ 58.6 million in our multi-family residential real estate loan portfolio which was partially offset by a decrease of $ 6.7 million in our single family residential real estate loan portfolio , a decrease of $ 10.0 million in our commercial real estate loan portfolio , a decrease of $ 13.3 million in our church loan portfolio and a decrease of $ 1.8 million in our commercial loan portfolio . loan originations for the year ended december 31 , 2014 totaled $ 95.6 million , compared to loan originations of $ 49.1 million , including loan purchases of $ 10.6 million , for the year ended december 31 , 2013. loan repayments for the year ended december 31 , 2014 totaled $ 43.3 million , compared to $ 50.4 million for the year ended december 31 , 2013. loan charge-offs during 2014 totaled $ 693 thousand , compared to charge-offs of $ 2.8 million during 2013. loans transferred to reo during 2014 totaled $ 2.6 million , excluding a $ 671 thousand fair value adjustment , compared to $ 2.3 million during 2013. loans transferred to loans receivable held for sale during 2014 totaled $ 22.8 million , compared to $ 7.3 million during 2013. 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 conduct an assessment of the overall quality of the loan portfolio and general economic trends in the local market . the determination of the appropriate level for the allowance 38 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 . our alll decreased by $ 1.5 million from $ 10.1 million , or 3.95 % of our loans receivable held for investment , at december 31 , 2013 , to $ 8.6 million , or 2.99 % of our loans receivable held for investment , at december 31 , 2014 , primarily reflecting $ 2.9 million of recapture of loan losses and $ 693 thousand of loan charge-offs , which were partially offset by $ 1.9 million of recoveries on previously charged-off loans . we continue to maintain our allowance at a level that we believe is appropriate given the significant reduction in delinquencies and non-performing loans , the continued improvement in our asset quality metrics and the high quality of our loan originations . our asset quality continues to show signs of improvement as our loan delinquencies and non-performing loans are at their lowest levels since december 2009. as of december 31 , 2014 , we had total delinquencies of $ 2.5 million , compared to total delinquencies of $ 11.1 million at december 31 , 2013. loan delinquencies decreased by $ 8.6 million during 2014 as $ 3.6 million of delinquent loans were brought current , $ 3.7 million were paid off , $ 207 thousand were repaid and $ 2.6 million were foreclosed and transferred to reo , which were partially offset by $ 1.6 million of loans that became delinquent in 2014. of the $ 2.5 million delinquent loans at december 31 , 2014 , $ 987 thousand were greater than 90 days delinquent . 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 .
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overview in order to generate growth in net interest income , we continued to rebuild our loan portfolio by originating $ 95.5 million in multi-family loans during the year ended december 31 , 2014. in addition , during 2014 we further reduced our non-performing assets , primarily through payoffs and sales of loans and sales of reos . as part of the reductions in non-performing assets over the past three years , we lowered the bank 's delinquent loans to less than $ 2.5 million at the end of 2014 ; consequently , we can now focus on removing the regulatory orders that are currently in effect and growing interest earning assets and income for the future . during the fourth quarter of 2014 , we completed the modification of our debentures , paid off the company 's senior debt and issued additional common stock in private placement transactions . as part of the private placement of common stock , which we consummated on october 16 , 2014 , the company sold 8,829,549 shares of common stock , including 6,973,320 shares of new non-voting common stock , for gross proceeds of $ 9.7 million . the proceeds were used to make payments of $ 900 thousand of principal amount and approximately $ 805 thousand of accrued interest on the debentures , and to repay the outstanding defaulted senior bank debt of $ 2.4 million , together with all accrued interest thereon , in full . the modified terms of the debentures require quarterly payments of interest only for the next five years at the original rate of 3-month libor plus 2.54 % . starting in june 2019 , we will be required to make quarterly payments of equal amounts of principal , plus interest , until the debentures are fully amortized on march 17 , 2024. the debentures may be called for redemption at any time by the company .
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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 . basis of presentation unless otherwise indicated , references in this “ management 's discussion and analysis of financial condition and results of operations ” to “ propetro holding corp. , ” “ the company , ” “ we , ” “ our , ” “ us ” or like terms refer to propetro holding corp. and its subsidiary . overview we are a growth‑oriented , midland , texas‑based oilfield services company providing hydraulic fracturing and other complementary services to leading upstream oil and gas companies engaged in the exploration and production , or e & p , of north american unconventional oil and natural gas resources . our operations are primarily focused in the permian basin , where we have cultivated longstanding customer relationships with some of the region 's most active and well‑capitalized e & p companies . the permian basin is widely regarded as the most prolific oil‑producing area in the united states , and we believe we are currently one of the largest providers of hydraulic fracturing services in the region by hydraulic horsepower , or hhp , with an aggregate deployed capacity of 690,000 hhp at december 31 , 2017. our fleet has been designed to handle the highest intensity , most complex hydraulic fracturing jobs , and has been 100 % utilized since september 2016. in the quarter ended december 31 , 2017 , we put one new hydraulic fracturing unit into service bringing our total fleet to 16 units as of december 31 , 2017 . during the year ended december 31 , 2017 , we put a total of six new hydraulic fracturing units into service . in addition , we have deployed two new hydraulic fracturing units into service through march of 2018 , bringing our current fleet total to 18 deployed units , or 780,000 hhp . our assets and operations through our pressure pumping segment , which includes cementing operations , we primarily provide hydraulic fracturing services ( inclusive of acidizing services ) to e & p companies in the permian basin . our modern hydraulic fracturing fleet has been designed to handle permian basin specific operating conditions and the region 's increasingly high‑intensity well completions , which are characterized by longer horizontal wellbores , more frac stages per lateral and increasing amounts of proppant per well . over 92 % of our fleet has been delivered over the past five years , and substantially all our fleet has been built by a single manufacturer since 2013. further , we have fully maintained our equipment throughout the recent industry downturn to ensure optimal performance and reliability . additionally , all of the hydraulic horsepower delivered over the last five years has been sourced from a single manufacturer , leading to a homogeneous fleet with streamlined maintenance programs and training for our personnel . in addition to our core pressure pumping segment operations , we also offer a suite of complementary well completion and production services , including coiled tubing , flowback services and surface air drilling . we believe these complementary services create operational efficiencies for our customers and allow us to capture a greater portion of their capital spending across the lifecycle of a well . additionally , we believe that these complementary services should benefit from a continued industry recovery and that we are well positioned to continue expanding these offerings in response to our customers increasing service needs and spending levels . 34 how we generate revenue we generate revenue primarily through our pressure pumping segment , and more specifically , by providing hydraulic fracturing services to our customers . we own and operate a fleet of mobile hydraulic fracturing units and other auxiliary equipment to perform fracturing services . we also provide personnel and services that are tailored to meet each of our customers ' needs . we generally do not have long‑term written contractual arrangements with our customers other than standard master service agreements , which include general contractual terms between our customers and us . we charge our customers on a per‑job basis , in which we set pricing terms after receiving full specifications for the requested job , including the lateral length of the customer 's wellbore , the number of frac stages per well , the amount of proppant to be employed and other parameters of the job . in addition to hydraulic fracturing services , we generate revenue through the complementary services that we provide to our customers , including cementing , acidizing , coiled tubing , flowback services and surface air drilling . these complementary services are provided through various contractual arrangements , including on a turnkey contract basis , in which we set a price to perform a particular job , a daywork contract basis , in which we are paid a set price per day for our services , or a footage contract basis , in which we are paid a set price per foot we drill . we are also sometimes paid by the hour for these complementary services . our revenue , profitability and cash flows are highly dependent upon prevailing crude oil prices and expectations about future prices . for many years , oil prices and markets have been extremely volatile . prices are affected by many factors beyond our control . west texas intermediate ( “ wti ” ) oil prices which declined significantly close to the end of the second half of 2014 have recently recovered . story_separator_special_tag because adjusted ebitda and adjusted ebitda margin may be defined differently by other companies in our industry , our definitions of these non‑gaap financial measures may not be comparable to similarly titled measures of other companies , thereby diminishing their utility . factors affecting the comparability of our financial results our future results of operations may not be comparable to our historical results of operations for the reasons described below : 36 our strategic focus on our pressure pumping segment and other complementary services will reduce the relative financial contribution of the drilling operating segment in our results of operations . we expect revenues and costs of services related to our drilling operating segment to comprise a lower percentage of total revenues and total costs of service in future results of operations when compared to historic results due to our increased focus on pressure pumping and other complementary service offerings . we idled all seven of our permian vertical drilling rigs during 2016. as a result , during the year ended december 31 , 2017 , no revenue was generated by our drilling segment as compared to $ 9.9 million of revenue ( or 2.3 % of revenues ) for the year ended december 31 , 2016 , and $ 35.7 million ( or 6.3 % of revenues ) for the year ended december 31 , 2015 . likewise cost of services related to drilling was $ 0.4 million for the year ended december 31 , 2017 , as compared to $ 8.5 million ( 2.1 % of all costs of services ) for the year ended december 31 , 2016 , and $ 30.8 million ( or 6.4 % of cost of service ) for the year ended december 31 , 2015 . we anticipate the financial significance of this service line relative to the financial results from pressure pumping and other service offerings to continue to decline . story_separator_special_tag 000 ; '' > december 31 , 2016 . the non‑cash goodwill impairment expense in 2016 was as a result of the write‑down of goodwill related to our surface drilling reporting unit . loss on disposal of assets . loss on the disposal of assets increased 73.5 % , or $ 16.6 million , to $ 39.1 million for the year ended december 31 , 2017 , as compared to $ 22.5 million for the year ended december 31 , 2016 . the increase was primarily attributable to greater service intensity of jobs completed , coupled with higher fleet size , activity levels and utilization of our equipment . interest expense . interest expense decreased 64.0 % , or $ 13.0 million , to $ 7.3 million for the year ended december 31 , 2017 , as compared to $ 20.4 million for the year ended december 31 , 2016 . the decrease in interest expense was primarily attributable to a reduction in our average debt balance during 2017 due to the early retirement of our term loan and revolving credit facility in the first quarter of 2017. gain on extinguishment of debt . there was no debt extinguishment gain or loss during the year ended december 31 , 2017 , compared to the gain on extinguishment of debt , net of cost , of $ 7.0 million during the year ended december 31 , 2016 . the gain on extinguishment of debt during 2016 was as a result of the auction process with our lenders to repurchase $ 37.5 million of our term loan at a 20 % discount to par value . 39 other expense . other expense was $ 1.0 million for the year ended december 31 , 2017 , as compared to $ 0.3 million for the year ended december 31 , 2016 . the increase was primarily attributable to an increase in lenders related expenses , non-recurring listing related expenses , and partially offset by an increase in the unrealized gain resulting from the change in the fair value of our interest rate swap liability at december 31 , 2017 compared to december 31 , 2016 . income tax expense/ ( benefit ) . income tax expense was $ 3.1 million for the year ended december 31 , 2017 , compared to income tax benefit of $ 28.0 million , for the year ended december 31 , 2016 . the change from an income tax benefit to income tax expense is primarily due to the company 's reporting income before taxes during the year ended december 31 , 2017 , compared to a loss before taxes recorded during the year ended december 31 , 2016 . the income before taxes generated is attributable to the increase in our revenue during the year ended december 31 , 2017 , compared to december 31 , 2016 . additionally , the income tax expense during the year ended december 31 , 2017 , included a one-time deferred tax benefit offset of $ 3.4 million , resulting from the u.s. government enacted tax legislation commonly referred to as the tax cuts and jobs act ( “ tax act ” ) . 40 year ended december 31 , 2016 compared to year ended december 31 , 2015 replace_table_token_6_th ( 1 ) exclusive of depreciation and amortization . ( 2 ) inclusive of stock‑based compensation . ( 3 ) for definitions of the non‑gaap financial measures of adjusted ebitda and adjusted ebitda margin and reconciliation of adjusted ebitda and adjusted ebitda margin to our most directly comparable financial measures calculated in accordance with gaap , please read “ selected historical financial data ” . ( 4 ) the non‑gaap financial measure of adjusted ebitda margin for the pressure pumping segment is calculated by taking adjusted ebitda for the pressure pumping segment as a percentage of our revenues for the pressure pumping segment . revenues .
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results of operations we conduct our business through six operating segments : hydraulic fracturing , cementing , coil tubing , flowback , surface drilling , and drilling . during the year , we consolidated our acidizing operations into our hydraulic fracturing segment bringing the number of our operating segment to six , from seven previously reported in prior years . the change in the number of our operating segments did not have any monetary impact on our reportable segment information in the current or prior years included in this form 10-k. for reporting purposes , the hydraulic fracturing ( which now includes our acidizing operations ) and cementing operating segments are aggregated into our one reportable segment : pressure pumping . we expect revenues and costs of services related to our drilling operating segment to comprise a lower percentage of total revenues and total costs of service in future results of operations when compared to historic results due to our increased focus on pressure pumping and other complementary service offerings . we anticipate the financial significance of this service line relative to the financial results from pressure pumping and other service offerings to continue to decline . 37 year ended december 31 , 2017 compared to year ended december 31 , 2016 replace_table_token_5_th ( 1 ) exclusive of depreciation and amortization . ( 2 ) inclusive of stock‑based compensation . ( 3 ) for definitions of the non‑gaap financial measures of adjusted ebitda and adjusted ebitda margin and reconciliation of adjusted ebitda and adjusted ebitda margin to our most directly comparable financial measures calculated in accordance with gaap , please read “ selected historical financial data ” . ( 4 ) the non‑gaap financial measure of adjusted ebitda margin for the pressure pumping segment is calculated by taking adjusted ebitda for the pressure pumping segment as a percentage of our revenues for the pressure pumping segment . revenues . revenues increased 124.7 % , or $ 544.9 million , to $ 981.9
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forward-looking statements include , among other things , the information concerning the company 's possible future results of operations including revenue , costs of goods sold , gross margin , future profitability , future economic improvement , business and growth strategies , financing plans , the company 's competitive position and the effects of competition , the projected growth of the industries in which we operate , and the company 's ability to consummate strategic acquisitions and other transactions . forward-looking statements include statements that are not historical facts and can be identified by forward-looking words such as “ anticipate , ” “ believe , ” “ could , ” “ estimate , ” “ expect , ” “ intend , ” “ plan , ” “ may , ” “ should , ” “ will , ” “ would , ” “ project , ” “ forecast , ” and similar expressions . these forward-looking statements are based upon information currently available to the company and are subject to a number of risks , uncertainties , and other factors that could cause the company 's actual results , performance , prospects , or opportunities to differ materially from those expressed in , or implied by , these forward-looking statements . important factors that could cause the company 's actual results to differ materially from the results referred to in the forward-looking statements the company makes in this report include : the effects of intense competition in the markets in which we operate ; the cyclical nature of the markets in which we operate ; the loss of independent distributors on which we rely ; changes in market conditions in which we operate that would influence the value of the company 's stock ; the company 's ability to achieve its business plans , including with respect to an uncertain economic environment ; the risks associated with international operations , including currency risks ; the company 's ability to retain existing customers and our ability to attract new customers for growth of our business ; the effects of the loss or bankruptcy of or default by any significant customer , suppliers , or other entity relevant to the company 's operations ; political and economic conditions nationally , regionally , and in the markets in which we operate ; natural disasters , war , civil unrest , terrorism , fire , floods , tornadoes , earthquakes , hurricanes , or other matters beyond the company 's control ; the company 's risk of loss not covered by insurance ; the accuracy of estimated forecasts of oem customers and the impact of the current global and european economic environment on our customers ; the risks associated with certain minimum purchase agreements we have with suppliers ; disruption of our supply chain ; fluctuations in the costs of raw materials used in our products ; the outcome of litigation to which the company is a party from time to time , including product liability claims ; work stoppages and other labor issues ; changes in employment , environmental , tax and other laws , including enactment of the tax cuts and jobs act , and changes in the enforcement of laws ; the company 's ability to attract and retain key executives and other personnel ; the company 's ability to successfully pursue the company 's development activities and successfully integrate new operations and systems , including the realization of revenues , economies of scale , cost savings , and productivity gains associated with such operations ; the company 's ability to obtain or protect intellectual property rights and avoid infringing on the intellectual property rights of others ; the risks associated with the portion of the company 's total assets comprised of goodwill and indefinite lived intangibles ; 28 changes in market conditions that would result in the impairment of goodwill or other assets of the company ; changes in accounting rules and standards , audits , compliance with the sarbanes-oxley act , and regulatory investigations ; the effects of changes to critical accounting estimates ; changes in volatility of the company 's stock price and the risk of litigation following a decline in the price of the company 's stock ; failure of the company 's operating equipment or information technology infrastructure ; the company 's ability to implement our enterprise resource planning ( erp ) system ; the company 's access to capital , credit ratings , indebtedness , and ability to raise additional capital and operate under the terms of the company 's debt obligations ; the risks associated with our debt ; the risks associated with the company 's exposure to variable interest rates and foreign currency exchange rates ; the risks associated with interest rate swap contracts ; the risks associated with the company 's being subject to tax laws and regulations in various jurisdictions ; the risks associated with the company 's exposure to renewable energy markets ; the risks related to regulations regarding conflict minerals ; the risks associated with the volatility and disruption in the global financial markets ; the company 's ability to successfully execute , manage and integrate key acquisitions and mergers , including the svendborg acquisition , and the stromag acquisition ; the company 's ability to achieve the efficiencies , savings and other benefits anticipated from our cost reduction , margin improvement , restructuring , plant consolidation and other business optimization initiatives ; the risk associated with the uk vote to leave the european union ; and other factors , risks , and uncertainties referenced in the company 's filings with the securities and exchange commission , including the “ risk factors ” set forth in this document . all forward-looking statements speak only as of the date of this report . except as required by law , we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this report or to reflect the occurrence of unanticipated events . story_separator_special_tag if the actual results differ from the estimates and judgments used in these estimates , the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill , or require acceleration of the amortization expense of finite-lived intangible assets goodwill , intangibles and other long-lived assets . in connection with our acquisitions , goodwill and intangible assets were identified and recorded at fair value . we recorded intangible assets for customer relationships , trade names and trademarks , product technology , patents and goodwill . in valuing the customer relationships , trade names , and trademarks , we utilized variations of the income approach . the income approach was considered the most appropriate valuation technique because the inherent value of these assets is their ability to generate current and future income . the income approach relies on historical financial and qualitative information , as well as assumptions and estimates for projected financial information . projected financial information is subject to risk if our estimates are incorrect . the most significant estimate relates to our projected revenues and profitability . if we do not meet the projected revenues and profitability used in the valuation calculations then the intangible assets could be impaired . in determining the 30 value of customer relationships , we reviewed historical cu stomer attrition rates which were determined to be approximately 5 % to 12 % per year . most of our customers tend to be long-term customers with very little turnover . while we do not typically have long-term contracts with customers , we have established long -term relationships with customers which make it difficult for competitors to displace us . additionally , we assessed historical revenue growth within our industry and customers ' industries in determining the value of customer relationships . the value of ou r customer relationships intangible asset could become impaired if future results differ significantly from any of the underlying assumptions . this could include a higher customer attrition rate or a change in industry trends such as the use of long-term c ontracts which we may not be able to obtain successfully . customer relationships and product technology and patents are considered finite-lived assets , with estimated lives ranging from 8 years to 17 years . the estimated lives were determined by calculatin g the number of years necessary to obtain 95 % of the value of the discounted cash flows of the respective intangible asset . goodwill and trade names and trademarks are considered indefinite lived assets . our trade names and trademarks identify us and differentiate us from competitors , and therefore competition does not limit the useful life of these assets . additionally , we believe that our trade names and trademarks will continue to generate product sales for an indefinite period . accounting standards require that an annual goodwill impairment assessment be conducted at the reporting unit level using either a quantitative or qualitative approach . the company has determined that its couplings , clutches , and brakes ( ccb ) operating segment is comprised of two reporting units which are the couplings reporting unit and the heavy duty and overrunning clutches and brakes reporting unit . the company has determined that its gearing operating segment is comprised of two reporting units which are the domestic gearing reporting unit and the bauer gearing reporting unit . the company has also determined that the electromagnetic , clutches and brakes ( ecb ) operating segment comprises a single reporting unit . as part of the annual goodwill impairment assessment we performed a quantitative assessment and estimated the fair value of each of our five reporting units using an income approach . we forecasted future cash flows by reporting unit for each of the next five years and applied a long term growth rate to the final year of forecasted cash flows . the cash flows were then discounted using our estimated discount rate . the forecasts of revenue and profitability growth for use in the long-range plan and the discount rate were the key assumptions in our goodwill fair value analysis . as of december 31 , 2017 , each of our reporting units had estimated fair values that were substantially in excess of the carrying value . management believes the preparation of revenue and profitability growth rates for use in the long-range plan and the discount rate requires significant use of judgment . if any of our reporting units do not meet our forecasted revenue and or profitability estimates , we could be required to perform an interim goodwill impairment analysis in future periods . in addition , if our discount rate increases , we could be required to perform an interim goodwill impairment analysis . given the substantial excess fair value , we believe that a significant change in key valuation assumptions , including a decrease in revenues or profitability , or an increase in the discount rate , would not result in an indication of impairment . based on the above procedures , we did not identify any reporting unit that would be required to perform a step 2 goodwill impairment analysis as of december 31 , 2017. for our indefinite lived intangible assets , mainly trademarks , we estimate the fair value by first estimating the total revenue attributable to the trademarks . second , we estimate an appropriate royalty rate using the return on assets method by estimating the required financial return on our assets , excluding trademarks , less the overall return generated by our total asset base . the return as a percentage of revenue provides an indication of our royalty rate . we compared the estimated fair value of the trademarks with the carrying value of the trademarks and did not identify any impairment as of december 31 , 2017. there is increasing revenue pressure in the wind industry driven by changing government subsidies and resulting supplier auctions in an effort to reduce turbine costs .
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results of operations . amounts in thousands , except percentage data replace_table_token_6_th 32 segment performance . amounts in thousands , except percentage data replace_table_token_7_th year ended december 31 , 2017 compared with year ended december 31 , 2016 amounts in thousands , except percentage data year ended december 31 , 2017 december 31 , 2016 change % net sales $ 876,737 $ 708,906 $ 167,831 23.7 % net sales . the increase in sales during the year ended december 31 , 2017 was primarily due to the acquisition of stromag , price increases and higher sales levels in several end markets . changes in foreign exchange rates also had a favorable impact on net sales of $ 2.0 million . of the increase in sales , approximately $ 137.9 million related to the inclusion of additional sales as a result of the acquisition of stromag . in addition , price increases contributed $ 6.2 million . the remainder of the increase related to a recovery in sales levels in various end markets in the couplings , clutches , and brakes business segment . replace_table_token_8_th gross profit . gross profit as a percentage ofsales improved slightly during the year ended december 31 , 2017. the increase was due to improvements realized from our facility consolidations , price increases and improving end markets .
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see also `` cautionary statement pursuant to safe harbor provisions of the private securities litigation reform act of 1995 . '' a discussion related to the results of operations and changes in financial condition for 2019 compared to 2018 has been omitted from this report , but may be found in part ii , item 7. management 's discussion and analysis of financial condition and results of operations in our fiscal 2019 form 10-k , filed with the sec on february 12 , 2020 , which is available free of charge on the sec 's website at www.sec.gov and our corporate website at www.molsoncoors.com . such discussion does not reflect the recast of the historical presentation of segment information as a result of the reporting segment changes that became effective on january 1 , 2020. our fiscal year unless otherwise indicated , ( a ) all $ amounts are in usd , ( b ) comparisons are to comparable prior periods and ( c ) 2020 , 2019 and 2018 refers to the 12 months ended december 31 , 2020 , december 31 , 2019 and december 31 , 2018 , respectively . operational measures we have certain operational measures , such as stws and strs , which we believe are important metrics . stw is a metric that we use in our business to reflect the sales from our operations to our direct customers , generally wholesalers . we believe the stw metric is important because it gives an indication of the amount of beer and adjacent products that we have produced and shipped to customers . str is a metric that we use in our business to refer to sales closer to the end consumer than stws , which generally means sales from wholesalers or our company to retailers , who in turn sell to consumers . we believe the str metric is important because , unlike stws , it provides the closest indication of the performance of our brands in relation to market and competitor sales trends . executive summary for more than two centuries , we have been brewing beverages that unite people for all life 's moments . from coors light , miller lite , molson canadian , carling , and staropramen to coors banquet , blue moon belgian white , blue moon lightsky , vizzy , coors seltzer , leinenkugel 's summer shandy , creemore springs , hop valley and more , we produce some of the most beloved and iconic beer brands ever made . while the company 's history is rooted in beer , we offer a modern portfolio that expands beyond the beer aisle with sparkling cocktails , hard coffee , canned wine , kombucha , cider and more . as a business , our ambition is to be the first choice for our people , our consumers and our customers , and our success depends on our ability to make our products available to meet a wide range of consumer segments and occasions . coronavirus global pandemic the coronavirus pandemic had a material adverse effect on our operations , liquidity , financial condition and results of operations during our full year 2020 due mainly to the on-premise closures worldwide . the effects of the pandemic remain highly uncertain especially around the severity and duration of the outbreak and actions by government authorities to contain the pandemic or address its impact , among other things . many governmental entities across north america and europe required that bars and restaurants close or cease sit-down service during the second quarter of 2020 and again at the end of 2020 , which negatively impacted the on-premise sales of our beverages and led to the incurrence of costs to repurchase products that on-premise accounts or distributors were unable or prohibited from selling as a result of the governmental regulations . this can be seen in our financial results during the full year 2020. during this same time , other restaurants and bars implemented closures and modified their hours , either voluntarily or as a result of governmental orders or quarantines . at the end of the second quarter and into the third quarter of 2020 , there was a phased reopening of a significant number of on-premise accounts in certain of our markets , but with restrictions and in the fourth quarter some of these re-openings were reversed and businesses were shut down again . sales to restaurants and bars have not returned to pre-pandemic levels and in many instances , the reopened on-premise accounts have been impacted by further restrictions or further shut downs imposed as a result of the increased spread of the coronavirus . in addition , sporting events , festivals and other large public gatherings where our products are served have been canceled throughout north america and europe . sales to on-premise customers tend to be higher margin than sales to off-premise ( retail outlets ) customers . 39 additionally , these and other governmental or societal impositions of restrictions on public gatherings , especially if prolonged in nature , whether government or self-imposed , will have adverse effects on on-premise traffic and , in turn , our business . we experienced a significant adverse volume impact in 2020 resulting from the initial closure of , and subsequent continued impacts to , the on-premise channel . as perspective , we estimate that approximately 23 % of our 2019 consolidated net sales resulted from on-premise consumption , with approximately 17 % of our north america net sales and approximately 50-55 % of our europe net sales each coming from this important part of the industry , and in many of our markets the on-premise business had been reduced to zero for much of the second quarter of 2020. see further discussion in part i. item 1. business regarding the historical percentage of volume and net sales represented in the on-premise within our north america and europe segments and resulting implications to expected profitability as a result of the effective closures of the on-premise in the markets in which we operate . story_separator_special_tag during 2020 , we also established chicago , illinois as our north america segment operational headquarters , closed our office in denver , colorado and consolidated certain administrative functions into our other existing office locations . effective january 1 , 2020 , we changed our management structure from a corporate center and four segments to two segments - north america and europe . we also have certain activity that is not allocated to our segments , which has been reflected as “ unallocated. ” specifically , `` unallocated '' activity primarily includes financing related costs such as interest expense and income , foreign exchange gains and losses on intercompany balances related to financing and other treasury-related activities , and the unrealized changes in fair value on our commodity swaps not designated in hedging relationships recorded within cost of goods sold , which are later reclassified when realized to the segment in which the underlying exposure resides . additionally , only the service cost component of net periodic pension and opeb cost is reported within each operating segment , and all other components remain unallocated . we recasted the historical presentation of segment information as a result of these reporting segment changes accordingly . see part ii - item 8. financial statements , note 3 , '' segment reporting '' for additional details . in connection with these consolidation activities , we currently expect to continue to incur certain cash and non-cash restructuring charges related to severance , retention and transition costs , employee relocation , non-cash asset related costs , lease impairment and exit costs in connection with our office lease in denver , colorado and other transition activities currently estimated in the range of approximately $ 100 million to $ 120 million in the aggregate , the majority of which are cash charges that we began recognizing as special items in the fourth quarter of 2019 , and have been , and will continue to , further recognize through 2021. during 2020 and 2019 we recognized severance and retention charges of $ 35.6 million and $ 41.2 million , respectively . these charges , along with the other revitalization costs , bring the aggregate of such charges to approximately $ 100 million since the plan was initiated in 2019. see part ii—item 8 financial statements and supplementary data , “ note 7 , special items ” for additional details related to these restructuring and other charges . after taking into account all changes in each of the business units , including europe , the execution of the plan has reduced employment levels , in aggregate , by approximately 600 employees globally . we currently expect the costs associated with the restructuring to be substantially recognized by the end of fiscal year 2021. summary of consolidated results of operations the following table highlights summarized components of our consolidated statements of operations for the years ended december 31 , 2020 , december 31 , 2019 , and december 31 , 2018. see part ii—item 8 financial statements and supplementary data , “ consolidated statements of operations ” for additional details of our u.s. gaap results . replace_table_token_6_th n/m = not meaningful story_separator_special_tag roman ' , sans-serif ; font-size:8pt ; font-weight:400 ; line-height:120 % ; text-decoration : underline '' > our worldwide brand volume decreased 7.8 % in 2020 compared to 2019 , while financial volume decreased 8.9 % in 2020 compared to 2019. the decrease in 2020 reflects the impacts of the coronavirus pandemic and the related closure of on-premise outlets in both north america and europe , as well as market share declines in part due to prioritization of certain key brands and package types to meet off-premise demand while dealing with packaging supply constraints , and lower contract brewing volumes in north america . despite this and the gradual re-opening of on-premise locations during the third quarter of 2020 , the increase in off-premise brand volumes was not sufficient to offset the volume losses experienced related to the on-premise restrictions , resulting in overall brand volume declines . subsequently , in the fourth quarter of 2020 , the second pandemic wave triggered new lockdowns with different levels of restrictions in europe from one market to another . as a result , the off-premise volumes did not offset the loss of the on-premise volume due to closures related to the pandemic . the decrease in 2019 was due to lower volume in all segments primarily driven by challenging industry dynamics . net sales drivers the following table highlights the drivers of change in net sales for the year ended december 31 , 2020 versus december 31 , 2019 , by segment ( in percentages ) . replace_table_token_8_th the following table highlights the drivers of change in net sales on a reported basis for the year ended december 31 , 2019 versus december 31 , 2018 , by segment ( in percentages ) . replace_table_token_9_th cost savings initiatives our next generation cost savings program , which began in 2020 , is expected to deliver approximately $ 600 million of cost savings over the three year program term through 2022 and is focused around many of the same functions of the business as the 2017 to 2019 program . these cost savings include approximately $ 150 million related to the revitalization plan . total cost savings delivered in 2020 totaled approximately $ 270 million . depreciation and amortization depreciation and amortization expense was $ 922.0 million in 2020 , an increase of $ 63.0 million compared to 2019 , primarily driven by incremental accelerated depreciation related to brewery closures . income taxes replace_table_token_10_th the decrease to the effective tax rate , when compared to the statutory rate , for fiscal year 2020 is primarily driven by two items .
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2020 financial highlights in 2020 , we incurred a net loss attributable to mcbc of $ 949.0 million compared to net income attributable to mcbc of $ 241.7 million in the prior year , primarily attributable to a goodwill impairment loss in our europe segment of $ 1,484.3 million recorded in the fourth quarter of 2020 , lower financial volume , higher tax expense driven by $ 135 million related to the enactment of the u.s. final hybrid regulation in the second quarter of 2020 , keg sales returns and other coronavirus-related costs , partially offset by lower marketing , general and administrative expenses , an approximate $ 108 million year-over-year favorable variance resulting from unrealized mark-to-market changes on our commodity positions , a goodwill impairment loss in our north america segment of $ 668.3 million recorded in 2019 and positive pricing in north america and europe . 41 during 2020 , we repaid our $ 500 million 2.25 % notes and cad $ 500 million 2.75 % notes upon their respective maturities throughout the year as part of our deleveraging commitment . we generated cash flow from operating activities of approximately $ 1.7 billion , representing a 10.6 % decrease from approximately $ 1.9 billion in 2019. the decrease in operating cash flow in 2020 compared to 2019 was primarily driven by lower net income after adjusting for non-cash add-backs and higher cash paid for taxes , partially offset by favorable timing of working capital . notably , working capital benefited from the deferral of approximately $ 130 million in tax payments from various government-sponsored payment deferral programs initiated in response to the coronavirus pandemic , of which we currently anticipate the majority to be paid in 2021 as these amounts become due .
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the company has filed an appeal with respect to this subsequent assessment . in order to proceed with these appeals , as of december 31 , 2011 , the company is required to and has posted bank guarantees of euro 30.9 million ( $ 39.9 million ) and , in january 2012 , posted another bank guarantee of euro 61.6 million ( $ 79.6 million ) . in january 2012 , the spanish tax authorities notified the company of their intent to audit the 2007-2010 income tax story_separator_special_tag ( unless indicated otherwise , dollars in millions except per share amounts ) overview we create , manufacture and supply flavors and fragrances for the food , beverage , personal care and household-products industries . our flavors and fragrances are individual ingredients or compounds of a large number of ingredients that are blended , mixed or reacted together to produce proprietary formulas created by our perfumers and flavorists . flavors are the key building blocks that impart taste in processed food and beverage products and play a significant role in determining consumer preference of the end products in which they are used . while we are a global leader , our flavors business is regional in nature , with different formulas that reflect local tastes and ingredients . as a leading creator of flavors , we help our customers deliver on the promise of delicious and healthy foods and drinks that appeal to consumers . our flavors business is divided into four categories of products : ( 1 ) savory , ( 2 ) beverages , ( 3 ) sweet , pharmaceutical and oral care ( sweet ) , and ( 4 ) dairy . our fragrances are a key component in the world 's finest perfumes and best-known consumer brands , including beauty care , fabric care , personal wash and home care products . our fragrances business is divided into three categories of products : ( 1 ) fine fragrance and beauty care , ( 2 ) functional fragrances and ( 3 ) fragrance ingredients . development of new flavors and fragrances is driven by a variety of sources including requests from our customers , who are in need of a specific flavor or fragrance for use in a new or modified consumer product , or as a result of internal initiatives stemming from our consumer insights program . our product development team works in partnership with our scientists and researchers to optimize the consumer appeal of the flavor or fragrance . it then becomes a collaborative process between our researchers , our product development team and our customers to perfect the flavor or fragrance so that it is ready to be included in the final consumer product . our top 25 customers comprised 53 % of total sales in 2011 ; these percentages have remained fairly constant for several years . a key factor for commercial success is inclusion on the strategic customers ' core supplier lists , opening opportunities to win new business . we are on the core supplier lists of a large majority of our strategic customers . growth in the global flavors and fragrances market is generally aligned with global population trends , gdp growth and gains in per capita disposable income . the flavor and fragrance market is estimated to be approximately $ 16 $ 17 billion ; however the exact size of the global market is not available due to fragmentation of data . the top four companies are estimated to comprise approximately 70 % of the total estimated sales in the global flavors and fragrances sub-segment of the broader market . leveraging our balanced portfolio of business categories and geographic diversity , sales in 2011 grew 6 % on a reported basis and 4 % in local currency ( lc ) terms in spite of the market and macro-economic challenges we faced . flavors continued to achieve strong lc growth of 9 % for the full year 2011. the flavors growth more than offset a 1 % decline in lc sales for our fragrances business . the lc decline for fragrances reflects very challenging comparable performance in 2010 ( with record lc growth of 16 % ) , market weakness in discretionary categories ( primarily fine fragrances ) and price driven volumes declines in ingredients . overall , our 2011 results continued to be driven by our strong emerging market presence that represented 46 % of total sales and experienced 8 % lc growth in 2011. from a geographic perspective , all four regions delivered lc growth in 2011 ; led by greater asia , which now represents our second largest region , with 6 % lc growth . 25 2011 sales by business unit replace_table_token_7_th financial performance overview reported sales for 2011 increased 6 % year-over-year as both flavors and fragrances benefited from new business performance and price increases that more than offset price driven volume declines in ingredients and volume erosion in fragrance compounds . exchange rate variations accounted for 2 % of the year-over-year sales increase . the effect of exchange rates can vary by business and region depending upon the mix of sales by destination country as well as the relative percentage of local sales priced in u.s. dollars versus local currencies . lc sales growth of 4 % in 2011 was consistent with our long-term strategic target of 4 % 6 % growth , despite the record lc growth achieved in 2010 of 13 % . for 2012 , we believe that our lc growth will be towards the low end of our long-term target as global gdp growth is expected to be relatively weak . we will experience a much larger drag on flavor sales growth in 2012 as compared to 2011 associated with the exiting of under-performing business and demand in ingredients is still expected to be weak . story_separator_special_tag we implemented a plan to streamline business operations globally which resulted in the elimination of 72 positions , across fragrances , flavors and corporate functions . as a result , we recorded a provision for severance costs of $ 9.8 million to restructuring and other charges , net in our 2011 consolidated statement of income . we expect to realize pre-tax savings of approximately $ 9.0 million in 2012. european rationalization plan during the second quarter 2011 , we executed a partial settlement of its pension obligations with the former employees of the drogheda facility . as a result we recorded a charge of $ 3.9 million related to the european rationalization plan to cover settlements and special termination benefits . this settlement was funded primarily through pension plan investment trust assets . we also reversed $ 1.2 million of employee-related liabilities in 2011 due to certain employees accepting other roles within the company , offset by $ 0.6 million of additional costs incurred . based upon the period-end estimates regarding the separation agreements , we increased our provision for severance costs in by $ 4.4 million in 2010. the remaining $ 5.7 million of the restructuring charges in 2010 was mainly due to accelerated depreciation and other restructuring related costs pertaining to the rationalization of our fragrances and ingredients operations in europe . in the aggregate as of december 31 , 2011 , we have recorded expenses of $ 34.1 million relating to the european rationalization plan and $ 9.8 million for the strategic initiative , of which $ 37.6 million was recorded to restructuring and other charges , net and $ 6.3 million recorded to cost of goods sold , r & d and selling and administrative expenses . we do not anticipate any further expenses related to the european rationalization plan . operating results by business unit we evaluate the performance of business units based on adjusted operating profit before restructuring and certain non-recurring adjustments before interest expense , other expense , net and taxes on income . see note 12 to our consolidated financial statements for the reconciliation to income before taxes . 30 replace_table_token_11_th replace_table_token_12_th flavors business unit flavors operating profit totaled $ 249.3 million in 2011 ( 18.5 % of sales ) compared to $ 242.5 million ( 20.2 % of sales ) in the comparable 2010 period . flavors adjusted operating profit increased $ 41.7 million to $ 284.2 million ( 21.1 % of sales ) . the improvement in profitability was mainly driven by strong sales growth and increased operating leverage , the realization of price increases and margin improvement initiatives that more than offset the effects of higher raw material costs and less favorable sales mix . fragrances business unit fragrances operating profit totaled $ 215.3 million in 2011 or 14.9 % as a percentage of sales , compared to $ 234.9 million or 16.5 % as a percentage of sales reported in 2010. fragrances adjusted operating profit decreased $ 18.4 million to $ 226.6 million ( 15.7 % of sales ) versus $ 245.0 million ( 17.3 % of sales ) during 2010. the decline in profit was driven by sharply higher input costs and weaker sales mix that could only be partially offset by the realization of price increases , the benefits of the european restructuring , other margin improvement initiatives , and lower incentive compensation . global expenses global expenses represent corporate and headquarters-related expenses which include legal , finance , human resources and r & d and other administrative expenses that are not allocated to an individual business unit . in 2011 , global expenses were $ 36.9 million compared to $ 61.1 million during 2010. the decline principally reflects lower incentive compensation . interest expense in 2011 , interest expense decreased $ 4.1 million to $ 44.6 million . the decrease in interest expense reflects lower levels of outstanding debt mainly due to $ 123.7 million of long-term debt repayments in 2011. average cost of debt was 4.7 % for the 2011 period compared to 5.0 % in 2010. other expense , net other expense , net increased approximately $ 1.4 million to $ 9.5 million in 2011 versus $ 8.1 million in 2010. the change was driven by higher foreign exchange losses on outstanding working capital balances , principally associated with a general weakening of the u.s. dollar . 31 income taxes the effective tax rate was 28.6 % in 2011 as compared to a rate of 26.7 % in the prior year . the current period included a $ 5.8 million adjustment of deferred tax assets as a result of u.s. state law changes enacted during the second quarter 2011 and a low effective tax rate on the mane patent litigation settlement . 2010 in comparison to 2009 sales sales for 2010 totaled $ 2.6 billion , an increase of 13 % from $ 2.3 billion in 2009. the significant acceleration of growth ( +13 % in lc terms ) reflects strong commercial performance in both businesses , higher volumes , including the effects of re-stocking in developed markets , most notably in the first half of the year and stronger sales mix for both businesses . sales from new wins accounted for half of the lc sales gains . in addition , higher volumes were driven by a broad-based recovery in demand and lower base period comparisons in 2009 ( primarily in fine fragrances , ingredients and home care ) . foreign currency movements had only a minor impact on year-over-year sales growth , although there was volatility from quarter-to-quarter . flavors business unit on a reported basis flavor sales increased 11 % ; excluding the impact of foreign currency translation , lc sales for the flavors business increased 10 % from the prior year period . almost 60 % of year-over-year gain was driven by higher volume ( including some elements of re-stocking ) with the remaining due to sales from new business .
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results of operations replace_table_token_8_th 27 cost of goods sold includes the cost of materials and manufacturing expenses ; raw materials generally constitute 70.0 % of the total . r & d expenses relate to the development of new and improved products , technical product support and compliance with governmental regulations . s & a expenses include expenses necessary to support our commercial activities and administrative expenses principally associated with staff groups that support our overall operating activities . 2011 in comparison to 2010 s ales sales for 2011 totaled $ 2.8 billion , an increase of 6 % from the prior year . excluding currency impacts , lc sales grew by 4 % , driven principally by new business and the realization of price increases that were implemented to mitigate the effects of higher raw material costs . lc sales growth was primarily driven by the realization of price increases across both business units , while new win performance was largely offset by volume declines in the second half of 2011 , mainly in fragrances . overall lc growth was driven by 8 % growth in the emerging markets . flavors business unit on a reported basis , flavor sales increased 12 % ; excluding the impact of foreign currency , lc sales for the flavors business increased 9 % versus the prior year period . the increase was driven by new business with our customers , followed by the realization of price increases and growth in the underlying demand for our customers ' products . sales growth in 2011 includes the impact of exiting approximately $ 6 million of less profitable non-strategic business . lc growth was led by double-digit gains in savory and beverages and single digit gains in sweet ( confectionery ) , all of which benefited from new business , higher volumes and realization of price increases .
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item 13. certain relationships , related transactions and director independence executive offices the company 's executive offices are located at 150 research dr. , hampton va. these offices are leased by the health network , inc. ( `` thn `` ) , of which ron howell is president . thn allows the company to use the office space without a formal sublease or rental agreement . the company currently pays the health network , inc. $ 0.00 per month as a general operating fee , which covers use of the office space , use of certain equipment , and various other services . consulting agreements the company has entered into a consulting agreement with mr. howell whereby the company agreed to pay mr. howell $ 10,000 per month . the consulting agreement may be terminated at will by the company . the company intends to continue to engage mr. howell as a consultant until his consulting services are no longer required . director independence the company is not listed on any national exchange , or quoted on any inter-dealer quotation service , that imposes independence requirements on any committee of the company 's directors , such as an audit , nominating or compensation committee . the company 's board of directors consists of ron howell , who is not independent . page 25 item 14. principal accounting fees and services the following is a summary of the fees paid to sadler , gibb & associates llc , the company 's independent public accounting firm , during the fiscal years ended december 31 , 2016 and 2017 . 2018 2017 audit fees $ 10,500 $ 10,500 audit-related fees - - tax fees - - all other fees - - total $ 10,500 $ 10,500 audit committee pre-approval of services of principal accountants we do not currently have an audit committee appointed by the board of directors and the full board of directors did not vote on whether any non-audit services impacted our auditor 's independence . we currently do not have any policy for approval of audit and permitted non-audit services by our independent auditor . we plan to appoint an audit committee by our board of directors and adopt procedures for approval of audit and non-audit services . page 26 part iv item 15. exhibits and financial statement schedules financial statements and schedules . the following consolidated financial statements of hst global , inc. are included herein beginning on page 8 : report of independent registered public accounting firm consolidated balance sheets as of december 31 , 2018 and 2017 consolidated statements of operations for the years ended december 31 , 2018 , and 2017 consolidated statements of changes in stockholders ' interest for the years ended december 31 , 2018 and 2017 consolidated statements of cash flows for the years ended december 31 , 2018 and 2017 notes to consolidated financial statements exhibits the following exhibits are included herein : exhibit no . description 31.1 certification by the chief executive officer of competitive technologies , inc. pursuant to section 302 of the sarbanes-oxley act of 2002 ( rule 13a-14 ( a ) or rule 15d-14 ( a ) ) . 31.2 certification by the chief financial officer of competitive technologies , inc. pursuant to section 302 of the sarbanes-oxley act of 2002 ( rule 13a-14 ( a ) or rule 15d-14 ( a ) ) . 32.1 certification by the chief executive officer of competitive technologies , inc. pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . 1350 ) . 32.2 certification by the chief financial officer of competitive technologies , inc. pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . 1350 ) . 101 interactive data files signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . hst global , inc. ( the registrant ) by : \s\ ron howell ron howell chief executive officer date : april 1 , 2019 page 27 story_separator_special_tag forward-looking statements statements about our future expectations are `` forward-looking statements '' within the meaning of applicable federal securities laws , and are not guarantees of future performance . when used herein , the words `` may , '' `` will , '' `` should , '' `` anticipate , '' `` believe , '' `` appear , '' `` intend , '' `` plan , '' `` expect , '' `` estimate , '' `` approximate , '' and similar expressions are intended to identify such forward-looking statements . these statements involve risks and uncertainties inherent in our business , including those set forth in item 1a under the caption `` risk factors , '' in this annual report on form 10-k for the year ended december 31 , 2018 , and other filings with the sec , and are subject to change at any time . our actual results could differ materially from these forward-looking statements . we undertake no obligation to update publicly any forward-looking statement . overview hst global , inc. is an integrated health and wellness biotechnology company that is developing and /or acquiring a network of wellness centers worldwide that are primarily focused on the homeopathic and alternative treatment of late stage cancer . in addition , the company intends to acquire innovative products for the treatment of individual health challenges . in this regard , the company primarily focuses on homeopathic and alternative product candidates that are undergoing or have already completed significant clinical testing . the company has identified the growing acceptance of alternative treatments worldwide which has placed us in a perfect position to open our own brand of treatment centers . this strategy will enable the company to address the challenges individuals face in the treatment story_separator_special_tag item 13. certain relationships , related transactions and director independence executive offices the company 's executive offices are located at 150 research dr. , hampton va. these offices are leased by the health network , inc. ( `` thn `` ) , of which ron howell is president . thn allows the company to use the office space without a formal sublease or rental agreement . the company currently pays the health network , inc. $ 0.00 per month as a general operating fee , which covers use of the office space , use of certain equipment , and various other services . consulting agreements the company has entered into a consulting agreement with mr. howell whereby the company agreed to pay mr. howell $ 10,000 per month . the consulting agreement may be terminated at will by the company . the company intends to continue to engage mr. howell as a consultant until his consulting services are no longer required . director independence the company is not listed on any national exchange , or quoted on any inter-dealer quotation service , that imposes independence requirements on any committee of the company 's directors , such as an audit , nominating or compensation committee . the company 's board of directors consists of ron howell , who is not independent . page 25 item 14. principal accounting fees and services the following is a summary of the fees paid to sadler , gibb & associates llc , the company 's independent public accounting firm , during the fiscal years ended december 31 , 2016 and 2017 . 2018 2017 audit fees $ 10,500 $ 10,500 audit-related fees - - tax fees - - all other fees - - total $ 10,500 $ 10,500 audit committee pre-approval of services of principal accountants we do not currently have an audit committee appointed by the board of directors and the full board of directors did not vote on whether any non-audit services impacted our auditor 's independence . we currently do not have any policy for approval of audit and permitted non-audit services by our independent auditor . we plan to appoint an audit committee by our board of directors and adopt procedures for approval of audit and non-audit services . page 26 part iv item 15. exhibits and financial statement schedules financial statements and schedules . the following consolidated financial statements of hst global , inc. are included herein beginning on page 8 : report of independent registered public accounting firm consolidated balance sheets as of december 31 , 2018 and 2017 consolidated statements of operations for the years ended december 31 , 2018 , and 2017 consolidated statements of changes in stockholders ' interest for the years ended december 31 , 2018 and 2017 consolidated statements of cash flows for the years ended december 31 , 2018 and 2017 notes to consolidated financial statements exhibits the following exhibits are included herein : exhibit no . description 31.1 certification by the chief executive officer of competitive technologies , inc. pursuant to section 302 of the sarbanes-oxley act of 2002 ( rule 13a-14 ( a ) or rule 15d-14 ( a ) ) . 31.2 certification by the chief financial officer of competitive technologies , inc. pursuant to section 302 of the sarbanes-oxley act of 2002 ( rule 13a-14 ( a ) or rule 15d-14 ( a ) ) . 32.1 certification by the chief executive officer of competitive technologies , inc. pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . 1350 ) . 32.2 certification by the chief financial officer of competitive technologies , inc. pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . 1350 ) . 101 interactive data files signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . hst global , inc. ( the registrant ) by : \s\ ron howell ron howell chief executive officer date : april 1 , 2019 page 27 story_separator_special_tag forward-looking statements statements about our future expectations are `` forward-looking statements '' within the meaning of applicable federal securities laws , and are not guarantees of future performance . when used herein , the words `` may , '' `` will , '' `` should , '' `` anticipate , '' `` believe , '' `` appear , '' `` intend , '' `` plan , '' `` expect , '' `` estimate , '' `` approximate , '' and similar expressions are intended to identify such forward-looking statements . these statements involve risks and uncertainties inherent in our business , including those set forth in item 1a under the caption `` risk factors , '' in this annual report on form 10-k for the year ended december 31 , 2018 , and other filings with the sec , and are subject to change at any time . our actual results could differ materially from these forward-looking statements . we undertake no obligation to update publicly any forward-looking statement . overview hst global , inc. is an integrated health and wellness biotechnology company that is developing and /or acquiring a network of wellness centers worldwide that are primarily focused on the homeopathic and alternative treatment of late stage cancer . in addition , the company intends to acquire innovative products for the treatment of individual health challenges . in this regard , the company primarily focuses on homeopathic and alternative product candidates that are undergoing or have already completed significant clinical testing . the company has identified the growing acceptance of alternative treatments worldwide which has placed us in a perfect position to open our own brand of treatment centers . this strategy will enable the company to address the challenges individuals face in the treatment
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results of operations the company had no revenues and no cost of revenues for the years ended december 31 , 2018 and 2017. the company incurred operating expenses of $ 142,587 for the year ended december 31 , 2018 , compared to $ 152,995 in 2017. the decrease in expenses in 2018 was primarily a result of a decrease in administrative expenses . we do not believe these costs are indicative of future years , and we can not at this time predict our costs if and when we begin earning revenues and exit the start-up stage . the company had a net loss of $ 178,335 in the year ended december 31 , 2018 compared to $ 165,092 in 2017. this is primarily a result of decrease in administrative expenses . we believe the net losses of the company are the result of being in the development stage , and are not indicative of future earnings once we exit the development stage . liquidity and capital resources our capital requirements are principally related to our efforts to implement our business plan . our cash balance as of december 31 , 2018 was $ 0. cash flows replace_table_token_0_th the company does not currently have sufficient capital in its accounts , nor sufficient firm commitments for capital to assure its ability to meet its current obligations or to continue its planned operations . the company is continuing to pursue working capital and additional revenue through the seeking of the capital it needs to carry on its planned operations . there is no assurance that any of the planned activities will be successful . off-balance sheet arrangements
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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 ( oem's ) 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 , 2015 , include : · revenue for 2015 was $ 232,434 compared with $ 249,682 in 2014. excluding the unfavorable effects of foreign currency exchange ( fx ) , revenue in 2015 was $ 247,801 , a $ 1,881 , or 1 % , decline from the prior year . electronics and medical market sales helped to offset lower demand from the vehicle , industrial and aerospace and defense markets . for full year period of 2015 , approximately 66 % of the company 's sales came from u.s. customers and 34 % from customers in markets outside the u.s. , primarily in europe , canada and asia . · gross profit was $ 68,772 for 2015 , a 6 % decline from $ 73,426 in 2014. as a percentage of revenue , gross margin improved 20 basis points to 29.6 % in 2015 primarily due to mix , the continued shift to more solutions-oriented sales and application of allied systematic tools to drive efficiencies and drive down production costs . · operating income was $ 20,930 , or 9 % of revenue , for 2015 compared with $ 24,150 , or 10 % of revenue , for 2014. included in 2015 was $ 569 of acquisition-related costs . · net income was $ 11,074 , or $ 1.20 per diluted share , for 2015 compared with $ 13,860 , or $ 1.51 per diluted share , for 2014 . · bookings in 2015 , excluding the unfavorable effects fx , were $ 247,413 for 2015 compared with $ 251,527 for 2014. backlog as of december 31 , 2015 was $ 70,999 , or $ 74,995 when excluding fx , a decline from $ 75,065 at 2014 year end . · our debt , net of cash position , decreased by $ 14,247 to $ 47,488 at december 31 , 2015 from 2014 year end . · we declared and paid a dividend of $ 0.025 per share pursuant to our quarterly dividend program during each quarter of 2015. dividends to shareholders for 2015 were $ 0.10 per diluted share , or a dividend payout ratio of 8 % , when compared with the earnings per share of $ 1.20. refer to the information included in constant currency presentation below for a reconciliation of sales , net income and diluted earnings per share reflected on a constant currency basis to amounts as reported . our strategy our growth strategy is focused on becoming the motion solution leader in our selected target markets by further developing our products and services platform to utilize multiple allied motion technologies to change the game and 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 . we also will continue to invest in applied and design engineering resources . strategic focus means that we will take action to address the critical issues that we believe are necessary to meet the stated long term goals and objectives of the company . given that we are focused on growth , the majority of the critical issues are focused on growth initiatives for the company . one of these growth initiatives includes product line platform development to meet the emerging needs of our selected target markets . our platform development emphasizes a combination of allied motion technologies to create increased value 18 solutions for our customers . the make-up of our new opportunities has evolved from individual component solutions to a majority of the new opportunities now utilizing multiple allied motion technologies . we believe this approach will allow us to provide increased value to our customers and improved margins for our company . our strong financial condition , along with allied systematic tools ( ast ) continuous improvement initiatives in quality , delivery , and cost allow us to have a positive outlook for the continued long term growth of our company . outlook for 2016 in 2016 , we will continue to focus on leveraging the growth synergies as provided by the globe acquisition in late 2013 and the january 2016 heidrive acquisition to expand our business in our served markets . with strong cash flows and a continually improving debt position , we will continue to evaluate and pursue strategic acquisitions to enhance our growth opportunities in the future . in addition , we will continue to execute the critical issues as defined by our strategy , developed in late 2013. the critical issues from that strategy include : 1 ) creating an effective corporate structure to leverage the resources and capabilities of the combined entity 2 ) implement a new erp system to provide the infrastructure necessary to support the planned growth of the company 3 ) launch a new/integrated website in the first quarter of 2016 to better meet the needs of our current business environment 4 ) plan and implement a structured approach to identify the requirements of our target markets and to create and implement solutions to ensure we meet the requirements of those markets 5 ) through the continued enhancement story_separator_special_tag 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 8 , income taxes , of our consolidated financial statements for information regarding income tax expense as well as the valuation of our deferred income taxes . 20 goodwill as of december 31 , 2015 , we had $ 17,757 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 2015 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 % . although goodwill is not currently impaired , there can be no assurance that future impairments will not occur . significant negative industry or economic trends , disruptions to our business , failure to achieve the revenue and cost synergies expected from our acquisitions , or other unexpected significant changes in the use of certain assets could all have a negative effect on fair values in the future . see note 3 , goodwill , of our consolidated financial statements for information regarding the carrying values of our goodwill . pension and postretirement benefits the company provides pension and postretirement benefits for certain domestic retirees and records the cost of the obligations based on estimates . the net periodic costs are recognized as employees render the services necessary to earn the benefits . several assumptions are used to calculate the expense and liability related to the plans including the discount rate , the expected rate of return on plan assets , the future rate of compensation increases and health care cost increases . the discount rate is selected based on a bond pricing model that relates to the projected future cash flows of benefit obligations . actuarial assumptions used are based on demographic factors such as retirement and mortality . actual results could vary materially from the company 's actuarial assumptions , which may have an impact on the amount of reported expense or liability for pension or postretirement benefits . see note 11 , pension and post retirement plans , of our consolidated financial statements for further information regarding our pension plan valuation assumptions . stock-based compensation we measure compensation cost arising from the grant of share-based payments to employees at fair value and recognize such cost over the period during which the employee is required to provide service in exchange for the award , usually the vesting period . total stock-based compensation expense recognized during the years ended december 31 , 2015 , 2014 , and 2013 was $ 1,744 , $ 1,541 and $ 927 , respectively . for awards with service conditions , we recognize compensation cost on a straight-line basis over the requisite service/vesting period once the awards have been earned . for awards with performance conditions , accruals of compensation cost are made based on the probable outcome of the performance conditions . the assumptions used in calculating the fair value of share-based payment awards represent management 's best estimates , but these estimates involve inherent uncertainties and the application of management judgment . as a result , if circumstances change and we use different assumptions , our stock-based compensation expense could be materially different in the future . see note 5 , stock-based compensation plans , of our consolidated financial statements for further information regarding our stock incentive plans . 21 impact of recently issued accounting pronouncements in the normal course of business , we evaluate all new accounting pronouncements issued by the financial accounting standards board ( fasb ) , securities and exchange commission ( sec ) , emerging issues task force ( eitf ) or other authoritative accounting bodies to determine the potential impact they may have on our consolidated financial statements .
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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 . operating results year 2015 compared to 2014 replace_table_token_5_th net income and adjusted net income : net income decreased in 2015 from 2014 primarily due to unfavorable currency exchange and decreased volume offset by lower g & a expense . adjusted net income for the year ended december 31 , 2015 , was $ 11,461. adjusted diluted earnings per share for 2015 was $ 1.24. adjusted net income and adjusted diluted earnings per share are non-gaap measurements . adjusted net income for 2015 excludes $ 569 ( $ 387 net of tax ) of business development . see information included in non gaap measures below for a reconciliation of net income to adjusted net income . ebitda and adjusted ebitda : ebitda was $ 28,910 for 2015 compared to $ 32,325 for 2014. adjusted ebitda was $ 31,223 and $ 33,866 for 2015 and 2014 , 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 22 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 . revenues : during 2015 , we experienced growth in our electronics and medical markets . our remaining markets were down . the 7 % decrease in sales in 2015 is primarily due to foreign currency . our sales for 2015 were comprised of 66 % to us customers and 34 % to customers primarily in europe , canada and asia . the overall decrease in revenue was due to 6 % unfavorable currency impact , and a 1 % volume decrease .
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the morag agreement contains customary non-competition and non-solicit provisions pursuant to which dr. morag agrees not to compete and solicit with the company . dr. morag also agreed to customary terms regarding confidentiality and ownership of intellectual property . indemnification agreements the company generally enters into indemnification agreements with each of its directors and executive officers . pursuant to the indemnification agreements , the company has agreed to indemnify and hold harmless these current and former directors and officers to the fullest extent permitted by the delaware general corporation law . the agreements generally cover expenses that a director or officer incurs or amounts that a director or officer becomes obligated to pay because of any proceeding to which he is made or threatened to be made a party or participant by reason of his service as a current or former director , officer , employee or agent of the company , provided that he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the company . the agreements also provide for the advancement of expenses to the directors and officers subject to specified conditions . there are certain exceptions to the company 's obligation to indemnify the directors and officers , and , with certain exceptions , with respect to proceedings that he initiates . limits on liability and indemnification we provide directors and officers insurance for our current directors and officers . our certificate of incorporation eliminate the personal liability of our directors to the fullest extent permitted by law . the certificate of incorporation further provide that the company will indemnify its officers and directors to the fullest extent permitted by law . we believe that this indemnification covers at least negligence on the part of the indemnified parties . insofar as indemnification for liabilities under the securities act may be permitted to our directors , officers , and controlling persons under the foregoing provisions or otherwise , we have been advised that in the opinion of the securities and exchange commission such indemnification is against public policy as expressed in the securities act of 1933 and is therefore unenforceable . director compensation the company adopted in january 2021 an amended compensation package for the non-management members of its board , pursuant to which each such board member would receive for his or her services $ 35,000 per annum . furthermore , each member of the audit committee of the board receives an additional $ 10,000 per annum ( $ 20,000 if chairman ) , each member of the compensation committee of the board receives an additional $ 7,500 per annum ( $ 15,000 if chairman ) and each member of the corporate governance and nominating committee of the board receives an additional $ 5,000 per annum ( $ 10,000 if chairman ) . board members are also entitled to receive equity awards . upon joining the board , a member would receive an initial grant of $ 190,000 of stock options ( calculated as the product of the exercise price on the date of grant multiplied by the number of shares underlying the stock option award required to equal $ 190,000 ) , with an additional grant of stock options each year thereafter , to purchase such number of shares of the company 's common stock equal to $ 95,000 . 63 the following table summarizes cash-based and equity compensation information for our outside directors , including annual board and committee retainer fees and meeting attendance fees , for the year ended december 31 , 2020 : replace_table_token_5_th ( 1 ) amounts shown do not reflect cash compensation actually received by the director . instead , the amounts shown are the non-cash aggregate grant date fair values of stock option awards made during the period presented as determined pursuant to asc topic 718 and excludes the effect of forfeiture assumptions . the assumptions used to calculate the fair value of stock option awards are set forth under note 9 to the consolidated financial statements of the company included in this annual report on form 10-k for the fiscal year ended december 31 , 2020 . ( 2 ) mr. waizer resigned as a director of the company effective as of june 30 , 2020. mr. gadot received compensation for his services to the company as set forth under the summary compensation table above . item 12. security ownership of certain beneficial owners and management and related stockholder matters . the following table shows the number of shares of our common stock beneficially owned , as of march 29 , 2021 , by ( i ) each of our directors and director nominees , ( ii ) each of our named executive officers , ( iii ) all of our current directors and executive officers as a group , and ( iv ) all those known by us to be to a beneficial owner of more than 5 % of the company 's common stock . in general , “ beneficial ownership ” refers to shares that an individual or entity has the power to vote or dispose of , and any rights to acquire common stock that are currently exercisable or will become exercisable within 60 days of march 29 , 2021. we calculated percentage ownership in accordance with the rules of the sec . story_separator_special_tag the cardiosert technology features a unique guidewire delivery system with steering and stiffness control capabilities which when developed is expected to give the physician the ability to control the tip curvature , to adjust tip load to varying degrees of stiffness in a gradually continuous manner . the cardiosert technology was originally developed to support interventional cardiologists in crossing chronic total occlusions ( cto ) during percutaneous coronary intervention ( pci ) procedures and has the potential to be used in other spaces and applications , such as peripheral intervention , and neurosurgery . 48 liberty on january 13 , 2020 , microbot unveiled what it believes is the world 's first fully disposable robotic system for use in endovascular interventional procedures , such as cardiovascular , peripheral and neurovascular . the liberty robotic system features a unique compact design with the capability to be operated remotely , reduce radiation exposure and physical strain to the physician , as well as the potential to eliminate the use of multiple consumables when used with its “ one & done ” capabilities , based in part on the cardiosert platform or possibly other guidewire/microcatheter technologies . on august 17 , 2020 , microbot announced the successful conclusion of its feasibility animal study using the liberty robotic system . the study met all of its end points with no intraoperative adverse events , which supports microbot 's objectives to allow physicians to conduct a catheter-based procedure from outside the catheterization laboratory ( cath-lab ) , avoiding radiation exposure , physical strain and the risk of cross contamination . the study was performed by two leading physicians in the neuro vascular and peripheral vascular intervention spaces , and the results demonstrated robust navigation capabilities , intuitive usability and accurate deployment of embolic agents , most of which was conducted remotely from the cath-lab 's control room . we are continuously exploring and evaluating additional innovative guidewire/microcatheter technologies to be integrated and combined with the liberty robotic platform . financial operations overview research and development expenses research and development expenses consist primarily of salaries and related expenses and overhead for microbot 's research , development and engineering personnel , prototype materials and research studies , obtaining and maintaining microbot 's patent portfolio . microbot expenses its research and development costs as incurred . general and administrative expenses general and administrative expenses consist primarily of the costs associated with management salaries and benefits , professional fees for accounting , auditing , consulting and legal services , and allocated overhead expenses . microbot expects that its general and administrative expenses may increase in the future as it expands its operating activities , maintains and expands its patent portfolio and maintains compliance with exchange listing and sec requirements . microbot expects these potential increases will likely include management costs , legal fees , accounting fees , directors ' and officers ' liability insurance premiums and expenses associated with investor relations . income taxes microbot has incurred net losses and has not recorded any income tax benefits for the losses . it is still in its development stage and has not yet generated revenues , therefore , it is more likely than not that sufficient taxable income will not be available for the tax losses to be fully utilized in the future . 49 critical accounting policies and significant judgments and estimates management 's discussion and analysis of microbot 's financial condition and results of operations are based on its consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of these consolidated financial statements requires microbot to make estimates and judgments that affect the reported amounts of assets , liabilities , and expenses and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements . microbot bases its estimates on historical experience , known trends and events , and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ materially from these estimates under different assumptions or conditions . while microbot 's significant accounting policies are described in more detail in the notes to its consolidated financial statements , microbot believes the following accounting policies are the most critical for fully understanding and evaluating its consolidated financial condition and results of operations . contingencies management records and discloses legal contingencies in accordance with asc topic 450 contingencies . a provision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated . the company monitors the stage of progress of its litigation matters to determine if any adjustments are required . fair value of financial instruments the company measures the fair value of certain of its financial instruments on a recurring basis . a fair value hierarchy is used to rank the quality and reliability of the information used to determine fair values . financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories : level 1 - quoted prices ( unadjusted ) in active markets for identical assets and liabilities . level 2 - inputs other than level 1 that are observable , either directly or indirectly , such as unadjusted quoted prices for similar assets and liabilities , unadjusted quoted prices in the markets that are not active , or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities . level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . 50 story_separator_special_tag and hudson bay , pursuant to which they are
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results of operations comparison of years ended december 31 , 2020 and 2019 the following table sets forth the key components of microbot 's results of operations for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_1_th research and development expenses . microbot 's research and development expenses were approximately $ 3,396,000 for the year ended december 31 , 2020 , compared to approximately $ 3,048,000 for the same period in 2019. the increase in research and development expenses of approximately $ 348,000 in 2020 was primarily due to increased salaries , professional services and patent expenses compared to the prior year . microbot expects its research and development expenses to continue to increase over time as microbot advances its development programs and begins pre-clinical and clinical trials for the scs , liberty and tipcat research programs . general and administrative expenses . general and administrative expenses were approximately $ 5,693,000 for the year ended december 31 , 2020 , compared to approximately $ 4,192,000 for the same period in 2019. the increase in general and administrative expenses of approximately $ 1,501,000 in 2020 was primarily due to increased salaries , government fees , share based compensation , insurance , and public and investor relations compared to 2019 , partially offset by a decrease in 2020 in professional services and travel expenses compared to 2019. microbot believes its general and administrative expenses may increase over time as it advances its programs , increases its headcount and operating activities and incurs expenses associated with public-company compliance . financing expenses . financing expenses were approximately $ 80,000 for the year ended december 31 , 2020 , compared to approximately $ 103,000 for the same period in 2019. the decrease in 2020 was primarily due to financing income from convertible loan offset by exchange rate differences related to lease liability contracts at microbot israel . capital gains .
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in june 2011 , millennium 's marketing authorization application , or maa , seeking regulatory approval to market adcetris for the treatment of relapsed or refractory hodgkin lymphoma and relapsed or refractory salcl in the european union was accepted by the european medicines agency , or ema , which is currently reviewing the application . under the collaboration , the company received an upfront payment of $ 60 million and the company is entitled to receive progress- and sales-dependent milestone payments based on the achievement by millennium of specific events . the company is entitled to receive tiered double-digit royalties beginning in the mid-teens and escalating to the mid-twenties story_separator_special_tag forward-looking statements the following discussion of our financial condition and results of operations contains forward-looking statements within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. forward-looking statements are based on our management 's beliefs and assumptions and on information currently available to our management . all statements other than statements of historical facts are forward-looking statements for purposes of these provisions , including those relating to future events or our future financial performance and financial guidance . in some cases , you can identify forward-looking statements by terminology such as may , might , will , should , expect , plan , anticipate , project , believe , estimate , predict , potential , intend or continue , the negative of terms like these or other comparable terminology , and other words or terms of similar meaning in connection with any discussion of future operating or financial performance . these statements are only predictions . all forward-looking statements included in this document are based on information available to us on the date hereof , and we assume no obligation to update any such forward-looking statements . any or all of our forward-looking statements in this document may turn out to be wrong . actual events or results may differ materially . our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks , uncertainties and other factors . we discuss many of these risks , uncertainties and other factors in this annual report on form 10-k in greater detail under the heading item 1arisk factors. we caution investors that our business and financial performance are subject to substantial risks and uncertainties . overview seattle genetics is a biotechnology company focused on the development and commercialization of monoclonal antibody-based therapies for cancer . on august 19 , 2011 , the u.s. food and drug administration , or fda , granted accelerated approval of adcetris tm , or brentuximab vedotin , in two indications : ( 1 ) the treatment of patients with hodgkin lymphoma after failure of autologous stem cell transplant , or asct , or after failure of at least two prior multi-agent chemotherapy regimens in patients who are not asct candidates , and ( 2 ) the treatment of patients with systemic anaplastic large cell lymphoma , or salcl , after failure of at least one prior multi-agent chemotherapy regimen . there are no data available demonstrating improvement in patient-reported outcomes or survival with adcetris . following accelerated approval of adcetris by the fda , we began to recognize product sales and cost of sales . adcetris is an antibody-drug conjugate , or adc , comprising an anti-cd30 monoclonal antibody attached by a protease-cleavable linker to a microtubule disrupting agent , monomethyl auristatin e ( mmae ) , utilizing our proprietary technology . we have a broad development strategy for adcetris evaluating its potential application in earlier lines of therapy in patients with hodgkin lymphoma and salcl and other cd30-positive malignancies . in addition , we have three clinical-stage adc programs , which consist of sgn-75 , asg-5me , and asg-22me , as well as several preclinical product candidates , including sgn-cd19a . in december 2009 , we entered into a collaboration agreement with millennium : the takeda oncology company , or millennium , to develop and commercialize adcetris . under this collaboration , seattle genetics has retained commercial rights for adcetris in the united states and its territories and in canada , and millennium has commercial rights in the rest of the world . in june 2011 , millennium 's marketing authorization application , or maa , seeking regulatory approval to market adcetris for the treatment of relapsed or refractory hodgkin lymphoma and relapsed or refractory salcl in the european union was accepted by the european medicines agency , or ema , which is currently reviewing the application . we also have collaborations for our adc technology with a number of biotechnology and pharmaceutical companies , including abbott biotechnology ltd. , or abbott ; bayer pharmaceuticals corporation , or bayer ; celldex therapeutics , inc. , or celldex ; daiichi sankyo co. , ltd. , or daiichi sankyo ; genentech , inc. , a member of the roche group , or genentech ; glaxosmithkline llc , or gsk ; millennium , pfizer , inc. , or pfizer , and psma development company llc , a subsidiary of progenics pharmaceuticals inc. , or progenics ; as well as adc co-development agreements with agensys , inc. , an affiliate of astellas pharma , inc. , or agensys , genmab a/s , or genmab , and oxford biotherapeutics ltd. , or obt . 46 we began commercializing adcetris in august 2011 and the commercial potential of and our ability to successfully commercialize adcetris is unknown . our success in commercializing adcetris will require , among other things , effective sales , marketing , manufacturing , distribution , information systems and pricing strategies , as well as compliance with applicable laws and regulations . the fda granted accelerated approval of adcetris which means that we are , among other things , obligated to conduct specific post-approval clinical studies to confirm patient benefit as a condition of that approval . story_separator_special_tag we estimated medicaid rebates based on a third party study of the payer mix for adcetris and information on utilization by medicaid-eligible patients who received assistance through seagen secure prior to completion of our mdra . in december 2011 , we also completed an interim federal supply schedule , or fss , agreement under which certain u.s. government purchasers receive a discount on their purchases of adcetris . in january 2012 , our pharmaceutical pricing agreement , or ppa , with the secretary of health and human services became effective . the ppa allows certain private entities that qualify for government pricing under the public health services act , or phs , to receive discounts on their qualified purchases of adcetris . under these agreements , distributors process a chargeback to us for the difference between wac and the discounted price for health care providers entitled to phs discounts or fss pricing . as a result of our direct-ship distribution model , we can identify the entities purchasing adcetris and this information enables us to estimate expected chargebacks for fss and phs purchases based on each entity 's eligibility for the fss and phs programs . we also review actual chargeback information to further refine these estimates . distribution fees , product returns and other deductions : our distributors charge a fee for distribution services that they perform on our behalf . we are able to calculate the actual amount due for each distributor based on the amount of sales to each distributor and the negotiated fee . we allow for the return of product that is within 30 days of its expiration date or that is damaged . we estimated product returns based on historical industry information of return rates for other specialty pharmaceutical products . in addition , we considered our direct-ship distribution model , our belief that product is typically not held in the distribution channel , and the expected rapid use of the product by healthcare providers . we provide reimbursement and financial assistance to qualifying patients that are underinsured or can not cover the cost of commercial coinsurance amounts through our patient assistance program , seagen secure . seagen secure is available to patients in the u.s. and its territories who meet various financial need criteria . estimated contributions for commercial coinsurance are deducted from gross sales . these contributions are based on an analysis of expected plan utilization and are adjusted as necessary to reflect our actual experience . 48 collaboration and license agreement revenues we use a time-based proportional performance model to recognize revenue over our performance obligation period and have adopted asu 2009-13 entitled multiple-deliverable revenue arrangements , a consensus of the fasb emerging issues task force. under this standard , payments received by us are recognized as revenue over the performance period of the collaboration . collaboration and license agreements are evaluated to determine whether the multiple elements and associated deliverables can be considered separate units of accounting . to date , the deliverables under our collaboration and license agreements have not qualified as separate units of accounting . accordingly , all amounts received or due , including any upfront payments , maintenance fees , milestones payments and reimbursement payments , are recognized as revenue over the performance obligation periods of each agreement , which range from two to fourteen years for our current agreements . thereafter , such amounts received or due will be recognized as revenue when collectibility is reasonably assured . the assessment of multiple element arrangements requires judgment in order to determine the appropriate point in time , or period of time , that revenue should be recognized . we believe that the period used in each agreement is a reasonable estimate of the performance obligation period of such agreement . we did not elect to adopt asu 2010-17 entitled milestone method of revenue recognition which was available as a policy election beginning in the first quarter of 2011. our collaboration and license agreements include contractual milestones . generally , the milestone events contained in our collaboration and license agreements coincide with the progression of the collaborators ' proprietary product candidates from development , to regulatory approval and then to commercialization and fall into the following categories . development milestones in our collaborations may include the following types of events : designation of a product candidate or initiation of pre-clinical studies . our collaborators must undertake significant pre-clinical research and studies to make a determination of a product candidate and the time from those studies or designation to initiation of a clinical trial may take several years . initiation of a phase 1 clinical trial . generally , phase 1 clinical trials take one to two years to complete . initiation or completion of a phase 2 clinical trial . generally , phase 2 clinical trials take one to three years to complete . initiation or completion of a phase 3 clinical trial . generally , phase 3 clinical trials take two to six years to complete . regulatory milestones in our collaborations may include the following types of events : filing of regulatory applications for marketing approval such as a biologics license application , or bla , in the united states or marketing authorization application in europe . generally , it takes up to twelve months to prepare and submit regulatory filings . receiving marketing approval in a major market , such as in the united states , europe or japan . generally it takes up to three years after a marketing application is submitted to obtain full approval for marketing and pricing from the applicable regulatory agency . commercialization milestones in our collaborations may include the following types of events : first commercial sale in a particular market , such as in the united states or europe . product sales in excess of a pre-specified threshold , such as annual sales exceeding $ 1 billion .
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results of operations years ended december 31 , 2011 , 2010 and 2009 net product sales we began selling adcetris following its accelerated approval by the fda on august 19 , 2011 and net product sales were $ 43.2 million in 2011. we record product sales net of estimated government-mandated rebates and chargebacks , distribution fees , product returns and other deductions . these are generally referred to as gross to net deductions . the following table summarizes our gross to net deductions , net of related payments and credits , for the period from fda approval of adcetris through december 31 , 2011 ( in thousands ) : replace_table_token_5_th we entered into a mdra in late september 2011 and we finalized our interim fss agreement in december 2011. our ppa became effective in january 2012. the ppa enables healthcare providers eligible under the public heath services act to receive discounts on their covered purchases of adcetris . as a result , only a portion of our adcetris sales were subject to government rebates and discounts during 2011. we expect our deductions from gross sales to increase in 2012 as a result of the ppa being finalized and due to the mdra and fss agreement being in effect in future periods . we expect our net product sales to increase in 2012 reflecting a full year of product sales and expected continuing adoption of adcetris by health care providers . however , due to the recent approval by the fda of adcetris in its two indications and the lack of historical sales data , adcetris sales will be difficult to predict from period to period and as a result , you should not rely on adcetris sales results in any period as being indicative of future performance and sales of adcetris .
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as of december 31 , 2014 and 2013 , there were no concentrations of loans related to any single industry in excess of 10 % of total loans other than energy loans , which totaled 16.1 % and 11.7 % of total loans , respectively . foreign loans . the corporation has u.s. dollar story_separator_special_tag forward-looking statements and factors that could affect future results certain statements contained in this annual report on form 10-k that are not statements of historical fact constitute forward-looking statements within the meaning of the private securities litigation reform act of 1995 ( the “ act ” ) , notwithstanding that such statements are not specifically identified as such . in addition , certain statements may be contained in the corporation 's future filings with the sec , in press releases , and in oral and written statements made by or with the approval of the corporation that are not statements of historical fact and constitute forward-looking statements within the meaning of the act . examples of forward-looking statements include , but are not limited to : ( i ) projections of revenues , expenses , income or loss , earnings or loss per share , the payment or nonpayment of dividends , capital structure and other financial items ; ( ii ) statements of plans , objectives and expectations of cullen/frost or its management or board of directors , including those relating to products or services ; ( iii ) statements of future economic performance ; and ( iv ) statements of assumptions underlying such statements . words such as “ believes ” , “ anticipates ” , “ expects ” , “ intends ” , “ targeted ” , “ continue ” , “ remain ” , “ will ” , “ should ” , “ may ” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements . forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements . factors that could cause actual results to differ from those discussed in the forward-looking statements include , but are not limited to : local , regional , national and international economic conditions and the impact they may have on the corporation and its customers and the corporation 's assessment of that impact . volatility and disruption in national and international financial markets . government intervention in the u.s. financial system . changes in the mix of loan geographies , sectors and types or the level of non-performing assets and charge-offs . changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements . the effects of and changes in trade and monetary and fiscal policies and laws , including the interest rate policies of the federal reserve board . inflation , interest rate , crude oil price , securities market and monetary fluctuations . the effect of changes in laws and regulations ( including laws and regulations concerning taxes , banking , securities and insurance ) with which the corporation and its subsidiaries must comply . the soundness of other financial institutions . political instability . impairment of the corporation 's goodwill or other intangible assets . acts of god or of war or terrorism . the timely development and acceptance of new products and services and perceived overall value of these products and services by users . changes in consumer spending , borrowings and savings habits . changes in the financial performance and or condition of the corporation 's borrowers . technological changes . acquisitions and integration of acquired businesses . the ability to increase market share and control expenses . the corporation 's ability to attract and retain qualified employees . changes in the competitive environment in the corporation 's markets and among banking organizations and other financial service providers . the effect of changes in accounting policies and practices , as may be adopted by the regulatory agencies , as well as the public company accounting oversight board , the financial accounting standards board and other accounting standard setters . changes in the reliability of the corporation 's vendors , internal control systems or information systems . changes in the corporation 's liquidity position . changes in the corporation 's organization , compensation and benefit plans . the costs and effects of legal and regulatory developments , the resolution of legal proceedings or regulatory or other governmental inquiries , the results of regulatory examinations or reviews and the ability to obtain required regulatory approvals . greater than expected costs or difficulties related to the integration of new products and lines of business . the corporation 's success at managing the risks involved in the foregoing items . 35 forward-looking statements speak only as of the date on which such statements are made . the corporation undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made , or to reflect the occurrence of unanticipated events . application of critical accounting policies and accounting estimates the accounting and reporting policies followed by the corporation conform , in all material respects , to accounting principles generally accepted in the united states and to general practices within the financial services industry . 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 amounts reported in the financial statements and accompanying notes . while the corporation bases estimates on historical experience , current information and other factors deemed to be relevant , actual results could differ from those estimates . story_separator_special_tag the average yield on loans was 4.34 % during 2014 compared to 4.56 % during 2013 and 4.82 % during 2012 . the average yield on loans decreased 22 basis points during 2014 compared to 2013. the average yield on loans was negatively impacted by lower average spreads due to increased competition in loan pricing during 2014 compared to 2013. furthermore , approximately 7 basis points of the decrease in the average yield on loans during 2014 was related to the aforementioned completion of the amortization of the deferred accumulated gain applicable to the settled interest rate swap contracts in october 2014. the amortization of the deferred accumulated gain positively impacted the corporation 's average yield on loans by 30 basis points in 2014 , 40 basis points in 2013 and 45 basis points in 2012. in an effort to offset the loss of the amortization and its positive effect on the corporation 's net interest income , the corporation utilized $ 840 million in excess liquidity to purchase municipal securities during the third and fourth quarters of 2014. the higher yields associated with these securities relative to the yield that would have been received had these funds continued to be held as interest-bearing deposits and federal funds sold is expected to replace the revenue stream from the amortization of the deferred accumulated gain applicable to the settled interest rate swaps so that the corporation 's net interest income is not significantly impacted . the average volume of securities increased $ 474.7 million , or 5.3 % , in 2014 compared to 2013 and did not significantly fluctuate during 2013 compared to 2012 . securities made up approximately 39.3 % of average interest-earning assets in 2014 compared to 42.4 % in 2013 and 47.0 % in 2012 . the average yield on securities was 3.96 % in 2014 compared to 3.48 % in 2013 and 3.31 % in 2012 . the average yield on securities increased 48 basis points during 2014 compared to 2013 as the corporation increased the relative proportion of investments held in higher-yielding , tax-exempt municipal securities . the relative proportion of higher-yielding , tax-exempt municipal securities to total average securities totaled 52.6 % in 2014 compared to 40.7 % in 2013 and 27.4 % in 2012 . the average yield on taxable securities was 2.14 % in 2014 compared to 1.90 % in 2013 and 2.10 % in 2012 , while the average taxable-equivalent yield on tax-exempt securities was 5.58 % in 2014 compared to 5.75 % in 2013 and 6.68 % in 2012 . average federal funds sold , resell agreements and interest-bearing deposits during 2014 increased $ 1.3 billion , or 46.8 % , compared to 2013 and increased $ 1.3 billion , or 77.6 % , in 2013 compared to 2012 . federal funds sold , resell agreements and interest-bearing deposits made up approximately 17.6 % of average interest-earning assets in 2014 compared to approximately 13.7 % in 2013 and 8.5 % in 2012 . the combined average yield on federal funds sold , resell agreements and interest-bearing deposits was 0.26 % in both 2014 and 2013 and 0.27 % in 2012 . the increases in average federal funds sold , resell agreements and interest-bearing deposits for the periods reported were primarily related to excess liquidity from deposit growth . average deposits increased $ 2.8 billion , or 14.5 % , in 2014 compared to 2013 and $ 2.0 billion , or 11.4 % , in 2013 compared to 2012 . average deposits in 2014 were impacted by the acquisition of $ 1.6 billion in deposits in connection with the acquisition of wnb during the second quarter of 2014. average interest-bearing deposits increased $ 1.3 billion in 2014 compared to 2013 and $ 1.3 billion in 2013 compared to 2012 , while average non-interest-bearing deposits increased $ 1.5 billion in 2014 compared to 2013 and $ 635.8 million in 2013 compared to 2012 . the ratio of average interest-bearing deposits to total average deposits was 58.6 % in 2014 compared to 60.3 % in 2013 and 59.4 % in 2012 . the average cost of interest-bearing deposits and total deposits was 0.09 % and 0.05 % in 2014 compared to 0.12 % and 0.08 % in 2013 and 0.18 % and 0.10 % in 2012 . the decrease in the average cost of interest-bearing deposits during the comparable periods was primarily the result of decreases in interest rates offered on certain deposit products due to 40 decreases in average market interest rates and decreases in renewal interest rates on maturing certificates of deposit given the current low interest rate environment . additionally , the relative proportion of higher-cost certificates of deposit to total average interest-bearing deposits decreased to 7.5 % in 2014 from 8.4 % in 2013 and 10.0 % in 2012 . the corporation 's net interest spread , which represents the difference between the average rate earned on earning assets and the average rate paid on interest-bearing liabilities , was 3.36 % in 2014 compared to 3.34 % in 2013 and 3.49 % in 2012 . the net interest spread , as well as the net interest margin , will be impacted by future changes in short-term and long-term interest rate levels , as well as the impact from the competitive environment . a discussion of the effects of changing interest rates on net interest income is set forth in item 7a . quantitative and qualitative disclosures about market risk included elsewhere in this report . the corporation 's hedging policies permit the use of various derivative financial instruments , including interest rate swaps , swaptions , caps and floors , to manage exposure to changes in interest rates . details of the corporation 's derivatives and hedging activities are set forth in note 16 - derivative financial instruments in the accompanying notes to consolidated financial statements included elsewhere in this report . information regarding the impact of fluctuations in interest rates on the corporation 's derivative financial instruments is set forth in item 7a .
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results of operations net income available to common shareholders totaled $ 269.9 million , or $ 4.29 diluted per common share , in 2014 compared to $ 231.1 million , or $ 3.80 diluted per common share , in 2013 and $ 238.0 million , or $ 3.86 diluted per common share , in 2012 . during the second quarter of 2014 , the corporation acquired wnb bancshares , inc. ( “ wnb ” ) . accordingly , the operating results of wnb are included with the corporation 's results of operations since may 30 , 2014. see note 2 - mergers and acquisitions in the accompanying consolidated financial statements . selected income statement data , returns on average assets and average equity and dividends per share for the comparable periods were as follows : replace_table_token_7_th net income available to common shareholders increased $ 38.8 million for 2014 compared to 2013 . the increase was primarily the result of a $ 66.4 million increase in net interest income , a $ 17.3 million increase in non-interest income and a $ 4.3 million decrease in the provision for loan losses partly offset by a $ 42.8 million increase in non-interest expense , a $ 5.0 million increase in income tax expense and a $ 1.3 million increase in preferred stock dividends . net income available to common shareholders decreased $ 6.8 million for 2013 compared to 2012 . the decrease was primarily the result of a $ 36.8 million increase in non-interest expense , a $ 10.5 million increase in the provision for loan losses and $ 6.7 million related to preferred stock dividends partly offset by a $ 17.5 million decrease in income tax expense , a $ 15.7 million increase in net interest income and a $ 14.0 million increase in non-interest income .
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business and executive overview we are a global company that delivers innovative , advanced high-performance networking technologies and internet connected products to consumers , businesses , and service providers . our products are designed to simplify and improve people 's lives . our goal is to enable people to collaborate and connect to a world of information and entertainment . we are dedicated to delivering innovative and advanced connected solutions ranging from mobile and cloud-based services for enhanced control and security , to smart networking products , video over ethernet for pro av applications , easy-to-use wifi solutions and performance gaming routers to enhance console , online and cloud game play . our products are built on a variety of technologies such as wireless ( wifi and 4g/5g mobile ) , ethernet and powerline , with a focus on reliability and ease-of-use . additionally , we continually invest in research and development to create new technologies and to capitalize on technological inflection points and trends , such as wifi 6 , 5g and pro av . our product lines consist of devices that create and extend wired and wireless networks , devices that attach to the network , such as smart digital canvasses as well as services that complement and enhance our product line offerings . these products are available in multiple configurations to address the changing needs of our customers in each geographic region . on february 6 , 2018 , we announced that the board of directors had unanimously approved the pursuit of a separation of our smart camera business , arlo , from netgear ( the “ separation ” ) to be effected by way of an initial public offering ( `` ipo '' ) and spin-off ( `` the spin-off '' ) . on december 31 , 2018 , we completed the spin-off of arlo technologies , inc. ( “ arlo ” ) , a majority owned subsidiary and reporting segment of netgear at the time . arlo 's historical financial results for periods prior to the spin-off are reflected in our consolidated financial statements as discontinued operations for the periods presented . for further details , refer to note 3 , discontinued operations , in notes to consolidated financial statements in item 8 of part ii of this annual report on form 10-k. we operate and report in two segments : connected home , and small and medium business ( `` smb '' ) . we believe that this structure reflects our current operational and financial management , and that it provides the best structure for us to focus on growth opportunities while maintaining financial discipline . the leadership team of each segment is focused on product and service development efforts , both from a product marketing and engineering standpoint , to service the unique needs of their customers . the connected home segment is focused on consumers and consists of high-performance , dependable and easy-to-use wifi internet networking solutions such as wifi mesh systems , routers , 4g/5g mobile products , smart devices such as meural digital canvasses , and subscription services , offering consumers a range of parental controls and cyber security for their home networks . the smb segment is focused on small and medium-sized businesses and consists of business networking , wireless lan , storage , and security solutions that bring enterprise-class functionality to small and medium-sized businesses at an affordable price . we conduct business across three geographic regions : americas ; europe , middle-east and africa ( “ emea ” ) and asia pacific ( “ apac ” ) . business overview the markets in which our segments operate are intensely competitive and subject to rapid technological change . we believe that the principal competitive factors in the consumer and small and medium business markets for networking products include product breadth , price points , size and scope of the sales channel , brand name , timeliness of new product introductions , product availability , performance , features , functionality and reliability , ease-of-installation , maintenance and use , security , and customer service and support . to remain competitive , we believe we must continue to aggressively invest resources in developing new products and subscription services , enhancing our current products , expanding our channels including our direct to consumer capabilities , increasing engagement with our customers and maintaining customer satisfaction worldwide . our investments reflect our enhanced focus on cybersecurity relating to our products and systems , as the threat of cyber-attacks and exploitation of potential security vulnerabilities in our industry is on the rise and is increasingly a significant consumer concern . 51 we sell our products through multiple sales channels worldwide , including traditional retailers , online retailers , wholesale distributors , direct market resellers ( “ dmrs ” ) , value-added resellers ( “ vars ” ) , broadband service providers and through our online platform at www.netgear.com . our retail channel includes traditional retail locations domestically and internationally , such as best buy , costco , wal m art , staples , office depot , target , fnac ( europe ) , mediamarkt ( europe ) , jb hifi ( australia ) , elkjop ( norway ) and sunning and guomei ( china ) . online retailers include amazon.com worldwide , newegg.com ( u . s . ) , jd.com and alibaba ( china ) , as well as coolblue.com ( netherlands ) . our dmrs include cdw corporation , insight corporation and pc connection in domestic markets . our main wholesale distributors include ingram micro , d & h , tech data , exertis ( u.k. ) and synnex . in addition , we also sell our products through broadband service providers , such as multiple system operators ( “ msos ” ) , xdsl , mobile , and other broadband technology operators domestically and internationally . some of these retailers and broadband service providers purchase directly from us , while others are fulfilled through wholesale distributors around the world . story_separator_special_tag the extent of the impact of the covid-19 pandemic on our ongoing operational and financial performance , including our ability to execute our business strategies and initiatives in the expected time frame , will depend on future developments , including the duration of the pandemic , any related disruptions to channel partners and restrictions on travel and transport , all of which are uncertain and can not be predicted . the impact of the pandemic on our employees , their health and well-being and our ability to continue to instill our company culture and maintain productivity is uncertain and can not be predicted . with the increase in work from home and distance learning mandates since the commencement of the pandemic , we believe we will continue to see a move to greater participation by companies and employees in remote working and learning increasing the demand for high performance , dependable wifi networks . refer to item 1a , risk factors , of part i of this annual report on form 10-k for various risks and uncertainties associated with the covid-19 pandemic . critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america and pursuant to the rules and regulations of the u.s. securities and exchange commission ( `` sec '' ) . the preparation of these financial statements requires management to make assumptions , judgments and estimates that can have a significant impact on the reported amounts of assets , liabilities , revenues and expenses . we base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances . actual results could differ significantly from these estimates . these estimates may change as new events occur , as additional information is obtained and as our operating environment changes . on a regular basis we evaluate our assumptions , judgments and estimates and make changes accordingly . we also discuss our critical accounting estimates with the audit committee of the board of directors . note 1 , the company and summary of significant accounting policies , in notes to consolidated financial statements in item 8 of part ii of this annual report on form 10-k describes the significant accounting policies used in the preparation of the consolidated financial statements . we have listed below our critical accounting policies that we believe to have the greatest potential impact on our consolidated financial statements . historically , our assumptions , judgments and estimates relative to our critical accounting policies have not differed materially from actual results . revenue recognition we enter into contracts with customers to sell products and services , and while some sales agreements contain standard terms and conditions , there are agreements that contain non-standard terms and conditions and include promises to transfer multiple goods or services . as a result , significant interpretation and judgment is sometimes required to determine the appropriate accounting for these transactions including : ( 1 ) whether performance obligations are considered distinct and required to be accounted for separately or combined , including allocation of 53 transaction price ; ( 2 ) developing an estimate of the stand-alone selling price , or ssp , of each distinct performance obligation ; ( 3 ) combining contracts that may impact the allocation of the transaction price between product and services ; and ( 4 ) estimating and accounting for variable consideration , including rights of return , rebates , price protection , expected penalties or other price concessions as a reduction of the transaction price . judgment is required to determine the ssp for each distinct performance obligation . we consider multiple factors , including , but not limited to , historical discounting trends for products and services , pricing practices in different geographies and through different sales channels , gross margin objectives , internal costs , competitor pricing strategies , and industry technology lifecycles . we typically estimate ssp of services based on observable transactions when the services are sold on a standalone basis and those prices fall within a reasonable range . as our business offerings evolve over time , we may be required to modify our estimated standalone selling prices , and as a result the pattern and timing of our revenue could be affected . our standard obligation to our direct customers generally provides for a full refund in the event that such product is not merchantable or is found to be damaged or defective . in determining estimates for future returns , we estimate variable consideration at the expected value amount which is based on management 's analysis of historical data , channel inventory levels , current economic trends and changes in customer demand for our products . sales incentives and price protection are determined based on a combination of the actual amounts committed and through estimating future expenditure based upon historical customary business practice . we continue to assess variable consideration estimates such that it is probable that a significant reversal of revenue will not occur . we record revenue at the transaction price , net of allowances for customer right of returns , program and sales incentive offerings , price protection , promotions and other credits , which are accounted for as variable consideration . variable consideration includes future channel warranty returns typically incurred due to buyer 's remorse , stock rotations , price protection and sales channel incentive programs . future channel warranty returns are recorded as a reduction of revenue in the amount of the expected credit or refund to be provided . at the time we record the reduction to revenue , we include within cost of revenue a write-down to reduce the carrying value of such products to net realizable value . in addition to channel warranty-related returns , certain distributors and retailers generally have the right to return product for stock rotation purposes .
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results of operations the following table sets forth , for the periods presented , the consolidated statements of continuing operations data , which is derived from the accompanying consolidated financial statements : replace_table_token_5_th net revenue by geographic region our net revenue consists of gross product shipments and service revenue , less allowances for estimated sales returns , price protection , end-user customer rebates and other channel sales incentives deemed to be a reduction of net revenue per the authoritative guidance for revenue recognition , and net changes in deferred revenue . we conduct business across three geographic regions : americas , emea and apac . for reporting purposes , revenue is generally attributed to each geographic region based upon the location of the customer . replace_table_token_6_th 2020 vs 2019 net revenue in americas increased for the year ended december 31 , 2020 , compared to the prior year , largely due to increased demand for our connected home products in response to work and schooling from home mandates resulting from the covid-19 pandemic . the surge in demand that began in march 2020 continued throughout the fiscal year and resulted in strong growth in both the consumer and service provider channels . the increase was partially offset by lower smb net revenue as the pandemic negatively impacted demand in the smb segment , partially due to enforced business closures and delays to infrastructure investment experienced in the second and third fiscal quarters of 2020. connected home net revenue in americas increased by 48.8 % for the year ended december 31 , 2020 , compared to the prior year . we experienced strong consumer demand for our home wireless 57 products , especially wifi 6 mesh systems , wifi 6 routers and extenders across all channels , including our own direct platforms on netgear.com .
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72 cedar realty trust , inc. notes to consolidated financial statements december 31 , 2014 the following is a summary of the components of income related to the company 's investment in the cedar/riocan unconsolidated joint venture : replace_table_token_40_th note 6. fair value measurements the carrying amounts of cash and cash equivalents , restricted cash , rents and other receivables , certain other assets , accounts story_separator_special_tag the following discussion should be read in conjunction with the company 's consolidated financial statements and related notes thereto included elsewhere in this report . executive summary cedar realty trust , inc. ( the company ) is a fully-integrated real estate investment trust that focuses primarily on ownership and operation of grocery-anchored shopping centers straddling the washington dc to boston corridor . at december 31 , 2014 , the company owned and managed a portfolio of 59 operating properties ( excluding properties held for sale/conveyance ) totaling approximately 9.2 million square feet of gross leasable area ( gla ) . the portfolio was 93.3 % leased and 92.9 % occupied at december 31 , 2014. the company , organized as a maryland corporation , has established an umbrella partnership structure through the contribution of substantially all of its assets to cedar realty trust partnership l.p. ( the operating partnership ) , organized as a limited partnership under the laws of delaware . the company conducts substantially all of its business through the operating partnership . at december 31 , 2014 , the company owned 99.5 % of the operating partnership and is its sole general partner . the 393,000 limited operating partnership units ( op units ) are economically equivalent to the company 's common stock and are convertible into the company 's common stock at the option of the holders on a one-to-one basis . the company derives substantially all of its revenues from rents and operating expense reimbursements received pursuant to long-term leases . the company 's operating results therefore depend on the ability of its tenants to make the payments required by the terms of their leases . the company focuses its investment activities on grocery-anchored shopping centers . the company believes that , because of the need of consumers to purchase food and other staple goods and services generally available at such centers , its type of necessities-based properties should provide relatively stable revenue flows even during difficult economic times . significant transactions - 2014 acquisition on march 21 , 2014 , the company acquired quartermaster plaza located in philadelphia , pennsylvania . the purchase price for the property was approximately $ 92.3 million , of which approximately $ 53.4 million was funded from the assumption of ( 1 ) a $ 42.1 million mortgage loan payable , bearing interest at the rate of 5.3 % per annum and maturing in october 2015 , and ( 2 ) an $ 11.3 million mortgage loan payable , bearing interest at the rate of 5.5 % per annum and payable in october 2014 ( repaid in june 2014 ) , with the remainder being funded from the company 's unsecured revolving credit facility . the company incurred costs of $ 2.9 million in connection with this acquisition . 30 dispositions during 2014 , the company sold or conveyed the following properties : replace_table_token_15_th ( a ) lender accepted a deed-in-lieu of foreclosure on the property . sales price represents mortgage loan payable , accrued interest and other expenses forgiven upon title transfer . debt on february 11 , 2014 , the company closed $ 150 million of unsecured term loans consisting of a five-year $ 75 million term loan , all of which was borrowed at closing , maturing on february 11 , 2019 , and a seven-year $ 75 million term loan , all of which was borrowed on june 24 , 2014 , maturing on february 11 , 2021. see liquidity and capital resources below for additional details . 31 during 2014 , the company repaid the following mortgage loans payable : replace_table_token_16_th equity in january 2014 , the company concluded a public offering of 6,900,000 shares of its common stock ( including 900,000 shares relating to the exercise of an over-allotment option by the underwriters ) , and realized net proceeds , after offering expenses , of approximately $ 41.3 million . the company has at-the-market offering programs , under which it may offer and sell , from time-to-time , shares of its common and preferred stock . during 2014 , there were no shares sold under these programs . significant transactions early 2015 on january 12 , 2015 , the company concluded a public offering of 5,750,000 shares of its common stock ( including 750,000 shares relating to the exercise of an over-allotment option by the underwriters ) , and realized net proceeds , after offering expenses , of approximately $ 41.9 million . on february 5 , 2015 , the company amended its existing $ 310 million unsecured credit facility . in addition , the company closed $ 100 million of new unsecured term loans . see liquidity and capital resources below for additional details . summary of critical accounting policies the preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the united states ( gaap ) requires the company to make estimates and judgments that affect the reported amounts of assets and liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on an ongoing basis , 32 management evaluates its estimates , including those related to revenue recognition and the allowance for doubtful accounts receivable , real estate investments and purchase accounting allocations related thereto , asset impairment , and derivatives used to hedge interest-rate risks . management 's estimates are based both on information that is currently available and on various other assumptions management believes to be reasonable under the circumstances . actual results could differ from those estimates and those estimates could be different under varying assumptions or conditions . story_separator_special_tag the portion of the values of the leases associated with below-market renewal options that are likely of exercise are amortized to rental income over the respective renewal periods . the value of other intangible assets ( including leasing commissions , tenant improvements , etc . ) is amortized to expense over the applicable terms of the respective leases . if a lease were to be terminated prior to its stated expiration or not renewed , all unamortized amounts relating to that lease would be recognized in operations at that time . management is required to make subjective assessments in connection with its valuation of real estate acquisitions . these assessments have a direct impact on net income , because ( 1 ) above-market and below-market lease intangibles are amortized to rental income , and ( 2 ) the 34 value of other intangibles is amortized to expense . accordingly , higher allocations to below-market lease liability and other intangibles would result in higher rental income and amortization expense , whereas lower allocations to below-market lease liability and other intangibles would result in lower rental income and amortization expense . management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable . the review of recoverability is based on an estimate of the future cash flows that are expected to result from the real estate investment 's use and eventual disposition . these estimates of cash flows consider factors such as expected future operating income , trends and prospects , as well as the effects of leasing demand , competition and other factors . if an impairment event exists due to the projected inability to recover the carrying value of a real estate investment , an impairment loss is recorded to the extent that the carrying value exceeds estimated fair value . a real estate investment held for sale is carried at the lower of its carrying amount or estimated fair value , less the cost of a potential sale . depreciation and amortization are suspended during the period the property is held for sale . management is required to make subjective assessments as to whether there are impairments in the value of its real estate properties . these assessments have a direct impact on net income , because an impairment loss is recognized in the period that the assessment is made . new accounting pronouncements see note 2 of notes to consolidated financial statements included in item 8 below for information relating to new accounting pronouncements . 35 story_separator_special_tag ( 1 ) the $ 4.4 million write-off of the aforementioned loan receivable , and ( 2 ) $ 1.1 million of impairments relating to certain land parcels treated as held for sale/conveyance . interest expense was lower primarily as a result of ( 1 ) $ 4.0 million as a result of a lower weighted average interest rate , and ( 2 ) $ 0.3 million relating to a decrease in amortization expense of deferred financing costs , partially offset by a ( 1 ) a $ 0.4 million decrease in capitalized interest , and ( 2 ) a $ 0.2 million increase due to the overall outstanding principal balance of debt . early extinguishment of debt costs in 2013 relate to the write-off of unamortized fees associated with prepaid mortgage loans payable . early extinguishment of debt costs in 2012 relates to the write-off of unamortized fees associated with the company 's terminated stabilized property and development property credit facilities . equity in income of unconsolidated joint venture in 2012 relates to the cedar/riocan joint venture , which the company exited in october 2012. gain on exit from unconsolidated joint venture in 2012 relates to the exit from the cedar/riocan joint venture . discontinued operations for 2013 and 2012 include the results of operations , impairment charges , net , gain on extinguishment of debt obligations , and gain on sales for properties sold or treated as discontinued operations on or before december 31 , 2013 , as more fully discussed elsewhere in this report . 39 same-property net operating income same-property net operating income ( same-property noi ) is a widely-used non-gaap financial measure for reits that the company believes , when considered with financial statements prepared in accordance with gaap , is useful to investors as it provides an indication of the recurring cash generated by the company 's properties by excluding certain non-cash revenues and expenses , as well as other infrequent items such as lease termination income which tends to fluctuate more than rents from year to year . properties are included in same-property noi if they are owned and operated for the entirety of both periods being compared , except for properties undergoing significant redevelopment and expansion until such properties have stabilized , and properties classified as held for sale/conveyance . consistent with the capital treatment of such costs under gaap , tenant improvements , leasing commissions and other direct leasing costs are excluded from same-property noi . same-property noi should not be considered as an alternative to net income prepared in accordance with gaap or as a measure of liquidity . further , same-property noi is a measure for which there is no standard industry definition and , as such , it is not consistently defined or reported on among the company 's peers , and thus may not provide an adequate basis for comparison between reits . the following table reconciles same-property noi to the company 's consolidated operating income : replace_table_token_19_th 40 same-property noi for the comparative periods increased by 1.8 % . the results reflect an increase in average base rent of $ 0.16 per square foot , partially offset by a reduction in occupancy of 50 basis points ( bps ) . same-property noi increased 1.2 % excluding the re-tenanting impact from replacing the dark anchor at oakland commons with a walmart neighborhood market .
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results of operations comparison of 2014 to 2013 replace_table_token_17_th revenues were higher primarily as a result of ( 1 ) an increase of $ 8.9 million in rental revenues and expense recoveries for properties acquired in the first quarter of 2014 and the fourth quarter of 2013 , ( 2 ) an increase of $ 1.4 million in rental revenues and expense recoveries at the company 's same-property portfolio , and ( 3 ) an increase of $ 0.6 million in rental revenues and expense recoveries at the company 's redevelopment properties , partially offset by ( 1 ) a decrease of $ 2.0 million in rental revenues and expense recoveries at properties classified in 2014 as real estate held for sale/conveyance , both sold and still held for sale , and ( 2 ) a decrease of $ 0.2 million in management fee income related to the cedar/riocan joint venture ; the management agreement was terminated effective january 31 , 2013. property operating expenses were higher primarily as a result of ( 1 ) an increase of $ 1.5 million in property operating expenses at properties acquired in the first quarter of 2014 and the fourth quarter of 2013 , ( 2 ) a $ 0.7 million increase in snow removal costs , and ( 3 ) a $ 0.6 million increase in other operating expenses , primarily repairs and maintenance and non-billable expenses . 36 acquisition costs in 2014 relate to the purchase of quartermaster plaza , located in philadelphia , pennsylvania . acquisition costs in 2013 relate to the purchase of big y shopping center , located in fairfield county , connecticut .
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the company distributes electronic components to original equipment manufacturers ( “ oems ” ) and contract manufacturers ( “ cms ” ) through its global components business segment and provides enterprise computing solutions to value-added resellers ( “ vars ” ) and managed service providers ( “ msps ” ) through its global ecs business segment . for 2020 , approximately 72 % of the company 's sales were from the global components business segment and approximately 28 % of the company 's sales were from the global ecs business segment . the company 's financial objectives are to grow sales faster than the market , increase the markets served , grow profits faster than sales , and increase return on invested capital . to achieve its objectives , the company seeks to capture significant opportunities to grow across products , markets , and geographies . to supplement its organic growth strategy , the company continually evaluates strategic acquisitions to broaden its product and value-added service offerings , increase its market penetration , and expand its geographic reach . story_separator_special_tag among others . these future developments are highly uncertain and can not be predicted with confidence . the global economic impact from covid-19 may adversely affect the company 's results of operations in the future and may affect the credit condition of some of our customers , which could increase delays in customer payments and credit losses . certain non-gaap financial information in addition to disclosing financial results that are determined in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) , the company also discloses certain non-gaap financial information , including : non-gaap sales for the consolidated company , global components , and global ecs , non-gaap gross profit , and non-gaap operating expenses exclude the impact of changes in foreign currencies ( referred to as `` changes in foreign currencies '' ) by re-translating prior period results at current period foreign exchange rates , the impact of dispositions by adjusting the company 's operating results for businesses disposed , as if the dispositions had occurred at the beginning of the earliest period presented ( referred to as `` dispositions '' ) , the impact of the company 's personal computer and mobility asset disposition business ( referred to as `` wind down '' ) , the impact of inventory write-downs and recoveries related to the digital business ( referred to as “ digital inventory write-downs , net ” ) , and the impact of notes receivable reserves and recoveries and inventory write-downs related to the afs business ( referred to as “ afs notes receivable reserves and recoveries ” and “ afs inventory write-downs ” , respectively ) . non-gaap operating income excludes identifiable intangible asset amortization , restructuring , integration , and other charges ( credits ) , loss on disposition of businesses , net , afs notes receivable reserves and recoveries and inventory write-downs , digital inventory write-downs , net , the impact of non-cash charges related to goodwill , trade names , and long-lived assets , and the impact of wind down . non-gaap net income attributable to shareholders excludes identifiable intangible asset amortization , restructuring , integration , and other charges ( credits ) , loss on disposition of businesses , net , afs notes receivable reserves and recoveries and inventory write-downs , digital inventory write-downs , net , gains and losses on investments , net , the impact of non-cash charges related to goodwill , trade names , and long-lived assets , certain tax adjustments , pension settlement ( gain ) loss , and the impact of wind down . management believes that providing this additional information is useful to the reader , as a supplement to the gaap measures , to better assess and understand the company 's operating performance , especially when comparing results with previous periods . management typically monitors these non-gaap measures in addition to gaap results to understand and compare operating results across accounting periods for forecasting purposes , operating plans , and evaluating our financial performance . however , analysis of results on a non-gaap basis should be used as a complement to , and in conjunction with , data presented in accordance with gaap . 24 sales substantially all of the company 's sales are made on an order-by-order basis , rather than through long-term sales contracts . as such , the nature of the company 's business does not provide for the visibility of material forward-looking information from its customers and suppliers beyond a few months . following is an analysis of net sales by reportable segment for the years ended december 31 ( in millions ) : replace_table_token_5_th * the sum of the components for sales , as reported , and non-gaap sales may not agree to totals , as presented , due to rounding . consolidated sales for 2020 decreased by $ 243.5 million , or 0.8 % , compared with the year-earlier period . the decrease in 2020 was driven by a decrease in global ecs business segment sales of $ 495.4 million , or 5.7 % , partially offset by an increase in global components business segment sales of $ 252.0 million , or 1.2 % , compared with the year-earlier period . non-gaap consolidated sales decreased 0.4 % in 2020 , compared with the year-earlier period . compared with the year-earlier period , global components business segment sales for 2020 increased $ 252.0 million , or 1.2 % , as reported . increases were primarily due to stronger demand in the asia-pacific region , offset by lower sales volumes in the americas and europe , the middle east , and africa ( `` emea '' ) regions , as well as the impact of wind down . non-gaap global components sales increased 2.1 % in 2020 , compared with the year-earlier period . compared with the year-earlier period , global ecs business segment sales for 2020 decreased $ 495.4 million , or 5.7 % , as reported . story_separator_special_tag million related to initiatives taken by the company during 2020 to improve operating efficiencies and personnel charges of $ 3.4 million related to the operating expense reduction program previously disclosed in july 2019 . 2019 charges the company recorded restructuring , integration , and other charges of $ 89.8 million , which includes $ 22.3 million related to initiatives taken by the company during 2019 to improve operating efficiencies and personnel charges of $ 46.0 million related to the operating expense reduction program previously disclosed in july 2019. as of december 31 , 2020 , the company does not anticipate there will be any material adjustments relating to the aforementioned restructuring and integration plans . refer to note 9 , “ restructuring , integration , and other charges ” of the notes to the consolidated financial statements for further discussion of the company 's restructuring and integration activities . loss on disposition of businesses , net during 2019 , the company recorded a loss on disposition of businesses , net of $ 21.3 million primarily related to the reclassification of cumulative translation adjustment to earnings upon the sale of three businesses which were part of the company 's personal computer and mobility asset disposition business . 27 operating income following is an analysis of operating income for the years ended december 31 ( in millions ) : replace_table_token_8_th * amounts presented for restructuring , integration , and other charges , goodwill and other impairments , loss on disposition of businesses , net , and identifiable intangible amortization exclude amounts related to the personal computer and mobility asset disposition business , which are reported within the impact of wind down . * * the sum of the components for non-gaap consolidated operating income may not agree to totals , as presented , due to rounding . the company recorded operating income of $ 894.5 million , or 3.1 % of sales , in 2020 compared with operating income of $ 107.7 million , or 0.4 % of sales , in the year-earlier period . non-gaap operating income was $ 936.9 million , or 3.3 % of sales , in 2020 compared with non-gaap operating income of $ 1.1 billion , or 3.7 % of sales , in the year-earlier period . non-gaap operating income decreased 11.3 % compared with the year-earlier period , on a sales decrease of 0.8 % . non-gaap operating income , as a percentage of sales , decreased 40 bps for 2020 primarily due to the decreases in sales across both the global components and global ecs businesses , the impact to gross profit resulting from a shift in regional mix , and reserves and other adjustments related to foreign tax and other loss contingencies within the global ecs business . these reserves are principally associated with transactional taxes on activity from several prior years , not significant to any one year . these operating margin declines were partially offset by a reduction in operating costs and corporate overhead due to the operating expense reduction program ( refer to note 9 ) , as well as a reduction in travel related expenses in 2020. pension settlements in 2019 , the company entered into a settlement for the remaining portion of its wyle defined benefit plan under which participants received benefits through lump sum payments and an insurance annuity contract . the settlement of $ 59.3 million was completed during october 2019 , at which time the company recorded settlement expense of $ 20.1 million in the “ employee benefit plan expense , net ” line item in the company 's consolidated statements of operations . prior to terminating the plan , the company adopted an amendment to the plan that provided eligible plan participants with the option to receive an early distribution of their pension benefits . the company has terminated the plan to reduce administrative burdens . interest and other financing expense , net the company recorded net interest and other financing expense of $ 137.2 million for 2020 , compared with $ 203.7 million in the year-earlier period . the decrease for 2020 primarily relates to lower borrowings and interest rates on short term credit facilities , offset partially by decreased interest income . the decrease in interest income is primarily attributable to lower average cash balances and lower interest rates within the company 's cash pooling arrangements . income tax for the year ended december 31 , 2020 , the company recorded provision for income taxes of $ 172.8 million , an effective tax rate of 22.8 % . the company 's provision for income taxes and effective tax rates are impacted by the previously discussed identifiable intangible asset amortization , restructuring , integration , and other charges , gain on investment , net , afs notes receivable recoveries , impairments of long-lived assets , the impact of wind down , pension settlement gain , and the impact of 28 tax legislation changes and other non-recurring tax adjustments . excluding the impact of the aforementioned items , the company 's non-gaap effective tax rate for 2020 was 22.9 % . included in the 2020 effective tax rate are approximately $ 7.4 million in discrete tax items related to the foreign tax and other loss contingencies . for the year ended december 31 , 2019 , the company recorded provision for income taxes of $ 88.3 million , equivalent to an effective tax rate of ( 79.0 ) % . the company 's provision for income taxes and effective tax rates are impacted by the previously discussed restructuring , integration , and other charges , identifiable intangible asset amortization , loss on disposition of businesses , net , the impact of tax legislation changes and other non-recurring tax adjustments , gain on investments , net , afs reserves and recoveries , digital inventory write-downs , net , impairments of goodwill and other long-lived assets , pension settlement loss , certain other tax adjustments , and the impact of the wind down . excluding the impact of the aforementioned items , the company 's non-gaap effective tax rate for 2019 was 24.3 % .
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executive summary consolidated sales for 2020 decreased by 0.8 % compared with the year-earlier period . the decrease for 2020 was driven by a 5.7 % decrease in global ecs business segment sales offset by a 1.2 % increase in the global components business segment sales . adjusted for the change in foreign currencies , dispositions , and the closure of the company 's personal computer and mobility asset disposition business ( referred to as `` impact of wind down '' ) , non-gaap consolidated sales decreased 0.4 % in 2020 compared with the year-earlier period . the company reported net income attributable to shareholders of $ 584.4 million in 2020 compared with a net loss of $ 204.1 million in the year-earlier period . the following items impacted the comparability of the company 's results for the years ended december 31 , 2020 and 2019 ( all amounts are before tax except for amounts related to the effects of tax changes ) : restructuring , integration , and other charges of $ 13.3 million in 2020 and $ 78.4 million in 2019 ; identifiable intangible asset amortization of $ 38.4 million in 2020 and $ 42.4 million in 2019 ; impairments of long-lived assets of $ 7.2 million in 2020 and impairments of goodwill and other long-lived assets of $ 623.8 million in 2019 ; income from wind down of business of $ 14.7 million in 2020 and losses from wind down of business of $ 162.4 million , inclusive of $ 74.9 million of impairments of long-lived assets in 2019 ; arrow financing solutions ( `` afs '' ) notes receivable recoveries of $ 1.8 million in 2020 and afs notes receivable reserves and inventory write-downs of $ 18.0 million in 2019 ; net gain on investments of $ 5.3 million in 2020 and $ 11.8 million in 2019 ; tax benefit of $ 1.3 million in 2020 and tax expense of $ 1.7 million in 2019 related to legislation changes and other
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this financial and business analysis should be read in conjunction with the consolidated financial statements and related notes . all references to “ notes ” in this item 7 refer to the notes to consolidated financial statements included in item 8 of this annual report . the following discussion and certain other sections of this annual report on form 10-k contain statements reflecting the company 's views about its future performance that constitute “ forward-looking statements ” under the private securities litigation reform act of 1995. these forward-looking statements are based on current expectations , estimates , forecasts and projections about the industry and markets in which the company operates as well as management 's beliefs and assumptions . any statements contained herein ( including without limitation statements to the effect that stanley black & decker , inc. or its management “ believes , ” “ expects , ” “ anticipates , ” “ plans ” and similar expressions ) that are not statements of historical fact should be considered forward-looking statements . these statements are not guarantees of future performance and involve certain risks , uncertainties and assumptions that are difficult to predict . there are a number of important factors that could cause actual results to differ materially from those indicated by such forward-looking statements . these factors include , without limitation , those set forth , or incorporated by reference , below under the heading “ cautionary statements under the private securities litigation reform act of 1995. ” the company does not intend to update publicly any forward-looking statements whether as a result of new information , future events or otherwise . strategic objectives the company continues to pursue a growth and acquisition strategy , which involves industry , geographic and customer diversification to foster sustainable revenue , earnings and cash flow growth , and employ the following strategic framework in pursuit of its vision to deliver top-quartile financial performance , become known as one of the world 's leading innovators and elevate its commitment to social responsibility : continue organic growth momentum by leveraging the sbd operating model to drive innovation and commercial excellence , while diversifying toward higher-growth , higher-margin businesses ; be selective and operate in markets where brand is meaningful , the value proposition is definable and sustainable through innovation , and global cost leadership is achievable ; and pursue acquisitive growth on multiple fronts by building upon its existing global tools platform , expanding the industrial platform in engineered fastening and infrastructure , consolidating the commercial electronic security industry , and pursuing adjacencies with sound industrial logic . execution of the above strategy has resulted in approximately $ 11.5 billion of acquisitions since 2002 ( excluding the black & decker merger ) , a 20 percent investment in mtd holdings inc. ( `` mtd '' ) , several divestitures , improved efficiency in the supply chain and manufacturing operations , and enhanced investments in organic growth , enabled by cash flow generation and increased debt capacity . in addition , the company 's continued focus on diversification and organic growth has resulted in improved financial results and an increase in its global presence . the company also remains focused on leveraging its sbd operating model to deliver success in the 2020s and beyond . the latest evolution of the sbd operating model builds on the strength of the company 's past while embracing changes in the external environment to ensure the company has the right skillsets , incorporates technology advances in all areas , maintains operational excellence , drives efficiency in business processes and resiliency into its culture , delivers extreme innovation and ensures the customer experience is world class . the operating model underpins the company 's ability to deliver above-market organic growth with margin expansion , maintain efficient levels of selling , general and administrative expenses ( `` sg & a '' ) and deliver top-quartile asset efficiency . the company 's long-term financial objectives remain as follows : 27 4-6 % organic revenue growth ; 10-12 % total revenue growth ; 10-12 % total eps growth ( 7-9 % organically ) excluding acquisition-related charges ; free cash flow equal to , or exceeding , net income ; sustain 10+ working capital turns ; and cash flow return on investment ( `` cfroi '' ) between 12-15 % . in terms of capital allocation , the company remains committed , over time , to returning approximately 50 % of free cash flow to shareholders through a strong and growing dividend as well as opportunistically repurchasing shares . the remaining free cash flow ( approximately 50 % ) will be deployed towards acquisitions . covid-19 pandemic the novel coronavirus ( covid-19 ) outbreak has adversely affected the company 's workforce and operations , as well as the operations of its customers , distributors , suppliers and contractors . the covid-19 pandemic has also resulted in significant volatility and uncertainty in the markets in which the company operates . to successfully navigate through this unprecedented period , the company has remained focused on the following key priorities : ensuring the health and safety of its employees and supply chain partners ; maintaining business continuity and financial strength and stability ; serving its customers as they provide essential products and services to the world ; and doing its part to mitigate the impact of the virus across the globe . to respond to the volatile and uncertain environment , the company implemented a comprehensive cost reduction and efficiency program , which delivered approximately $ 500 million of savings in 2020 and is expected to deliver net savings of approximately $ 125 million in 2021. cost actions executed under the program included headcount reductions , furloughs , reduced employee work schedules , a voluntary retirement program , and footprint rationalizations . the company has taken steps to make some of the cost actions permanent while certain employees were returned to full-time status . this ensures the sustainability of the cost reduction program into 2021 while providing more employment stability for the company 's remaining associates . story_separator_special_tag these amounts are as follows : 2020 the company reported $ 400 million in pre-tax charges during 2020 , which were comprised of the following : $ 71 million reducing gross profit pertaining to inventory step-up charges , a cost reduction program and facility-related costs ; $ 176 million in sg & a primarily for a cost reduction program , security business transformation and margin resiliency initiatives ; $ 9 million in other , net primarily related to a cost reduction program , loss on interest rate swaps in connection with the extinguishment of debt , and deal transactions costs , partially offset by a release of a contingent consideration liability relating to the cam acquisition ; $ 14 million net loss related to the sales of businesses ; $ 83 million in restructuring charges pertaining to severance and facility closures ; and $ 47 million related to a loss on the extinguishment of debt . 29 the tax effect on the above net charges was approximately $ 92 million . the company also recorded a one-time tax benefit of $ 119 million associated with a supply chain reorganization . in addition , the company 's share of mtd 's net earnings included an after-tax charge of approximately $ 10 million related primarily to restructuring charges . the amounts above resulted in net after-tax charges of $ 199 million , or $ 1.27 per diluted share . 2019 the company reported $ 363 million in pre-tax charges during 2019 , which were comprised of the following : $ 40 million reducing gross profit pertaining to facility-related and inventory step-up charges ; $ 139 million in sg & a primarily for integration-related costs , security business transformation and margin resiliency initiatives ; $ 30 million in other , net primarily related to deal transaction costs ; $ 17 million gain related to the sale of the sargent & greenleaf business ; $ 153 million in restructuring charges pertaining to severance and facility closures associated with a cost reduction program ; and $ 18 million related to a non-cash loss on the extinguishment of debt . the tax effect on the above net charges was approximately $ 78 million . in addition , the company 's share of mtd 's net earnings included an after-tax charge of approximately $ 24 million primarily related to an inventory step-up adjustment . the amounts above resulted in net after-tax charges of $ 309 million , or $ 2.05 per diluted share . 2018 the company reported $ 450 million in pre-tax charges during 2018 , which were comprised of the following : $ 66 million reducing gross profit primarily pertaining to inventory step-up charges for the nelson acquisition and an incremental freight charge due to nonperformance by a third-party service provider ; $ 158 million in sg & a primarily for integration-related costs , consulting fees , and a non-cash fair value adjustment ; $ 108 million in other , net primarily related to deal transaction costs and a settlement with the environmental protection agency ( `` epa '' ) ; $ 1 million related to a previously divested business ; and $ 117 million in restructuring charges which primarily related to a cost reduction program . the company also recorded a net tax charge of $ 181 million , which was comprised of charges related to the tax cuts and jobs act ( `` the act '' ) partially offset by the tax benefit of the above pre-tax charges . the above amounts resulted in net after-tax charges of $ 631 million , or $ 4.16 per diluted share . driving further profitable growth by fully leveraging our core franchises each of the company 's franchises share common attributes : they have world-class brands and attractive growth characteristics , they are scalable and defensible , they can differentiate through innovation , and they are powered by the sbd operating model . the tools & storage business is the tool company to own , with strong brands , proven innovation , global scale , and a broad offering of power tools , hand tools , accessories , and storage & digital products across many channels in both developed and developing markets . the engineered fastening business is a highly profitable , gdp+ growth business offering highly engineered , value-added innovative solutions with recurring revenue attributes and global scale . the security business , with its attractive recurring revenue , presents a significant margin accretion opportunity over the longer term and has historically provided a stable revenue stream through economic cycles , is a gateway into the digital world and an avenue to capitalize on rapid market or societal changes . security has embarked on a business transformation which will apply technology to lower its cost to serve and create new commercial offerings for its small to medium enterprise and large key account customers . while diversifying the business portfolio through strategic acquisitions remains important , management recognizes that the core franchises described above are important foundations that continue to provide strong cash flow and growth prospects . management is committed to growing these businesses through innovative product development , brand support , continued investment in emerging markets and a sharp focus on global cost competitiveness . 30 continuing to invest in the stanley black & decker brands the company has a strong portfolio of brands associated with high-quality products including stanley® , black+decker® , d e walt® , flexvolt® , irwin® , lenox® , craftsman® , porter-cable® , bostitch® , proto® , mac tools® , facom® , aeroscout® , powers® , lista® , vidmar® , sonitrol® , and gq® . among the company 's most valuable assets , stanley® , black+decker® and d e walt® are recognized as three of the world 's great brands , while craftsman® is recognized as a premier american brand .
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results of operations below is a summary of the company 's operating results at the consolidated level , followed by an overview of business segment performance . terminology : the term “ organic ” is utilized to describe results aside from the impacts of foreign currency fluctuations , acquisitions during their initial 12 months of ownership , and divestitures . this ensures appropriate comparability to operating results of prior periods . net sales : net sales were $ 14.535 billion in 2020 compared to $ 14.442 billion in 2019 , representing an increase of 1 % driven by a 2 % increase from acquisitions , primarily cam , and a 1 % increase in price , partially offset by pandemic-related volume decreases of 2 % . organic growth of 10 % in the second half of 2020 and acquisitions more than offset first half pandemic related market impacts . tools & storage net sales increased 3 % compared to 2019 due to 2 % increases in both volume and price , partially offset by a decrease of 1 % from foreign currency . industrial net sales decreased 3 % compared to 2019 primarily due to volume decreases of 15 % , partially offset by acquisition growth of 12 % . security net sales declined 5 % compared to 2019 as 1 % increases in both price and small bolt-on commercial electronic security acquisitions were more than offset by a 5 % decrease in volume and a 2 % decrease from the sales of the sargent & greenleaf business and the commercial electronic security businesses in five countries in europe and emerging markets . net sales were $ 14.442 billion in 2019 compared to $ 13.982 billion in 2018 , representing an increase of 3 % driven by organic growth of 3 % , including a 2 % increase in volume and 1 % increase in price . acquisitions , primarily ies attachments , increased sales by 2 % , while the impact of foreign currency decreased sales by 2 % .
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during the year ended december 31 , 2015 , we had total net revenues of $ 201,069,173 , an increase of $ 30,840,167 , or 18.1 % , over our net revenues for the year ended december 31 , 2014. the majority of our revenues were generated by the sales of ev parts , which accounted for 97.5 % of our total revenue in 2015. the significant revenue growth was mainly driven by the increased sales of ev parts during the year . during the year 2015 , we continued to focus our efforts on the design , manufacturing and sales of ev parts and experienced significant sales growth from this business line . for the year ended december 31 , 2015 , we achieved net revenue of $ 196,053,058 from selling ev parts , mostly to our jv company , an increase of $ 79,621,749 , or 68.4 % , as compared to $ 116,431,309 for the year ended december 31 , 2014. in the year 2015 , the company 's revenue growth was mainly driven by the jv company 's demand on the ev parts . pursuant to our joint venture agreement , we have completed the transfer of ev products production to the jv company in 2014 , so there was no ev products revenue recorded in 2015. however , as we have 50 % ownership interest in the jv company and accounted for our investments in the jv company under the equity method of accounting , we received 50 % of the jv company 's net profit , or $ 11,661,564 in the year ended december 31 , 2015 , compared to $ 3,763,082 in the year ended december 31 , 2014. as the jv company was established only three years ago and has great potential for growth , we believe our economic benefits from the jv company will greatly increase in the future as its business continues to steadily grow . during year 2015 , the jv company 's revenue was driven by two sales models : mpt program and direct sales . starting from the second half year of 2015 , the direct sales was already close to 50 % of the total shipment of the jv company.the total number of ev products sold during 2015 was 24,220 ev products , increased 121.5 % compared to the year 2014. we expect a greater amount of ev products to be sold via direct sales by the jv company in the future . our revenues from off-road vehicles decreased by $ 14,802,963 from year-ago period , or 74.7 % , to $ 5,016,115 for the year ended december 31 , 2015. this decrease was mainly because we shifted our business strategy to put more resources and efforts on chinese ev industry to meet the increasing market demand for alternative energy vehicles . in 2015 , we focused on research and developing on the electric off-road vehicles , we expect this traditional business will resume back for growing in the future . in 2015 , we recorded $ 28,419,218 of gross profit , an increase of 21.4 % from 2014 , primarily due to the increase of revenue and margin of ev parts . we recorded a net profit of $ 14,665,495 in 2015 compared to $ 12,271,338 in 2014. excluding the effects of stock award expenses , which were $ 22,379,220 and $ 8,455,422 for the years ended december 31 , 2015 and 2014 , respectively , and the change of the fair value of financial derivatives , which were a gain of $ 8,519,295 and $ 6,531,308 for the years ended december 31 , 2015 and 2014 , respectively , our net income ( non-gaap ) was $ 28,525,420 for the year ended december 31 , 2015 as compared to net income ( non-gaap ) of $ 14,195,452 for the year ended december 31 , 2014 , an increase of $ 14,329,968 or 100.9 % . the increase in such net income was primarily attributable to the increase of revenue and gross profits , and also the share profits of the jv company during the year of 2015 . 29 the vehicle manufacturing industry is highly competitive in china . current and future factors impacting our industry include : ( i ) the exponential growth of electrical vehicle sales and dedicated platforms in the global market place , ( ii ) the consolidation of supply chains and costs of components , ( iii ) rapid technology developments , and ( iv ) emerging strategic partnerships and joint ventures in the automotive industry generally . our business strategy includes our efforts to provide customers with high-quality products , to expand our footprint in new and existing markets , and to advance our profile and the demand for our ev products through the mpt project and direct sales channel . to further these initiatives , we are working with our business partners to build a network of public ev sharing stations to provide energy-efficient , convenient travel options for local citizens and tourists . we also provide the ev products to the end users through our distriutors . we anticipate that our pure ev business in china , through the operations of the jv company and with the support of new chinese subsidy policies , will continue to develop and grow in the future . story_separator_special_tag align= '' center '' color= '' black '' noshade= '' '' size= '' 5 '' style= '' page-break-after : always '' width= '' 100 % '' / > sales and marketing selling and distribution expenses were $ 633,863 for the year ended december 31 , 2015 , compared to $ 1,345,588 for the year ended december 31 , 2014 and $ 399,504 for the year ended december 31 , 2013 , representing a decrease of $ 711,725 , or 52.9 % , from 2014 and an increase of $ 234,359 , or 58.7 % , from 2013 , respectively . story_separator_special_tag other income ( expense ) , net net other income was $ 1,814,882 for the year ended december 31 , 2015 , compared to net other expense of $ 34,649 for the year ended december 31 , 2014 and net other income of $ 676,257 for the year ended december 31 , 2013 , an increase in net other income of $ 1,849,531 from 2014 and an increase in net other income of $ 1,138,625 from 2013 , respectively . the changes were primarily attributable to 1 ) a technology transfer income from the company to the jv company for $ 1,390,656 in the third quarter of 2015 , 2 ) other income of $ 219,523 from battery sales as an agent for zhejiang shikong electric vehicles co. ltd. , and 3 ) material sales income for $ 41,203. income taxes in accordance with the relevant tax laws and regulations of the prc , our applicable corporate income tax rate is 25 % . however , kandi vehicle is qualified as a high technology company in china and is therefore entitled to use a reduced income tax rate of 15 % . 35 each of our wholly-owned subsidiaries , kandi new energy , yongkang scrou and kandi hainan , has an applicable corporate income tax rate of 25 % . we have 50 % ownership interest in the jv company , which has an applicable corporate income tax of 25 % . each of the jv company 's subsidiaries has an applicable corporate income tax rate of 25 % as well . as mentioned above , we qualified as a high technology company in china , and were entitled to pay a reduced income tax rate of 15 % . after combining with the research and development tax credit of 25 % on certain qualified research and development expenses , our effective reduced income tax rate was 16.88 % as compared to 18.4 % in 2014. the combined tax benefit was 51.26 % as compared to 60.38 % in 2014. the actual effective income tax rate was 12.19 % of the 2015 taxable corporate income as compared to 9.91 % of the 2014 taxable corporate income . net income ( loss ) we recorded net income of $ 14,665,495 for the year ended december 31 , 2015 , compared to net income of $ 12,271,338 for the year ended december 31 , 2014 and net loss of $ 21,140,723 for the year ended december 31 , 2013 , an increase of $ 2,394,157 , or 19.5 % , from the year ended december 31 , 2014 and an increase of $ 35,806,218 from the year ended december 31 , 2013 , respectively . the net income was primarily attributable to the increased revenue and gross profits , jv company 's net profits , technology transfer income and the gain from the change in the fair value of warrant derivatives . excluding ( i ) the effects of stock award expenses , which were $ 22,379,220 , $ 8,455,422 and 9,658,320 for the years ended december 31 , 2015 , 2014 and 2013 respectively , and ( ii ) the change of the fair value of financial derivatives , which were a gain of $ 8,519,295 , a gain of $ 6,531,308 and a loss of 16,647,283 for the years ended december 31 , 2015 , 2014 and 2013 , respectively , our net income ( non-gaap ) was $ 28,525,420 for the year ended december 31 , 2015 as compared to net income ( non-gaap ) of $ 14,195,452 for the year ended december 31 , 2014 , an increase of $ 14,329,968 or 100.9 % , and compared to net income ( non-gaap ) of $ 5,164,880 for the year ended december 31,2013 , an increase of $ 23,360,540 or 452.3 % . the increase in such net income was primarily attributable to the increase of revenue and gross profits , jv company 's net profits , and technology transfer income during the year of 2015. we make reference to certain non-gaap financial measures , i.e. , the adjusted net income . management believes that such adjusted financial result is useful for investors in evaluating our operating performance because it presents a meaningful measure of corporate performance . see the non-gaap reconciliation table below . any non-gaap measures should not be considered as a substitute for , and should only be read in conjunction with , measures of financial performance prepared in accordance with the gaap . the following table summarizes our non-gaap net income from continuing operations for the years ended december 31 , 2015 , 2014 and 2013 : 36 replace_table_token_13_th liquidity and capital resources cash flow for the year ended december 31 , 2015 , cash used in operating activities was $ 3,130,976 , as compared to cash used in operating activities of $ 7,453,756 for the year ended december 31 , 2014 and cash provided by operating activities of $ 14,687,446 for the year ended december 31 , 2013. the major operating activities that provided cash for the year ended december 31 , 2015 were net income of $ 14,665,495 , an increase in accounts payable of $ 31,814,545 and a decrease in accounts receivable of $ 7,052,626. the major operating activity that used cash for the year ended december 31 , 2015 was an increase in receivables from the jv company of $ 28,519,360. cash used in investing activities for the year ended december 31 , 2015 was $ 5,937,117 , as compared to cash used in investing activities of $ 50,108,255 and $ 59,844,162 for the years ended december 31 , 2014 and 2013 , respectively .
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results of operations comparison of years ended december 31 , 2015 , 2014 and 2013 the following table sets forth the amounts and the percentage relationship to revenues of certain items in our consolidated statements of income for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_9_th 30 revenues for the year ended december 31 , 2015 , we had net revenues of $ 201,069,173 compared to net revenues of $ 170,229,006 for the year ended december 31 , 2014 and $ 94,536,045 for the year ended december 31 , 2013 , representing an increase of $ 30,840,167 , or 18.1 % , from 2014 and an increase of $ 106,533,128 , or 112.7 % , from 2013 , respectively . our products include ev parts , ev products , and off-road vehicles , including atvs , utility vehicles ( utvs ) , go-karts , and others . for the year ended december 31 , 2015 , 2014 and 2013 , 98 % , 95 % and 90 % , respectively , of our revenues were derived from the sales of our products in the people 's republic of china ( the prc ) . the following table summarizes our revenues as well as the number of units sold by product types for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_10_th ev parts during the year ended december 31 , 2015 , our revenues from the sale of ev parts were $ 196,053,058 , representing an increase of $ 79,621,749 or 68.4 % from $ 116,431,309 for the year ended december 31 , 2014 and an increase of $ 194,329,027 or 11,271.8 % from $ 1,724,031 for the year ended december 31 , 2013 , respectively . our revenue for the year ended december 31 , 2015 primarily consisted of the sales of battery packs , body parts , ev drive motors , ev controllers , air conditioning units and other auto parts to the jv company for manufacturing of ev products , which was 97.5 % of the total sales .
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as discussed in the section entitled “ special note regarding forward-looking statements , ” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties , as well as assumptions that , if they never materialize or prove incorrect , could cause our results to differ materially from those expressed or implied by such forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this report , particularly in the section entitled “ risk factors. ” overview we are a leading provider of software-as-a-service ( “ saas ” ) solutions that enable businesses to communicate , collaborate , and connect . we believe that our innovative , cloud-based approach disrupts the large market for business communications and collaboration by providing flexible and cost-effective solutions that support distributed workforces , mobile employees , and the proliferation of smart phones and tablets . we enable convenient and effective communications for organizations across all their locations and employees , enabling them to be more productive and more responsive to their customers . our cloud-based business communications and collaboration solutions are designed to be easy to use , providing a single user identity across multiple locations and devices , including smartphones , tablets , pcs and desk phones . our solutions can be deployed rapidly , configured and managed easily . through our platform , we enable third-party developers and customers to integrate our solution with leading business applications to suit their own business workflows . ringcentral has a portfolio of cloud-based offerings that are subscription based , made available at different monthly rates , varying by the specific functionalities , services , and number of users . we primarily generate revenues from the sale of software subscriptions to our offerings . our subscription plans have historically had monthly or annual contractual terms , although we also have subscription plans with multi-year contractual terms , generally with larger customers . we believe that this flexibility in contract duration is important to meet the different needs of our customers . for the years ended december 31 , 2018 , 2017 , and 2016 , software subscriptions revenues accounted for more than 90 % of our total revenues . the remainder of our revenues has historically been primarily comprised of product revenues from the sale of pre-configured office phones and professional services . we do not develop , manufacture , or otherwise touch the delivery of physical phones and offer it as a convenience for a total solution to our customers in connection with subscriptions to our services . we rely on third-party providers to develop and manufacture these devices and fulfillment partners to successfully serve our customers . we make significant upfront investments to acquire customers . we continue to invest in our direct inside sales force while also developing indirect sales channels to market our brand and our subscription offerings . our indirect sales channel consists of a network of resellers who sell our solutions . we also sell our solutions through carriers including at & t , inc. ( “ at & t ” ) , telus communications company ( “ telus ” ) and bt group plc ( “ bt ” ) . we intend to continue to foster this network and expand our network with other resellers . we also participate in more traditional forms of media advertising , such as radio and billboard advertising . since its launch , our revenue growth has primarily been driven by our flagship ringcentral office product offering , which has resulted in an increased number of customers , increased average software subscription revenue per customer , and increased retention of our existing customer and user base . we define a “ customer ” as one individual billing relationship for the subscription to our services , which generally correlates to one company account per customer . as of december 31 , 2018 , we had customers from a range of industries , including financial services , healthcare , legal services , real estate , retail , technology , insurance , construction , hospitality , and state and local government , among others . for the years ended december 31 , 2018 , 2017 and 2016 , the vast majority of our total revenues were generated in the u.s. and canada , although we expect the percentage of our total revenues derived outside of the u.s. and canada to grow as we continue to expand internationally . the growth of our business and our future success depend on many factors , including our ability to expand our customer base to medium-sized and larger customers , continue to innovate , grow revenues from our existing customer base , expand our distribution channels , and scale internationally . while these areas represent significant opportunities for us , they also pose risks and challenges that we must address in order to sustain the growth of our business and improve our operating results . we have experienced significant growth in recent periods , with total revenues of $ 673.6 million , $ 503.6 million and $ 380.4 million , in the years ended december 31 , 2018 , 2017 and 2016 , respectively , representing year-over-year increases of 34 % and 32 % , respectively . we have continued to make significant expenditures and investments , including those in sales and marketing , research and development , infrastructure and operations and incurred net losses of $ 26.2 million , $ 4.2 million , and $ 16.2 million in the years ended december 31 , 2018 , 2017 and 2016 , respectively . 47 key business metrics in addition to united states generally accepted accounting principles ( “ u.s . gaap ” ) and financial measures such as total revenues , gross margin , and cash flows from operations , we regularly review a number of key business metrics to evaluate growth trends , measure our performance , and make strategic decisions . story_separator_special_tag “ other revenues ” includes product revenues from the sale of pre-configured phones , phone rentals , and professional services . product revenue is recognized when the product has been delivered to the customer . professional services revenue is recognized as services are delivered . in january 2016 , we entered into a sales agency agreement with westcon to provide the phones purchased by customers . under this agreement , we were an agent of westcon and received a commission for our services , which primarily included referring phone sales to westcon . westcon provided phones directly to our customers instead of us purchasing phones from third-party vendors and reselling the phones to customers . we recognized commission revenues for this arrangement as we were the agent of these sales . sales of phones that were provided free or significantly discounted to customers were excluded from the agency model . we recognized revenues and costs from these sales as we were the primary obligor and had latitude in determining pricing . in december 2016 , we terminated the westcon sales agency agreement and entered into a reseller ( direct sale ) agreement with westcon . effective january 1 , 2017 , we switched from the agency model to the direct phone sales model whereby we no longer serve as an agent for referring phone sales to westcon and we no longer receive commissions for our services . under the direct phone sales model , we recognize revenues and costs for phone sales as we are the primary obligor for order fulfillment , have latitude in establishing pricing , and assume general inventory risk . cost of revenues and gross margin our cost of software subscriptions revenue primarily consists of fees paid to third-party telecommunications providers , network operations , costs to build out and maintain data centers , including co-location fees for the right to place our servers in data centers owned by third parties , depreciation of servers and equipment , along with related utilities and maintenance costs , personnel costs associated with customer care and support of the functionality of our platform and data center operations , including share-based compensation expenses , and allocated costs of facilities and information technology . we define software subscriptions gross margins as software subscriptions revenue minus the cost of software subscriptions revenue expressed as a percentage of software subscriptions revenue . cost of other revenue is comprised primarily of the cost associated with the purchase of phones , cost of professional services , and allocated costs of facilities and information technology . operating expenses we classify our operating expenses as research and development , sales and marketing , and general and administrative expenses . 49 our research and development efforts are focused on developing new and expanded features for our products , integrations with dist ributors and other software platforms , and improvements to our backend architecture . research and development expenses consist primarily of personnel costs for employees and contractors , including share-based compensation expenses , and allocated costs of f acilities and information technology , software tools , and product certification . we expense research and development costs as incurred , except for certain internal-use software development costs that we capitalize . we believe that continued investment in o ur products is important for our future growth , and we expect our research and development expenses to continue to increase in absolute dollars for the foreseeable future , although these expenses may fluctuate as a percentage of our total revenues from per iod to period depending on the timing of these expenses . sales and marketing expenses are the largest component of our operating expenses and consist primarily of personnel costs for employees and contractors directly associated with our sales and marketing activities including share-based compensation expenses , internet advertising fees , radio and billboard advertising , public relations , commissions paid to employees , resellers and other third parties , trade shows , travel expenses , credit card fees , marketing and promotional activities , amortization of acquired customer relationship intangibles , and allocated costs of facilities and information technology . we expect our sales and marketing expenses to continue to increase in absolute dollars for the foreseeable future as we expand our sales and marketing efforts domestically and internationally and continue to build our brand , although these expenses may fluctuate as a percentage of our total revenues from period to period depending on the timing of these expenses . general and administrative expenses consist primarily of personnel costs , including share-based compensation expenses , for employees and contractors engaged in infrastructure and administrative activities to support the day-to-day operations of our business . other significant components of general and administrative expenses include professional service fees , allocated costs of facilities and information technology , cost of compliance with certain government-imposed taxes , and the costs of legal matters , business acquisition costs , and loss contingencies . we expect our general and administrative expenses to continue to increase in absolute dollars for the foreseeable future , although these expenses may fluctuate as a percentage of our total revenues from period to period , depending on the timing of these expenses . story_separator_special_tag professional services of $ 3.1 million , mainly due to an increase in revenues from implementation services , and personnel costs of $ 0.6 million . gross margin . our gross margin was 77 % for fiscal year 2018 and 76 % for both fiscal years 2017 and 2016. we expect gross margin to remain fairly consistent in the future . software subscription revenues gross margin has improved from 79 % to 81 % from fiscal year 2016 to 2017 and from 81 % to 82 % from fiscal year 2017 to 2018 , primarily due to economies of scale obtained in our infrastructure , which includes transport costs and customer support expenses .
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results of operations the following tables set forth selected consolidated statements of operations data and such data as a percentage of total revenues . the historical results presented below are not necessarily indicative of the results that may be expected for any future period ( in thousands ) : replace_table_token_2_th * adjusted for adoption of topic 606 . 50 effective january 1 , 2018 , we adopted the requirements of accounting standards codification ( “ asc ” ) 606 , revenue from contracts with customers ( topic 606 ) , using the full retrospective method as discussed in the notes to the consolidated financial statements provided under item 8 of this annual report on form 10-k. percentage of total revenues replace_table_token_3_th * adjusted for adoption of topic 606. comparison of fiscal years ended december 31 , 2018 , 2017 , and 2016 : revenues replace_table_token_4_th * adjusted for adoption of topic 606 . 51 software subscriptions revenue . software subscriptions revenue increased by $ 147.6 million and $ 108.7 million , or 32 % and 3 0 % , from fiscal years 201 7 to 201 8 and from fiscal years 201 6 to 201 7 , respectively . t he increases were primarily due to the acquisition of new customers , upsells of additional offerings to our existing customer base , an increase in sales to our mid-market and enterprise customers as we co ntinue to move up market , and sales through our channel partners . while the acquisition of new customers and upsells of additional offerings to our existing customer base were the primary reasons for the increase , the short-term trends for customer acquisition have varied from period to period as some customers made a small initial user subscription followed by a larger additional user subscription , while other customers purchased a large initial user subscription followed by a smaller additional user subscription .
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for a full discussion of risks associated with covid-19 , see part i — item 1a . risk factors . share repurchases and dividends for additional information on share repurchases , see item 5. market for registrant 's common equity , related stockholder matters and issuer purchases of equity securities and item 8. financial statements and supplementary data — note 5. equity and earnings per share ( `` eps '' ) . 47 table of contents sources and uses of cash flow year ended december 31 , 2020 vs. year ended december 31 , 2019 net cash provided by operating activities for the year ended december 31 , 2020 increased by $ 28 million from the prior year period primarily due to to a $ 10 million savings in interest from the prior year associated with debt refinancings at favorable rates and a net cash benefit from working capital of $ 12 million . net cash used in investing activities for the year ended december 31 , 2020 increased by $ 31 million from the prior year period due to an increase in capital expenditures of $ 4 million , which primarily related to planned long-term maintenance projects at certain wte facilities , partially offset by reduced investment in growth projects . additionally , we increased investments in our uk development projects and in our project in zhao county . for additional information on the above investing transactions refer to item 8. financial statements and supplementary data — note 3. new business and asset management . net cash used in financing activities for the year ended december 31 , 2020 decreased by $ 51 million from the prior year period primarily due to the reduction of our quarterly dividend amount from $ 0.25 per quarter to $ 0.08 per quarter , which resulted in a reduction of $ 44 million . for a discussion of the sources and uses of cash flow for the years ended december 31 , 2019 and 2018 , please refer to part ii- item 7. results of operations in our annual report on form 10-k for the year ended december 31 , 2019. supplementary financial information — free cash flow ( non-gaap discussion ) to supplement our results prepared in accordance with gaap , we use the measure of free cash flow which is a non-gaap measure as defined by the sec . this non-gaap financial measure is not intended as a substitute and should not be considered in isolation from measures of liquidity prepared in accordance with gaap . in addition , our use of free cash flow may be different from similarly identified non-gaap measures used by other companies , limiting its usefulness for comparison purposes . the presentation of free cash flow is intended to enhance the usefulness of our financial information by providing a measure which management internally uses to assess and evaluate the overall performance of its business and those of possible acquisition candidates , and highlight trends in the overall business . we use the non-gaap financial measures of free cash flow as criteria of liquidity and performance-based components of employee compensation . free cash flow is defined as cash flow provided by operating activities , less maintenance capital expenditures , which are capital expenditures primarily to maintain our existing facilities . we use free cash flow as a measure of liquidity to determine amounts we can reinvest in our core businesses , such as amounts available to make acquisitions , invest in construction of new projects , make principal payments on debt , or return capital to our stockholders through dividends and or stock repurchases . for additional discussion related to management 's use of non-gaap measures , see results of operations — supplementary financial information — adjusted ebitda ( non-gaap discussion ) above . in order to provide a meaningful basis for comparison , we are providing information with respect to our free cash flow for the years ended december 31 , 2020 and 2019 , reconciled for each such period to cash flow provided by operating activities , which we believe to be the most directly comparable measure under gaap . the following is a reconciliation of net cash provided by operating activities to free cash flow ( in millions ) : replace_table_token_14_th ( a ) adjustment for the impact of the adoption of asu 2016-18 effective january 1 , 2018. as a result of adoption , the statement of cash flows explains the change during the period in the total of cash , cash equivalents , and amounts generally described as restricted cash or restricted cash equivalents . therefore , changes in restricted funds are eliminated in arriving at net cash , cash equivalents and restricted funds provided by operating activities . ( b ) purchases of property , plant and equipment are also referred to as capital expenditures . capital expenditures that primarily maintain existing facilities are classified as maintenance capital expenditures . 48 table of contents the following table provides the components of total purchases of property , plant and equipment ( in millions ) : replace_table_token_15_th available sources of liquidity cash and cash equivalents cash and cash equivalents include all cash balances and highly liquid investments having maturities of three months or less from the date of purchase . these short-term investments are stated at cost , which approximates fair value . balances held by our international subsidiaries are not generally available for near-term liquidity in our domestic operations . replace_table_token_16_th credit facilities as of december 31 , 2020 , covanta energy 's senior secured credit facilities consisted of the revolving credit facility and the term loan both expiring 2023 ( collectively referred to as the `` credit facilities '' ) . for a detailed description of the terms of the credit facilities , see item 8. financial statements and supplementary data — note 16. consolidated debt . 49 table of contents consolidated debt the face value of our consolidated debt was story_separator_special_tag for a full discussion of risks associated with covid-19 , see part i — item 1a . risk factors . share repurchases and dividends for additional information on share repurchases , see item 5. market for registrant 's common equity , related stockholder matters and issuer purchases of equity securities and item 8. financial statements and supplementary data — note 5. equity and earnings per share ( `` eps '' ) . 47 table of contents sources and uses of cash flow year ended december 31 , 2020 vs. year ended december 31 , 2019 net cash provided by operating activities for the year ended december 31 , 2020 increased by $ 28 million from the prior year period primarily due to to a $ 10 million savings in interest from the prior year associated with debt refinancings at favorable rates and a net cash benefit from working capital of $ 12 million . net cash used in investing activities for the year ended december 31 , 2020 increased by $ 31 million from the prior year period due to an increase in capital expenditures of $ 4 million , which primarily related to planned long-term maintenance projects at certain wte facilities , partially offset by reduced investment in growth projects . additionally , we increased investments in our uk development projects and in our project in zhao county . for additional information on the above investing transactions refer to item 8. financial statements and supplementary data — note 3. new business and asset management . net cash used in financing activities for the year ended december 31 , 2020 decreased by $ 51 million from the prior year period primarily due to the reduction of our quarterly dividend amount from $ 0.25 per quarter to $ 0.08 per quarter , which resulted in a reduction of $ 44 million . for a discussion of the sources and uses of cash flow for the years ended december 31 , 2019 and 2018 , please refer to part ii- item 7. results of operations in our annual report on form 10-k for the year ended december 31 , 2019. supplementary financial information — free cash flow ( non-gaap discussion ) to supplement our results prepared in accordance with gaap , we use the measure of free cash flow which is a non-gaap measure as defined by the sec . this non-gaap financial measure is not intended as a substitute and should not be considered in isolation from measures of liquidity prepared in accordance with gaap . in addition , our use of free cash flow may be different from similarly identified non-gaap measures used by other companies , limiting its usefulness for comparison purposes . the presentation of free cash flow is intended to enhance the usefulness of our financial information by providing a measure which management internally uses to assess and evaluate the overall performance of its business and those of possible acquisition candidates , and highlight trends in the overall business . we use the non-gaap financial measures of free cash flow as criteria of liquidity and performance-based components of employee compensation . free cash flow is defined as cash flow provided by operating activities , less maintenance capital expenditures , which are capital expenditures primarily to maintain our existing facilities . we use free cash flow as a measure of liquidity to determine amounts we can reinvest in our core businesses , such as amounts available to make acquisitions , invest in construction of new projects , make principal payments on debt , or return capital to our stockholders through dividends and or stock repurchases . for additional discussion related to management 's use of non-gaap measures , see results of operations — supplementary financial information — adjusted ebitda ( non-gaap discussion ) above . in order to provide a meaningful basis for comparison , we are providing information with respect to our free cash flow for the years ended december 31 , 2020 and 2019 , reconciled for each such period to cash flow provided by operating activities , which we believe to be the most directly comparable measure under gaap . the following is a reconciliation of net cash provided by operating activities to free cash flow ( in millions ) : replace_table_token_14_th ( a ) adjustment for the impact of the adoption of asu 2016-18 effective january 1 , 2018. as a result of adoption , the statement of cash flows explains the change during the period in the total of cash , cash equivalents , and amounts generally described as restricted cash or restricted cash equivalents . therefore , changes in restricted funds are eliminated in arriving at net cash , cash equivalents and restricted funds provided by operating activities . ( b ) purchases of property , plant and equipment are also referred to as capital expenditures . capital expenditures that primarily maintain existing facilities are classified as maintenance capital expenditures . 48 table of contents the following table provides the components of total purchases of property , plant and equipment ( in millions ) : replace_table_token_15_th available sources of liquidity cash and cash equivalents cash and cash equivalents include all cash balances and highly liquid investments having maturities of three months or less from the date of purchase . these short-term investments are stated at cost , which approximates fair value . balances held by our international subsidiaries are not generally available for near-term liquidity in our domestic operations . replace_table_token_16_th credit facilities as of december 31 , 2020 , covanta energy 's senior secured credit facilities consisted of the revolving credit facility and the term loan both expiring 2023 ( collectively referred to as the `` credit facilities '' ) . for a detailed description of the terms of the credit facilities , see item 8. financial statements and supplementary data — note 16. consolidated debt . 49 table of contents consolidated debt the face value of our consolidated debt was
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results of operations the comparability of the information provided below with respect to our revenue , expense and certain other items for periods during each of the years presented was affected by several factors . as outlined in item 1. business — recent business developments , item 8. financial statements and supplementary data — note 1. organization and summary of significant accounting policies , note 3. new business and asset management and note 4. dispositions and assets held for sale , our business development initiatives and acquisitions resulted in various transactions , which are reflected in comparative revenue and expense . in addition , comparability of our results was affected by the covid-19 pandemic as discussed above under impact of covid-19 on the u.s. and the global economy . these factors must be taken into account in developing meaningful comparisons between the periods compared below . the results of operations discussion below compares our revenue , expense and certain other items for the years ended december 31 , 2020 and 2019. for a discussion of the results for the years ended december 31 , 2019 and 2018 , please refer to part ii — item 7. results of operations in our annual report on form 10-k for the year ended december 31 , 2019. the following terms used within the results of operations discussion are defined as follows : “ organic growth ” : reflects the performance of the business on a comparable period-over-period basis , excluding the impacts of transactions and contract transitions . “ transactions ” : includes the impacts of acquisitions , divestitures , and the addition or loss of operating contracts . “ contract transitions ” : includes the impact of the expiration of : ( a ) long-term major waste and service contracts , most typically representing the transition to a new contract structure , and ( b ) long-term energy contracts .
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overview of our business we provide a number of different technology products and services to private and public sector customers . effective january 1 , 2017 , the company changed the way it analyzes and assesses divisional performance of the company . the company re-aligned its operating segments along those division business lines and operated in two segments , namely indoor positioning analytics and infrastructure . the infrastructure business was part of the spin-off of sysorex and is no longer part of our reporting . our indoor positioning analytics ( “ ipa ” ) products secure , digitize and optimize the interior of any premises with indoor positioning and data analytics that provide rich positional information , similar to a global positioning system , and browser-like intelligence for the indoors . in addition , we offer digital tear-sheets with optional invoice integration , digital ad delivery , and an e-edition designed for reader engagement for the media , publishing and entertainment industry . revenues were flat in 2018 because of an increase in our ipa product revenues , which was offset by a decrease in our shoom services revenue . we expect to continue to grow our ipa product line in 2019. the ipa product line does have long sales cycles , which are a result from customer-related issues such as budget and procurement processes but also because of the early stages of indoor-positioning technology and the learning curve required for customers to implement such solutions . customers also engage in a pilot program first which prolongs sales cycles and is typical of most emerging technology adoption curves . we anticipate sales cycles to improve in 2019 as our customer base moves from early adopters to mainstream customers . the sales cycle is also improving with the increased presence and awareness of beacon and wi-fi locationing technologies in the market . ipa sales can be licensed-based with government customers but commercial customers typically prefer a saas or subscription model . our other digital solutions are also delivered on a saas model and allow us to generate industry analytics that complement our indoor-positioning solutions . we experienced a net loss of $ 24.6 million for the year ended december 31 , 2018 and a net loss of $ 35.0 million for the year ended december 31 , 2017. we can not assure that we will ever earn revenues sufficient to support our operations , or that we will ever be profitable . in order to continue our operations , we have supplemented the revenues we earned with proceeds from the sale of our equity and debt securities and proceeds from loans and bank credit lines . furthermore , except for our payplant facility , we have no committed source of financing and we can not assure that we will be able to raise money as and when we need it to continue our operations . if we can not raise funds as and when we need them , we may be required to scale back our business operations by reducing expenditures for employees , consultants , business development and marketing efforts , selling assets or one or more products in our business , or otherwise severely curtailing our operations . 35 recent events reverse stock splits during 2018 and 2017 , the company has effected three reverse stock splits : ( 1 ) a 1-for-15 reverse split of the company 's outstanding common stock effected on march 1 , 2017 ; ( 2 ) a 1-for-30 reverse split of the company 's outstanding common stock effected on february 6 , 2018 ; and ( 3 ) a 1-for-40 reverse split of the company 's outstanding common stock effected on november 2 , 2018. january 2018 capital raise on january 5 , 2018 , the company entered into a securities purchase agreement ( the “ january 2018 spa ” ) with certain investors pursuant to which the company agreed to sell , in a registered direct offering , an aggregate of 14,996 shares ( the “ january 2018 shares ” ) of the company 's common stock at a purchase price of $ 212.40 per share for aggregate gross proceeds of approximately $ 3.2 million . after deducting placement agent fees and other expenses , the net proceeds from the offering was approximately $ 2.8 million . concurrently with the sale of the january 2018 shares , pursuant to the january 2018 spa the company also sold warrants to purchase up to 14,996 shares of common stock ( the “ january 2018 warrants ” ) . this offering closed on january 8 , 2018. the january 2018 warrants became exercisable on february 2 , 2018 ( the “ january 2018 warrant initial exercise date ” ) , at an exercise price per share equal to $ 264.00 , subject to certain adjustments pursuant to the terms of the january 2018 warrants ( the “ january 2018 warrant exercise price ” ) , and will expire on the fifth anniversary of the january 2018 warrant initial exercise date . as a result of a dilutive issuance ( as defined in the january 2018 warrants ) as of february 20 , 2018 , the january 2018 warrant exercise price was adjusted to the floor price of $ 120.00 per share pursuant to the january 2018 warrants . february 2018 public offering on february 20 , 2018 , the company completed a public offering for approximately $ 18 million in securities , consisting of ( i ) an aggregate of 83,149 class a units , at a price to the public of $ 94.00 per class a unit , each consisting of one share of common stock , and a five-year warrant to purchase one share of common stock , and ( ii ) 10,184.9752 class b units , at a price to the public of $ 1,000 per class b unit , each consisting of one share of the company 's newly designated series 3 convertible preferred stock , par value $ 0.001 per share ( “ series 3 preferred ” ) , with a stated value of $ 1,000 and initially convertible into approximately story_separator_special_tag million ( the “ initial principal amount ” ) , which is payable on or before the date that is 12 months from the issuance date . the initial principal amount includes an original issue discount of $ 500,000.00 and $ 20,000.00 that the company agreed to pay to the holder to cover the holder 's legal fees , accounting costs , due diligence , monitoring and other transaction costs . in exchange for the october 2018 note , the holder paid an aggregate purchase price of $ 2.0 million . interest on the october 2018 note accrues at a rate of 10 % per annum and is payable on the maturity date or otherwise in accordance with the october 2018 note . beginning on the date that is 6 months from the issuance date and at the intervals indicated below until the october 2018 note is paid in full , the holder shall have the right to redeem up to an aggregate of 1/3 of the initial principal balance of the october 2018 note each month ( each monthly exercise , a “ monthly redemption amount ” ) by providing written notice ( each , a “ monthly redemption notice ” ) delivered to the company ; provided , however , that if the holder does not exercise any monthly redemption amount in its corresponding month then such monthly redemption amount shall be available for the holder to redeem in any future month in addition to such future month 's monthly redemption amount . upon receipt of any monthly redemption notice , the company shall pay the applicable monthly redemption amount in cash to the holder within 5 business days of the company 's receipt of such monthly redemption notice . on december 21 , 2018 , the company entered into a note purchase agreement with an institutional investor ( the “ holder ” ) , pursuant to which the company agreed to issue and sell to the holder an unsecured promissory note ( the “ december 2018 note ” ) in an aggregate principal amount of $ 1.895 million ( the “ initial principal amount ” ) , which is payable on or before the date that is 10 months from the issuance date . the initial principal amount includes an original issue discount of $ 375,000 and $ 20,000 that the company agreed to pay to the holder to cover the holder 's legal fees , accounting costs , due diligence , monitoring and other transaction costs . in exchange for the december 2018 note , the holder paid an aggregate purchase price of $ 1.5 million . interest on the december 2018 note accrues at a rate of 10 % per annum and is payable on the maturity date or otherwise in accordance with the december 2018 note . the company may pay all or any portion of the amount owed earlier than it is due ; provided , that in the event the company elects to prepay all or any portion of the outstanding balance , it shall pay to the holder 115 % of the portion of the outstanding balance the company elects to prepay . beginning on the date that is 6 months from the issuance date and at the intervals indicated below until the december 2018 note is paid in full , the holder shall have the right to redeem up to an aggregate of 1/3 of the initial principal balance of the december 2018 note each month ( each monthly exercise , a “ monthly redemption amount ” ) by providing written notice ( each , a “ monthly redemption notice ” ) delivered to the company ; provided , however , that if the holder does not exercise any monthly redemption amount in its corresponding month then such monthly redemption amount shall be available for the holder to redeem in any future month in addition to such future month 's monthly redemption amount . upon receipt of any monthly redemption notice , the company shall pay the applicable monthly redemption amount in cash to the holder within 5 business days of the company 's receipt of such monthly redemption notice . 37 on february 9 , 2019 , the note purchase agreements were each amended to delete the phrase “ by cancellation or exchange of the note , in whole or in part ” . the company also agreed to pay the note holder 's fees and other expenses in an aggregate amount of $ 80,000.00 ( the “ fee ” ) in connection with the preparation of the amendment by adding $ 40,000.00 of the fee to the outstanding balance of each of the notes issued pursuant to the note purchase agreements . sysorex loan transaction on december 31 , 2018 , the company and sysorex entered into a note purchase agreement pursuant to which the company agreed to purchase from sysorex at a purchase price equal to the loan amount ( as defined below ) , a secured promissory note ( the “ secured note ” ) for up to an aggregate principal amount of 3.0 million ( the “ principal amount ” ) , including any amounts advanced through the date of the secured note ( the “ prior advances ” ) , to be borrowed and disbursed in increments ( such borrowed amount , together with the prior advances , collectively referred to as the “ loan amount ” ) , with interest to accrue at a rate of ten percent ( 10 % ) per annum on all such loan amounts , beginning as of the date of disbursement with respect to any portion of such loan amount . in addition , sysorex agreed to pay $ 20,000 to the company to cover the company 's legal fees , accounting costs , due diligence , monitoring and other transaction costs incurred in connection with the purchase and sale of the secured note ( the “ transaction expense amount ” ) , all of which amount is included in the principal amount .
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results of operations year ended december 31 , 2018 compared to the year ended december 31 , 2017 the following table sets forth selected consolidated financial data as a percentage of our revenue and the percentage of period-over-period change : replace_table_token_2_th revenues revenues for the year ended december 31 , 2018 were $ 3.8 million compared to $ 3.9 million for the comparable period in the prior year for a decrease of $ 0.1 million , or approximately 2.6 % . revenues between the two comparable periods are relatively flat due to an increase in our ipa product revenues , which was offset by a decrease in our shoom services revenue . our revenues for the year ended december 31 , 2018 include our ipa and other product lines that remain following the spin-off . such revenues do not include the revenues of our historical value added reseller business , as such business was part of the spin-off of sysorex . accordingly , the revenues for the year ended december 31 , 2018 represent a decline of approximately 90 % from the total historical revenues reported for the year ended december 31 , 2017 , which included the aggregate revenues of our ipa business and the value added reseller business . cost of revenues cost of revenues for the year ended december 31 , 2018 were $ 1.1 million compared to $ 1.2 million for the comparable period in the prior year .
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the company may redeem these funds at the net asset value calculated at the end of the current business day less any unpaid management fees . as of december 31 , 2015 , the amortized cost of these securities was $ 11.0 million and the fair value was $ 10.7 million . there are no restrictions on redemptions for the holdings in these investments other than the notice required by the fund manager . there are no story_separator_special_tag this section presents a review of lakeland bancorp , inc. 's consolidated results of operations and financial condition . you should read this section in conjunction with the selected consolidated financial data that is presented on the preceding page as well as the accompanying consolidated financial statements and notes to financial statements . as used in the following discussion , the term company refers to lakeland bancorp , inc. and lakeland refers to the company 's wholly owned banking subsidiary - lakeland bank . statements regarding forward-looking information the information disclosed in this document includes various forward-looking statements that are made in reliance upon the safe harbor provisions of the private securities litigation reform act of 1995 with respect to credit quality ( including delinquency trends and the allowance for loan and lease losses ) , corporate objectives , and other financial and business matters . the words anticipates , projects , intends , estimates , expects , believes , plans , may , will , should , could , and other similar expressions are intended to identify such forward-looking statements . the company cautions that these forward-looking statements are necessarily speculative and speak only as of the date made , and are subject to numerous assumptions , risks and uncertainties , all of which may change over time . actual results could differ materially from such forward-looking statements . in addition to the risk factors disclosed in item 1a in this annual report on form 10-k , the following factors , among others , could cause the company 's actual results to differ materially and adversely from such forward-looking statements : changes in the financial services industry and the u.s. and global capital markets , changes in economic conditions nationally , regionally and in the company 's markets , the nature and timing of actions of the federal reserve board and other regulators , the nature and timing of legislation affecting the financial services industry including but not limited to the dodd-frank wall street reform and consumer protection act of 2010 , government intervention in the u.s. financial system , changes in levels of market interest rates , pricing pressures on loan and deposit products , credit risks of lakeland 's lending and leasing activities , customers ' acceptance of lakeland 's products and services , competition , the failure to realize anticipated efficiencies and synergies from the merger of pascack bancorp into the company , and pascack community bank into lakeland bank , and failure to obtain harmony bank shareholder or regulatory approval for the merger of harmony bank into lakeland and failure to realize anticipated efficiencies and synergies if the merger of harmony bank into lakeland is consummated . the above-listed risk factors are not necessarily exhaustive , particularly as to possible future events , and new risk factors may emerge from time to time . certain events may occur that could cause the company 's actual results to be materially different than those described in the company 's periodic filings with the securities and exchange commission . any statements made by the company that are not historical facts should be considered to be forward-looking statements . the company is not obligated to update and does not undertake to update any of its forward-looking statements made herein . strategy the company , through its wholly owned subsidiary , lakeland bank , currently operates 53 banking offices located in northern and central new jersey . lakeland offers a broad range of lending , depository , and related financial services to individuals and small to medium sized businesses located in its market areas . lakeland also offers a broad range of consumer banking services , including lending , depository , safe deposit services and other non-traditional banking services . lakeland 's growth has come from a combination of organic growth and acquisitions . since 1998 when lakeland completed its first acquisition , and through 2015 , lakeland has opened 27 new branch offices ( including acquired branches ) . in 2015 , the company opened two new loan production offices ( lpos ) that -27- allowed lakeland to expand geographically in new jersey and to enter new york state for the first time . in addition to organic growth , through december 31 , 2015 , the company has acquired five community banks with an aggregate asset total of approximately $ 1.1 billion at the date of acquisition , including the acquisition of the somerset hills bank and its parent , somerset hills bancorp , which closed on may 31 , 2013. additionally , on january 7 , 2016 , the company completed its acquisition of pascack community bank and its parent company pascack bancorp , with eight branches and an asset total of approximately $ 390.0 million . three of the eight pascack community bank branches will be merged with lakeland branches , resulting in 53 branches at lakeland . all acquired banks have been merged into lakeland and their holding companies , if applicable , have been merged into the company . on february 18 , 2016 , the company announced that it entered into a definitive agreement and plan of merger to acquire harmony bank . harmony bank will be merged into lakeland bank with lakeland bank as the surviving bank . the company 's strategy is to continue growth both organically and through acquisition should opportunities allow . the company continues to evaluate opportunities to increase market share by expanding within existing and contiguous markets . story_separator_special_tag consideration is given to the results of ongoing credit quality monitoring processes , the adequacy and expertise of lakeland 's lending staff , underwriting policies , loss histories , delinquency trends , and the cyclical nature of economic and business conditions . since many of lakeland 's loans depend on the sufficiency of collateral as a secondary source of repayment , any adverse trend in the real estate markets could affect underlying values available to protect lakeland from loss . a loan that management designates as impaired is reviewed for charge-off when it is placed on non-accrual status with a resulting charge-off if the loan is not secured by collateral having sufficient liquidation value to repay the loan , and the loan is not in the process of collection . charge-offs are recommended by the chief credit officer and approved by the board . loans and leases are considered impaired when , based on current information and events , it is probable that lakeland will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement , including scheduled principal and interest payments . impairment is measured based on the present value of expected cash flows discounted at the loan 's effective interest rate , or as a practical expedient , lakeland may measure impairment based on a loan 's observable market price , or the fair value of the collateral , less estimated costs to sell , if the loan is collateral-dependent . regardless of the measurement method , lakeland measures impairment based on the fair value of the collateral when it is determined that foreclosure is probable . -29- most of lakeland 's impaired loans are collateral-dependent . lakeland groups impaired commercial loans under $ 500,000 into a homogeneous pool and collectively evaluates them . interest received on impaired loans and leases may be recorded as interest income . however , if management is not reasonably certain that an impaired loan and lease will be repaid in full , or if a specific time frame to resolve full collection can not yet be reasonably determined , all payments received are recorded as reductions of principal . fair value measurements and fair value of financial instruments . fair values of financial instruments are volatile and may be influenced by a number of factors , including market interest rates , prepayment speeds , discount rates , credit ratings and yield curves . fair values for investment securities are based on quoted market prices , where available . if quoted market prices are not available , fair values are based on the quoted prices of similar instruments or an estimate of fair value by using a range of fair value estimates in the market place as a result of the illiquid market specific to the type of security . when the fair value of a security is below its amortized cost , and depending on the length of time the condition exists and the extent the fair value is below amortized cost , additional analysis is performed to determine whether an other-than-temporary impairment condition exists . available-for-sale and held-to-maturity securities are analyzed quarterly for possible other-than-temporary impairment . the analysis considers ( i ) the length of time and the extent to which the fair value has been less than cost , ( ii ) the financial condition and near-term prospects of the issuer which may include projections of cash flows , and ( iii ) the intent and ability of the company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value . often , the information available to conduct these assessments is limited and rapidly changing , making estimates of fair value subject to judgment . if actual information or conditions are different than estimated , the extent of the impairment of the security may be different than previously estimated , which could have a material effect on the company 's results of operations and financial condition . income taxes . the company accounts for income taxes under the asset and liability method of accounting for income taxes . deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse . deferred tax expense is the result of changes in deferred tax assets and liabilities . the principal types of differences between assets and liabilities for financial statement and tax return purposes are allowance for loan and lease losses , core deposit intangible , deferred loan costs and deferred compensation . the company evaluates the realizability of its deferred tax assets by examining its earnings history and projected future earnings and by assessing whether it is more likely than not that carryforwards would not be realized . based upon the majority of the company 's deferred tax assets having no expiration date , the company 's earnings history , and the projections of future earnings , the company 's management believes that it is more likely than not that all of the company 's deferred tax assets as of december 31 , 2015 will be realized . the company evaluates tax positions that may be uncertain using a recognition threshold of more-likely-than-not , and a measurement attribute for all tax positions taken or expected to be taken on a tax return , in order for those tax positions to be recognized in the financial statements . additional information regarding the company 's uncertain tax positions is set forth in note 9 to the notes to the audited consolidated financial statements contained herein . goodwill and other identifiable intangible assets . the company reviews goodwill for impairment annually as of november 30 or when circumstances indicate a potential for impairment at the reporting unit level .
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financial overview the year ended december 31 , 2015 represented a year of continued growth for the company . as discussed in this management 's discussion and analysis : net income for the year ended december 31 , 2015 was $ 32.5 million , or $ 0.85 per diluted share , a 4 % increase compared to $ 31.1 million , or $ 0.82 per diluted share , for 2014. excluding the impact of $ 1.6 million in net non-routine transactions , described below , net income for the year ended december 31 , 2015 was $ 33.8 million , an 8 % increase compared to 2014 , or $ 0.88 per diluted share . the $ 1.6 million in net non-routine transactions in 2015 included $ 1.2 million of expenses related to the pascack bancorp , inc. ( pascack bancorp ) merger , $ 2.4 million of prepayment fees from the repayment of $ 20.0 million of 4.44 % long-term debt , $ 1.8 million of realized gain from the redemption of $ 10.0 million of trust preferred debt , and $ 173,000 in related net realized gains on the sale of securities . merger expenses primarily include the cost of legal , accounting , and investment banking services as well as technology costs . total loans increased $ 312.3 million , or 12 % , from december 31 , 2014 to december 31 , 2015. commercial real estate loans increased $ 231.8 million , or 15 % , from december 31 , 2014 to december 31 , 2015. commercial , industrial and other loans increased $ 68.8 million or 29 % in the same time period .
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under this method , deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in story_separator_special_tag the following discussion of financial condition as of december 31 , 2018 , and 2017 , and results of operations for each of the years in the three-year period ended december 31 , 2018 should be read in conjunction with our consolidated financial statements and related notes , included in part ii item 8 of this report . average balances , including balances used in calculating certain financial ratios , are generally comprised of average daily balances . the disclosures set forth in this item are qualified by important factors detailed in part i captioned forward-looking statements and item 1a captioned risk factors of this report and other cautionary statements set forth elsewhere in the report . executive overview net income for the three years ended december 31 , 2018 , 2017 and 2016 was $ 15.7 million or $ 0.96 per share diluted , $ 7.3 million or $ 0.48 per share-diluted , and $ 5.3 million or $ 0.39 per share-diluted , respectively . financial performance for all three years includes “ selected tax items ” which complicates reporting period comparisons . the 2018 results include a $ 1.5 million decrease in our income tax provision composed of a $ 988 thousand reversal of our reserve for uncertain tax position and a $ 484 thousand benefit as a result of our cost segregation study and tangible property review . the 2017 results include a $ 2.5 million increase in our income tax provision as a result of the tax cuts and jobs act of 2017. the 2016 results also include a write-down of a $ 363 deferred tax asset . management believes that our financial results are more comparative excluding the impact of these selected tax items . non-gaap financial measures in addition to results presented in accordance with generally accepted accounting principles in the united states of america ( gaap ) , this annual report on form 10-k contains certain non-gaap financial measures . we believe that these non-gaap financial measures provide investors with information useful in understanding the company 's financial performance ; however , readers of this document are urged to review these non-gaap financial measures in conjunction with the gaap results as reported . selected non-gaap financial information - unaudited ( amounts in thousands except per share data ) replace_table_token_2_th 21 bank of commerce holdings & subsidiaries significant items for the year ended december 31 , 2018 were as follows : performance ● net income of $ 15.7 million was an increase of $ 8.4 million ( 114 % ) from $ 7.3 million earned during the same period in the prior year . earnings of $ 0.96 per share – diluted was an increase of $ 0.48 ( 100 % ) from $ 0.48 per share – diluted earned in the prior year and reflects the impact of 2,738,096 shares of common stock sold and issued in the second quarter of 2017 . ● expenses associated with our acquisition of merchants holding company totaled $ 844 thousand . ● net interest income increased $ 6.2 million ( 15 % ) to $ 47.5 million compared to $ 41.4 million in the prior year . ● return on average assets improved to 1.22 % compared to 0.61 % in the prior year . ● return on average equity improved to 12.08 % compared to 6.34 % in the prior year . ● average loans totaled $ 915.4 million , an increase of $ 97.2 million ( 12 % ) compared to average loans in the prior year . ● average earning assets totaled $ 1.220 billion , an increase of $ 96 million ( 9 % ) compared to average earning assets in the prior year . ● average deposits totaled $ 1.098 billion , an increase of $ 57 million ( 5 % ) compared to average deposits in the prior year . o average non-maturing deposits totaled $ 930.2 million , an increase of $ 94.4 million ( 11 % ) compared to average non-maturing deposits in the prior year . o average certificates of deposit totaled $ 168.2 million , a decrease of $ 37.5 million ( 18 % ) compared to average certificates of deposit in the prior year . ● the company 's efficiency ratio was 62.5 % compared to 67.0 % during the prior year . capital ● declared cash dividends of $ 0.15 per share in 2018 compared to $ 0.12 per share in 2017 . ● book value per common share was $ 8.47 at december 31 , 2018 compared to $ 7.82 at december 31 , 2017. tangible book value per common share ( non-gaap ) which excludes goodwill and core deposit intangibles from shareholders ' equity was $ 8.36 at december 31 , 2018 compared to $ 7.70 at december 31 , 2017. management believes that tangible book value per share is meaningful because it is a measure that the company and investors commonly use to assess capital adequacy . ● average total equity increased by $ 14.3 million ( 12 % ) to $ 130.2 million for the year ended december 31 , 2018 , compared to $ 115.9 million for the year ended december 31 , 2017 . ● the bank maintained capital levels in excess of the “ well-capitalized ” standards for the year ended december 31 , 2018. credit quality ● nonperforming assets at december 31 , 2018 totaled $ 4.2 million or 0.32 % of total assets , a decrease of $ 1.7 million ( 28 % ) since december 31 , 2017 . ● there was no provision for loan and lease losses during the current year as a result of continued improved asset quality and net loan loss recoveries . story_separator_special_tag ● interest on junior subordinated debentures increased $ 98 thousand during 2018. the net interest margin for the year ended december 31 , 2018 was 3.90 % an increase of 22 basis points as compared to 2017. our net interest margin was enhanced during 2018 by our efforts to deploy liquidity from strong core deposit growth into loan originations , the purchase of intermediate term available for sale securities and the accelerated repayment of our senior debt . the benefit of our actions resulted in a 23 basis point increase in the yield on average interest-earning assets . the net interest margin on a fully tax-equivalent basis was 3.93 % for the year ended december 31 , 2018 , an increase of 16 basis points as compared to the same period a year previous . the tax equivalent yields for 2018 were calculated using a 21 % tax rate while the tax equivalent yields for 2017 were calculated using a 34 % tax rate . maintaining our net interest margin in the future will continue to be challenging as market pressures increase on deposit rates . the year ended december 31 , 2017 compared to the year ended december 31 , 2016 interest income for the year ended december 31 , 2017 was $ 45.9 million , an increase of $ 4.9 million or 12 % compared to a year previous . the increase in interest income was derived primarily from our loan portfolio ( $ 3.7 million ) and our investment securities portfolio ( $ 823 thousand ) . both portfolios benefited from increased volume . the loan portfolio also benefited from increases in yield however , yields decreased for the investment portfolio . interest expense for the year ended december 31 , 2017 was $ 4.6 million , a decrease of $ 191 thousand or 4 % compared to the prior year . ● interest on interest-bearing deposits increased $ 256 thousand during 2017. average interest-bearing core deposit balances increased $ 67.1 million while average time deposit balances decreased $ 15.4 million . the cost of all deposits decreased by one basis point to 0.30 % for 2017 compared to the prior year . ● interest on senior and subordinated term debt decreased $ 9 thousand during 2017 and reflects principal repayments made on senior debt during the year . ● interest on fhlb term debt decreased $ 482 thousand during 2017. fhlb term debt averaged $ 302 thousand in 2017 compared to $ 17.9 million in 2016. for 2016 , interest on federal home loan bank of san francisco borrowings includes the effect of hedge losses reclassified out other comprehensive income . during march of 2016 , we terminated all of our interest rate swaps ( active and forward starting , the “ hedging ” instrument ) and simultaneously paid off the $ 75.0 million federal home loan bank of san francisco borrowing ( the “ hedged instrument ” ) . ● interest on junior subordinated debentures increased $ 52 thousand during 2017. the net interest margin on a fully tax-equivalent basis was 3.78 % for the year ended december 31 , 2017 , an increase of seven basis points as compared to the same period a year previous . the increase in our net interest margin resulted mostly from a decrease in the cost of funding average earning assets . these lower funding costs are the result of reductions in term debt and the termination of an interest rate hedge in 2016 . 24 bank of commerce holdings & subsidiaries the following table presents condensed average balance sheet information , together with interest income and yields earned on average interest-earning assets , and interest expense and rates paid on average interest-bearing liabilities for the years ended december 31 , 2018 , 2017 and 2016. average balances , interest income/expense and yields earned/rates paid replace_table_token_5_th ( 1 ) interest income on loans includes deferred fees and costs of approximately $ 465 thousand , $ 546 thousand , and $ 1.1 million for the years ended december 31 , 2018 , 2017 and 2016 respectively . ( 2 ) net loans includes average nonaccrual loans of $ 4.2 million , $ 8.9 million and $ 10.6 million for the years 2018 , 2017 , and 2016 , respectively . ( 3 ) tax-exempt income has been adjusted to tax equivalent basis at a 21 % for 2018 and at a 34 % tax rate for 2017 and 2016. the amount of such adjustments was an addition to recorded income of approximately $ 433 thousand , $ 1.1 million and $ 1.2 million for the years 2018 , 2017 and 2016 , respectively . ( 4 ) net interest margin is net interest income expressed as a percentage of average interest-earning assets . ( 5 ) yields and rates are calculated by dividing income or expense by the average balance of the respective assets or liabilities . 25 bank of commerce holdings & subsidiaries the following table sets forth a summary of the changes in tax equivalent net interest income due to changes in average asset and liability balances ( volume variance ) and changes in average rates ( rate variance ) for 2018 compared to 2017 and 2017 compared to 2016. changes in tax equivalent interest income and expense , which are not specifically attributable to either volume or rate , are allocated proportionately between both variances .
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results of operations the following discussion and analysis provides a comparison of the results of operations for the three years ended december 31 , 2018. this discussion should be read in conjunction with the consolidated financial statements and related notes . overview the year ended december 31 , 2018 compared to the year ended december 31 , 2017 net income was $ 15.7 million for the year ended december 31 , 2018 , compared to $ 7.3 million for the year ended december 31 , 2017. for 2018 , increases in net interest income , a decrease in the provision for loan and lease losses and a decreased provision for income taxes were partially offset by decreased noninterest income and increased noninterest expenses . diluted earnings per share were $ 0.96 for the year ended december 31 , 2018 compared with $ 0.48 for the same period a year previous . we declared cash dividends of $ 0.15 per share in 2018 and $ 0.12 per share in 2017. in determining the amount of dividend to be paid , we give consideration to capital preservation objectives , expected asset growth , projected earnings , the overall dividend pay-out ratio and the dividend yield . the year ended december 31 , 2017 compared to the year ended december 31 , 2016 net income was $ 7.3 million for the year ended december 31 , 2017 , compared to $ 5.3 million for the year ended december 31 , 2016. for 2017 , increases in net interest income , noninterest income and decreases in noninterest expense were offset by an increased provision for loan and lease losses and an increased provision for income taxes . diluted earnings per share were $ 0.48 for the year ended december 31 , 2017 compared with $ 0.39 for the same period a year previous .
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generally , the valuation team uses the yield analysis to corroborate both estimates of value provided by spse and market quotes story_separator_special_tag the following analysis of our financial condition and results of operations should be read in conjunction with our accompanying consolidated financial statements and the notes thereto contained elsewhere in this annual report on form 10-k. historical financial condition and results of operations and percentage relationships among any amounts in the financial statements are not necessarily indicative of financial condition , results of operations or percentage relationships for any future periods . except per share amounts , dollar amounts in the tables included herein are in thousands unless otherwise indicated . overview general we were incorporated under the maryland general corporation law on may 30 , 2001. we operate as an externally managed , closed-end , non-diversified management investment company , and have elected to be treated as a bdc under the 1940 act . in addition , for federal income tax purposes we have elected to be treated as a ric under subchapter m of the code . as a bdc and a ric , we are subject to certain constraints , including limitations imposed by the 1940 act and the code . we were established for the purpose of investing in debt and equity securities of established private businesses operating in the u.s. our investment objectives are to : ( 1 ) achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses , make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time ; and ( 2 ) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains . to achieve our investment objectives , our investment strategy is to invest in several categories of debt and equity securities , with each investment generally ranging from $ 8 million to $ 30 million , although investment size may vary , depending upon our total assets or available capital at the time of investment . we expect that our investment portfolio over time will consist of approximately 90.0 % debt investments and 10.0 % equity investments , at cost . as of september 30 , 2017 , our investment portfolio was made up of approximately 90.1 % debt investments and 9.9 % equity investments , at cost . we focus on investing in lower middle market companies in the u.s. that meet certain criteria , including , but not limited to , the following : the sustainability of the business ' free cash flow and its ability to grow it over time , adequate assets for loan collateral , experienced management teams with a significant ownership interest in the borrower , reasonable capitalization of the borrower , including an ample equity contribution or cushion based on prevailing enterprise valuation multiples and , to a lesser extent , the potential to realize appreciation and gain liquidity in our equity position , if any . we lend to borrowers that need funds for growth capital or to finance acquisitions or recapitalize or refinance their existing debt facilities . we seek to avoid investing in high-risk , early-stage enterprises . our targeted portfolio companies are generally considered too small for the larger capital marketplace . we invest by ourselves or jointly with other funds and or management of the portfolio company , depending on the opportunity and have opportunistically made several co-investments with our affiliate gladstone investment corporation , a bdc also managed by our advisor , pursuant to an exemptive order granted by the sec . we believe this ability to co-invest will continue to enhance our ability to further our investment objectives and strategies . if we are participating in an investment with one or more co-investors , our investment is likely to be smaller than if we were investing alone . business portfolio and investment activity in general , our investments in debt securities have a term of no more than seven years , accrue interest at variable rates ( generally based on the one-month libor ) and , to a lesser extent , at fixed rates . we seek debt instruments that pay interest monthly or , at a minimum , quarterly , have a success fee or deferred interest provision and are primarily interest only with all principal and any accrued but unpaid interest due at maturity . generally , success fees accrue at a set rate and are contractually due upon a change of control of a portfolio company , typically from an exit or sale . some debt securities have deferred interest whereby some portion of the interest payment is added to the principal balance so that the interest is paid , together with the principal , at maturity . this form of deferred interest is often called pik interest . 41 typically , our equity investments consist of common stock , preferred stock , limited liability company interests , or warrants to purchase the foregoing . often , these equity investments occur in connection with our original investment , recapitalizing a business , or refinancing existing debt . during the year ended september 30 , 2017 , we invested $ 99.2 million in eleven new portfolio companies and extended $ 17.6 million of investments to existing portfolio companies . in addition , during the year ended september 30 , 2017 , we exited nine portfolio companies through sales and early payoffs . story_separator_special_tag additionally , we issued 2.1 million shares of our 6.00 % series 2024 term preferred stock , par value $ 0.001 per share ( series 2024 term preferred stock ) at a public offering price of $ 25 per share , for gross proceeds of $ 51.8 million in september 2017 , inclusive of the overallotment , approximately 2.2 million shares of our common stock for gross proceeds of $ 17.3 million in october 2016 , inclusive of the november 2016 overallotment , and 2.3 million shares of common stock for gross proceeds of $ 19.7 million in october 2015 , inclusive of the november 2015 overallotment . additionally , during the twelve months ended september 30 , 2017 , we sold 642,818 shares of our common stock under our at-the-market program with cantor fitzgerald & co. , at a weighted-average price of $ 9.88 per share and raised $ 6.4 million of gross proceeds . refer to liquidity and capital resources equity common stock and liquidity and capital resources equity term preferred stock for further discussion of our common stock and mandatorily redeemable preferred stock and liquidity and capital resources revolving line of credit for further discussion of the credit facility . although we were able to access the capital markets historically and in recent years , we believe uncertain market conditions could affect the trading price of our capital stock and thus may inhibit our ability to finance new investments through the issuance of equity . when our stock trades below nav per common share , as it has often done in previous years , our ability to issue equity is constrained by provisions of the 1940 act , which generally prohibits the issuance and sale of our common stock below nav per common share without first obtaining approval from our stockholders and our independent directors , other than through sales to our then-existing stockholders pursuant to a rights offering . we did not request that our stockholders approve the company 's ability to issue shares of common stock at a price below nav at our annual meeting of stockholders held on february 9 , 2017. should we decide to issue shares of common stock at a price below nav in the future , we will seek the requisite approval of our stockholders at such time . on november 17 , 2017 , the closing market price of our common stock was $ 9.78 , a 16.4 % premium to our september 30 , 2017 nav per share of $ 8.40 . 43 regulatory compliance our ability to seek external debt financing , to the extent that it is available under current market conditions , is further subject to the asset coverage limitations of the 1940 act , which require us to have an asset coverage ( as defined in sections 18 and 61 of the 1940 act ) of at least 200 % on our senior securities representing indebtedness and our senior securities that are stock. as of september 30 , 2017 , our asset coverage on our senior securities representing indebtedness was 388.2 % and our asset coverage on our senior securities that are stock was 249.6 % . recent developments at-the-market program subsequent to september 30 , 2017 and through november 13 , 2017 , we sold an additional 471,498 shares of our common stock under our at-the-market program with cantor fitzgerald & co , at a weighted-average price of $ 9.69 per share and raised $ 4.6 million of gross proceeds . net proceeds , after deducting commissions and offering costs borne by us , were approximately $ 4.5 million . distributions on october 10 , 2017 , our board of directors declared the following monthly cash distributions to common and preferred stockholders : replace_table_token_9_th ( a ) the dividend paid on october 31 , 2017 included the pro-rated period from and including the issuance date of september 27 , 2017 to and including september 30 , 2017 , and the full month of october 2017. portfolio and investment activity in october 2017 , we sold our investment in flight fit n fun llc , which had a cost basis and fair value of $ 8.5 million and $ 9.2 million , respectively , as of september 30 , 2017. in connection with the sale , we received net cash proceeds of approximately $ 9.4 million , including the repayment of our debt investment of $ 7.8 million at par . in october 2017 , psc industrial holdings , llc paid off at par for net proceeds of $ 3.5 million . in october 2017 , we invested $ 11.0 million in avst parent holdings , llc through secured first lien debt . in november 2017 , datapipe , inc. paid off at par for net proceeds of $ 2.0 million . in november 2017 , we invested $ 5.0 million in digicert holdings , inc. through secured second lien debt . in november 2017 , we invested $ 4.0 million in red ventures , llc through secured second lien debt . in november 2017 , we invested $ 1.0 million in abg intermediate holdings 2 , llc through secured second lien debt . in november 2017 , we invested $ 7.5 million in arc drilling holdings , llc through secured first lien debt and equity .
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results of operations comparison of the year ended september 30 , 2017 to the year ended september 30 , 2016 replace_table_token_10_th investment income interest income increased by 5.3 % for the year ended september 30 , 2017 , as compared to the prior year . this increase was due primarily to an increase in the weighted average yield on our interest-bearing portfolio . the weighted average yield on our interest-bearing investments is based on the current stated interest rate on interest-bearing investments which increased to 11.6 % for the year ended september 30 , 2017 compared to 11.1 % for the year ended september 30 , 2016 , inclusive of any allowances on interest receivables made during those periods . the weighted average principal balance of our interest-bearing investment portfolio during the year ended september 30 , 2017 , was $ 320.1 million , compared to $ 317.0 million for the prior year , an increase of $ 3.1 million , or 1.0 % . as of september 30 , 2017 , two portfolio companies , sunshine media holdings ( sunshine ) and alloy die casting co. ( adc ) , were either fully or partially on non-accrual status , with an aggregate debt cost basis of approximately $ 27.9 million , or 7.5 % of the cost basis of all debt investments in our portfolio . as of september 30 , 2016 , two portfolio companies , sunshine and vertellus holdings , llc , were either fully or partially on non-accrual status , with an aggregate debt cost basis of approximately $ 26.5 million , or 7.7 % of the cost basis of all debt investments in our portfolio . 45 other income decreased by 44.5 % during the year ended september 30 , 2017 , as compared to the prior year . this decrease was primarily due to a $ 1.9 million decrease in success fees recognized year over year . for the year ended september 30 , 2017 , other income consisted primarily of $ 1.5 million in success fees recognized , $ 0.3
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the anchorage lawsuit asserted breach of contract , professional negligence and negligence in respect of services story_separator_special_tag executive overview customers and services we are a diversified services and supply chain management company that assists our clients in sustaining , extending the service life , and improving the performance of their transportation , equipment , and other assets and systems . we provide logistics and distribution services for legacy systems and equipment and professional and technical services to the united states government ( the `` government '' ) , including the united states department of defense ( `` dod '' ) , the united states postal service ( `` usps '' ) , federal civilian agencies , and to commercial and other customers . our largest customers are the dod and the usps . our operations include supply chain management solutions , parts supply and distribution , and maintenance , repair , and overhaul ( “ mro ” ) services for vehicle fleet , aviation , and other clients ; vehicle and equipment maintenance and refurbishment ; logistics ; engineering ; energy and environmental services ; it and health care it solutions ; and consulting services . see item 1 “ business - revenues and contracts ” above for revenues by customer . organization and segments our operations are conducted within four reportable segments aligned with our management groups : 1 ) supply chain management ; 2 ) aviation ; 3 ) federal services ; and 4 ) it , energy and management consulting . beginning in 2017 , we are consolidating our federal services group and it , energy and management consulting group into a single management group and reportable segment . supply chain management group - our supply chain management group provides sourcing , acquisition , scheduling , transportation , shipping , logistics , data management , and other services to assist our clients with supply chain management efforts . this group consists of our subsidiaries wheeler bros. , inc. ( `` wbi '' ) and ultra seating company . the primary revenue source for this group is wbi 's usps managed inventory program ( `` mip '' ) that supplies vehicle parts and mission critical supply chain support for the usps truck fleet . other current work efforts include managed inventory services and parts sales to support commercial client truck fleets , parts sales to dod , and other projects to support the usps . aviation group - our aviation group provides mro services , parts supply and distribution , and supply chain solutions for general aviation jet aircraft engines and engine accessories . this group consists of vse aviation , inc. and the four aviation businesses we acquired in january 2015. these businesses have a diversified client base serving corporate and private aircraft owners , regional airlines , aviation manufacturers , other aviation mro providers , cargo transporters , and agricultural clients . federal services group - our federal services group provides foreign military sales services , refurbishment services to extend and enhance the life of existing vehicles and equipment , fleet-wide ship and aircraft support , aircraft sustainment and maintenance , and other technical , management , engineering , logistics , maintenance , configuration management , prototyping , technology , and field support services to the u.s. navy and marine corps , u.s. army and army reserve , u.s. air force , and other customers . significant work efforts for this group include assistance to the u.s. navy in executing its foreign military sales ( “ fms ” ) program for surface ships sold , leased or granted to foreign countries , our red river army depot equipment related services program ( “ rrad ers ” ) providing on-site logistics support for red river army depot at texarkana , texas , our fort benning logistics support services program supporting base operations and logistics at fort benning , georgia , and various vehicle and equipment refurbishment , maintenance and sustainment programs for u.s. army commands . it , energy and management consulting group - our it , energy and management consulting group provides technical and consulting services primarily to various dod and federal civilian agencies , including the united states departments of energy , homeland security , and interior ; the social security administration ; the national institutes of health ; customers in the military health system ; and other government agencies and commercial clients . this group consists of our subsidiaries energetics incorporated ( `` energetics '' ) and akimeka , llc ( `` akimeka '' ) . energetics provides technical , policy , business , and management support in areas of energy modernization , clean and efficient energy , climate change mitigation , infrastructure protection , and measurement technology . akimeka offers solutions in fields that include medical logistics , medical command and control , e-health , information assurance , public safety , enterprise architecture development , business continuity , program and portfolio management , network it services , cloud managed services , systems design and integration , quality assurance services , and product and process improvement services . - 18 - concentration of revenues replace_table_token_6_th management outlook we saw steady revenue growth in 2016 , as revenue increased on a quarter to quarter basis throughout the year and was up 30 % over the prior year . the improvements in our revenue levels were led by renewed vigor in our federal services group markets , for which revenues increased by 83 % . strong contract funding awards in 2016 allowed us to finish the year with a contract funded backlog that positions us well as we head into 2017. increased revenues from our supply chain management group and a full year of revenue from our aviation group ( as compared to eleven months in 2015 when we acquired these businesses ) also contributed to our revenue growth in 2016. we are encouraged to see contributions to our federal services group revenue base from both our long time programs and newer programs . story_separator_special_tag while bookings and funded contract backlog generally result in revenue , we may occasionally have funded contract backlog that expires or is de-obligated upon contract completion and does not generate revenue . a summary of our bookings and revenues for our federal services and it , energy and management groups for the years ended december 31 , 2016 , 2015 and 2014 , and funded contract backlog for these groups as of december 31 , 2016 , 2015 and 2014 is as follows ( in millions ) : replace_table_token_7_th recently issued accounting pronouncements for a description of recently announced accounting standards , including the expected dates of adoption and estimated effects , if any , on our consolidated financial statements , see `` recently issued accounting pronouncements '' in note 1 of the notes to our consolidated financial statements in this form 10-k. critical accounting policies our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states , which require us to make estimates and assumptions . we believe the following critical accounting policies affect the more significant accounts , particularly those that involve judgments , estimates and assumptions used in the preparation of our consolidated financial statements . revenue recognition revenue is recognized when persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the fee is fixed or determinable , and collection is probable . substantially all of our supply chain management group revenues result from the sale of vehicle parts to clients . we recognize revenue from the sale of vehicle parts when the customer takes ownership of the parts . our aviation group revenues are recognized upon the shipment or delivery of products to customers based on when title or risk of loss transfers to the customer . sales returns and allowances are not significant . - 20 - substantially all of our federal services and it , energy and management consulting work is performed for our customers on a contract basis . the three primary types of contracts used are cost-type , fixed-price and time and materials . revenues result from work performed on these contracts by our employees and our subcontractors and from costs for materials and other work related costs allowed under our contracts . revenues on cost-type contracts are recorded as contract allowable costs are incurred and fees are earned . our fms program contract is a cost plus award fee contract . this contract has terms that specify award fee payments that are determined by performance and level of contract activity . award fees are made during the year through a contract modification authorizing the award fee that is issued subsequent to the period in which the work is performed . we recognize award fee income on the fms program contract when the fees are fixed or determinable . due to such timing and fluctuations in the level of revenues , profits as a percentage of revenues on this contract will fluctuate from period to period . revenue recognition methods on fixed-price contracts will vary depending on the nature of the work and the contract terms . revenues on fixed-price service contracts are recorded as work is performed , typically ratably over the service period . revenues on fixed-price contracts that require delivery of specific items are recorded based on a price per unit as units are delivered . revenues for time and materials contracts are recorded on the basis of contract allowable labor hours worked multiplied by the contract defined billing rates , plus the direct costs and indirect cost burdens associated with materials and subcontract work used in performance on the contract . generally , profits on time and materials contracts result from the difference between the cost of services performed and the contract defined billing rates for these services . a summary of revenues for our operating groups , including a summary by contract type for our federal services and it , energy and management consulting groups , for the years ended december 31 is presented below ( in thousands ) . replace_table_token_8_th we will occasionally perform work at risk , which is work performed prior to formalizing contract funding for such work . revenue related to work performed at risk is not recognized until it can be reliably estimated and its realization is probable . we recognize this “ risk funding ” as revenue when the associated costs are incurred or the work is performed . we are at risk of loss for any risk funding not received . revenues recognized as of december 31 , 2016 include approximately $ 2.1 million for which we have not received formalized funding . we believe that we are entitled to reimbursement and expect to receive all of this funding . goodwill and intangible assets we have five reporting units , including four reporting units with goodwill . goodwill is subject to a review for impairment at least annually . we perform an annual review of goodwill for impairment during the fourth quarter and whenever events or changes in circumstances indicate that the carrying value may not be recoverable . the impairment assessment requires us to estimate the fair value of our reporting units and involves the use of subjective assumptions . we estimated the fair value of our reporting units using a weighting of fair values derived from the income approach , market approach , and comparative transactions approach with the heaviest weighting placed on the income approach . under the income approach , we calculate the fair value of a reporting unit based on the present value of estimated future cash flows . cash flow projections are based on our estimates of revenue growth rates and operating margins , taking into consideration industry and market conditions . the discount rate used is based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the business and the projected cash flows .
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results of operations replace_table_token_9_th our revenues increased by approximately $ 158 million or 30 % for the year ended december 31 , 2016 as compared to the prior year . the change in revenues for this period resulted from an increase in our federal services group of approximately $ 139 million , an increase in our aviation group of approximately $ 14 million , an increase in our supply chain management group of approximately $ 9 million , and a decrease in our it , energy , and management consulting group of approximately $ 4 million . our revenues increased by approximately $ 110 million or 26 % for the year ended december 31 , 2015 as compared to the prior year . the change in revenues for this period resulted from an increase of approximately $ 120 million due to the inclusion our aviation group in our operating results in 2015 , an increase in our supply chain management group of approximately $ 24 million , a decrease in our federal services group of approximately $ 24 million , and a decrease in our it , energy , and management consulting group of approximately $ 10 million . - 22 - replace_table_token_10_th costs and operating expenses consist primarily of cost of inventory and delivery of our products sold ; direct costs , including labor , material , and supplies used in the performance of our contract work ; indirect costs associated with our direct contract costs ; sales , general , and administrative expenses associated with our operating groups and corporate management ; and certain costs and charges arising from nonrecurring events outside the ordinary course of business . these costs will generally increase or decrease in conjunction with our level of products sold or contract work performed . costs and operating expenses also include expense for amortization of intangible assets acquired through our acquisitions .
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the broader workforce solutions industry has continued to transform to meet businesses ' growing demand for total workforce or talent supply chain management ( “ tscm ” ) solutions . as clients ' workforce solutions strategies move up the maturity model , the tscm concept seeks to manage all categories of talent ( temporary , project-based , outsourced and full-time ) and thus represents significant market potential . the global workforce solutions market saw some acceleration during the second half of 2014 , as economic growth gradually shifted in favor of the u.s. economy . despite recent cyclical challenges , strategic clients are increasingly looking for global , flexible and holistic talent solutions that encompass all worker categories , driving adoption of our tscm concept covering temporary staffing , contingent workforce outsourcing ( `` cwo '' ) , recruitment process outsourcing ( `` rpo '' ) , independent contractor management , strategic workforce planning and more . near-term demand for temporary staffing is now benefiting from improving labor market conditions in the u.s. , while structural shifts toward higher-skilled , project-based professional/technical talent continue to represent long-term opportunities for the industry . in fact , professional/technical staffing is projected to steadily increase as a percent of the global market , with demand for specialty staffing projected to outpace commercial . while the outlook for 2015 is encouraging , years of economic under-performance are tempering expectations . the global economy is forecast to accelerate modestly in the short term , with both strengths and risks present in all regions . our business kelly services is a global workforce solutions company , serving customers of all sizes in a variety of industries . our staffing operations are divided into three regions , americas , emea and apac , with commercial and professional/technical staffing businesses in each region . as the human capital arena has become more complex , we have also developed a suite of innovative solutions within our global ocg business . ocg delivers integrated talent management solutions to meet customer needs across the entire spectrum of talent categories . using talent supply chain strategies , we help customers plan for and manage their acquisition of contingent and full-time labor , and gain access to service providers and quality talent at competitive rates with minimized risk . we earn revenues from the hourly sales of services by our temporary employees to customers , as a result of recruiting permanent employees for our customers , and through our outsourcing activities . our working capital requirements are primarily generated from temporary employee payroll and customer accounts receivable . the nature of our business is such that trade accounts receivable are our most significant financial asset . average days sales outstanding varies within and outside the u.s. , but is 54 days on a global basis . since receipts from customers generally lag temporary employee payroll , working capital requirements increase substantially in periods of growth . our strategy and outlook our long-term strategic objective is to create shareholder value by delivering a competitive profit from the best workforce solutions and talent in the industry . to achieve this , we are focused on the following key areas : maintain our core strengths in commercial staffing in key markets ; grow our professional and technical solutions ; enhance our position as a market-leading provider of talent supply chain management in our ocg segment ; capture permanent placement growth in selected specialties ; and lower our costs through deployment of efficient service delivery models . 19 although our objectives remain clear , ongoing economic , political and fiscal disruptions have been a persistent drag on the global recovery and our business . recent economic and labor market trends have been more favorable and the outlook for 2015 is encouraging , but the global recovery remains historically weak and uneven . six years after the recession , our industry is still not experiencing the degree or patterns of growth typically seen at this point in a recovery cycle . at 0.4 % for 2014 , our return on sales ( `` ros '' ) reflects this economic pattern and remains well below our long-term goal of 4.0 % . to make significant progress against our ros goal and better leverage our business , we will need to see continued economic growth coupled with stronger demand for full-time and temporary labor in the sectors that kelly supports . in the meantime , we have remained focused on what we can control : executing a well-formed strategy with increased speed and precision , and making the necessary investments to advance that strategy . kelly delivered solid operational performance in two key areas of our strategy in 2014. total company revenue increased 3 % ( 4 % on a constant currency basis ) year over year , reversing the decline we experienced in 2013. this revenue growth was helped by improving conditions in the u.s. along with the investments we made in our u.s. operations . we increased revenue in our ocg segment by 15 % year over year , confirming that our direction aligns with increased market demand for consultative outsourced solutions . growth was particularly strong in rpo and the fee-based cwo portion of the business , which continue to be key drivers of our strategic and financial progress . with a firm commitment to growth and a clear plan for accelerating kelly 's strategy , in 2014 we made targeted investments to adjust our operating models and increase the resources responsible for driving growth in higher margin specialties -- both in americas pt and in our ocg segment . specifically , we designed our investments to : grow americas pt staffing by : establishing nationally focused , product-specific recruiting centers for our it , engineering , science and finance specialties in the u.s. ; hiring additional pt recruiters and pt business development representatives in local u.s. markets ; and leveraging our centralized large account delivery model to drive pt growth in large accounts across the americas . story_separator_special_tag the gross profit rate was down 10 basis points on a year-over-year basis . decreases in the gross profit rate in emea , apac and ocg were partially offset by an increase in the americas gross profit rate . selling , general and administrative ( `` sg & a '' ) expenses excluding restructuring costs increased 5.0 % year over year as a result of investments in our pt and ocg businesses , as described more fully in the executive overview above , as well as merit increases . included in sg & a expenses for 2013 is $ 3.0 million for a settlement with the state of delaware related to an unclaimed property examination . restructuring costs in 2014 include $ 9.9 million related to the plan described in the executive overview above , $ 0.8 million of costs incurred for exiting the staffing business in sweden , and $ 1.3 million related to closing branches in australia and consolidating back office functions in australia and new zealand . restructuring costs in 2013 primarily relate to severance costs incurred from the company 's decision to exit the ocg executive search business operating in germany . asset impairments in 2013 represent the write-off of the carrying value of long-lived assets related to the decision to exit the executive search business operating in germany . income tax benefit for 2014 was $ 7.1 million , compared to a benefit of $ 10.1 million for 2013. the decrease in income tax benefit is primarily due to u.s. work opportunity credits , with 2013 including credits related to employees hired in 2012 due to the expiration of the credit for most employees hired after 2011 , and retroactive reinstatement in january , 2013. accordingly , we did not record work opportunity credits for most employees hired in 2012 until 2013 , increasing 2013 credits by $ 9.3 million . 2014 income taxes were also impacted by lower pretax earnings . the work opportunity credit program expired again at the end of 2014 , and it is uncertain if or when it will be reinstated . the work opportunity credit program generates a significant tax benefit . over the last three years , we generated approximately $ 16 million in credits per year . in the event the program is not renewed , we will receive credits for employees who work in 2015 but were hired in prior years . the credits related to employees hired in prior years have averaged approximately $ 3 million per year . diluted earnings per share for 2014 were $ 0.61 , as compared to $ 1.54 for 2013 . 22 total americas ( dollars in millions ) replace_table_token_5_th the change in americas revenue is primarily the result of a 2 % increase in average bill rates . americas represented 64 % of total company revenue for 2014 and 65 % for 2013. revenue in our commercial segment was up 3 % and our pt revenue was down 1 % in comparison to the prior year . the increase in revenue in commercial was due to increased revenue in our educational staffing business as a result of new customer wins , partially offset by revenue decreases in our office clerical and light industrial businesses . in the pt segment , we continued to see declines in revenue in our it and finance products , partially offset by growth in revenue in our science and engineering products . the increase in the gross profit rate was due to customer mix in commercial and improved pricing in pt , partially offset by higher workers ' compensation cost . in commercial , higher margin local business grew at a faster rate than large accounts . in pt , positive pricing adjustments for certain large customers drove an improvement in the gross profit rate . sg & a expenses were up 6.5 % in comparison to the prior year . this increase is attributable to last year 's annual salary increases , increased incentive payments , additional recruiting and sourcing costs , and the planned investments for additional headcount in sales and recruiting staff , primarily for our pt segment . these investments are more fully described in the executive overview above . all of these increases were partially offset by the early benefits of our plan , which is described in more detail in the restructuring footnote . included in sg & a expenses for 2013 is $ 3.0 million for a settlement with the state of delaware related to an unclaimed property examination . the restructuring costs related to americas as disclosed in the restructuring footnote are included in corporate sg & a expenses . 23 total emea ( dollars in millions ) replace_table_token_6_th the change in emea revenue from services reflected a 5 % increase in hours worked , partially offset by a 1 % decrease in average bill rates on a cc basis . the increase in hours was due primarily to portugal , reflecting improved volume with existing customers , new customers and targeted investments . emea represented 20 % of total company revenue for both 2014 and 2013. the emea gross profit rate decreased primarily due to a decline in staffing fee-based income and a decline in the temporary gross profit rates . these declines each negatively impacted the gross profit rate by approximately 45 basis points . staffing fee-based income declined in both commercial and pt due to the weak economic environment , especially during the second half of the year . most countries posted declines , with the exception of france and italy . the decline in the temporary gross profit rate was driven by unfavorable country mix and , to a lesser extent , customer mix , as well as the reversal of previously accrued training costs for temporary employees in the netherlands in the second quarter of 2013. the effect of this reversal accounted for approximately 10 basis points . these declines were partially offset by the effect of the cice tax credit in france .
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results of operations financial condition historically , we have financed our operations through cash generated by operating activities and access to credit markets . our working capital requirements are primarily generated from temporary employee payroll and customer accounts receivable . since receipts from customers generally lag payroll to temporary employees , working capital requirements increase substantially in periods of growth . conversely , when economic activity slows , working capital requirements may substantially decrease . as highlighted in the consolidated statements of cash flows , our liquidity and available capital resources are impacted by four key components : cash and equivalents , operating activities , investing activities and financing activities . cash and equivalents cash and equivalents totaled $ 83.1 million at year-end 2014 , compared to $ 125.7 million at year-end 2013. as further described below , during 2014 , we used $ 70.0 million of cash for operating activities , used $ 27.2 million of cash for investing activities and generated $ 56.6 million in cash from financing activities . the cash and equivalents balance at year-end 2014 was negatively impacted by $ 20.0 million related to payments we received at year-end 2013 from our ocg customers , most of which we paid out to suppliers during the first quarter of 2014. operating activities in 2014 , we used $ 70.0 million of net cash for operating activities , as compared to generating $ 115.3 million in 2013 and $ 61.1 million in 2012. the change from 2013 to 2014 was primarily due to year-to-date growth in trade accounts receivable , along with the negative impact of the $ 20.0 million related to the timing of payments to suppliers noted above . the increase in trade accounts receivable was due to revenue growth , primarily during fourth quarter of 2014 , and extended terms for certain large customers , as described below .
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the cautionary statements made in this annual report on form 10-k should be read as applying to all related forward-looking statements wherever they appear in this annual report on form 10-k. our actual results could differ materially from those anticipated in the forward-looking statements . factors that could cause or contribute to our actual results differing materially from those anticipated include those discussed in “ risk factors ” and elsewhere in this annual report on form 10-k. overview and outlook we provide professional services and technology-based solutions to government and commercial clients , including management , marketing , technology , and policy consulting and implementation services . we help our clients conceive , develop , implement , and improve solutions that address complex natural resource , social , and public safety issues . our clients operate in four key markets : energy , environment , and infrastructure ; health , education , and social programs ; safety and security ; and consumer and financial . we provide services that deliver value throughout the entire life cycle of a policy , program , project , or initiative , from initial research , analysis , assessment and advice to design and implementation of programs and technology-based solutions , and the provision of engagement services and programs . our clients utilize our services because we combine diverse institutional knowledge and experience with the deep subject matter expertise of our highly educated staff which we deploy in multi-disciplinary teams . we have successfully worked with many of our clients for decades , with the result that we have an unusually knowledgeable perspective on their needs . we categorize our clients into two classifications : government and commercial . within the government classification , we present three client sub-classifications : u.s. federal government , state and local government , and international government . our largest clients are u.s. federal government departments and agencies . in fact , our federal government clients have included every cabinet-level department , most significantly hhs , dos , and dod . federal government clients generated approximately 45 % , 48 % , and 48 % of our revenue in 2017 , 2016 , and 2015 , respectively . state and local government clients generated approximately 10 % , 11 % , and 10 % of our revenue in 2017 , 2016 , and 2015 , respectively . international government clients generated approximately 7 % , 6 % , and 7 % of our revenue in 2017 , 2016 , and 2015 , respectively . we also serve a variety of commercial clients worldwide , including : airlines , airports , electric and gas utilities , oil companies , hospitals , health insurers and other health-related companies , banks and other financial services companies , transportation , travel and hospitality firms , non-profits/associations , law firms , manufacturing firms , retail chains , and distribution companies . our commercial clients , which include clients outside the u.s. , generated approximately 38 % , 35 % , and 35 % of our revenue in 2017 , 2016 , and 2015 , respectively . we report operating results and financial data as a single segment based on the consolidated information used by our chief operating decision-maker in evaluating the financial performance of our business and allocating resources . our single segment represents our core business—professional services for government and commercial clients . although we describe our multiple service offerings to clients that operate in four markets to provide a better understanding of the scope and scale of our business , we do not manage our business or allocate our resources based on those service offerings or client markets . in 2017 , we saw growth in commercial client revenue and international government revenue which was partially offset by lower u.s. federal and state and local government revenue . our total revenue increased to $ 1,229.2 million , an increase of $ 44.1 million , or 3.7 % , for the year ended december 31 , 2017 compared to the prior year . operating income decreased $ 0.4 million , or 0.5 % , to $ 82.4 million for the year ended december 31 , 2017 compared to the prior year due to the increase in indirect expenses , offset by lower amortization of intangible assets . indirect expenses increased compared to the prior year primarily due to the current year effect of cost-saving actions to drive long-term profitability and an increase in the portion of incentive compensation to be paid as cash bonus expense which enabled us to include this additional cash expense in the tax provision . net income increased $ 16.3 million , or 35.0 % , to $ 62.9 million , largely driven by a $ 16.8 million decrease in the tax provision due to the enactment in december 2017 the tax act . 32 we believe that demand for our services will continue to grow as government , industry , and other stakeholders seek to addr ess critical long-term societal and natural resource issues due to heightened concerns about clean energy and energy efficiency ; health promotion , treatment , and cost control ; and ongoing homeland security threats . we also see significant opportunity to fu rther leverage our digital and client engagement capabilities across our commercial and government client base . our future results will depend on the success of our strategy to enhance our client relationships and seek larger engagements that span the enti re program life cycle , and to complete and successfully integrate additional strategic acquisitions . we will continue to focus on broadening domain expertise and building scale in key client markets and geographies by developing business with existing and new government and commercial clients , and replicating our business model in selective geographies . story_separator_special_tag incentives , award fees , or penalties related to performance are also considered in estimating revenue and profit rates based on actual and anticipated awards , taking into consideration factors such as our prior award experience and communications with the customer regarding performance . 34 fixed-price contracts . reve nue for fixed-price contracts is recognized when earned , generally as work is performed . services performed vary from contract to contract and are not always uniformly performed over the term of the arrangement . we recognize revenue in a number of different ways on fixed-price contracts based on the nature of the services to be provided and an assessment of what best mirrors the pattern of performance for the deliverable/contract , including : proportional performance : revenue on certain fixed-price contracts is recognized based on proportional performance when the provision of services extends beyond an accounting period with more than one discrete performance act , and progress towards completion can be measured based on a reliable output or input . under this method , revenue is recorded each period based upon certain contract performance input measures incurred ( labor hours , labor costs , or total costs ) or output measures completed , expressed as a proportion of a total project estimate . progress on a contract is monitored regularly to ensure that revenue recognized reflects project status . when hours or costs incurred are used as the basis for revenue recognition , the hours or costs incurred represent a reasonable surrogate for output measures of contract performance , including the presentation of deliverables to the client . clients are obligated to pay as services are performed , and , in the event that a client cancels the contract , payment for services performed through the date of cancellation is typically negotiated with the client . specific performance : w hen the services to be performed consist of a single act , revenue is recognized at the time the act is performed or at the completion of the single service . straight-line : when services are performed or are expected to be performed consistently throughout an arrangement , or when we are compensated on a retainer or fixed-fee basis , revenue is recognized ratably over the period benefited . completed contract : revenue and costs on certain fixed-price contracts are recognized at completion if the final act is so significant to the arrangement that value is deemed to be transferred only at completion . revenue recognition requires us to use judgment relative to assessing risks , estimating contract revenue and costs or other variables , and making assumptions for scheduling and technical issues . due to the size and nature of many of our contracts , the estimation of revenue and estimates at completion can be complicated and subject to many variables . contract costs include labor , subcontractor costs , and other direct costs , as well as an allocation of indirect costs . at times , we must also make assumptions regarding the length of time to complete the contract because costs include expected increases in wages , prices for subcontractors , and other direct costs . from time to time , we obtain new information which causes us to revise our estimated total costs or hours to fulfill contract requirements and thus the associated revenue earned on a contract . to the extent that a revised estimate affects contract profit or revenue previously recognized , we record the cumulative effect of the revision in the period in which the facts requiring the revision become known . a provision for the full amount of an anticipated loss on any type of contract is recognized in the period in which the anticipated loss becomes probable and can be reasonably estimated . as a result , operating results could be affected by revisions to prior accounting estimates . contractual arrangements are evaluated to assess whether revenue should be recognized on a gross versus net basis . management 's assessment when determining gross versus net revenue recognition is based on several factors , such as whether we serve as the primary service provider , has autonomy in selecting subcontractors , or has credit risk , all of which are primary indicators that we serve as the principal to the transaction . in such cases , revenue is recognized on a gross basis . when such indicators are not present and we are primarily functioning as an agent under an arrangement , revenue is recognized on a net basis . payments to us on cost-based contracts with the u.s. federal government are provisional payments subject to audit and adjustment by the government . indirect costs applied to government contracts are also subject to audit and adjustment and such audits have been finalized only through december 31 , 2007. contract revenue has been recorded in amounts that are expected to be realized on final audit and settlement of costs . we prepare client invoices in accordance with the terms of the applicable contract , and billing terms may not be directly related to the performance of services . unbilled receivables are invoiced based on the achievement of specific events as defined by each contract , including deliverables , timetables , and incurrence of certain costs . unbilled receivables are classified as a current asset . advanced billings to clients in excess of revenue earned are recorded as deferred revenue until the revenue recognition criteria are met . reimbursements of out-of-pocket expenses are included in revenue with corresponding costs incurred by us included in the cost of revenue . we record revenue net of taxes collected from clients when the taxes are to be remitted to governmental authorities . 35 we may proceed with work based on client direction prior to the completion and signing of formal contract documents . we ha ve a review process for approving any such work . revenue associated with such work is recognized only when it can be reliably estimated and realization is probable .
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results of operations the following table sets forth certain items from our consolidated statements of comprehensive income , expresses these items as a percentage of revenue for the periods indicated and the period-over-period rate of change in each of them . years ended december 31 , 2017 , 2016 , and 2015 ( dollars in thousands ) replace_table_token_10_th year ended december 31 , 2017 compared to year ended december 31 , 2016 revenue . revenue for the year ended december 31 , 2017 , was $ 1,229.2 million , compared to $ 1,185.1 million for the year ended december 31 , 2016 , representing an increase of $ 44.1 million or 3.7 % . the increase in revenue was attributable to increases in commercial revenue of $ 46.7 million , partially offset by a decrease in government revenue of $ 2.6 million compared to the prior year . the growth in commercial revenue was driven by our energy , environment , and infrastructure clients and by health , education , and social programs clients . the decline in government revenues is due to a decrease in health , education , and social programs clients ; partially offset by increases in our energy , environment , and infrastructure and safety and security projects for government clients . as a result of these changes the governmental and commercial revenues as a percent of total revenue were 62 % and 38 % for the year ended december 31 , 2017 compared with 65 % and 35 % for the prior year . direct costs . direct costs for the year ended december 31 , 2017 , were $ 771.7 million compared to $ 745.1 million for the year ended december 31 , 2016 , an increase of $ 26.6 million or 3.6 % .
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segment information operating 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. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report on form 10-k , our actual results could differ materially from the results described in , or implied by , these forward-looking statements . overview we are a genome editing company focused on developing medicines to durably treat rare diseases in patients with significant unmet medical need using generide , our proprietary technology platform . our generide technology enables the site-specific integration of a therapeutic transgene without nucleases or exogenous promoters by harnessing the native process of homologous recombination . we are developing lb-001 , a wholly owned genome editing program leveraging generide for the treatment of methylmalonic acidemia , or mma . in addition , we have a research collaboration with takeda pharmaceutical company limited , of takeda , to develop lb-301 , an investigational therapy leveraging generide for the treatment of the rare pediatric disease crigler-najjar syndrome , or cn . we are also developing saavy , a next generation capsid platform for use in gene editing and gene therapy . at the american society of gene and cell therapy , or asgct , conference in may 2020 , data was presented showing that the capsids delivered highly efficient functional transduction of human hepatocytes in a humanized mouse model . the data also showed the capsids exhibited improved manufacturability with low levels of pre-existing neutralizing antibodies in human samples . based on these data , we believe the top-tier capsid candidates from this effort demonstrated the potential to achieve significant improvements over benchmark adeno-associated viruses , or aavs , that are currently in clinical development . we are developing these highly potent vectors for use in our internal development candidates and potentially for business development collaborations . we plan to announce data generated from translational animal models using these capsids in the first half of 2021. in january 2021 , we announced the extension of our collaboration with children 's medical research institute , or cmri , to continue to develop next-generation capsids for gene therapy and gene editing applications in the liver as well as two additional tissues . based on our generide technology , we are developing lb-001 to treat mma . in january 2020 , we announced the submission of an investigational new drug application , or ind , to support the initiation of a phase 1/2 clinical trial in pediatric patients with mma , which was cleared by the u.s. food and drug administration , or the fda , in august 2020. the sunrise trial is a multi-center , open-label , phase 1/2 clinical trial designed to assess the safety and tolerability of a single intravenous infusion of lb-001 in pediatric patients with mma characterized by methylmalonyl-coa mutase gene ( mmut ) mutations . we expect seven leading centers in the united states to participate in the sunrise trial . t he sunrise phase 1/2 clinical trial is expected to enroll eight pediatric patients with ages ranging from 6 months to 12 years , initially starting with 3 to 12 year old patients and then adding patients aged 6 months to 2 years . the sunrise trial will evaluate two dose cohorts of lb-001 ( cohort 1 = 5 x 10 13 vg/kg and cohort 2 = 1 x 10 14 vg/kg ) . after initially starting with the lower dose in the 3 to 12 year old patient group ( cohort 1 , older age group , n=2 ) , age de-escalation ( cohort 1 , younger age group , n=2 ) and dose escalation ( cohort 2 , older age group , n=2 ) are planned to occur in parallel . the decision to escalate the dose will be determined based solely on safety , whereas the decision to age de-escalate will be based on both safety and the detection of the pharmacodynamic biomarker , albumin-2a . afterwards , based on a review of safety and or the detection of albumin-2a , as applicable , from these two patient groups , the trial would progress to dosing additional patients in the younger age group at the higher dose ( cohort 2 , younger age group , n=2 ) . the sunrise trial includes a six-week staggering interval between the dosing of each patient . patients will participate in a pre-dosing observational period and will be administered a prophylactic steroid regimen . the primary endpoint of the sunrise trial is to assess the safety and tolerability of lb-001 at 52 weeks after a single infusion . additional endpoints include changes in disease-related biomarkers , including serum methylmalonic acid , clinical outcomes such as growth and healthcare utilization , and the pharmacodynamic marker albumin-2a . we expect to enroll the first patient in early 2021 and provide an operational update regarding the dose escalation and age de-escalation in mid-2021 . based on the parallel age de-escalation and dose escalation plan and current projections for enrollment , we expect to announce interim data from both age groups and both dose cohorts in the sunrise trial by the end of 2021 . 102 in addition to the phase 1/2 sunrise trial , we have completed a retrospective natural history study designed to evaluate disease progression in pediatric patients with mma . story_separator_special_tag in april 2020 , as part of our effort to preserve capital , our leadership team volunteered to accept salary cuts ranging from 15 % to 20 % which remained in effect until september 30 , 2020. we have also adopted certain other cost-cutting measures aimed at enhancing our capital position . during the year ended december 31 , 2020 , we completed a follow-on offering in october 2020 in which we raised approximately $ 45.2 million in net proceeds and entered into “ at-the-market ” sales of our common stock resulting in net proceeds of approximately $ 3.4 million . in september 2020 , we entered into an amendment to the loan and security agreement with oxford finance llc and horizon technology finance corporation , or the loan agreement , to extend the availability of the $ 10.0 million second loan tranche until the earliest of ( i ) the date that is thirty ( 30 ) days immediately following the date by which certain development milestones and equity financing events shall have occurred , ( ii ) march 31 , 2021 and ( iii ) the occurrence of an event of default ( as defined in the loan agreement ) . we plan to continue to closely monitor the covid-19 pandemic in order to ensure the safety of our personnel and to continue advancing our research and development activities . components of results of operations revenue to date , our only revenue has consisted of research cost reimbursements recognized as service revenue , all of which is attributable to the january 2020 research agreement with takeda to develop lb-301 in cn . we have not generated any revenue from product sales and do not expect to generate any revenue from product sales for the foreseeable future . operating expenses research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our discovery efforts and the development of our product candidates , and include : salaries , benefits and other related costs , including stock-based compensation expense , for personnel engaged in research and development functions ; license maintenance fees and milestone fees incurred in connection with various license agreements ; the costs of laboratory supplies and acquiring , developing and manufacturing preclinical study and , eventually , clinical trial materials ; expenses incurred under agreements with contract research organizations , or cros , contract manufacturing organizations , or cmos , as well as academic institutions and consultants that conduct our preclinical studies and other scientific development services ; facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs ; costs of outside consultants , including their fees and related expenses ; and costs related to compliance with regulatory requirements . we expense research and development costs as incurred . costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and are reflected in our financial statements as prepaid or accrued research and development expenses . research and development activities are central to our business model . we expect that our research and development expenses will increase in the future as we initiate clinical trials for our product candidate lb-001 and as we increase our research and development headcount to continue to discover and develop additional product candidates . if any of our product 104 candidates enter into later stages of clinical development , they will generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in our executive , finance , corporate and business development and administrative functions . general and administrative expenses also include professional fees for legal , patent , accounting , auditing , tax and consulting services , travel expenses , and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . we expect that our general and administrative expenses will increase in the future as we increase our general and administrative headcount to support our continued research and development and potential commercialization of our product candidates . other ( expense ) income , net interest income consists primarily of interest on our cash and cash equivalents and investments . interest expense consists of interest expense related to the aggregate $ 10.0 million principal amount of the term a loan borrowing under the loan agreement in july 2019. a portion of the interest expense on the term a loan is non-cash expense relating to the accretion of the debt discount and amortization of issuance costs . during the years ended december 31 , 2020 and 2019 , we recorded $ 1.1 million and $ 0.5 million , respectively , in interest expense , of which $ 0.9 million and $ 0.4 million , respectively , related to cash interest paid and the remainder to the accretion of the debt discount and amortization of issuance costs . other expense , net consists primarily of foreign exchange losses . story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:18pt ; text-indent:0 % ; font-style : italic ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; text-transform : none ; font-variant : normal ; '' > financing activities during the year ended december 31 , 2020 , net cash provided by financing activities was $ 48.7 million , primarily related to net proceeds of $ 45.2 million from our october 2020 follow-on offering as well as approximately $ 3.4 million in net proceeds from sales of our common stock under the open market sales agreement with jefferies llc .
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results of operations years ended december 31 , 2020 and 2019 the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_1_th revenue revenue for the year ended december 31 , 2020 consisted solely of the $ 3.5 million in research cost reimbursements recognized as service revenue under the january 2020 research agreement with takeda . 105 research and development expenses the following table summarizes our research and development expenses for the years ended december 31 , 2020 and 2019 : replace_table_token_2_th research and development expenses for the year ended december 31 , 2020 were $ 22.8 million , compared to $ 30.7 million for year ended december 31 , 2019. the decrease of approximately $ 7.9 million was primarily due to a decrease of approximately $ 9.2 million in lb-001 external development and manufacturing costs . other research and development costs increased $ 1.1 million as we increased our overall research and development activities related to generide and saavy , our next generation capsid platform . general and administrative expenses general and administrative expenses were $ 12.2 million for the year ended december 31 , 2020 , compared to $ 10.4 million for the year ended december 31 , 2019. the increase of approximately $ 1.8 million was primarily due to a $ 1.1 million increase in stock-based compensation , a $ 0.4 million increase in professional services due to increased legal costs , a $ 0.4 million increase in facilities related to our lease for office , laboratory and vivarium space in lexington , massachusetts and a $ 0.4 million increase in directors ' and officers ' insurance premiums . these increases were partially offset by a $ 0.2 million decrease in travel costs and a $ 0.3 million decrease in other personnel expenses .
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the secured revolving credit facility contains certain covenants , including negative covenants and financial maintenance covenants , with which we are required to comply . as of september 30 , 2014 , we were in compliance with all such covenants and had $ 150 million of available borrowings under the secured revolving credit facility . we have elected to story_separator_special_tag executive overview and outlook : fiscal 2014 marked a very important milestone for the company . for the first time since fiscal 2006 , we reported positive net income and delivered adjusted ebitda that exceeded our cash interest expense . we see this as a turning point for the company and believe that the extensive work and effort that drove our results this year have laid the foundation for further expansion in profitability in the years ahead . 23 the company reported full year net income of $ 34.9 million for fiscal 2014 , which included several significant items : a loss on extinguishment of debt of $ 19.9 million an irs appeals case was approved in our favor resulting in a cash refund and income tax benefit of $ 28.5 million beazer pre-owned rental homes was sold generating a gain of $ 6.3 million reserves for uncertain tax positions were reversed due to lapses in statutes of limitation and closing of audits during fiscal year 2014 resulting in a non-cash tax benefit of $ 13.9 million impairments and abandonments of $ 8.3 million for the fiscal year with $ 5.4 million occurring in the fourth quarter unexpected warranty reserves totaling $ 4.9 million in cost of sales during the fourth quarter the unexpected warranty charges resulted from water intrusion issues in certain homes built in florida and new jersey with an average age of more than 7 years ago . the charges were recorded in cost of sales and therefore reduced all measurements of income , including gross margin , adjusted ebitda and income from operations . for the year ended september 30 , 2014 , excluding the impact of these charges , homebuilding gross margin before impairments and abandonments and interest amortized to cost of sales would have been 22.2 % and adjusted ebitda would have been $ 133.2 million . we believe that we are still in the early stages of a housing recovery that is likely to last for at least several more years . the fundamentals including favorable demographic trends , excellent affordability and employment growth all point to a stronger and more stable level of demand for new homes than the uneven levels the industry experienced during fiscal 2014. the overall shape of the recovery has been flatter than many predicted , in large part , due to continuing mortgage constraints . even those who are qualified for a mortgage often find the process to be overwhelming and cumbersome . until lenders are given a clear understanding of their put-back risks , we believe that some members of the new home potential buyer pool will stay on the sidelines . as a result and combined with general economic and geopolitical uncertainties , we anticipate a slower recovery than the fundamentals would otherwise suggest . in november 2013 , we introduced our plan to reach $ 2 billion in revenue with a 10 % adjusted ebitda margin , which we called our “ 2b-10 ” plan . we expect to reach these objectives by making improvements on five key metrics : ( 1 ) sales per community per month ( or our absorption rate ) , ( 2 ) active community count , ( 3 ) average selling prices , ( 4 ) homebuilding gross margins , and ( 5 ) cost leverage as measured by selling , general and administrative costs as a percentage of total revenue . during fiscal 2014 , we made progress on several of these metrics and as a result grew revenue to $ 1.5 billion , up 13.7 % year-over-year and adjusted ebitda to $ 128.3 million , up 48.7 % versus fiscal 2013. further , adjusted ebitda margin increased 210 basis points to 8.8 % for the year ended september 30 , 2014. these improvements were due to the intense focus we have placed on the operational drivers of this plan , and in part , to stronger home pricing conditions . specifically during fiscal 2014 , our rate of sales per community per month was 2.8. although we had hoped to have slightly higher absorption rates , given the uneven nature of demand in today 's new home sales market , we were pleased that our sales per community per month exceeded those reported by a large number of our peers . over the past couple of years , we significantly increased our level of land investments in an effort to grow our active community count . we purchased mostly raw and partially developed land in some of the best school districts and most active job markets in the country . after year-over-year declines in active community counts for every quarter since mid-2012 , we ended fiscal 2014 with 155 active communities , which was 16 % higher than a year earlier . for fiscal 2015 , we expect continued year-over-year expansion in community count , which should help us achieve positive order growth for the year . although we have been buying land in almost all of our markets , our incremental land investments over the past couple of years have been disproportionately focused on securing attractive parcels in texas , california , florida and the mid-atlantic , which feature some of the strongest employment characteristics and school districts in the country as well as some of our higher priced product lines . this geographic mix shift , combined with some market pricing power , particularly during the spring of fiscal 2013 , has led to a significant rise in our average selling price from $ 253 thousand last year to $ 285 thousand this year . story_separator_special_tag absent these assumptions on cost and sales price appreciations , we believe the long-term cash flow analysis would be unrealistic and would serve to artificially improve expected future profitability . finally , we also ensure that the monthly sales absorptions , including historical seasonal differences of our communities and those of our competitors , used in our undiscounted cash flow analyses are realistic , consider our development schedules and relate to those achieved by our competitors for the specific communities . 25 if the aggregate undiscounted cash flows from our quantitative analysis are in excess of the carrying value , the asset is considered to be recoverable and is not impaired . if the aggregate undiscounted cash flows are less than the carrying or book value , we perform a discounted cash flow analysis to determine the fair value of the community . the fair value of the community is estimated using the present value of the estimated future cash flows using discount rates commensurate with the risk associated with the underlying community assets . the discount rate used may be different for each community . the factors considered when determining an appropriate discount rate for a community include , among others : ( 1 ) community specific factors such as the number of lots in the community , the status of land development in the community , the competitive factors influencing the sales performance of the community and ( 2 ) overall market factors such as employment levels , consumer confidence and the existing supply of new and used homes for sale . if the determined fair value is less than the carrying value of the specific asset , the asset is considered not recoverable and is written down to its fair value plus the asset 's share of capitalized unallocated interest and other costs . the carrying value of assets in communities that were previously impaired and continue to be classified as held for development is not increased for future estimates of increases in fair value in future reporting periods . due to uncertainties in the estimation process , particularly with respect to projected home sales prices and absorption rates , the timing and amount of the estimated future cash flows and discount rates , it is reasonably possible that actual results could differ from the estimates used in our impairment analyses . our assumptions about future home sales prices and absorption rates require significant judgment because the residential homebuilding industry is cyclical and is highly sensitive to changes in economic conditions . because the projected cash flows used to evaluate the fair value of inventory are significantly impacted by changes in market conditions including decreased sales prices , a change in sales prices or changes in absorption estimates based on current market conditions and management 's assumptions relative to future results could lead to additional impairments in certain communities during any given period . market deterioration that exceeds our estimates may lead us to incur additional impairment charges on previously impaired homebuilding assets in addition to homebuilding assets not currently impaired but for which indicators of impairment may arise if market conditions deteriorate . asset valuation - land held for future development for those communities for which construction and development activities are expected to occur in the future or have been idled ( land held for future development ) , all applicable interest and real estate taxes are expensed as incurred and the inventory is stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable . the future enactment of a development plan or the occurrence of events and circumstances may indicate that the carrying amount of an asset may not be recoverable . we evaluate the potential development plans of each community in land held for future development if changes in facts and circumstances occur which would give rise to a more detailed analysis for a change in the status of a community to active status or held for development . asset valuation - land held for sale we record assets held for sale at the lower of the carrying value or fair value less costs to sell . the following criteria are used to determine if land is held for sale : management has the authority and commits to a plan to sell the land ; the land is available for immediate sale in its present condition ; there is an active program to locate a buyer and the plan to sell the property has been initiated ; the sale of the land is probable within one year ; the property is being actively marketed at a reasonable sale price relative to its current fair value ; and it is unlikely that the plan to sell will be withdrawn or that significant changes to the plan will be made . additionally , in certain circumstances , management will re-evaluate the best use of an asset that is currently being accounted for as held for development . in such instances , management will review , among other things , the current and projected competitive circumstances of the community , including the level of supply of new and used inventory , the level of sales absorptions by us and our competition , the level of sales incentives required and the number of owned lots remaining in the community . if , based on this review and the foregoing criteria have been met at the end of the applicable reporting period , we believe that the best use of the asset is the sale of all or a portion of the asset in its current condition , then all or portions of the community are accounted for as held for sale . in determining the fair value of the assets less cost to sell , we consider factors including current sales prices for comparable assets in the area , recent market analysis studies , appraisals , any recent legitimate offers and listing prices of similar properties .
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results of continuing operations : replace_table_token_9_th homebuilding operations data replace_table_token_10_th 29 sales per active community per month were 2.8 for the year ended september 30 , 2014 compared to 2.9 for the year ended september 30 , 2013 , contributing to the 5.5 % decline in net new orders year-over-year . during the year , we opened 73 communities and closed out of 52 , leading to an active community count of 155 at september 30 , 2014 , compared to 134 at september 30 , 2013. the decrease in new orders in the west segment was primarily driven by the close out of several communities during fiscal 2014 in advance of new community openings and by a softening homebuyer market in las vegas and phoenix . replace_table_token_11_th backlog above reflects the number of homes for which the company has entered into a sales contract with a customer but has not yet delivered the home . backlog at september 30 , 2014 is lower than the prior year due to the slower selling environment experienced this year as evidenced by our decline in sales per community per month in each of the last three quarters of the fiscal year compared to the prior year . we expect new orders and backlog to increase over time as our active communities increase . homebuilding revenues , average selling price ( asp ) and closings replace_table_token_12_th replace_table_token_13_th generally , improved operational strategies , product and geographic mix and market conditions in certain of our markets enhanced our ability to generate higher asp over the past year . this higher asp drove our increase in homebuilding revenues for fiscal 2014 as compared to the prior year . during fiscal 2013 , we were able to increase prices or reduce incentives in response to robust demand and improved market conditions in the majority of our markets in our west segment .
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is a clinical stage immunotherapeutics company focused on the discovery and development of products to stimulate robust and durable immune responses for the prevention and treatment of diseases . our product candidates are focused in two key areas for which we have unique proprietary approaches ; i ) our synthetic peptide technology for cancer and infectious disease , and ii ) intranasal vaccines for infectious disease . using these technologies , we have generated preclinical and clinical product candidates that potentially represent an entirely new approach to harnessing the immune system . in addition , we are seeking to acquire or in-license product candidates in immunotherapeutic indications that are either synergistic or complementary to our capabilities to expand our pipeline . heptcell heptcell is an immunotherapeutic product candidate for patients chronically infected with the hepatitis b virus ( “ hbv ” ) . it is designed to drive cd4+ and cd8+ t-cell responses against all hbv genotypes in patients of all ethnic backgrounds . stimulating t-cell responses in chronically infected hbv patients has been challenging because chronic infection with hbv strongly diminishes t-cell immunity directed against the virus . heptcell focuses the immune system on discrete highly conserved regions of the hbv proteome . we believe our approach allows heptcell to break immune tolerance by activating t-cells against critical viral sequences with decreased probability of immune escape due to viral mutation . heptcell is based on our synthetic peptide technology platform and is given by intramuscular injection . in 2018 we completed a phase 1 trial in the united kingdom and south korea in patients with chronic hbv . the heptcell phase 1 trial was a double-blinded , placebo-controlled , randomized , dose-escalation study that enrolled 61 subjects with chronic hbv who were hbeag-negative and well-controlled on licensed antivirals . a total of 41 patients received one of two dose levels of heptcell , with and without ic31 tm , a depot forming tlr9 adjuvant developed by valneva se , while 20 control patients received either placebo or ic31 alone . patients received three injections each 28 days apart and were followed for six months after the final dose . all dose combinations showed excellent tolerability and met the primary endpoint of safety . in the two adjuvanted heptcell arms , t-cell responses against hbv markedly increased over baseline compared to placebo . altimmune plans to advance heptcell into phase 2 development . alt-702 alt-702 is a tumor immunostimulant product candidate that has the potential to safely elicit or improve immune responses to a variety of cancers . it is a conjugated tlr 7/8 agonist designed to reverse the immune-suppressive effects in the tumor microenvironment and promote antitumoral responses without the systemic side effects associated with other tlr 7 and tlr 7/8 agonists . this localized immune stimulation is anticipated to turn “ cold ” tumors to “ hot ” and to synergize with immune checkpoint inhibitors . we are currently developing a full preclinical dataset in murine tumor models with the intention of advancing this program into the clinic . nasovax nasovax , an intranasally administered recombinant influenza vaccine , uses an adenovector to achieve expression of the influenza antigen in the target cell , thereby potentially stimulating a broader and more rapid immune response than traditional influenza vaccines . our phase 2a trial evaluating nasovax started in september 2017 and was completed during 2018. initial data , released in march 2018 , indicated that nasovax was well-tolerated at all doses tested . additionally , the achievement of 100 % seroprotection and statistically significant increases in mucosal antibody at two of the three dose levels studied has set nasovax apart from other intranasally administered vaccines . strong t-cell responses were also observed at the highest dose . this combination of serum antibody , mucosal antibody and t-cell responses provides the potential for improved ability to prevent infection and suggests that nasovax could have a greater impact on flu symptoms and containing the spread of the flu virus than currently approved influenza vaccines . all subjects were followed for an additional six months after vaccination to assess the durability of the antibody response , and 8 of the 15 subjects from the highest dose returned between 12 and 14 months after initial dosing for an additional immunogenicity assessment . these new nasovax data on the long-term durability of the immune response show that the immune response elicited by nasovax remained at seroprotective levels for at least 13 months . durable responses on the order of one year are not expected from currently approved influenza vaccines and suggest that the immune response induced by nasovax could be much longer than the current influenza vaccines . 61 nasoshield nasoshield is an anthrax vaccine designed to provide rapid and stable protection after a single intranasal administration . in a head-to-head comparison with the existing approved anthrax vaccine in well-established animal models , a single dose of nasoshield showed complete protection from inhalation anthrax and was non-inferior to multiple doses of the existing approved anthrax vaccine while providing for a more rapid and stable immune response . we have developed the product candidate with the support of the biomedical advanced research and development authority ( “ barda ” ) , and with their continued financial and contractual support , we launched a phase 1 trial of nasoshield in the first quarter of 2018. the purpose of the phase 1 trial was to assess the safety and immunogenicity of a single intranasal dose of nasoshield at four dose cohort levels . an additional cohort received a repeated dose of nasoshield at day 21. based on initial data from the single and two-dose cohorts , nasoshield was well-tolerated but did not produce an appreciable toxin neutralizing antibody ( tna ) response . the company did not expect this result given the compelling nonclinical data obtained previously in two well-established animal models for anthrax . we are investigating all potential causes that may have contributed to these results . story_separator_special_tag the reverse stock split was effective on september 13 , 2018 , and our shares of common stock commenced trading on nasdaq on a post-reverse stock split basis on september 14 , 2018. unless otherwise noted , all share and per share numbers in this annual report on form 10-k are reflected on a post-reverse stock split basis for all periods presented . financing prior to and as a condition for the mergers , in january 2017 , private altimmune entered into a convertible promissory note purchase agreement ( the “ note agreement ” ) for the private placement of an aggregate of $ 8.6 million of 6 % convertible notes ( the “ notes ” ) to be issued in two separate closings . the initial closing occurred on march 9 , 2017 and resulted in $ 3,150,630 of gross proceeds to the company . the initial closing also included the repayment of $ 196,496 of certain existing outstanding notes payable and $ 881,044 of certain accrued expenses that were modified and became a component of the notes on march 9 , 2017. in connection with the first closing , private altimmune issued warrants to purchase up to 1,659 shares of private altimmune common stock to certain holders of the notes , with an exercise price of $ 0.01 per share . on august 16 , 2017 , we issued 15,656 shares of series b redeemable convertible preferred stock , $ 0.0001 par value , ( “ redeemable preferred stock ” ) and warrants to purchase up to 78,181 shares of our common stock ( the “ existing warrants ” ) to certain institutional investors in a registered direct offering for total gross proceeds of $ 14.7 million , and incurred issuance costs totaling $ 1.7 million . the redeemable preferred stock matured on august 16 , 2018. the maturity date was extendable at the option of the holders to ten trading days after the curing of a triggering event ( as defined in the certificate of designations ) , or ten business days after the consummation of a change of control . in addition , the redeemable preferred stock agreements required that we reserve a sufficient number of common shares to cover at least 150 % of the common shares expected to be issued upon the conversion of the redeemable preferred stock at the then current conversion price , and the exercises of common stock warrants issued in connection with the redeemable preferred stock . the redeemable preferred stock was to be redeemed in nine specified installments . on each of the nine monthly specified installment dates beginning in december 2017 through maturity , we converted , redeemed , or a combination , one-ninth of the originally issued number of shares of redeemable preferred stock at their stated value of $ 1,000 per share , for an aggregate value of $ 1.7 million for each installment . as we elected to convert the installment shares , the conversion price was determined based on the lowest of ( i ) the then applicable conversion price ( initially $ 2.67 per share ) , ( ii ) 85 % of the average of the three lowest weighted-average prices of the common stock during the ten trading days up to the installment date , and ( iii ) 85 % of the weighted average price of common stock on the trading day immediately before the installment date . if we elected cash redemption , the redemption amount was $ 1,000 per share , plus any accrued but unpaid dividends and any accrued but unpaid late charges . during the years ended december 31 , 2018 and 2017 , we converted 9,813 and 3,479 shares , respectively , of the redeemable preferred stock for an aggregate of 502,078 and 82,483 , respectively , shares of common stock . we redeemed the remaining 2,364 shares of redeemable preferred stock for face value on june 22 , 2018 in conjunction with the exchanges ( as defined below ) . on june 22 , 2018 we entered into separate exchange agreements with certain holders of our redeemable preferred stock and existing warrants ( “ the “ first exchange holders ” ) pursuant to which , we ( i ) issued an aggregate of 167,700 shares of common stock to the first exchange holders , ( ii ) issued convertible notes ( the “ exchange notes ” ) to the first exchange holders with an aggregate principal value of $ 1.5 million , which are initially convertible into up to 73,530 shares of our common stock upon the default by the company or at the holder 's option on the maturity date subject to adjustment under certain circumstances in accordance with the terms of the exchange notes and ( iii ) paid $ 1,100,000 in aggregate cash consideration to the first exchange holders , all in exchange for existing warrants to purchase up to 53,125 shares of common stock held by the first exchange holders . we refer to these transactions as the “ first exchange. ” in addition , the company agreed to redeem the remaining shares of redeemable preferred stock held by the first exchange holders , in cash , at the aggregate face value of $ 2.4 million . 63 on july 11 , 2018 , we entered into exchange agreements with certain other holders of our redeemable preferred stock and existing warrants ( the “ second exchange holders ” ) pursuant to which we ( i ) issued an aggregate of 32,124 shares of common stock to the second exchange holders and ( ii ) paid $ 22,241 in aggregate cash consideration to the second exchange holders , all in exchange for all of the outstanding shares of our redeemable preferred stock held by the second exchange holders .
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results of operations year ended december 31 , 2018 compared to december 31 , 2017 replace_table_token_1_th revenue revenue from grants and contracts for the years ended december 31 , 2018 and 2017 consisted primarily of research grants from barda and niaid in the united states for our anthrax vaccine product candidates . replace_table_token_2_th revenue decreased by $ 0.4 million , or 4 % for the year ended december 31 , 2018 as compared to 2017. the decrease was primarily the result of : a decrease of $ 0.6 million in barda revenue due directly to changes in spending on the nasoshield research and development as described below ; and an increase of $ 0.3 million in niad revenue due directly to changes in spending on the sparvax-l research and development . 70 research and development expenses research and development expenses for the years ended december 31 , 2018 and 2017 consisted primarily of expenses related to product candidate development . research and development expenses for the years ended december 31 , 2018 and 2017 are summarized as follows : replace_table_token_3_th research and development expenses increased by $ 0.1 million , or 0 % , during the year ended december 31 , 2018 as compared to 2017. the increased expense was primarily due to : an increase of $ 0.8 millionin non-project specific research and development costs driven by employee compensation and additional allocated facility costs ; a decrease of $ 0.6 million due to timing of manufacturing development activities for nasoshield ; and a decrease of $ 0.1 million in direct costs related to nasovax , sparvax-l , and heptcell .
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· the net interest margin increased to 3.55 % in 2017 compared to 3.49 % in 2016 . · combined noninterest-bearing and interest-bearing transaction account balances increased 10 % to $ 1.9 billion at december 31 , 2017 as compared to $ 1.8 billion at december 31 , 2016 . · the provision for loan losses was $ 3.0 million for 2017 compared to $ 5.5 million for 2016. the provision for 2017 compared to 2016 decreased due to the effect of the improvement in loan quality and a reduction in non-performing loans which offset the impact of loan growth during 2017 . · non-interest income increased 4 % for 2017 compared to 2016 exclusive of investment securities gains and gains from the prior year 's debt extinguishment . the increase was driven by increases in income from wealth management , insurance agency commissions and deposit service charges . · non-interest expenses increased 5 % for 2017 compared to the prior year . the current year 's expenses included $ 4.3 million in merger expenses . excluding penalties due to the prepayment of fhlb advances in 2017 and 2016 in addition to the merger expense , non-interest expense increased 3 % due to increased compensation cost and fdic insurance . in 2017 , the mid-atlantic region in which the company operates continued to experience continued improved regional economic performance . the national economy improved as well throughout the year . consumer confidence has been bolstered by certain positive economic trends such as lower unemployment , increased housing metrics and solid performance in the financial markets . these positive trends have been tempered by international economic concerns together with concerns over a lack of wage growth and the rise in interest rates . these factors can act to constrain economic activity on the part of both large and small businesses . despite this challenging business environment , the company has experienced healthy loan growth while maintaining strong levels of liquidity , capital and credit quality . the net interest margin increased to 3.55 % in 2017 compared to 3.49 % for 2016. average loans increased 11 % , compared to the prior year , while average total deposits increased 11 % compared to 2016. liquidity continues to remain strong due to borrowing lines with the federal home loan bank of atlanta and the federal reserve and the size and composition of the investment portfolio . at december 31 , 2017 , the bank remained above all “ well-capitalized ” regulatory requirement levels . in addition , tangible book value per common share increased 6 % to $ 20.18 from $ 18.98 at december 31 , 2016. the company 's credit quality remained strong as non-performing assets totaled $ 31.6 million at december 31 , 2017 compared to $ 33.8 million at december 31 , 2016 due to a decrease in non-performing commercial loans . non-performing assets represented 0.58 % of total assets at december 31 , 2017 compared to 0.66 % at december 31 , 2016. the ratio of net charge-offs to average loans was 0.04 % for 2017 , compared to 0.06 % for the prior year . total assets at december 31 , 2017 increased 7 % compared to december 31 , 2016. loan balances increased 10 % compared to the prior year end due to increases of 11 % in residential mortgage and construction loans and 11 % in commercial loans . the growth in commercial loans was driven by double digit increases in owner-occupied real estate and investor real estate loans while the increase in mortgage loans was due primarily to growth in residential construction loans . customer funding sources , which include deposits plus other short-term borrowings from core customers , increased 10 % compared to balances at december 31 , 2016. the increase in customer funding sources was driven by increases of 18 % in certificates of deposit , 11 % in money market savings and 10 % in checking accounts . the company utilizes low cost fhlb borrowings to assist in the management of the net interest margin . the effect on the net interest margin partially mitigates the increased rates offered on certificates of deposit and money market accounts to retain these deposit relationships in the expectation of higher interest rates . during the same period , stockholders ' equity increased to $ 563 million due to net income in 2017 , which effect was somewhat offset by dividends paid to stockholders during 2017 . 29 net interest income increased 13 % compared to the prior year due to the effects of an 11 % growth in average interest-earning assets with an increase of 12 basis points in the yield while the rate on interest-bearing liabilities which grew 10 % from the prior year increased 9 basis points over the same period . non-interest income , exclusive of investment securities gains of $ 1.3 million in 2017 and $ 1.9 million in 2016 , as well as the $ 1.2 million gain in the prior year 's from debt extinguishment , increased 4 % for 2017 compared to 2016. this was due to increases in income from wealth management , insurance agency commissions and deposit service charges during 2017 as compared to 2016. non-interest expenses increased 5 % to $ 129.1 million for the year ended december 31 , 2017 , compared to $ 123.1 million for the prior year . a primary driver of expenses in 2017 was $ 4.3 million in merger expenses related to the washingtonfirst acquisition . this expense was partially offset by the decrease in prepayment penalties of $ 1.9 million for the early payoff of high-rate fhlb advances as compared to the year ended december 31 , 2016. excluding the impact of the fhlb prepayment penalties from the current and prior year 's results and the exclusion of merger expenses for 2017 , non-interest expense increased 3 % . story_separator_special_tag for loans on which the company has not elected to use a practical expedient to measure impairment , the company will measure impairment based on the present value of expected future cash flows discounted at the loan 's effective interest rate . in determining the cash flows to be included in the discount calculation the company considers the following factors that combine to estimate the probability and severity of potential losses : · the borrower 's overall financial condition ; · resources and payment record ; · demonstrated or documented support available from financial guarantors ; and · the adequacy of collateral value and the ultimate realization of that value at liquidation . the specific allowance accounted for 9 % of the total allowance at december 31 , 2017 and 11 % at december 31 , 2016. the estimated losses on impaired loans can differ substantially from actual losses . goodwill and other intangible asset impairment goodwill represents the excess purchase price paid over the fair value of the net assets acquired in a business combination . goodwill is not amortized but is assessed for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired . impairment assessment requires that the fair value of each of the company 's reporting units be compared to the carrying amount of the reporting unit 's net assets , including goodwill . the company 's reporting units were identified based upon an analysis of each of its individual operating segments . if the fair values of the reporting units exceed their book values , no write-down of recorded goodwill is required . if the fair value of a reporting unit is less than book value , an expense may be required to write-down the related goodwill to the proper carrying value . the company assesses for impairment of goodwill as of october 1 of each year using september 30 data and again at any quarter-end if any triggering events occur during a quarter that may affect goodwill . examples of such events include , but are not limited to , a significant deterioration in future operating results , adverse action by a regulator or a loss of key personnel . determining the fair value of a reporting unit requires the company to use a degree of subjectivity . 31 under current accounting guidance , the company has the option to assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount . based on the assessment of these qualitative factors , if it is determined that the fair value of a reporting unit is not less than the carrying value , then performing the two-step impairment process , previously required , is unnecessary . however , if it appears that the carrying value exceeds the fair value based on the qualitative assessment , the first step of the two-step process must be performed . the company has elected this accounting guidance with respect to its community banking , investment management and insurance segments . at december 31 , 2017 there was no evidence of impairment of goodwill or intangibles in any of the company 's reporting units . other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract , asset , or liability . other intangible assets have finite lives and are reviewed for impairment annually . these assets are amortized over their estimated useful lives on a straight-line or sum-of-the-years basis over varying periods that initially did not exceed 15 years . accounting for income taxes the company accounts for income taxes by recording deferred income taxes that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . management exercises significant judgment in the evaluation of the amount and timing of the recognition of the resulting tax assets and liabilities . the judgments and estimates required for the evaluation are updated based upon changes in business factors and the tax laws . if actual results differ from the assumptions and other considerations used in estimating the amount and timing of tax recognized , there can be no assurance that additional expenses will not be required in future periods . the company 's accounting policy follows the prescribed authoritative guidance that a minimal probability threshold of a tax position must be met before a financial statement benefit is recognized . the company recognized , when applicable , interest and penalties related to unrecognized tax benefits in other non-interest expenses in the consolidated statements of income . assessment of uncertain tax positions requires careful consideration of the technical merits of a position based on management 's analysis of tax regulations and interpretations . significant judgment may be involved in applying the applicable reporting and accounting requirements . management expects that the company 's adherence to the required accounting guidance may result in volatility in quarterly and annual effective income tax rates due to the requirement that any change in judgment or measurement of a tax position taken in a prior period be recognized as a discrete event in the period in which it occurs . factors that could impact management 's judgment include changes in income , tax laws and regulations , and tax planning strategies . fair value measurements the company measures certain financial assets and liabilities at fair value in accordance with applicable accounting standards . significant financial instruments measured at fair value on a recurring basis are investment securities available-for-sale , residential mortgages held for sale and commercial loan interest rate swap agreements .
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summary of loan loss experience the following table presents the activity in the allowance for loan losses for the periods indicated : replace_table_token_13_th 53 analysis of credit risk the following table presents information with respect to non-performing assets and 90-day delinquencies for the years indicated : replace_table_token_14_th ( 1 ) gross interest income that would have been recorded in 2017 if non-accrual loans shown above had been current and in accordance with their original terms was $ 2.3 million . no interest was recorded on these loans during the year . please see note 1 of the notes to consolidated financial statements for a description of the company 's policy for placing loans on non-accrual status . ( 2 ) performing loans considered potential problem loans , as defined and identified by management , amounted to $ 9.0 million at december 31 , 2017. although these are loans where known information about the borrowers ' possible credit problems causes management to have concerns as to the borrowers ' ability to comply with the loan repayment terms , most are current as to payment terms , well collateralized and are not believed to present significant risk of loss . loans classified for regulatory purposes not included in either non-performing or potential problem loans consist only of `` other loans especially mentioned '' and do not , in management 's opinion , represent or result from trends or uncertainties reasonably expected to materially impact future operating results , liquidity or capital resources , or represent material credits where known information about the borrowers ' possible credit problems causes management to have doubts as to the borrowers ' ability to comply with the loan repayment terms . 54 market risk management the company 's net income is largely dependent on its net interest income . net interest income is susceptible to interest rate risk to the extent that interest-bearing liabilities mature or re-price on a different basis than interest-earning assets .
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, the committee ensures that the compensation packages provided to our executive officers are designed in accordance with our compensation philosophy . the committee reviews and approves the compensation packages of our managing directors , assistant vice presidents , vice presidents , senior vice presidents , and our named executive officers . the committee establishes and oversees our general compensation philosophy in consultation with our president and chief executive officer . among other duties , the committee has overall responsibility for : reviewing and approving story_separator_special_tag the following is a discussion of our financial condition and results of operations , which should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this annual report . executive overview the following are factors that regularly affect our operating results and financial condition . in addition , our business is subject to the risks and uncertainties described in item 1a of this annual report . covid-19 pandemic the covid-19 pandemic has resulted in increased unemployment , commodity and stock market volatility , and uncertainty about conditions that will prevail in the months ahead . certain of our commercial and industrial customers have temporarily curtailed or suspended operations in light of the pandemic , many in response to temporary governmental measures seeking to manage the spread and impact of the covid-19 virus . we have seen a slowing in cash collections on outstanding accounts receivable as well , which we believe is in response to general economic conditions and uncertainty . as a result , we experienced lower revenues in certain customer sectors , and we are closely monitoring credit and collections activities . we took decisive action to adapt our business model and modify our operating protocols in order to help protect the health and safety of our employees , while ensuring seamless delivery of our essential services to the customers and communities we serve . we have also seen restrictions on our ability to decline business or to enforce our collection rights with respect to certain customers who refuse to pay for or negotiate a payment plan for products or services rendered in certain states in which we operate . while we expect that many of these effects will not be permanent , it is impossible to predict their duration . we have developed , implemented and continue to refine alternative operational plans , inclusive of manpower levels , to address different customer demand scenarios , and we continue to evaluate the potential impact of the covid-19 pandemic on future cash flows and access to adequate liquidity as we navigate through fiscal 2021. product costs and supply the level of profitability in the retail propane , fuel oil , natural gas and electricity businesses is largely dependent on the difference between retail sales price and our costs to acquire and transport products . the unit cost of our products , particularly propane , fuel oil and natural gas , is subject to volatility as a result of supply and demand dynamics or other market conditions , including , but not limited to , economic and political factors impacting crude oil and natural gas supply or pricing . we enter into product supply contracts that are generally one-year agreements subject to annual renewal , and also purchase product on the open market . we attempt to reduce price risk by pricing product on a short-term basis . our propane supply contracts typically provide for pricing based upon index formulas using the posted prices established at major supply points such as mont belvieu , texas , or conway , kansas ( plus transportation costs ) at the time of delivery . to supplement our annual purchase requirements , we may utilize forward fixed price purchase contracts to acquire a portion of the propane that we resell to our customers , which allows us to manage our exposure to unfavorable changes in commodity prices and to assure adequate physical supply . the percentage of contract purchases , and the amount of supply contracted for under forward contracts at fixed prices , will vary from year to year based on market conditions . changes in our costs to acquire and transport products can occur rapidly over a short period of time and can impact profitability . there is no assurance that we will be able to pass on product acquisition and transportation cost increases fully or immediately , particularly when such costs increase rapidly . therefore , average retail sales prices can vary significantly from year to year as our costs fluctuate with the propane , fuel oil , crude oil and natural gas commodity markets and infrastructure conditions . in addition , periods of sustained higher commodity and or transportation prices can lead to customer conservation , resulting in reduced demand for our product . seasonality the retail propane and fuel oil distribution businesses , as well as the natural gas marketing business , are seasonal because these fuels are primarily used for heating in residential and commercial buildings . historically , approximately two‑thirds of our retail propane volume is sold during the six-month peak heating season from october through march . the fuel oil business tends to experience greater seasonality given its more limited use for space heating and approximately three-fourths of our fuel oil volumes are sold between october and march . consequently , sales and operating profits are concentrated in our first and second fiscal quarters . cash flows from operations , therefore , are greatest during the second and third fiscal quarters when customers pay for product 27 purchased during the winter heating season . we expect lower operating profits and either net losses or lower net income during the period from april through september ( our third and fourth fiscal quarters ) . to the extent necessary , we will reserve cash from the second and third quarters for distribution to holders of our common units in the fourth quarter and the following fiscal year first quarter . story_separator_special_tag we estimate the rate of return on plan assets , the discount rate used to estimate the present value of future benefit obligations and the expected cost of future health care benefits in determining our annual pension and other postretirement benefit costs . we use the society of actuaries ' mortality scale ( mp-2019 ) and other actuarial life expectancy information when developing the annual mortality assumptions for our pension and postretirement benefit plans , which are used to measure net periodic benefit costs and the obligation under these plans . while we believe that our assumptions are appropriate , significant differences in our actual experience or significant changes in market conditions may materially affect our pension and other postretirement benefit obligations and our future expense . accrued insurance . our accrued insurance represents the estimated costs of known and anticipated or unasserted claims for incidents related to general and product , workers ' compensation and automobile liability . for each claim , we record a provision up to the estimated amount of the probable claim utilizing actuarially determined loss development factors applied to actual claims data . our insurance provisions are susceptible to change to the extent that actual claims development differs from historical claims development . we maintain insurance coverage wherein our net exposure for insured claims is limited to the insurance deductible , claims above which are paid by our insurance carriers . for the portion of our estimated insurance liability that exceeds our deductibles , we record an asset related to the amount of the liability expected to be paid by the insurance companies . historically , we have not experienced significant variability in our actuarial estimates for claims incurred but not reported . accrued insurance provisions for reported claims are reviewed at least quarterly , and our assessment of whether a loss is probable and or reasonably estimable is updated as necessary . due to the inherently uncertain nature of , in particular , product liability claims , the ultimate loss may differ materially from our estimates . however , because of the nature of our insurance arrangements , those material variations historically have not , nor are they expected in the future to have , a material impact on our results of operations or financial position . loss contingencies . in the normal course of business , we are involved in various claims and legal proceedings . we record a liability for such matters when it is probable that a loss has been incurred and the amounts can be reasonably estimated . the liability includes probable and estimable legal costs to the point in the legal matter where we believe a conclusion to the matter will be reached . when only a range of possible loss can be established , the most probable amount in the range is accrued . if no amount within this range is a better estimate than any other amount within the range , the minimum amount in the range is accrued . we contribute to multi-employer pension plans ( “ mepps ” ) in accordance with various collective bargaining agreements covering union employees . as one of the many participating employers in these mepps , we are responsible with the other participating employers for any plan underfunding . due to the uncertainty regarding future factors that could impact the withdrawal liability , we are unable to determine the timing of the payment of the future withdrawal liability , or additional future withdrawal liability , if any . fair values of acquired assets and liabilities . from time to time , we enter into material business combinations . in accordance with accounting guidance associated with business combinations , the assets acquired and liabilities assumed are recorded at their estimated fair value as of the acquisition date . fair values of assets acquired and liabilities assumed are based upon available information and may involve us engaging an independent third party to perform an appraisal . estimating fair values can be complex and subject to significant business judgment . estimates most commonly impact property , plant and equipment and intangible assets , including goodwill . generally , we have , if necessary , up to one year from the acquisition date to finalize our estimates of acquisition date fair values . story_separator_special_tag style= '' text-align : justify ; margin-bottom:0pt ; margin-top:0pt ; color : # 000000 ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; font-family : 'times new roman ' ; font-size:10pt ; '' > we acquired and successfully integrated two well-run propane businesses ; we made advancements in our efforts to advocate for the clean burning attributes of propane , while also making strategic investments in new technologies that can contribute to lowering greenhouse gas emissions . more specifically , o we purchased a 39 % equity interest in oberon fuels , a development-stage producer of a low-carbon transportation fuel which , when blended with propane can significantly reduce its carbon intensity ; o we entered into a supply agreement to acquire renewable propane , produced entirely from renewal sources , such as waste fats and oils , to help meet customer demand for renewable energy solutions ; we extended our reach in certain strategic markets that were not previously served by our existing footprint ; we made further investments in new handheld technology for our drivers and service technicians to improve efficiency and enhance the customer experience ; and we partnered with a number of major regional food service brands to provide support to frontline healthcare workers in multiple locations throughout our operating footprint as part of our suburbancares pillar .
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results of operations and financial condition net income for fiscal 2020 was $ 60.8 million , or $ 0.98 per common unit , compared to $ 68.6 million , or $ 1.11 per common unit , in fiscal 2019 . 29 net income and ebitda ( as defined and reconciled below ) for fiscal 2020 included a $ 1.1 million pension settlement charge and a $ 0.1 million loss on debt extinguishment . excluding the effects of the foregoing items and unrealized non-cash mark-to-market adjustments on derivative instruments in both years , adjusted ebitda ( as defined and reconciled below ) amounted to $ 253.7 million for fiscal 2020 , compared to $ 275.0 million in the prior year . retail propane gallons sold in fiscal 2020 of 402.9 million gallons decreased 5.6 % compared to the prior year , primarily due to warmer than normal weather conditions during the most critical months for heat-related demand . while average temperatures ( as measured by heating degree days ) across all of our service territories for fiscal 2020 were 10 % warmer than normal and 4 % warmer than the prior year , average temperatures during the peak demand months of december through february were 14 % warmer than normal -- on par with the warmest temperatures on record . revenues for fiscal 2020 of $ 1,107.9 million decreased 12.6 % compared to the prior year , primarily due to lower retail selling prices associated with lower wholesale costs , coupled with lower propane volumes sold . cost of products sold for fiscal 2020 of $ 383.0 million decreased 26.6 % compared to the prior year , primarily due to lower wholesale costs and lower volumes sold . average propane prices ( basis mont belvieu , texas ) decreased 27.9 % compared to the prior year .
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these forward-looking statements are based largely on our expectations and judgments and are subject to a number of risks and uncertainties , many of which are unforeseeable and beyond our control . for additional discussion on risks and uncertainties that may affect forward-looking statements , see “ risk factors ” in part i , item 1a . any changes in such assumptions or factors could produce significantly different results . the company undertakes no obligation to update forward-looking statements , whether as a result of new information , future events , or otherwise . business overview foot locker , inc. , through its subsidiaries , is one of the largest athletic footwear and apparel retailers in the world , operating 3,221 stores in 27 countries . the foot locker brand is one of the most widely recognized names in the markets in which we operate , epitomizing premium quality for the active lifestyle customer . we operate websites and mobile apps , aligned with the brand names of our store banners ( including footlocker.com , ladyfootlocker.com , six02.com , kidsfootlocker.com , champssports.com , footaction.com , footlocker.ca , footlocker.eu , footlocker.com.au , runnerspoint.com , sidestep-shoes.com , footlocker.hk , footlocker.sg , and footlocker.my ) . these sites offer some of the largest online selections of athletically inspired shoes and apparel , while providing a seamless link between e-commerce and physical stores . we also operate the websites for eastbay.com , final-score.com , and eastbayteamsales.com . with its various marketing channels and experiences across north america , europe , asia , australia , and new zealand , the company 's purpose is to inspire and empower youth culture around the world , by fueling a shared passion for self-expression and creating unrivaled experiences at the heart of the sport and sneaker communities . segment reporting we identify our operating segments according to how our business activities are managed and evaluated by our chief operating decision maker , our ceo . prior to 2018 , we had two reportable segments , athletic stores and direct-to-customers . beginning in 2018 , the company has changed its organizational and internal reporting structure in order to execute our omni-channel strategy . this change resulted in the combination of our stores and direct-to-customer financial results . the company has determined that it has two operating segments , north america and international . our north america operating segment includes the results of the following banners operating in the u.s. and canada : foot locker , kids foot locker , lady foot locker , champs sports , footaction , and six:02 , including each of their related e-commerce businesses , as well as our eastbay business that includes internet , catalog , and team sales . our international operating segment includes the results of the following banners operating in europe , asia , australia , and new zealand : foot locker , runners point , sidestep , and kids foot locker , including each of their related e-commerce businesses . we have further aggregated these operating segments into one reportable segment based upon their shared customer base and similar economic characteristics . during 2018 , the company expanded into asia , we have opened five stores and launched our digital channels across singapore , hong kong , and malaysia . in addition , we entered china through a limited offering in partnership with tmall ( a chinese-language platform for business-to-consumer online retail ) . during the first quarter of 2019 , we updated our organizational structure to support an accelerated growth strategy for the region . we opened an asian headquarters in singapore and realigned our organization into three distinct geographic regions : europe , middle east and africa ( emea ) , asia pacific , and north america . the company will reevaluate during the first quarter of 2019 our operating segments and reporting units as a result of this change . 14 store and operations profile replace_table_token_3_th we operated 3,221 stores as of the end of 2018. the following is a brief description of each of our banners : foot locker — foot locker is a leading global youth culture brand that connects the sneaker obsessed consumer with the most innovative and culturally relevant sneakers and apparel . across all our consumer touchpoints , foot locker enables consumers to fulfill their desire to be part of sneaker and youth culture . we curate special product assortments and marketing content that supports our premium position – from leading global brands such as nike , jordan , adidas , and puma , as well as new and emerging brands in the athletic and lifestyle space . we connect emotionally with our consumers through a combination of global brand events and highly targeted and personalized experiences in local markets . foot locker 's 1,734 stores are located in 27 countries including 886 in the united states , puerto rico , u.s. virgin islands , and guam , 107 in canada , 642 in europe , a combined 94 in australia and new zealand , and 5 in asia . our domestic stores have an average of 2,700 selling square feet and our international stores have an average of 1,700 selling square feet . kids foot locker — kids foot locker offers the largest selection of brand-name athletic footwear , apparel and accessories for children . we feature products , content and experiences geared toward youth sneaker culture . of our 428 stores , 369 are located in the united states , puerto rico , and the u.s. virgin islands , 38 in europe , 19 in canada , and a combined 2 in australia and new zealand . these stores have an average of 1,700 selling square feet . lady foot locker — lady foot locker is a u.s. retailer of athletic footwear , apparel , and accessories dedicated to sneaker-obsessed young women . our stores provide premium sneakers and apparel , carefully selected to reflect the latest styles . lady foot locker operates 57 stores that are located in the united states and puerto rico . story_separator_special_tag the 2017 amount represented pension-related litigation charges ( $ 178 million , or $ 111 million after-tax ) , impairment charges ( $ 20 million , or $ 14 million after-tax ) , and severance and related costs ( $ 13 million , or $ 8 million after-tax ) . the 2016 amount represented impairment charges of $ 6 million , or $ 5 million after-tax . pension litigation - the company recorded pre-tax charges $ 18 million during 2018 , in connection with its u.s. retirement plan litigation and required plan reformation . the charge reflected $ 13 million of adjustments to the estimated cost of the reformation and interest . additionally , professional fees of $ 5 million were incurred during 2018 in connection with the plan reformation . impairment charges – the company recognized pre-tax impairment charges totaling $ 19 million , $ 20 million , and $ 6 million during the fourth quarters of 2018 , 2017 , and 2016 , respectively . these charges were associated with our six:02 , runners point , and sidestep businesses and primarily represented the write-down of the runners point tradename , store fixtures , and leasehold improvements . severance and related costs – during the third quarter of 2017 , the company recorded a pre-tax charge of $ 13 million associated with the reorganization and the reduction of staff taken to improve efficiency . ( 2 ) on december 22 , 2017 , the united states enacted tax reform legislation that included a broad range of business tax provisions . during the fourth quarter of 2017 , the company recognized a $ 99 million provisional charge for the mandatory deemed repatriation of foreign sourced net earnings and a corresponding change in our permanent reinvestment assertion under asc 740-30. during 2018 , the company reduced the provisional amounts by $ 28 million . this adjustment represented a $ 21 million reduction in the deemed repatriation tax and a $ 7 million benefit related to irs accounting method changes and timing difference adjustments . we exclude the discrete u.s. tax reform effect from our adjusted diluted eps as it does not reflect our ongoing tax obligations under u.s. tax reform . ( 3 ) during the fourth quarters of 2018 and 2017 , the company recognized tax expense of $ 4 million and $ 2 million , respectively , in connection to separate tax rate reductions in the netherlands and france , respectively , to write down the value of deferred tax assets . during 2016 , the company recognized tax expense of $ 2 million related to a separate tax rate reduction in france . ( 4 ) during the second quarter of 2018 , the u.s. treasury issued a notice that delayed the effective date of regulations under internal revenue code section 987. these regulations , which were promulgated in december 2016 , changed our method for determining the tax effects of foreign currency translation gains and losses for our foreign businesses that are operated as branches and are reported in a currency other than the currency of their parent . as a result of the delay in the effective date , the company updated its calculations for the effect of these regulations , which resulted in an increase to deferred tax assets and a corresponding reduction in our income tax provision in the amount of $ 1 million . the change in 2016 resulted in an increase to deferred tax assets and a corresponding reduction in our income tax provision of $ 9 million . ( 5 ) during the fourth quarter of 2017 , the company determined that certain valuation allowances should be established against deferred tax assets associated with the runners point and sidestep stores and e-commerce businesses . ( 6 ) during the third quarter of 2016 , we performed a scheduled reassessment of the value of the intellectual property provided to our european business by foot locker in the u.s. during the fourth quarter of 2012. the new , higher valuation resulted in catch-up deductions that reduced tax expense by $ 10 million . return on invested capital roic is presented below and represents a non-gaap measure . we believe it is a meaningful measure because it quantifies how efficiently we generated operating income relative to the capital we have invested in the business . in order to calculate roic , we adjust our results to reflect our operating leases as if they qualified for capital lease treatment . operating leases are the primary financing vehicle used to fund store expansion and , therefore , we believe that the presentation of these leases as if they were capital leases is appropriate . accordingly , the asset base and net income amounts are adjusted to reflect this in the calculation of roic . roic , subject to certain adjustments , is also used as a measure in executive long-term incentive compensation . the closest u.s. gaap measure to roic is return on assets ( “ roa ” ) and is also represented below . roa increased to 13.9 percent as compared to 7.3 percent in the prior year . this improvement reflects the increase in net income as compared with the prior year , which included charges related to the pension matter and the effects of tax reform . our roic increased to 12.0 percent in 2018 , as compared to 11.0 percent in the prior year . average invested capital decreased compared with the prior year and after-tax earnings increased , which resulted in the overall increase in roic . average invested capital decreased as a result of the effect of opening fewer new stores , more stores that are operating on a month-to-month basis or paying variable rents coupled with foreign exchange rate fluctuations . the earnings increase is more fully discussed on the following pages .
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overview of consolidated results replace_table_token_7_th 19 highlights of our 2018 financial performance include : · sales and comparable-store sales , as noted in the table below , both increased and benefitted from improved assortments compared with the prior year . we worked closely with our strategic partners to deliver exciting and exclusive product offerings and improved our local product assortments . additionally , in early 2018 we changed our organizational structure by aligning our stores and e-commerce businesses in support of our omni-channel strategies . the benefits from that realignment are noted in the results of the e-commerce business . replace_table_token_8_th · footwear sales represented 82 percent of total sales for all periods presented . · our stores and direct-to-customer sales channels experienced overall comparable-sales gains of 1.1 percent and 12.3 percent , respectively . · sales per square foot increased by 1.8 percent to $ 504 . · sales of our direct-to-customers channel increased by 10.5 percent to $ 1,225 million , as compared with $ 1,109 million in 2017 and increased by 110 basis points as a percentage of total sales to 15.4 percent . the direct business has been steadily increasing as a percentage of total sales over the last several years . our growth reflected our expansion into new geographies and customers ' acceptance of our technology improvements . · gross margin , as a percentage of sales , increased by 20 basis points to 31.8 percent in 2018. the improvement was primarily driven by an increase in our merchandise margin rate , reflecting a lower markdown rate as compared with the prior year . · sg & a expenses were 20.3 percent of sales , an increase of 100 basis points as compared with the prior year . the overall increase reflected higher wages , higher incentive compensation expense , and an increase in costs incurred in connection with our ongoing investment in various technology and infrastructure projects .
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also on may 15 , 2020 , pnc completed the sale of 2,650,857 shares to the company at a price of $ 414.96 per share . the shares repurchased by the company were in addition to the share repurchase authorization under the company 's existing share repurchase program . the secondary offering and the company 's share repurchase resulted in pnc 's exit of its entire ownership position in the company . certain prior period presentations and disclosures , while not required to be recast , were reclassified to ensure comparability with current period classifications . 33 united kingdom exit from european union on december 31 , 2020 , the united kingdom ( “ uk ” ) left the european union ( “ eu ” ) , and the uk and eu reverted to being distinct regulatory , legal and customs territories . although an “ eu-uk trade and cooperation agreement ” was agreed to in connection with the uk 's departure from the eu , it does not include any substantive provisions with respect to financial services . as a result , from january 1 , 2021 , cross-border financial services trade between the uk and the eu will be governed by their respective financial services regulations and market access regimes . blackrock has implemented a number of steps to prepare for this outcome . these steps , which are and have been time consuming and costly and may add complexity to blackrock 's future european operations , include effecting organizational , governance and operational changes , applying for and receiving additional licenses and permissions in the eu , and engaging in client communications . in addition , depending on how the future relationship between the uk and the eu develops , blackrock may experience further organizational and operational challenges and incur additional costs in connection with its european operations , particularly with regards to delegation and outsourcing , which may impede the company 's growth or impact its financial performance . other development on february 13 , 2020 , blackrock announced the establishment of the blackrock foundation ( the “ foundation ” ) and the contribution of its remaining 20 % stake in pennymac financial services , inc. ( “ pennymac ” ) to the foundation and the blackrock charitable fund , which blackrock established in 2013 ( together , the “ charitable contribution ” ) . the charitable contribution resulted in an operating expense of $ 589 million , which was offset by a $ 122 million noncash , nonoperating pre-tax gain on the contributed shares and a tax benefit of $ 241 million in the consolidated statement of income for the year ended december 31 , 2020. the charitable contribution provides long-term funding for blackrock 's philanthropic investments and partnerships . the general and administration expense , nonoperating gain and associated tax benefit related to the charitable contribution have been excluded from as adjusted results . business outlook blackrock 's framework for long-term value creation is predicated on generating differentiated organic growth , leveraging scale to increase operating margins over time , and returning capital to shareholders on a consistent basis . blackrock 's diversified platform , in terms of style , product , client and geography , enables it to generate more stable cash flows through market cycles , positioning blackrock to invest for the long-term by striking an appropriate balance between investing for future growth and prudent discretionary expense management . the covid-19 pandemic continues to result in governmental authorities taking numerous measures to contain the spread and impact of covid-19 , such as travel bans and restrictions , quarantines , shelter in place orders , and limitations on business activity , including closures . these measures may continue to , among other things , severely restrict global economic activity , which can disrupt supply chains , lower asset valuations , significantly increase unemployment and underemployment levels , decrease liquidity in markets for certain securities and cause significant volatility and disruption in the financial markets . towards the end of the first quarter of 2020 the pandemic began to impact blackrock 's business . while global markets have significantly recovered since then , the effects of the pandemic are ongoing , and such impact may continue in future quarters if conditions persist or worsen . the aggregate extent to which covid-19 , and the related global economic crisis , affect blackrock 's business , results of operations and financial condition , will depend on future developments that are highly uncertain and can not be predicted , including the scope and duration of the pandemic and any recovery period , future actions taken by governmental authorities , central banks and other third parties ( including new financial regulation and other regulatory reform ) in response to the pandemic , and the effects on blackrock 's products , clients , vendors and employees . see part i , item 1a - risk factors herein for information on the possible future effects of the covid-19 pandemic on our results . in addition , although the forthcoming environment remains uncertain , blackrock 's business may be impacted by governmental changes , as well as potential regulations , foreign and trade policies and fiscal spending that may arise as a result of such changes . blackrock 's investment management revenue is primarily comprised of fees earned as a percentage of aum and , in some cases , performance fees , which are normally expressed as a percentage of fund returns to the client . numerous factors , including price movements in the equity , debt or currency markets , or in the price of real assets , commodities or alternative investments in which blackrock invests on behalf of clients , could impact blackrock 's aum , revenue and earnings . blackrock is currently voluntarily waiving a portion of its management fees on certain money market funds to ensure that they maintain a minimum level of daily net investment income . story_separator_special_tag closed-end fund launch costs ) and related commissions . management believes the exclusion of such costs and related commissions is useful because these costs can fluctuate considerably and revenue associated with the expenditure of these costs will not fully impact blackrock 's results until future periods . revenue used for calculating operating margin , as adjusted , is reduced to exclude all of the company 's distribution fees , which are recorded as a separate line item on the consolidated statements of income , as well as a portion of investment advisory fees received that is used to pay distribution and servicing costs . for certain products , based on distinct arrangements , distribution fees are collected by the company and then passed-through to third-party client intermediaries . for other products , investment advisory fees are collected by the company and a portion is passed-through to third-party client intermediaries . however , in both structures , the third-party client intermediary similarly owns the relationship with the retail client and is responsible for distributing the product and servicing the client . the amount of distribution and investment advisory fees fluctuates each period primarily based on a predetermined percentage of the value of aum during the period . these fees also vary based on the type of investment product sold and the geographic location where it is sold . in addition , the company may waive fees on certain products that could result in the reduction of payments to the third-party intermediaries . ( 2 ) nonoperating income ( expense ) , less net income ( loss ) attributable to nci , as adjusted : replace_table_token_18_th management believes nonoperating income ( expense ) , less net income ( loss ) attributable to nci , as adjusted , is an effective measure for reviewing blackrock 's nonoperating contribution to its results and provides comparability of this information among reporting periods . management believes nonoperating income ( expense ) , less net income ( loss ) attributable to nci , as adjusted , provides a useful measure , for both management and investors , of blackrock 's nonoperating results , which ultimately impact blackrock 's book value . in 2020 , the noncash , 37 nonoperating pre-tax gain of $ 122 million related to the charitable contribution has been excluded from nonoperating income ( expense ) , less net income ( loss ) attributable to nci , as adjusted , due to its nonrecurring nature . ( 3 ) net income attributable to blackrock , inc. , as adjusted : replace_table_token_19_th management believes net income attributable to blackrock , inc. , as adjusted , and diluted earnings per common share , as adjusted , are useful measures of blackrock 's profitability and financial performance . net income attributable to blackrock , inc. , as adjusted , equals net income attributable to blackrock , inc. , gaap basis , adjusted for significant nonrecurring items , charges that ultimately will not impact blackrock 's book value or certain tax items that do not impact cash flow . see aforementioned discussion regarding operating income , as adjusted , operating margin , as adjusted , and nonoperating income ( expense ) , less net income ( loss ) attributable to nci , as adjusted for information on the charitable contribution . in 2020 , a discrete tax benefit of $ 241 million was recognized in connection with the charitable contribution . the discrete tax benefit has been excluded from as adjusted results due to the non-recurring nature of the charitable contribution . amounts for income tax matters represent net noncash ( benefits ) expense primarily associated with the revaluation of certain deferred tax liabilities related to intangible assets and goodwill as a result of tax rate changes . the amount for 2020 included a $ 79 million net noncash expense related to the impact of legislation enacted in the united kingdom increasing its corporate tax rate and state and local income tax changes . these amounts have been excluded from the as adjusted results as these items will not have a cash flow impact and to ensure comparability among periods presented . per share amounts reflect net income attributable to blackrock , inc. , as adjusted divided by diluted weighted-average common shares outstanding . ( 4 ) nonvoting participating preferred stock is considered to be a common stock equivalent for purposes of determining basic and diluted earnings per share calculations . as of december 31 , 2020 , there were no shares of preferred stock outstanding . 38 assets under management aum for reporting purposes generally is based upon how investment advisory and administration fees are calculated for each portfolio . net asset values , total assets , committed assets or other measures may be used to determine portfolio aum . replace_table_token_20_th ( 1 ) advisory aum represents mandates linked to purchases and disposition of assets and portfolios on behalf of official institutions and long-term portfolio liquidation assignments . approximately $ 4.3 billion of ishares etfs aum held in advisory accounts associated with the federal reserve bank of new york ( “ frbny ” ) assignment as of december 31 , 2020 ( disclosed via frbny reporting as of january 11 , 2021 ) are included within fixed income ishares etfs aum or fixed income aum above . these holdings are excluded from advisory aum . ( 2 ) amounts include commodity ishares etfs . 39 the following table presents the component changes in blackrock 's aum for 20 20 and 201 9 . replace_table_token_21_th ( 1 ) advisory aum represents mandates linked to purchases and disposition of assets and portfolios on behalf of official institutions and long-term portfolio liquidation assignments . approximately $ 4.3 billion of ishares etfs aum held in advisory accounts associated with the frbny assignment as of december 31 , 2020 ( disclosed via frbny reporting as of january 11 , 2021 ) are included within fixed income ishares etfs aum or fixed income aum above . these holdings are excluded from advisory aum .
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executive summary replace_table_token_16_th ( 1 ) as adjusted items are described in more detail in non-gaap financial measures . ( 2 ) nonvoting participating preferred shares are considered to be common stock equivalents for purposes of determining basic and diluted earnings per share calculations . as of december 31 , 2020 , there were no shares of preferred stock outstanding . ( 3 ) total blackrock stockholders ' equity , divided by total shares outstanding at december 31 of the respective year-end . 2020 compared with 2019 gaap . operating income of $ 5,695 million increased $ 144 million and operating margin of 35.1 % decreased 310 bps from 2019. operating income and operating margin reflected higher base fees , performance fees and technology services revenue , which were more than offset by higher expense , including the impact of $ 589 million related to the charitable contribution , higher compensation and benefits expense , and higher product launch costs in 2020. product launch costs in 2020 included $ 87 million and $ 83 million associated with the close of the $ 2.3 billion blackrock health sciences trust ii and the $ 2 billion blackrock capital allocation trust , respectively . product launch costs for 2019 included $ 61 million associated with the close of the $ 1.4 billion blackrock science and technology trust ii . nonoperating income ( expense ) , less net income ( loss ) attributable to noncontrolling interests ( “ nci ” ) , increased $ 289 million from 2019 driven by the impact of a pre-tax gain of approximately $ 240 million in connection with a recapitalization of icapital network , inc. ( “ icapital ” ) and $ 122 million pre-tax gain related to the charitable contribution , partially offset by lower mark-to-market gains on un-hedged seed capital investments and lower interest income .
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the cost of meat commodities decreased approximately $ 266 during fiscal year 2017 compared to the prior fiscal year . the gross margin earned in this segment decreased from 40.5 % to 36.1 % during fiscal year 2017 primarily as a result of lower per pound selling prices . 11 selling , general and administrative expenses-consolidated selling , general and administrative expenses ( “ sg & a ” ) in fiscal year 2017 increased $ 4,381 ( 9.9 % ) when compared to the prior fiscal year . the increase in this category did not directly correspond to the change in sales . the table below summarizes the primary expense variances in this category : replace_table_token_9_th higher profits and profit sharing accruals resulted in increased wages and bonus in fiscal year 2017 compared to the prior year . the cash surrender value of life insurance policies increased substantially due to stock market gains compared to fiscal 2016. costs for product advertising increased mainly as a result of higher payments under brand licensing agreements in the snack food products segment during fiscal 2017. the increase in pension costs was due to lower pension discount rates being used to compute future liability estimates . healthcare benefit expense was more favorable compared to claim trends in fiscal 2016. outside storage costs declined due to acquisition of a new facility currently being used to warehouse products prior to shipment . the increase in fuel expense was driven by per gallon fuel price increases compared to the prior fiscal year as a result of higher cost trends in petroleum markets . the reserve for doubtful accounts increased as a direct result of an increase in accounts receivable due to higher sales and extended terms to customers . the major components comprising the increase of “ other sg & a ” expenses were higher workers ' compensation costs , vehicle and general repairs and maintenance . selling , general and administrative expenses-frozen food products segment sg & a expenses in the frozen food products segment increased by $ 229 ( 1.6 % ) to $ 14,706 during fiscal year 2017 compared to the prior fiscal year . the overall increase in sg & a expenses was due to higher wages and bonuses , pension costs and product advertising expenses . selling , general and administrative expenses-refrigerated and snack food products segment sg & a expenses in the snack food products segment increased by $ 4,152 ( 13.9 % ) to $ 34,052 during fiscal year 2017 compared to the prior fiscal year . most of the increase was due to higher sales , higher expense related to licensing agreements , and higher workers ' compensation and pension costs partially offset by higher allocated gains on life insurance . story_separator_special_tag > replace_table_token_13_th our stock repurchase program was approved by the board of directors in november 1999 and was expanded in june 2005. under the stock repurchase program , we are authorized , at the discretion of management and the board of directors , to purchase up to an aggregate of 2,000,000 shares of our common stock on the open market . as of the end of fiscal year 2017 , 120,113 shares were still authorized for repurchase under the program . we invested in otr ( over-the-road ) tractors during fiscal year 2012 financed by a capital lease obligation in the amount of $ 1,848. the total capital lease obligation remaining as of november 3 , 2017 is $ 424. the capital lease arrangement replaced the long-standing month-to-month leases of transportation equipment . we maintain a line of credit with wells fargo bank , n.a . that expires on march 1 , 2018. the line of credit was expanded during the first quarter of fiscal 2017. under the terms of this line of credit , we may borrow up to $ 7,500 at an interest rate equal to the bank 's prime rate or libor plus 1.5 % . the borrowing agreement contains various covenants , the more significant of which require us to maintain a minimum tangible net worth , a minimum quick ratio , a minimum net income after tax and total capital expenditures less than $ 5,000. the company was in violation of the capital expenditure covenant which was subsequently waived by letter dated december 22 , 2017. the company was in compliance with all other covenants as of november 3 , 2017. there have been no borrowings under this line of credit during fiscal 2017. impact of inflation our operating results are heavily dependent upon the prices paid for raw materials . the marketing of our value-added products does not lend itself to instantaneous changes in selling prices . changes in selling prices are relatively infrequent and do not compare with the volatility of commodity markets . while fluctuations in significant cost structure components , such as ingredient commodities and fuel prices , have had a significant impact on profitability over the last two fiscal years , the impact of general price inflation on our financial position and results of operations has not been significant . however , future volatility of general price inflation or deflation and raw material cost and availability could adversely affect our financial results . management is of the opinion that our strong financial position and our capital resources are sufficient to provide for our operating needs and capital expenditures for fiscal year 2018. off-balance sheet arrangements we do not currently have any off balance sheet arrangements within the meaning of item 303 ( a ) ( 4 ) of regulation s-k. 14 contractual obligations we have remained free of interest bearing debt ( excluding capital leases ) for twenty-eight of the last twenty-nine years ( with fiscal year 2014 being the only exception ) and had no other debt or other contractual obligations within the meaning of item 303 ( a ) ( 5 ) of regulation s-k , as of november 3 , 2017. critical accounting policies story_separator_special_tag the cost of meat commodities decreased approximately $ 266 during fiscal year 2017 compared to the prior fiscal year . the gross margin earned in this segment decreased from 40.5 % to 36.1 % during fiscal year 2017 primarily as a result of lower per pound selling prices . 11 selling , general and administrative expenses-consolidated selling , general and administrative expenses ( “ sg & a ” ) in fiscal year 2017 increased $ 4,381 ( 9.9 % ) when compared to the prior fiscal year . the increase in this category did not directly correspond to the change in sales . the table below summarizes the primary expense variances in this category : replace_table_token_9_th higher profits and profit sharing accruals resulted in increased wages and bonus in fiscal year 2017 compared to the prior year . the cash surrender value of life insurance policies increased substantially due to stock market gains compared to fiscal 2016. costs for product advertising increased mainly as a result of higher payments under brand licensing agreements in the snack food products segment during fiscal 2017. the increase in pension costs was due to lower pension discount rates being used to compute future liability estimates . healthcare benefit expense was more favorable compared to claim trends in fiscal 2016. outside storage costs declined due to acquisition of a new facility currently being used to warehouse products prior to shipment . the increase in fuel expense was driven by per gallon fuel price increases compared to the prior fiscal year as a result of higher cost trends in petroleum markets . the reserve for doubtful accounts increased as a direct result of an increase in accounts receivable due to higher sales and extended terms to customers . the major components comprising the increase of “ other sg & a ” expenses were higher workers ' compensation costs , vehicle and general repairs and maintenance . selling , general and administrative expenses-frozen food products segment sg & a expenses in the frozen food products segment increased by $ 229 ( 1.6 % ) to $ 14,706 during fiscal year 2017 compared to the prior fiscal year . the overall increase in sg & a expenses was due to higher wages and bonuses , pension costs and product advertising expenses . selling , general and administrative expenses-refrigerated and snack food products segment sg & a expenses in the snack food products segment increased by $ 4,152 ( 13.9 % ) to $ 34,052 during fiscal year 2017 compared to the prior fiscal year . most of the increase was due to higher sales , higher expense related to licensing agreements , and higher workers ' compensation and pension costs partially offset by higher allocated gains on life insurance . story_separator_special_tag > replace_table_token_13_th our stock repurchase program was approved by the board of directors in november 1999 and was expanded in june 2005. under the stock repurchase program , we are authorized , at the discretion of management and the board of directors , to purchase up to an aggregate of 2,000,000 shares of our common stock on the open market . as of the end of fiscal year 2017 , 120,113 shares were still authorized for repurchase under the program . we invested in otr ( over-the-road ) tractors during fiscal year 2012 financed by a capital lease obligation in the amount of $ 1,848. the total capital lease obligation remaining as of november 3 , 2017 is $ 424. the capital lease arrangement replaced the long-standing month-to-month leases of transportation equipment . we maintain a line of credit with wells fargo bank , n.a . that expires on march 1 , 2018. the line of credit was expanded during the first quarter of fiscal 2017. under the terms of this line of credit , we may borrow up to $ 7,500 at an interest rate equal to the bank 's prime rate or libor plus 1.5 % . the borrowing agreement contains various covenants , the more significant of which require us to maintain a minimum tangible net worth , a minimum quick ratio , a minimum net income after tax and total capital expenditures less than $ 5,000. the company was in violation of the capital expenditure covenant which was subsequently waived by letter dated december 22 , 2017. the company was in compliance with all other covenants as of november 3 , 2017. there have been no borrowings under this line of credit during fiscal 2017. impact of inflation our operating results are heavily dependent upon the prices paid for raw materials . the marketing of our value-added products does not lend itself to instantaneous changes in selling prices . changes in selling prices are relatively infrequent and do not compare with the volatility of commodity markets . while fluctuations in significant cost structure components , such as ingredient commodities and fuel prices , have had a significant impact on profitability over the last two fiscal years , the impact of general price inflation on our financial position and results of operations has not been significant . however , future volatility of general price inflation or deflation and raw material cost and availability could adversely affect our financial results . management is of the opinion that our strong financial position and our capital resources are sufficient to provide for our operating needs and capital expenditures for fiscal year 2018. off-balance sheet arrangements we do not currently have any off balance sheet arrangements within the meaning of item 303 ( a ) ( 4 ) of regulation s-k. 14 contractual obligations we have remained free of interest bearing debt ( excluding capital leases ) for twenty-eight of the last twenty-nine years ( with fiscal year 2014 being the only exception ) and had no other debt or other contractual obligations within the meaning of item 303 ( a ) ( 5 ) of regulation s-k , as of november 3 , 2017. critical accounting policies
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income taxes the effective income tax rate was 31.6 % and 28.3 % in fiscal years 2017 and 2016 , respectively . in fiscal year 2017 , the effective income tax rate differed from the applicable mixed statutory rate of approximately 37.7 % primarily due to the domestic production activities deduction and a change in the liability on unrecognized benefits related to research and development tax credits ( refer to note 4 of notes to the consolidated financial statements for more information ) . liquidity and capital resources ( in thousands except share amounts ) the principal source of our operating cash flow is cash receipts from the sale of our products , net of costs to manufacture , store , market and deliver to customers . the company did not borrow on the line of credit with wells fargo bank , n.a . during fiscal 2017. there were no borrowings outstanding under this line of credit as of november 3 , 2017. the company was in compliance with all loan covenants except the capital expenditure maximum which was subsequently waived in a letter dated december 22 , 2017. we typically fund our operations from cash balances and cash flow generated from operations . we normally expect positive operating cash flows in the first quarter of our fiscal year from the liquidation of inventory and accounts receivable balances related to holiday season sales . we typically build inventories in the third quarter for anticipated promotional sales that occur in the fourth and first quarters . anticipated commodity price trends may also affect cash balances . certain commodities may be purchased in advance of our immediate needs to lower the ultimate cost of processing or to meet customer demand .
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commencing on october 30 , 2013 , employee wages and related employee expenses included in our operating expenses are incurred on our behalf by our general partner and reimbursed by us . these expenses remain relatively stable independent of the volumes through our system but can fluctuate depending on the activities performed during a specific period . selling , general and administrative expenses our sg & a expenses include employee salaries and benefits , pension and 401 ( k ) plan expenses , discretionary bonus , marketing costs , corporate overhead , professional fees , information technology and office space expenses . commencing on october 30 , 2013 , employee wages , related employee expenses and certain rental costs included in our selling , general and administrative expenses are incurred on our behalf by our general partner and reimbursed by us . we believe that our sg & a expenses will increase as a result of our becoming a publicly traded partnership . heating degree days a degree day is an industry measurement of temperature designed to evaluate energy demand and consumption . degree days are based on how much the average temperature departs from a human comfort level of 65°f . each degree of temperature above 65°f is counted as one cooling degree day , and each degree of temperature below 65°f is counted as one heating degree day . degree days are accumulated each day over the course of a year and can be compared to a monthly or a long-term average , or normal , to see if a month or a year was warmer or cooler than usual . degree days are officially observed by the national weather service and officially archived by the national climatic data center . for purposes of evaluating our results of operations , we use the normal heating degree day amount as reported by the noaa/national weather service for the new england oil home heating region over the period of 1981-2011 . 43 ebitda we define ebitda as net income before interest , income taxes , depreciation and amortization . ebitda is used as a supplemental financial measure by external users of our financial statements , such as investors , commercial banks , trade suppliers and research analysts , to assess : the financial performance of our assets , operations and return on capital without regard to financing methods , capital structure or historical cost basis ; the ability of our assets to generate cash sufficient to pay interest on our indebtedness and make distributions to our equity holders ; and the viability of acquisitions and capital expenditure projects . ebitda is not prepared in accordance with gaap . ebitda should not be considered an alternative to net income , operating income , cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with gaap . ebitda excludes some , but not all , items that affect net income and operating income . adjusted gross margin and adjusted ebitda management utilizes adjusted gross margin and adjusted ebitda to assist it in reviewing our financial results and managing our business segments . we define adjusted gross margin as gross margin decreased by total commodity derivative gains and losses included in net income ( loss ) and increased by realized commodity derivative gains and losses included in net income ( loss ) , in each case with respect to refined products and natural gas inventory and natural gas transportation contracts . we define adjusted ebitda as ebitda decreased by total commodity derivative gains and losses included in net income ( loss ) and increased by realized commodity derivative gains and losses included in net income ( loss ) , in each case with respect to refined products and natural gas inventory and natural gas transportation contracts , decreased by gains on acquisition of business , increased by the write-off of deferred offering costs and adjusted for the net impact of bio-fuel excise tax credits . management believes that adjusted gross margin and adjusted ebitda provide information that reflects our market or economic performance . we trade , purchase and sell energy commodities with market values that are constantly changing , which makes it important for management to evaluate our performance , as well as our physical and derivative positions , on a daily basis . management reviews the daily operational performance of our supply activities , as well as our monthly financial results , on an adjusted gross margin and adjusted ebitda basis . adjusted gross margin and adjusted ebitda have no impact on reported volumes or net sales . adjusted gross margin and adjusted ebitda are used as supplemental financial measures by management to describe our operations and economic performance to commercial banks , trade suppliers and other credit suppliers , to assess : the economic results of our operations ; the market value of our inventory and natural gas transportation contracts for financial reporting to our lenders , as well as for borrowing base purposes ; and repeatable operating performance that is not distorted by non-recurring items or market volatility . adjusted gross margin and adjusted ebitda are not prepared in accordance with gaap . adjusted gross margin and adjusted ebitda should not be considered as alternatives to net income , income from operations , cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with gaap . 44 hedging activities we economically hedge our inventory within the guidelines set in our risk management policy . in a rising commodity price environment , the market value of our inventory will generally be higher than the cost of our inventory . story_separator_special_tag for gaap purposes , we are required to value our inventory at the lower of cost or market , or lcm . the hedges on this inventory will lose value as the value of the underlying commodity rises , creating hedging losses . because we do not utilize hedge accounting , gaap requires us to record those hedging losses in our statement of operations . in contrast , in a declining commodity price market we generally incur hedging gains . gaap requires us to record those hedging gains in our statement of operations . the refined products inventory market valuation is calculated daily using independent bulk market price assessments from major pricing services ( either platts or argus ) . these third-party price assessments are primarily based in new york harbor , or nyh , with our inventory values determined after adjusting the nyh prices to the various inventory locations by adding expected cost differentials ( primarily freight ) compared to a nyh supply source . our natural gas inventory is limited , with the valuation updated monthly based on the volume and prices at the corresponding inventory locations . the prices are based on the most applicable monthly inside ferc , or iferc , assessments published by platts near the beginning of the following month . similarly , we can economically hedge our natural gas transportation assets ( i.e. , pipeline capacity ) within the guidelines set in our risk management policy . although we do not own any natural gas pipelines , we secure the use of pipeline capacity to support our natural gas requirements by either leasing capacity over a pipeline for a defined time period or by being assigned capacity from a local distribution company for supplying our customers . as the spread between the price of gas between the origin and delivery point widens ( assuming the value exceeds the fixed charge of the transportation ) , the market value of the natural gas transportation contracts assets will increase . if the market value of the transportation asset exceeds costs , we can hedge or lock in the value of the transportation asset for future periods using available financial instruments . for gaap purposes , the increase in value of the natural gas transportation assets is not recorded as income in the statement of operations until the transportation is utilized in the future ( i.e. , when natural gas is delivered to our customer ) . as the value of the natural gas transportation assets increase , the hedges on the natural gas transportation assets lose value , creating hedging losses in our statement of operations . the natural gas transportation assets market value is calculated daily based on the volume and prices at the corresponding pipeline locations . the daily prices are based on trader assessed quotes which represent observable transactions in the market place , with the end-month valuations primarily based on platts prices where available or adding a location differential to the price assessment of a more liquid location . as described above , pursuant to gaap , we value our commodity derivative hedges at the end of each reporting period based on current commodity prices and record hedging gains or losses , as appropriate . also as described above , and pursuant to gaap , our refined products and natural gas inventory and natural gas transportation contract rights , to which the commodity derivative hedges relate , are not marked to market for the purpose of recording gains or losses . in measuring our operating performance , we rely on our gaap financial results , but we also find it useful to adjust those numbers to show only the impact of hedging gains and losses actually realized in the period being reviewed . by making such adjustments , as reflected in adjusted gross margin and adjusted ebitda , we believe that we are able to align more closely hedging gains and losses to the period in which the revenue from the sale of inventory and income from transportation contracts relating to those hedges is realized . recent trends and outlook this section identifies certain trends and outlook that may affect our financial performance and results of operations in the future . our economic and industry-wide trends and outlook include the following : new , stricter environmental laws and regulations are increasing the compliance cost of terminal operations , which could adversely affect our results of operations and financial condition . our operations are subject to federal , state and local laws and regulations regulating product quality 45 specifications and other environmental matters . the trend in environmental regulation is towards more restrictions and limitations on activities that may affect the environment . we try to anticipate future regulatory requirements that might be imposed and to plan accordingly to remain in compliance with changing environmental laws and regulations and to minimize the costs of such compliance . however , there can be no assurances as to the timing and type of such changes in existing laws or the promulgation of new laws or the amount of any required expenditures associated therewith . dodd-frank regulations could increase costs associated with hedging our commodity exposure . we employ derivatives of the types subject to regulation as part of the doddfrank act . we , along with all participants in commodity markets , may face increased margin requirements on the derivatives we employ to hedge our commodity exposure , which would reduce capital available for other purposes . consolidation of the northeast terminal market . in recent years , major u.s. oil companies have disposed of various terminal assets in the northeast and reduced their participation in wholesale marketing in the region . the key terminals remain in operation as an integral part of the supply chain , though they are generally controlled by other industry participants . growth in exploration and production of shale gas has contributed to a relative weakness of domestic natural
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results of operations the following table presents our volume , net sales , gross margin and adjusted gross margin by segment , as well as our adjusted ebitda and information on weather conditions , for the years ended december 31 , 2013 , 2012 and 2011. replace_table_token_6_th 49 ( 1 ) both total commodity derivative gains and losses and realized commodity derivative gains and losses include amounts paid to enter into settled contracts . ( 2 ) during the year ended december 31 , 2012 , we delayed the timing of our public offering and as a result , deferred offering costs of $ 8.9 million were charged against earnings . ( 3 ) for a discussion of the non-gaap financial measure adjusted ebitda , please read non-gaap financial measures beginning on page 38 . ( 4 ) as reported by the noaa/national weather service for the new england oil home heating region over the period of 1981-2011. year ended december 31 , 2013 compared to year ended december 31 , 2012 our results of operations for the year ended december 31 , 2013 reflect increasing sales volume , net sales and unit gross margin in our refined products segment , increasing volume and net sales and decreasing unit gross margin in our natural gas segment and decreasing volumes , net sales and gross margin in our materials handling segment . adjusted gross margin for the year ended december 31 , 2013 reflects increasing adjusted unit gross margin for refined products and natural gas . replace_table_token_7_th 50 refined products refined products net sales were $ 4.3 billion and $ 3.8 billion for the years ended december 31 , 2013 and 2012 , respectively . excluding kildair 's net sales of $ 485.0 million and $ 164.5 million , respectively , the refined products net sales increased $ 172.1 million , or 5 % , which was driven primarily by higher refined products sales volumes .
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denny 's , through its wholly-owned subsidiary , denny 's , inc. , owns and operates the denny 's brand . at december 30 , 2015 , the denny 's brand consisted of 1,710 franchised , licensed and company operated restaurants . of this amount , 1,546 of our restaurants were franchised or licensed , representing 90 % of the total restaurants , and 164 were company operated . our revenues are derived primarily from two sources : the sale of food and beverages at our company restaurants and the collection of royalties and fees from restaurants operated by our franchisees under the denny 's name . sales and customer traffic at both company and franchised restaurants are affected by the success of our marketing campaigns , new product introductions , customer service and menu pricing , as well as external factors including competition , economic conditions affecting consumer spending and changes in guest tastes and preferences . sales at company restaurants and royalty income from franchise restaurants are also impacted by the opening of new restaurants , the closing of existing restaurants and the sale of company restaurants to franchisees . our operating costs are exposed to volatility in two main areas : payroll and benefit costs and product costs . the volatility of payroll and benefit costs results primarily from changes in wage rates and increases in labor related expenses , such as medical benefit costs and workers ' compensation costs . additionally , changes in guest counts and investments in store-level labor impact payroll and benefit costs as a percentage of sales . many of the products sold in our restaurants are affected by commodity pricing and are , therefore , subject to price volatility . this volatility is caused by factors that are fundamentally outside of our control and are often unpredictable . in general , we purchase food products based on market prices or we set firm prices in purchase agreements with our vendors . our ability to lock in prices on certain key commodities is imperative to control food costs in an environment in which many commodity prices are on the rise . in addition , our continued success with menu management helps us to offer menu items that provide a compelling value to our customers while maintaining consistent product costs and appropriate profitability . 2015 summary of operations during 2015 , we achieved domestic system-wide same-stores sales growth of 5.8 % , comprised of a 6.5 % increase at company restaurants and a 5.7 % increase at domestic franchised restaurants . in addition to growing system-wide same-store sales in 18 of the past 19 quarters , denny 's has achieved its fifth consecutive year of positive system-wide same-store sales and highest annual system-wide same-store sales growth in over a decade . the system-wide same-store sales increases during 2015 included benefits from both product mix and price increases slightly above 2 % . a total of 232 remodels were completed during 2015 , comprised of 51 at company restaurants and 181 at franchised restaurants . most of these remodels were in our new heritage image , which we launched late in 2013. this updated look reflects a more contemporary diner feel to further reinforce our america 's diner positioning . we anticipate over 200 remodels will be completed system-wide in 2016 , including approximately 25 company restaurant remodels . during 2014 , we implemented a new franchise agreement , which included an increased royalty rate of 4.5 % and a reduced advertising contribution of 3 % , excluding any incentives . there were approximately 420 franchised restaurants operating under this agreement as of december 30 , 2015 , and we expect there to be approximately 520 franchised restaurants operating under this agreement by the end of 2016. we anticipate that existing franchisees will elect to migrate to the new fee structure over the next decade as incentives under the previous franchise agreements expire . due to the long-term migration of existing franchisees , we will not see the full benefit of the higher royalty rate for some time . for 2015 , our average royalty rate was approximately 4.02 % . operating income increased $ 5.8 million to $ 63.2 million in 2015 from $ 57.3 million in 2014. net income increased $ 3.3 million to $ 36.0 million , or $ 0.42 per diluted share , in 2015 compared to $ 32.7 million , or $ 0.37 per diluted share , in 2014 . 22 we had a 52 week year in 2015 and a 53 week year in 2014 , which impacts the comparison of our financial information . we estimate that the additional 2014 operating week added approximately $ 8.3 million of company restaurant sales and $ 2.4 million of franchise and license revenue and resulted in approximately $ 0.6 million of additional general and administrative expenses , $ 3.6 million of additional operating income and $ 2.2 million of additional net income . growing the brand over the last five years our growth initiatives have led to 230 new restaurant openings . during 2015 , we had net restaurant growth of eight restaurants , with 45 openings and 37 closures . our openings included three new company operated travel center restaurants in partnership with kwik trip tm convenience stores and eight franchised international locations , including four in canada , two in the united arab emirates and two in the dominican republic . our goal is to increase net restaurant growth through all avenues : domestic , international and nontraditional . domestic growth will focus on markets in which we have modest penetration . balancing the use of cash we are focused on balancing the use of cash between reinvesting in our base of company restaurants , growing and strengthening the brand and returning cash to shareholders . as noted above , we are accelerating the timing of remodels at our company restaurants under our new heritage image . during 2015 , approximately $ 12.7 million of our $ 27.0 million of capital expenditures were from remodels . story_separator_special_tag payroll and benefits were 38.7 % in 2015 , 39.8 % in 2014 and 40.0 % in 2013 . the decrease in 2015 was primarily due to a 1.0 percentage point decrease in labor costs , a 0.7 percentage point decrease in workers ' compensation costs and a 0.2 percentage point decrease in group insurance , partially offset by a 0.8 percentage point increase in incentive compensation costs . the decrease in labor costs as a percentage of company restaurant sales was primarily due to the leveraging effect of higher sales . the decrease in 2014 was primarily due to a 0.5 percentage point decrease in labor costs and a 0.3 percentage point decrease in workers ' compensation costs , partially offset by a 0.3 percentage point increase in group insurance and a 0.3 percentage point increase in incentive compensation costs . the 2015 period included $ 2.1 million in favorable workers ' compensation claims development compared to $ 0.6 million in unfavorable claims development in the 2014 period . the incentive compensation increases in both years are primarily due to increased same-store sales performance . occupancy costs were 5.8 % in 2015 , 6.2 % in 2014 and 6.6 % in 2013 . the 2015 decrease is primarily related to a 0.4 percentage point decrease in general liability costs . the 2014 decrease is primarily related to an increase in the number of capital leases and a decrease in rent resulting from certain lease amendments . 25 other operating expenses were comprised of the following amounts and percentages of company restaurant sales : replace_table_token_11_th franchise operations franchise and license revenue and costs of franchise and license revenue were comprised of the following amounts and percentages of franchise and license revenue for the periods indicated : replace_table_token_12_th royalties increase d by $ 3.9 million , or 4.3 % , in 2015 primarily resulting from a 5.7 % increase in domestic same-store sales compared to 2014 . in addition , certain franchised restaurants moved to a higher rate structure . royalties increased by $ 5.3 million , or 6.2 % , in 2014 primarily resulting from the additional operating week and a 2.5 % increase in domestic same-store sales compared to 2013 . in addition , there was a nine equivalent unit increase in franchised and licensed restaurants compared to 2013 and certain franchised restaurants moved to a higher rate structure . initial fees increase d by $ 0.6 million , or 30.9 % , in 2015 primarily resulting from an increase in the number of restaurants being opened by franchisees and a higher number of successor franchise agreements signed during the current year . initial fees increased by $ 0.2 million , or 13.6 % , in 2014 primarily resulting from an increase in the number of assignments between franchisees compared to the prior year period . occupancy revenue decrease d by $ 3.9 million , or 8.7 % , in 2015 and by $ 2.2 million , or 4.7 % , in 2014 primarily resulting from lease expirations . occupancy costs decrease d by $ 2.7 million , or 8.2 % , in 2015 and by $ 1.5 million , or 4.3 % , in 2014 primarily resulting from lease expirations . other direct costs increase d by $ 1.3 million , or 11.2 % , in 2015 due to increased franchise administrative costs and by $ 0.1 million , or 1.3 % , in 2014 . as a result , costs of franchise and license revenue decrease d by $ 1.4 million , or 3.2 % , in 2015 and by $ 1.3 million , or 2.9 % , in 2014 . other operating costs and expenses other operating costs and expenses such as general and administrative expenses and depreciation and amortization expense relate to both company and franchise operations . 26 general and administrative expenses are comprised of the following : replace_table_token_13_th general and administrative expenses increase d by $ 7.7 million in 2015 primarily resulting from increases of $ 3.2 million in incentive compensation , $ 1.9 million in payroll and benefits and $ 0.8 million in share-based compensation . general and administrative expenses increased by $ 2.1 million in 2014 primarily resulting from increases of $ 1.6 million in incentive compensation , $ 1.0 million in share-based compensation and the impact of an additional operating week , partially offset by a reduction in deferred compensation of $ 0.6 million . the increases in share-based compensation over the past two years are primarily due to the total shareholder return performance of our stock as compared to that of our competitor peer group within our share-based award plans . depreciation and amortization is comprised of the following : replace_table_token_14_th operating ( gains ) , losses and other charges , net are comprised of the following : replace_table_token_15_th restructuring charges and exit costs were comprised of the following : replace_table_token_16_th impairment charges for 2015 resulted primarily from the impairment of restaurants identified as assets held for sale . impairment charges for 2014 resulted primarily from the impairment of an underperforming restaurant . impairment charges for 2013 resulted primarily from the $ 4.8 million impairment of an underperforming restaurant and the impairment of two restaurants and real estate identified as assets held for sale . 27 operating income was $ 63.2 million in 2015 , $ 57.3 million in 2014 and $ 47.5 million in 2013 . interest expense , net is comprised of the following : replace_table_token_17_th other nonoperating ( income ) expense , net was expense of $ 0.1 million for 2015 , income of $ 0.6 million for 2014 and expense of $ 1.1 million for 2013 . the expense for the 2015 period consisted primarily of $ 0.3 million of write-offs of deferred financing costs related to the new credit facility ( as defined below ) , partially offset by gains on lease terminations and deferred compensation plan investments . the income for the 2014 period consisted primarily of $ 0.5 million of gains on deferred compensation plan investments .
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summary of cash flows our primary sources of liquidity and capital resources are cash generated from operations and borrowings under our credit facility ( as described below ) . principal uses of cash are operating expenses , capital expenditures and the repurchase of shares of our common stock . 28 the following table presents a summary of our sources and uses of cash and cash equivalents for the periods indicated : replace_table_token_18_th we believe that our estimated cash flows from operations for 2016 , combined with our capacity for additional borrowings under our credit facility , will enable us to meet our anticipated cash requirements and fund capital expenditures over the next twelve months . net cash flows used in investing activities were $ 32.7 million for the year ended december 30 , 2015 . these cash flows are primarily comprised of capital expenditures of $ 27.0 million and acquisitions of restaurants and real estate of $ 5.8 million . our principal capital requirements have been largely associated with the following : replace_table_token_19_th capital expenditures for fiscal 2016 are expected to be between $ 18- $ 20 million , including approximately 25 remodels anticipated to be completed at company restaurants . cash flows used in financing activities were $ 49.3 million for the year ended december 30 , 2015 , which included stock repurchases of $ 92.6 million and the purchase of a $ 13.1 million equity forward contract related to the asr agreement , partially offset by a net increase in long-term debt of $ 51.4 million . our working capital deficit was $ 65.1 million at december 30 , 2015 compared with $ 24.3 million at december 31 , 2014 .
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our dtw product distribution system allows us to deliver to our customers ' warehouses . our customers in turn distribute to their retail stores and or distributors . we have two reportable segments : “ sweet baked goods ” and “ other ” . sweet baked goods consists of sweet baked goods that are sold under the hostess® and dolly madison® brands . other consists of hostess® branded bread and buns , which we launched in april 2015 , frozen retail ( which consists of deep-fried twinkies® , launched in august 2016 ) and “ in-store bakery , ” or “ isb ” ( which consists of superior , which we purchased in may 2016 , and which manufactures and distributes eclairs , madeleines , brownies , and iced cookies in the isb section of grocery and club retailers ) . principal components of operating results net revenue we generate revenue primarily through selling sweet baked goods and other products under the hostess® group of brands , which includes iconic products such as twinkies® , cup cakes , ding dongs® , zingers® , hoho's® and donettes® and the dolly madison® brand and the superior on main® group of products ( e.g. , eclairs , madeleines , brownies and iced cookies ) . our product assortment , which includes snack cakes , muffins , donuts and pies , is sold to customers ' warehouses and distribution centers by the case or in display ready corrugate units . our retail customers then display and sell our products to the end consumer in single-serve , multi-pack or club-pack formats . we sell our products primarily to supermarket chains , national mass merchandisers and convenience stores , along with a smaller portion of our product sales going to dollar stores , vending and club locations . our revenues are driven by average net price and total volume of products sold . factors that impact unit pricing and sales volume include product mix , the cost of ingredients , the promotional activities implemented by our company and our competitors , industry capacity , product innovation and quality and consumer preferences . we do not keep a significant backlog of finished goods inventory , as our fresh baked products are promptly shipped to our distribution centers after being produced and then distributed to customers . cost of goods sold cost of goods sold consists of ingredients , packaging , labor , energy , other production costs and warehousing and transportation costs for the distribution of our products to our customers . the cost of ingredients and packaging represent the majority of our total costs of goods sold . all costs that are incurred at the bakeries are included in cost of goods sold . we do not allocate any corporate functions into cost of goods sold . 38 our cost of ingredients consists principally of flour , sweeteners , edible oils and cocoa , which are subject to substantial price fluctuations , as is the cost of paper , corrugate , films and plastics used to package our products . the prices for raw materials are influenced by a number of factors , including the weather , crop production , transportation and processing costs , government regulation and policies and worldwide market supply and demand . we also rely on fuel products , such as natural gas , diesel , propane and electricity , to operate our bakeries and produce our products . fluctuations in the prices of the raw materials or fuel products used in the production , packaging or transportation of our products affect the cost of products sold and our product pricing strategy . we utilize forward buying strategies through short-term and long-term advance purchase contracts to lock in prices for certain high-volume raw materials , packaged components and fuel inputs . through these initiatives , we believe we are able to obtain competitive pricing . advertising and marketing our advertising and marketing expenses primarily relate to our advertising campaigns , which include social media , radio , billboard , print , online advertising , local promotional events and monthly agency fees . we also invest in wire and corrugate displays delivered to customers to display our products off shelf , field marketing and merchandising to reset and check the store inventory on a regular basis and marketing employment costs . selling expense selling expenses primarily include sales management , employment , travel , and related expenses , as well as broker fees . we utilize brokers for sales support , including merchandising and order processing . general and administrative general and administrative expenses primarily include employee and related expenses for the accounting , planning , customer service , legal , human resources , corporate operations , research and development , purchasing , logistics and executive functions . also included are professional services relating to our corporate audit and tax fees , legal fees , outsourced fees relating to information technology , transportation planning , and corporate site and insurance costs . the majority of our research and development spend is dedicated to enhancing and expanding our product lines in response to changing consumer preferences and trends and continuing to enhance the taste of our products . in addition , our research and development organization provides technical support to ensure that our core products are consistently produced in accordance with our high quality standards and specifications . finally , this department is charged with developing processes to reduce our costs without adversely affecting the quality of our products . related party expenses for periods prior to the business combination , related party expenses consisted of the normal annual cash payments associated with our employment arrangements with mr. metropoulos as chief executive officer and or executive chairman . for the successor period november 4 , 2016 through december 31 , 2016 , related party expenses consisted of a grant of stock awarded to mr. metropoulos under his new employment arrangements . following the consummation of the business combination , the cash expenses associated with mr. metropoulos 's employment arrangements are estimated to be approximately $ 0.3 million annually . story_separator_special_tag there were no such impairments in the successor period november 4 , 2016 through december 31 , 2016. loss on sale/abandonment of property and equipment and bakery shutdown costs for the predecessor period january 1 , 2016 through november 3 , 2016 , we recorded a charge for loss on sale/abandonment of property and bakery shutdown costs of $ 2.6 million , or 0.4 % of net revenue , primarily due to utilities , insurance , taxes and maintenance expenses related to the schiller park , illinois bakery . for the successor period november 4 , 2016 through december 31 , 2016 , there were no such charges . business combination transaction costs for the predecessor period january 1 , 2016 through november 3 , 2016 , business combination transaction costs were $ 31.8 million , or 5.2 % of net revenue . this consisted of professional and legal costs associated with the business combination , and transactional costs attributable to the acquisition of superior in may 2016. for the successor period november 4 , 2016 through december 31 , 2016 , there were no such charges . related party expenses for the predecessor period january 1 , 2016 through november 3 , 2016 , related party expenses were $ 3.5 million , or 0.6 % of net revenue . these amounts represent the normal annual cash payments associated with our employment arrangements with mr. metropoulos as chief executive officer and or executive chairman . for the successor period november 4 , 2016 through december 31 , 2016 , the company expensed $ 26.8 million , or 23.9 % of net revenue , as a result of a grant of stock awarded to mr. metropoulos as required under his new employment arrangements . following the consummation of the business combination , the cash expenses associated with mr. metropoulos 's employment arrangements are estimated to be approximately $ 0.3 million annually . operating income ( loss ) for the predecessor period january 1 , 2016 through november 3 , 2016 , total operating costs and expenses were $ 143.7 million , or 23.3 % of net revenue , and operating income was $ 122.9 million , or 20.0 % of net revenue , for the successor period november 4 , 2016 through december 31 , 2016 , total operating costs and expenses were $ 48.3 million , or 43.1 % of net revenue , and operating ( loss ) was $ ( 9.6 ) million or ( 8.6 ) % of net revenue . operating ( loss ) for the successor period was significantly impacted by the related party expense discussed above . 43 interest expense , net for the predecessor period january 1 , 2016 through november 3 , 2016 , interest expense , net was $ 60.4 million , or 9.8 % of net revenue . for the successor period november 4 , 2016 through december 31 , 2016 , interest expense , net was $ 6.6 million , or 5.9 % of net revenue . the lower interest expense in the successor period is a result of the reduced applicable interest rates following the debt refinancing discussed below . gain on debt extinguishment for the successor period november 4 , 2016 through december 31 , 2016 , in connection with the refinancing of existing debt with the new first lien term loan we recorded a net gain on a partial extinguishment of debt in the amount of $ 0.8 million . the gain consisted of the write-off of approximately $ 4.0 million of debt premium and deferred financing costs , partially offset by prepayment penalties of $ 3.0 million and the write-off of deferred financing costs of $ 0.2 million . other expense for the predecessor period january 1 , 2016 through november 3 , 2016 , other expense was $ 1.6 million , or 0.3 % of net revenue . this consisted of professional and transactional costs for acquisition activity which has since been abandoned , partially offset by a gain from the settlement in connection with the grain craft product recall matter discussed above of approximately $ 0.8 million . for the successor period november 4 , 2016 through december 31 , 2016 , other expense was $ 0.8 million , or 0.7 % of net revenue . income ( loss ) before income taxes for the predecessor period january 1 , 2016 through november 3 , 2016 , as a result of the foregoing , income before income taxes was $ 60.9 million , or 9.9 % of net revenue . for the successor period november 4 , 2016 through december 31 , 2016 , as a result of the foregoing , ( loss ) before income taxes was $ ( 16.2 ) million or ( 14.5 ) % of net revenue . income tax expense for the predecessor period january 1 , 2016 through november 3 , 2016 , the company was a series of limited liability companies and , therefore , had no tax expense or benefit , except insignificant amounts for superior , a c corporation . for the successor period november 4 , 2016 through december 31 , 2016 , income tax ( benefit ) was $ ( 7.8 ) million or ( 6.9 ) % of net revenue . this represented an effective tax rate of 47.8 % which exceeds the statutory rates primarily due to the reversal of a previously recorded valuation allowance . 44 supplemental unaudited pro forma combined financial information for comparative purposes , we are presenting a supplemental unaudited pro forma combined statement of operations for the year ended december 31 , 2016 , and we discuss such pro forma combined results compared to the predecessor 's full year 2015 results below .
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factors impacting recent results long-term debt refinancing on november 18 , 2016 , we refinanced our first and second lien term loans ( the “ former first and second lien term loans ” ) into one new first lien term loan in the aggregate principal amount of $ 998.8 million and with a maturity date of august 3 , 2022 ( the “ new first lien term loan ” ) . see “ -liquidity and capital resources - long-term debt. ” recall costs related to flour on june 3 , 2016 , we voluntarily recalled approximately 710,000 cases of snack cakes and donuts as a direct result of the recall by our supplier , grain craft , of certain lots of its flour for undeclared peanut residue . we also destroyed approximately 200,000 cases of product within our possession that were produced using grain craft flour . the matter was resolved by mutual agreement of the parties and we recorded a gain of $ 0.8 million . as a result , for the periods reported , this recall did not result in any expense for recall costs ( not including lost sales during this period of time ) . acquisition of superior on may 10 , 2016 , we acquired the stock of superior for $ 51.0 million . the purchase price was subject to working capital and other purchase price adjustments of $ 0.1 million during the third quarter of 2016 , based on the final closing date working capital amounts . we have included this amount as part of the total purchase price . superior is located in southbridge , massachusetts and manufactures eclairs , madeleines , brownies , and iced cookies . we acquired superior to expand our market and product offerings in the isb section of grocery and club retailers .
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overview astrotech corporation ( nasdaq : astc ) ( “ astrotech , ” “ the company , ” “ we , ” “ us ” or “ our ” ) , a washington corporation , is a commercial aerospace company that was formed in 1984 to leverage the environment of space for commercial purposes . for nearly 30 years , the company has remained a crucial player in space commerce activities . we have successfully supported the launch of 23 shuttle missions and more than 300 spacecraft . we have designed , operated and built space hardware and processing facilities . we currently own , operate and maintain world-class spacecraft processing facilities ; prepare and process scientific research in microgravity and develop and manufacture sophisticated and cutting edge chemical sensor equipment . our efforts are focused on : providing world-class facilities and related support services necessary for the preparation of satellites and payloads . providing satellite and payload processing and integration services and support . designing , fabricating and utilizing equipment and hardware for launch activities . supplying propellant and associated services for spacecraft . managing launch logistics and support . working with development partners to build industry specific applications using our sensor equipment . enhancing the capabilities of our sensors . commercializing unique space-based technologies . developing next generation vaccines using the unique environment of microgravity . business developments lnternal reorganization on june 11 , 2014 , the company completed an internal reorganization involving its subsidiaries 1 st detect and astrogenetix , in which equity grants were previously issued to employees . as a result of the internal reorganization , each of 1 st detect and astrogenetix became a wholly-owned subsidiary of the company . the internal reorganization was effected through the relinquishment by certain of such employees of the equity grants previously issued to them in 1 st detect and astrogenetix , and through the filing of certificates of ownership and merger pursuant to section 253 of the general corporation law of the state of delaware , by detect merger sub corporation and ag merger sub , inc. , which were wholly-owned subsidiaries of the company prior to the effective time of such mergers , and which owned at least 90 % of the outstanding shares of voting stock of 1 st detect and astrogenetix , respectively . sale of astrotech space operations business ( “ asset sale ” ) on august 22 , 2014 , the company completed the sale of substantially all of its assets used to conduct the company 's astrotech space operations ( “ aso ” ) business unit ( “ the aso business ” ) for $ 61.0 million , less a working capital and indemnity holdback of $ 1.8 million and $ 6.1 million , respectively . the working capital holdback will be settled up once both sides agree on the final net working capital amount as of the date of the transaction . the indemnity holdback is being held in escrow under the terms of an escrow agreement until february 2016 ( the 18-month anniversary of the consummation of the transaction ) . the aso business consists of ( i ) ownership , operation and maintenance of spacecraft processing facilities in titusville , florida and vandenberg air force base , california , ( ii ) supporting government and commercial customers processing complex communication , earth observation and deep space satellite launches , ( iii ) designing and building 17 spacecraft processing equipment and facilities and ( iv ) providing propellant services including designing , building and testing propellant service equipment for fueling spacecraft . payoff of term loan on august 22 , 2014 , the company used funds from its asset sale , as stated above , to pay off the outstanding balance of its term loan of $ 5.7 million . payoff of texas emerging technology fund award on august 27 , 2014 , the company used funds from its asset sale to settle its funding from the state of texas emerging technology fund for $ 2.3 million . our business units astrotech space operations ( “ aso ” ) on august 22 , 2014 , the company completed the sale of substantially all of its assets used to conduct the company 's astrotech space operations business unit ( “ the aso business ” ) for $ 61.0 million , less a working capital and indemnity holdback of $ 1.8 million and $ 6.1 million , respectively . the working capital holdback will be settled up once both sides agree on the final net working capital amount as of the date of the transaction . the indemnity holdback is being held in escrow under the terms of an escrow agreement until february 2016 ( the 18-month anniversary of the consummation of the transaction ) . aso provides support to its government and commercial customers as they successfully process complex communication , earth observation and deep space satellites in preparation for their launch on a variety of launch vehicles . processing activities include satellite ground transportation ; pre-launch hardware integration and testing ; satellite encapsulation , fueling , launch pad delivery ; and communication linked launch control . our aso facilities can accommodate five-meter class satellites , encompassing the majority of u.s.-based satellites . aso 's service capabilities include designing and building spacecraft processing equipment and facilities . additionally , aso provides propellant services including designing , building and testing propellant service equipment for servicing spacecraft . aso accounted for 99 % of our consolidated revenues for the year ended june 30 , 2014. revenue for our aso business unit is generated primarily from various fixed-priced contracts with launch service providers in both the government and commercial markets and the design and fabrication of space launch equipment . the services and facilities we provide to our customers support the final assembly , checkout , and countdown functions associated with preparing and launching spacecraft . the revenue and cash flows generated from our aso operations are primarily related to the number of spacecraft launches . story_separator_special_tag 19 a summary of revenue recognition methods services/products provided contract type method of revenue recognition payload processing facilities firm fixed price — mission specific ratably , over the occupancy period of a satellite within the facility from arrival through launch construction contracts firm fixed price percentage-of-completion based on costs incurred engineering services cost reimbursable award/fixed fee reimbursable costs incurred plus award/fixed fee commercial products specific purchase order based at shipment grant cost reimbursable award as costs are incurred for related research and development expenses under certain contracts , we make expenditures for specific enhancements and or additions to our facilities where the customer agrees to pay a fixed fee to deliver the enhancement or addition . we account for such agreements as a reduction in the cost of such investments and recognize any excess of amounts collected above the expenditure as revenue . multiple element arrangements we evaluate new or significantly modified contracts with customers to the extent the contracts includes multiple elements , to determine if the individual deliverables should be accounted for as separate units of accounting . when we determine that accounting for the deliverables as separate units is appropriate , we allocate the contract value to the deliverables based on their contract stated prices . the contracts or contract modifications we evaluate for multiple elements may be both short and long-term in nature for services to be performed . based on the nature of our business , we generally account for components of such contracts using the percentage-of-completion accounting model . long-lived asset in assessing the recoverability of long-lived assets , fixed assets , assets under construction and intangible assets , we evaluate the recoverability of those assets . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell . use of estimates the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that directly affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods . actual results could differ from these estimates . deferred revenue deferred revenue represents amounts collected from customers for projects , products , or services expected to be provided at a future date . deferred revenue is shown on the balance sheet as either a short-term or long-term liability , depending on when the service or product is expected to be provided . share-based compensation the company accounts for share-based awards to employees based on the fair value of the award on the grant date . the fair value of the stock options is estimated using expected dividend yields of the company 's stock , the expected volatility of the stock , the expected length of time the options remain outstanding and risk-free interest rates . changes in one or more of these factors may significantly affect the estimated fair value of the stock options . additionally , the company estimates the number of instruments for which the required service is expected to be rendered . the company estimates forfeitures using historical forfeiture rates for previous grants of equity instruments . the fair value of awards that are expected to vest is recorded as an expense over the vesting period . noncontrolling interest noncontrolling interest accounting is applied for any entities where the company maintains more than 50 % and less than 100 % ownership . the company clearly identifies the noncontrolling interest in the balance sheets and income statements . 20 we also disclose three measures of net income ( loss ) : net income ( loss ) , net income ( loss ) attributable to noncontrolling interest , and net income ( loss ) attributable to astrotech corporation . our operating cash flows in our consolidated statements of cash flows reflect net income ( loss ) , while our basic and diluted earnings per share calculations reflect net income ( loss ) attributable to astrotech corporation . during june 2014 , the company completed the internal reorganization involving its subsidiaries 1 st detect and astrogenetix , which resulted in 1 st detect and astrogenetix becoming wholly-owned subsidiaries of the company , and which was effected through the relinquishment by certain employees of equity grants previously issued to them in 1 st detect and astrogenetix , and through the filing of certificates of ownership and merger pursuant to section 253 of the general corporation law of the state of delaware by detect merger sub corporation and ag merger sub , inc. , which were wholly-owned subsidiaries of the company prior to the effective time of such mergers , and which owned at least 90 % of the outstanding shares of voting stock of 1 st detect and astrogenetix , respectively . the effect of the internal reorganization resulted in an equity balance of $ 1.8 million , constituting a contingency principal balance due to the state of texas emerging technology fund . due to the nature of the instrument as of june 30 , 2014 , the award was recorded within equity . state of texas funding the company accounts for the state of texas funding in the amount of $ 1.8 million in its majority owned subsidiary 1st detect as a contribution of capital and has reflected the disbursement in the equity section of the consolidated balance sheet .
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segment results of operations during the fiscal year 2014 , the company shifted the use of its corporate resources from its aso business unit to its spacetech business unit to focus more on growth opportunities at 1 st detect . as such , there were higher incremental costs allocated to our spacetech business unit for the year ended june 30 , 2014 compared to the year ended june 30 , 2013. the shift in resources had no impact on our consolidated results . aso selected financial data for the years ended june 30 , 2014 and 2013 of our aso business unit is as follows : replace_table_token_6_th revenue – total revenue decreased $ 7.6 million , or 31.7 % for the year ended june 30 , 2014 compared to the year ended june 30 , 2013 primarily due to lower mission and non-mission specific project related revenue . gross profit – gross profit decreased by $ 2.6 million , or 31.7 % for the year ended june 30 , 2014 compared to the year ended june 30 , 2013. this year , we experienced a decrease in satellite payload , as compared to the prior year . 23 selling , general and administrative expenses – our selling , general and administrative expense decreased $ 1.1 million , or 22.1 % for the year ended june 30 , 2014 compared to the year ended june 30 , 2013 primarily as a result of lower corporate allocation charges due to a shift in corporate resources towards its spacetech business unit .
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the global specialty alloy market consists of three primary sectors : stainless steel , general purpose nickel alloys and high-performance nickel- and cobalt-based alloys . the company competes primarily in the high-performance nickel- and cobalt-based alloy sector , which includes high-temperature resistant alloys , or hta products , and corrosion-resistant alloys , or cra products . the company believes it is one of the principal producers of high-performance alloy flat products in sheet , coil and plate forms . the company also produces its products as seamless and welded tubulars and in bar , billet and wire forms . the company has manufacturing facilities in kokomo , indiana ; arcadia , louisiana ; and mountain home , north carolina . the kokomo facility specializes in flat products , the arcadia facility specializes in tubular products and the mountain home facility specializes in high-performance wire products . the company distributes its products primarily through its direct sales organization , which includes 13 service and or sales centers in the united states , europe and asia . all of these centers are company-operated . 35 overview of markets the following table includes a breakdown of net revenues , shipments and average selling prices to the markets served by the company for the periods shown . replace_table_token_10_th ( 1 ) other revenue consists of toll conversion , royalty income , scrap sales and revenue recognized from the timet agreement ( see note 15 in the notes to the consolidated financial statements ) . ( 2 ) total product price per pound excludes `` other revenue '' . aerospace sales decreased over fiscal 2013 and 2014 , due to aerospace demand being negatively impacted by customer destocking within the supply-chain . this period of low demand began to recover in the latter half of fiscal 2014. demand for aerospace products is increasing in line with the forecasted increase in commercial aircraft builds . both boeing and airbus have reported sizeable backlog increases along with forecasted increases in production schedules and continued emphasis on accelerating production . demand for more fuel-efficient engines with fewer emissions is driving new engine builds . management also anticipates that the maintenance , repair and overhaul business will continue at a steady to increasing pace due to required maintenance schedules for the rising number of engines in use year-over-year . sales to the chemical processing industry decreased over fiscal 2012 , 2013 and 2014. the project-oriented nature of this market can create inconsistent sales levels . demand for large project-based orders has been at relatively low levels during fiscal 2012 , 2013 and 2014. the main driver of demand in this market is capital spending in the chemical processing sector driven by end-user demand for housing , automotive , energy and agricultural products . the chemical processing market is sensitive to fiscal policies as well as world economic conditions and gdp growth . potential for increased sales to the chemical processing industry in fiscal 2015 will be dependent on improvement in global spending in the chemical processing sector . an additional driver of demand in this market is the increase in north american production of natural gas liquids and the further downstream processing of those chemicals that may utilize equipment that requires high-performance alloys . 36 sales to the land-based gas turbine market decreased over fiscal 2013 and 2014. however , fiscal 2012 and 2013 were two of the company 's best years for land-based gas turbine sales volume . subject to global economic conditions , management believes that long-term demand in this market will increase due to higher activity in power generation , oil and gas production and alternative power systems . land-based gas turbines are favored in electric generating facilities due to low capital cost at installation , fewer emissions than the traditional fossil fuel-fired facilities and favorable natural gas prices provided by availability of unconventional ( shale ) gas supplies . as governmental policy shifts away from coal-fired facilities , demand for land-based gas turbines is expected to increase . sales into the other markets category decreased over fiscal 2013 and 2014. the industries in this category focus on upgrading overall quality , improving product performance through increased efficiency , prolonging product life and lowering long-term costs . companies in these industries are looking to achieve these goals through the use of `` advanced materials '' which supports the increased use of high-performance alloys in an expanding number of applications . in addition to supporting and expanding the traditional businesses of oil and gas , flue-gas desulphurization in china , automotive and heat treating , the company expects increased levels of activity overall in non-traditional markets such as fuel cells and silicon feed-stock production applications . summary of capital spending the company is nearing completion of a $ 61.0 million investment at two of its u.s. manufacturing facilities . this includes a $ 37.0 million investment to expand by an estimated 60 % the tubular production capacity of specialty titanium and high-performance nickel alloy tubular products at the arcadia , louisiana facility . in addition , the company made an investment of $ 24.0 million to expand by an estimated 20 % its flat products capacity to produce specialty high-performance alloy flat products at the kokomo , indiana facility . both of these projects are in the commissioning stage and are expected to be released for production by the end of the first quarter of fiscal 2015. these capital investments in arcadia and kokomo are expected to improve the company 's ability to service its customers ' increasing demand for specialty products and also continue to improve product quality , improve operating efficiencies and enhance working capital management for all of the company 's products produced at these locations . the company is also implementing a global information technology system . this upgrade is expected to provide the company with an integrated global system , enhanced analysis capability and improved capabilities in capacity planning , inventory management and customer service . story_separator_special_tag working capital controllable working capital , which includes accounts receivable , inventory , accounts payable and accrued expenses , was $ 271.3 million at september 30 , 2014 , a decrease of $ 2.1 million or 0.8 % from $ 273.4 million at september 30 , 2013. this decrease of $ 2.1 million includes an increase in inventory of $ 21.9 million partially offset by an increase in accounts payable of $ 14.4 million and a decrease in accounts receivable of $ 10.1 million . the increase in inventory is in response to improving backlog and business conditions . dividends declared on november 20 , 2014 , the company announced that the board of directors declared a regular quarterly cash dividend of $ 0.22 per outstanding share of the company 's common stock . the dividend is payable december 15 , 2014 to stockholders of record at the close of business on december 1 , 2014. the aggregate cash payout based on current shares outstanding will be approximately $ 2.7 million , or approximately $ 10.8 million on an annualized basis . backlog set forth below is selected data relating to the company 's backlog , the 30-day average nickel price per pound as reported by the london metals exchange , as well as a breakdown of net revenues , shipments and average selling prices to the markets served by the company for the periods shown . this data should be read in conjunction with the consolidated financial statements and related notes thereto and the remainder of the `` management 's discussion and analysis of financial condition and results of operations '' included in this annual report on form 10-k. replace_table_token_13_th ( 1 ) represents the average price for a cash buyer as reported by the london metals exchange for the 30 days ending on the last day of the period presented . 39 backlog was $ 221.3 million at september 30 , 2014 , an increase of approximately $ 16.6 million , or 8.1 % , from $ 204.7 million at june 30 , 2014. the backlog dollars increased during the fourth quarter of fiscal 2014 due to a 13.7 % increase in backlog average selling price partially offset by a 4.9 % decrease in backlog pounds . on a year-to-date basis , the backlog has increased by $ 54.7 million , or 32.8 % , from $ 166.6 million at september 30 , 2013. the backlog dollars increased during fiscal 2014 due to a 45.8 % increase in backlog pounds partially offset by an 8.9 % decrease in backlog average selling price . management believes that the improved order entry levels over the past few quarters are due to customers increasing their stock levels to accommodate the demand in the company 's end markets . in addition , the company has implemented price increases which are beginning to improve the quality of the backlog , but may slightly temper the order entry rates as the company manages mix to better pricing levels . quarterly market information replace_table_token_14_th 40 story_separator_special_tag effective tax rate for fiscal 2014 was 26.7 % , compared to 32.6 % in fiscal 2013. during fiscal 2014 , the company 's effective tax rate was lower than fiscal 2013 , primarily due to an increased proportion of taxable earnings in foreign jurisdictions with a lower tax rate . net income . as a result of the above factors , net income in fiscal 2014 was $ 3.8 million , a decrease of $ 17.8 million from net income of $ 21.6 million in fiscal 2013 . 43 year ended september 30 , 2013 compared to year ended september 30 , 2012 ( $ in thousands , except per share figures ) replace_table_token_17_th the following table includes a breakdown of net revenues , shipments and average selling prices to the markets served by the company for the periods shown . 44 by market replace_table_token_18_th net revenues . net revenues were $ 482.7 million in fiscal 2013 , a decrease of 16.7 % from $ 579.6 million in fiscal 2012 , due to a decrease in average selling price per pound combined with lower volume . the total average selling price was $ 22.94 per pound in fiscal 2013 , a decrease of 7.4 % , or $ 1.84 , from $ 24.78 per pound in fiscal 2012. volume was 21.0 million pounds in fiscal 2013 , a decrease of 10.0 % from 23.4 million pounds in fiscal 2012. volume declined primarily due to destocking in the aerospace and land-based gas turbine markets , a decline in activity in the project-oriented other markets , uncertain economic conditions and declining raw material prices causing customers to delay ordering . average selling price decreased due to lower raw material market prices , which represented approximately $ 1.01 per pound of the decrease ; lower volume of conversion sales , which represented approximately $ 0.12 per pound of the decrease and ; a higher level of price competition and reduced customer demand due to supply chain destocking , declining nickel prices and uncertain economic conditions , which forced us to reduce prices in order to be competitive , representing approximately $ 0.71 per pound of the decrease . sales to the aerospace market were $ 197.1 million in fiscal 2013 , a decrease of 14.3 % from $ 229.9 million in fiscal 2012 , due to a 9.3 % decrease in volume combined with a 5.5 % , or $ 1.42 , decrease in the average selling price per pound . the decrease in volume is due to destocking of inventory within the supply chain and customers delaying orders as the price of nickel declined and economic conditions remained uncertain . the average selling price per pound decline primarily reflects the decline in raw material market prices , which represented approximately $ 0.99 per pound of the decrease and continued price competition , which represented approximately $ 0.26 of the decrease .
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results of operations year ended september 30 , 2014 compared to year ended september 30 , 2013 ( $ in thousands ) replace_table_token_15_th the following table includes a breakdown of net revenues , shipments and average selling prices to the markets served by the company for the periods shown . 41 by market replace_table_token_16_th net revenues . net revenues were $ 455.4 million in fiscal 2014 , a decrease of 5.7 % from $ 482.7 million in fiscal 2013 , due to a decrease in average selling price per pound partially offset by an increase in volume . the total average selling price was $ 21.02 per pound in fiscal 2014 , a decrease of 8.4 % , or $ 1.92 , from $ 22.94 per pound in fiscal 2013. volume was 21.7 million pounds in fiscal 2014 , an increase of 2.9 % from 21.0 million pounds in fiscal 2013. the increase in volume is due primarily to a project that shipped in fiscal 2014 of lower-priced product in ingot form . average selling price decreased due to a combination of the following factors : a change to a lower value product mix , which represented approximately $ 0.82 per pound of the decrease ; a higher level of price competition and reduced customer demand due to supply chain destocking and fluctuating nickel prices , which forced us to reduce prices in order to be competitive , representing approximately $ 1.53 per pound of the decrease ; partially offset by higher volume of conversion and miscellaneous sales , which represented an increase of approximately $ 0.24 per pound along with higher raw material market prices , which represented an increase of approximately $ 0.19 per pound .
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of the underwriters described in the underwriting agreement ( the “ underwriter ” ) , pursuant to which the company issued and sold , in a firm commitment underwritten public offering by the company ( the “ public offering ” ) , 8,800,000 units ( the “ units ” ) , with each unit consisting of one share of the company 's common stock , par value $ 0.001 per share ( the “ common stock ” ) and one warrant to purchase one share of common stock at an exercise price equal to $ 0.75 per share of common stock that expires on october 14 , 2025 ( referred to individually as a “ warrant ” and collectively as the “ warrants ” ) . each unit was offered to the public at an offering price of $ 0.75 per unit . in addition , pursuant to the underwriting agreement , the company granted the underwriter a 45-day option ( the “ overallotment option ” ) to purchase up to ( i ) 1,320,000 additional shares of common stock and or ( ii ) additional warrants to purchase up to 1,320,000 additional shares of common stock , solely to cover over-allotments . the overallotment option was exercised in full on october 9 , 2020. on october 14 , 2020 , the public offering closed , and the company issued and sold ( i ) 10,120,000 shares of common stock ( which includes 1,320,000 shares of common stock sold pursuant to the exercise of the overallotment option ) and ( ii ) warrants to purchase 10,120,000 shares of common stock ( which includes warrants to purchase 1,320,000 shares of common stock sold pursuant to the exercise of the overallotment option ) , pursuant to the registration statement and the underwriting agreement . the net proceeds to the company , after deducting the underwriting discount and commissions and estimated offering expenses payable by the company , were approximately $ 6.58 million . f-18 item 9. changes in and disagreements with accountants on accounting and financial disclosure there were no disagreements related to accounting principles or practices , financial statement disclosure , internal controls or auditing scope or procedure during the two fiscal years and interim periods . item 9a . controls and procedures evaluation of disclosure controls and procedures under the supervision and with the participation of our senior management , including our chief executive officer and chief financial officer , we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures , as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the securities exchange act of 1934 , as amended ( the “ exchange act ” ) , as of the end of the period covered by this annual report on form 10-k ( the “ evaluation date ” ) . based on this evaluation , our chief executive officer and chief financial officer concluded as of the evaluation date that our disclosure controls and procedures were effective such that the information relating to us required to be disclosed in our securities and exchange commission ( “ sec ” ) reports ( i ) is recorded , processed , summarized and reported within the time periods specified in sec rules and forms , and ( ii ) is accumulated and communicated to our management , including our chief executive officer and chief financial officer , as appropriate to allow timely decisions regarding required disclosure . management 's annual report on internal control over financial reporting our management is responsible for establishing and maintaining adequate internal control over financial reporting . our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states . because of its inherent limitations , internal control over financial reporting may not prevent or detect misstatements . therefore , even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives . with the participation of our chief executive and financial officer , our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of august 31 , 2020 based on the criteria set forth by the committee of sponsoring organizations of the treadway commission story_separator_special_tag story_separator_special_tag cash flow from investing activities the company used $ 0 and $ 688 to purchase equipment and $ 0 and $ 1,500,000 as partial payment for a license for the year ended august 31 , 2020 and 2019 , respectively . cash flow from financing activities during the year ended august 31 , 2020 and 2019 , the company received $ 1,977,691 and $ 8,376,379 from issuance of common stock and $ 7,863 and $ 18,276 from advance from related parties and repaid $ 4,710 and $ 17,228 to related parties , respectively . during the year ended august 31 , 2020 , the company refunded fractional stock of $ 108. of the $ 1,977,691 the company received in the year ended august 31 , 2020 , $ 1,922,691 were sold in connection with the company 's at-the-market equity program . off-balance sheet arrangements we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to stockholders . critical accounting policies the discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with the accounting principles generally accepted 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 story_separator_special_tag of the underwriters described in the underwriting agreement ( the “ underwriter ” ) , pursuant to which the company issued and sold , in a firm commitment underwritten public offering by the company ( the “ public offering ” ) , 8,800,000 units ( the “ units ” ) , with each unit consisting of one share of the company 's common stock , par value $ 0.001 per share ( the “ common stock ” ) and one warrant to purchase one share of common stock at an exercise price equal to $ 0.75 per share of common stock that expires on october 14 , 2025 ( referred to individually as a “ warrant ” and collectively as the “ warrants ” ) . each unit was offered to the public at an offering price of $ 0.75 per unit . in addition , pursuant to the underwriting agreement , the company granted the underwriter a 45-day option ( the “ overallotment option ” ) to purchase up to ( i ) 1,320,000 additional shares of common stock and or ( ii ) additional warrants to purchase up to 1,320,000 additional shares of common stock , solely to cover over-allotments . the overallotment option was exercised in full on october 9 , 2020. on october 14 , 2020 , the public offering closed , and the company issued and sold ( i ) 10,120,000 shares of common stock ( which includes 1,320,000 shares of common stock sold pursuant to the exercise of the overallotment option ) and ( ii ) warrants to purchase 10,120,000 shares of common stock ( which includes warrants to purchase 1,320,000 shares of common stock sold pursuant to the exercise of the overallotment option ) , pursuant to the registration statement and the underwriting agreement . the net proceeds to the company , after deducting the underwriting discount and commissions and estimated offering expenses payable by the company , were approximately $ 6.58 million . f-18 item 9. changes in and disagreements with accountants on accounting and financial disclosure there were no disagreements related to accounting principles or practices , financial statement disclosure , internal controls or auditing scope or procedure during the two fiscal years and interim periods . item 9a . controls and procedures evaluation of disclosure controls and procedures under the supervision and with the participation of our senior management , including our chief executive officer and chief financial officer , we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures , as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the securities exchange act of 1934 , as amended ( the “ exchange act ” ) , as of the end of the period covered by this annual report on form 10-k ( the “ evaluation date ” ) . based on this evaluation , our chief executive officer and chief financial officer concluded as of the evaluation date that our disclosure controls and procedures were effective such that the information relating to us required to be disclosed in our securities and exchange commission ( “ sec ” ) reports ( i ) is recorded , processed , summarized and reported within the time periods specified in sec rules and forms , and ( ii ) is accumulated and communicated to our management , including our chief executive officer and chief financial officer , as appropriate to allow timely decisions regarding required disclosure . management 's annual report on internal control over financial reporting our management is responsible for establishing and maintaining adequate internal control over financial reporting . our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states . because of its inherent limitations , internal control over financial reporting may not prevent or detect misstatements . therefore , even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives . with the participation of our chief executive and financial officer , our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of august 31 , 2020 based on the criteria set forth by the committee of sponsoring organizations of the treadway commission story_separator_special_tag story_separator_special_tag cash flow from investing activities the company used $ 0 and $ 688 to purchase equipment and $ 0 and $ 1,500,000 as partial payment for a license for the year ended august 31 , 2020 and 2019 , respectively . cash flow from financing activities during the year ended august 31 , 2020 and 2019 , the company received $ 1,977,691 and $ 8,376,379 from issuance of common stock and $ 7,863 and $ 18,276 from advance from related parties and repaid $ 4,710 and $ 17,228 to related parties , respectively . during the year ended august 31 , 2020 , the company refunded fractional stock of $ 108. of the $ 1,977,691 the company received in the year ended august 31 , 2020 , $ 1,922,691 were sold in connection with the company 's at-the-market equity program . off-balance sheet arrangements we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to stockholders . critical accounting policies the discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with the accounting principles generally accepted 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
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results of operations the following summary of our results of operations , for the year ended august 31 , 2020 and 2019 , should be read in conjunction with our audited financial statements , as included in this form 10-k. our company does not have any revenue . we classify our operating expenses into research and development , professional fees , and selling , general and administrative expenses . research and development expense consists of expenses incurred while performing research and development activities to discover and develop our product candidates . this includes conducting preclinical studies and clinical trials , development efforts and activities related to regulatory filings for product candidates . we recognize research and development expenses as they are incurred . 48 we expect we will require additional capital to meet our long-term operating requirements . we expect to raise additional capital through , among other things , the sale of equity or debt securities , but we can not guarantee that we will be able to achieve same . the following table provides selected financial data about the company as of august 31 , 2020 and 2019. balance sheet data replace_table_token_1_th we have not generated any revenues since inception through august 31 , 2020. the decrease in cash was primarily due to an increase in r & d expense and other operating expenses . for the year ended august 31 , 2020 compared to the year ended august 31 , 2019 replace_table_token_2_th our operating expenses , for the year ended august 31 , 2020 were $ 4,685,775 compared to $ 3,209,531 for the same period in 2019. the increase in general and administrative fees was primarily due to an increase in salaries and wages related to increased operations , consulting fees , and investor relations costs . the increase in research and development was related to additional funds being utilized to fund the company 's three primary research and development programs .
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overview the following overview is a top level discussion of our financial results , as well as trends that have , or that we reasonably believe will , impact our operations . management believes that an understanding of these trends and drivers is important in order to understand our results for fiscal 2011 , 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 10-k and in other documents we have filed with the sec . fiscal 2011 business results and highlights consistent with our previously stated strategy , fiscal 2011 was a year for investment in our pipeline of games as we positioned ourselves for significant growth in fiscal 2012 and beyond . this investment is reflected in increases in cash spent on software development and licenses , versus the prior year . in fiscal 2011 we reported net sales of $ 665.3 million and a net loss of $ 136.1 million , or $ 2.00 per diluted share . this compares with net sales of $ 899.1 million and a net loss of $ 9.0 million , or $ 0.13 per diluted share in fiscal 2010 . a significant portion of this difference relates to the deferral of revenue from games sold late in the fourth quarter of fiscal 2011 , for which we have a continuing obligation to provide online services . we will recognize this revenue over the first six months of fiscal 2012. fiscal 2011 highlights core game investments/new intellectual property agreements : in fiscal 2011 , we entered into agreements with some of the most recognized creative talent in the video game and entertainment business : we expect game developer patrice désilets , creative director on the assassin 's creed franchise , to join us in fiscal 2012 to form a new thq-owned development studio housed within our video game development studio in montreal , quebec , focused on developing new intellectual properties ; we entered into a new multi-year agreement with guillermo del toro , writer and director of hellboy and the oscar-winning pan 's labyrinth , to create insane , an original trilogy of triple-a titles to be developed by our volition , inc. studio , and ; we also entered into an agreement with tomonobu itagaki 's valhalla game studios to publish the studio 's premier video game title , devil 's third , for the xbox 360 and ps3 . the game is currently scheduled for release in fiscal 2013. building franchises : in fiscal 2011 we shipped more than 2.4 million units of internally developed and owned intellectual property homefront ; we plan to build on this franchise in the future . we entered into a multi-year extension of our long-term agreement with games workshop to publish games based on the warhammer 40,000 brand . extend leadership in fighting : we introduced a new brand extension with the release of wwe all stars and have plans to continue these extensions working closely with the wwe on an integrated marketing strategy . we extended our exclusive , worldwide agreement with zuffa , llc to publish video games and social and mobile applications based on the ultimate fighting championship brand through calendar 2018. casual and lifestyle portfolio : in fiscal 2011 , we launched udraw , a first-of-its-kind , innovative new gaming accessory targeted at consumers of all ages . it was launched with udraw studio , an expansive drawing , coloring and art-based software product . in addition to udraw studio , we developed and published two other software products designed for use with udraw – pictionary and dood 's big adventure , which launched with udraw . we shipped over 1.6 million udraw units in fiscal 2011. integrated digital strategy : during fiscal 2011 , we worked on the development of our most extensive downloadable content offering to date for a console game – mx vs. atv alive , which released in may 2011 ( in fiscal 2012 ) . mx vs. atv alive was released at a suggested retail price of $ 39.99 in the u.s. , which is a lower price point than previous installments from this franchise as part of a new digital download strategy . it features the franchise 's most popular tracks and modes and has an in-game digital store that allows players to customize their game experience with a myriad of downloadable items , bikes , tracks and more . we also launched our first ufc games for facebook : ufc undisputed fight nation and ufc undisputed for iphone/ipad , and announced the upcoming facebook and mobile games based on jimmy buffet 's margaritaville . we continued development of our massively multiplayer online game , warhammer 40,000 : dark millennium online , which is scheduled for release in fiscal 2013. streamlining our business during the third quarter of fiscal 2011 , we reevaluated our strategy of adapting certain western content for free-to-play online games in asian markets . as a result , we cancelled two games , eliminated certain positions , and closed our korean support office . in the fourth quarter of fiscal 2011 , we performed an assessment of our product development and publishing staffing models . this resulted in a change to our staffing plans to better address peak service periods , as well as better utilize shared-services and more cost-effective locations . ( see `` note 10 — restructuring and other charges `` in the notes to the consolidated financial statements in item 8 for additional information . ) we continue to shift the focus of our casual and lifestyle business away from traditional kids movie-based licensed titles . we reevaluated the sales potential of games based on our kids movie-based licenses during the preparation of our fiscal 2011 third quarter financial statements . story_separator_special_tag generally , revenue deferred in the first half of our fiscal year would be recognized by the end of that fiscal year , and revenue deferred in the second half of the fiscal year would be partially recognized in that fiscal year with the remaining amounts of deferred revenue recognized in the following fiscal year . net sales by new releases and catalog titles the following table presents our net sales of new releases ( titles initially released in the respective fiscal year ) and catalog titles for fiscal 2011 and fiscal 2010 ( amounts in thousands ) : replace_table_token_7_th net sales of our new releases decreased $ 65.7 million in fiscal 2011 compared to fiscal 2010 primarily due to : a decrease in units sold of games based on kids movie-based licensed games , which was primarily because in fiscal 2011 we did not release any new titles based on the disneypixar brand ; a decrease in net sales from ufc undisputed 2010 in fiscal 2011 compared to ufc 2009 undisputed in fiscal 2010 , resulting from fewer units sold and a lower average net selling price ; and a decrease in net sales of games based on our owned intellectual properties , due to titles released throughout fiscal 2010 such as darksiders , drawn to life : the next chapter , mx vs. atv reflex , and red faction : guerrilla , compared to net sales from the late fiscal 2011 release of homefront . these decreases in net sales of our new releases , were partially offset by net sales in fiscal 2011 of udraw and games based on new licensed properties such as barbie : groom and glam pups , hot wheels : track attack , jeopardy ! , pictionary , and wheel of fortune . net sales of our catalog titles decreased $ 20.6 million in fiscal 2011 compared to fiscal 2010 primarily due to a decrease in units sold . net sales by territory the following table presents our net sales by territory for fiscal 2011 and fiscal 2010 ( amounts in thousands ) : replace_table_token_8_th net sales in north america decreased $ 30.6 million in fiscal 2011 compared to fiscal 2010 . the decrease was primarily due to : a decrease in net sales from ufc undisputed 2010 in fiscal 2011 compared to ufc 2009 undisputed in fiscal 2010 , resulting from fewer units sold and a lower average net selling price ; a decrease in units sold of games based on kids movie-based licensed games , which was primarily because in fiscal 2011 we did not release any new titles based on the disneypixar brand ; and a decrease in net sales of games based on our owned intellectual properties , due to titles released throughout fiscal 2010 such as darksiders , drawn to life : the next chapter , mx vs. atv reflex , and red faction : guerrilla , compared to net sales from the late fiscal 2011 release of homefront . these decreases were partially offset by net sales of udraw and net sales of games based on new licensed properties . net sales in europe decreased $ 51.9 million in fiscal 2011 compared to fiscal 2010 . the decrease was primarily due to : a decrease in units sold of games based on kids movie-based licensed games , which was primarily because in fiscal 2011 we did not release any new titles based on the disneypixar brand ; a decrease in net sales of games based on our owned intellectual properties , due to titles released throughout fiscal 2010 such as darksiders , drawn to life : the next chapter , mx vs. atv reflex , and red faction : guerrilla , compared to net sales from the late fiscal 2011 release of homefront ; a decrease in net sales from ufc undisputed 2010 in fiscal 2011 compared to ufc 2009 undisputed in fiscal 2010 , resulting from fewer units sold and a lower average net selling price ; and a decrease in units sold of games based on the wwe license . these decreases were partially offset by net sales of udraw . we estimate that changes in foreign currency translation rates during fiscal 2011 decreased reported net sales in europe by $ 4.8 million . net sales in the asia pacific territories decreased $ 3.8 million in fiscal 2011 compared to fiscal 2010 primarily due to a decrease in units sold of games based on our owned intellectual properties and games based on the wwe brand . these decreases were partially offset by increases in net sales from distribution arrangements . we estimate that changes in foreign currency translation rates during fiscal 2011 increased reported net sales in this territory by $ 5.5 million . cost of sales cost of sales decreased $ 106.5 million , or 17 % , in fiscal 2011 compared to fiscal 2010 . this dollar-basis decrease was primarily due to lower product costs and lower software development amortization resulting from the deferral of costs related to the changes in our deferred net revenue . also contributing to the dollar-basis decrease was a reduction in the number of units shipped in fiscal 2011 compared to fiscal 2010 , primarily of kids movie-based licensed games . as a percent of net sales , cost of sales increased 8.5 points in fiscal 2011 compared to fiscal 2010 ; this increase was primarily due to impairment charges on kids movie-based licenses and higher product costs as a percent of net sales as further discussed below . cost of sales—product costs ( amounts in thousands ) fiscal year ended march 31 , 2011 % of net sales fiscal year ended march 31 , 2010 % of net sales % change $ 272,021 40.9 % $ 318,590 35.4 % ( 14.6 ) % product costs primarily consist of direct manufacturing costs , including platform manufacturer license fees , net of manufacturer volume rebates and discounts .
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summary of significant accounting policies ” in the notes to the consolidated financial statements included in item 8 ) . net sales from our licensed properties represented 69 % and 66 % of our total net sales in fiscal 2010 and fiscal 2009 , respectively . excluding joint venture expense , license amortization and royalties expense as a percent of net sales in fiscal 2010 compared to fiscal 2009 increased slightly , primarily due to the higher mix of sales from titles based on licensed properties . fiscal 2010 venture partner expense included a $ 29.5 million one-time charge and a $ 24.2 million one-time benefit . excluding these one-time items , venture partner expense recorded in fiscal 2010 would have been $ 9.2 million , which reflected a 40 % lower payment rate , compared to fiscal 2009 . ( see “ note 18 — joint venture and settlement agreements ” in the notes to the consolidated financial statements included in item 8 for further discussion of these one-time items . ) operating expenses our operating expenses decreased $ 196.6 million , or 41 % , in fiscal 2010 compared to fiscal 2009. this decrease was primarily due to goodwill impairment charges of $ 118.8 million recognized in fiscal 2009 , as well as lower product development , selling and marketing , and general and administrative costs in fiscal 2010 due to the actions taken as part of our fiscal 2009 business realignment . product development ( amounts in thousands ) fiscal year ended march 31 , 2010 % of net sales fiscal year ended march 31 , 2009 % of net sales % change $ 87,233 9.7 % $ 109,201 13.2 % ( 20.1 ) % product development expense primarily consists of expenses incurred by internal development studios and payments made to external development studios prior to products reaching technological feasibility . once a product has reached technological feasibility the related development costs are capitalized to software development .
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europe japan developments cardiovascular evacetrapib high-risk vascular disease phase iii phase iii phase iii studies are ongoing . endocrinology basal insulin peglispro type 1 diabetes phase iii phase iii phase iii announced in september 2014 top-line results of two clinical trials which met primary endpoints . type 2 diabetes phase iii phase iii phase iii announced in may 2014 top-line results of three clinical trials which met primary endpoints . jardiance type 2 diabetes approved approved approved approved in the u.s. , europe and japan in august , may , and december 2014 , respectively . launched in the u.s. and certain european countries in third quarter of 2014. glyxambi ® , combination tablet of empagliflozin and linagliptin , approved in the u.s. in january 2015. intend to submit to european regulatory authorities in late 2015. new insulin glargine product type 1 diabetes tentatively approved approved approved fda tentatively approved in august 2014 , determining that it met all regulatory requirements for approval , but approval is subject to automatic stay in the u.s. of up to 30 months as a result of the patent litigation filed by sanofi . approved in europe and japan in september and december 2014 , respectively . we will work with boehringer ingelheim to launch in europe and japan on dates that do not infringe valid and enforceable patents . type 2 diabetes tentatively approved approved approved trulicity type 2 diabetes approved approved submitted approved in the u.s. and europe in september and november 2014 , respectively . launched in the u.s. in october 2014 and in certain european countries in first quarter of 2015. submitted to regulatory authorities in japan in third quarter of 2014 . 32 compound indication u.s. europe japan developments immunology baricitinib rheumatoid arthritis phase iii phase iii phase iii announced in december 2014 top-line results of ra-beacon trial which met primary endpoint . ixekizumab psoriasis phase iii phase iii phase iii announced in august 2014 top-line results of three trials which met all primary and secondary endpoints . intend to submit the first application to regulatory authorities in the first half of 2015. psoriatic arthritis phase iii phase iii phase iii studies are ongoing . tabalumab lupus terminated terminated terminated announced decision to stop development of tabalumab in october 2014 due to lack of efficacy . neuroscience solanezumab mild alzheimer 's disease phase iii phase iii phase iii studies are ongoing . tanezumab osteoarthritis pain phase iii phase iii phase iii on partial clinical hold ; expect resolution in 2015. chronic low back pain phase iii phase iii phase iii cancer pain phase iii phase iii phase iii 33 compound indication u.s. europe japan developments oncology abemaciclib metastatic breast cancer phase iii phase iii phase iii initiated phase iii study of abemaciclib in combination with fulvestrant in august 2014. initiated phase iii study of abemaciclib in combination with aromatase inhibitors in november 2014. nsclc phase iii phase iii phase iii initiated phase iii study of abemaciclib in kras mutation-positive nsclc in december 2014. cyramza gastric cancer ( first-line ) phase iii phase iii phase iii initiated phase iii study of cyramza in first-line gastric cancer in january 2015. gastric cancer ( second-line ) approved approved submitted approved as monotherapy in the u.s. in april 2014. launched in the u.s. in second quarter of 2014. approved in combination with paclitaxel in the u.s. in november 2014. in europe , approved in combination with paclitaxel and as monotherapy in patients for whom treatment in combination with paclitaxel is not appropriate in december 2014. submitted to japanese regulatory authorities in third quarter of 2014 with regulatory action anticipated in first half of 2015. nsclc ( second-line ) approved submitted phase iii approved in the u.s. in december 2014. submitted to european regulatory authorities in first quarter of 2015. liver cancer phase iii phase iii phase iii announced in june 2014 that reach trial did not meet its primary endpoint . metastatic colorectal cancer phase iii phase iii phase iii announced in september 2014 that raise trial met its primary endpoint of overall survival . intend to submit first application to regulatory authorities in first half of 2015. necitumumab squamous nsclc submitted submitted phase ib/ii submitted in the u.s. and europe in fourth quarter of 2014. anticipate fda action in late 2015. there are many difficulties and uncertainties inherent in pharmaceutical research and development ( r & d ) and the introduction of new products . a high rate of failure is inherent in new drug discovery and development . the process to bring a drug from the discovery phase to regulatory approval can take 12 to 15 years or longer and cost more than $ 1 billion . failure can occur at any point in the process , including late in the process after substantial investment . as a result , most research programs will not generate financial returns . new product candidates that appear promising in development may fail to reach the market or may have only limited commercial success . delays and uncertainties in the regulatory approval processes in the u.s. and in other countries can result in delays in product launches and lost market opportunities . consequently , it is very difficult to predict which products will ultimately be approved . we manage r & d spending across our portfolio of molecules , and a delay in , or termination of , any one project will not necessarily cause a significant change in our total r & d spending . due to the risks and 34 uncertainties involved in the r & d process , we can not reliably estimate the nature , timing , completion dates , and costs of the efforts necessary to complete the development of our r & d projects , nor can we reliably estimate the future potential revenue that will be generated from a successful r & d project . each project represents only a portion of the overall pipeline , and none is individually material to our consolidated r & d expense . story_separator_special_tag state and federal health care proposals , including price controls , continue to be debated , and if implemented could negatively affect future consolidated results of operations . in the u.s. private sector , the growth of managed care organizations ( mcos ) is also a major factor in the competitive marketplace for human pharmaceuticals . it is estimated that approximately two-thirds of the u.s. now participates in some form of managed care . mco 's have been consolidating into fewer , larger entities , thus enhancing their purchasing strength and importance . mco 's typically maintain formularies specifying which drugs are covered under their plans . exclusion of a drug from a formulary can lead to its sharply reduced usage in the mco patient population . consequently , pharmaceutical companies compete aggressively to have their branded products included . price is becoming an increasingly important factor in mco formulary decisions , particularly in treatment areas in which the mco has taken the position that multiple branded products are therapeutically comparable . these downward pricing pressures could negatively impact future consolidated results of operations . in 2014 , the main coverage expansion provisions of the affordable care act ( aca ) took effect through both the launch of state-based exchanges and the expansion of medicaid . an emerging trend has been the prevalence of benefit designs containing high out-of-pocket costs for patients , particularly for pharmaceuticals . in addition to the coverage expansions , many employers in the commercial market , driven in part by changes resulting from the aca , continue to evaluate strategies such as private exchanges and wider use of consumer-driven health plans to reduce their healthcare liabilities over time . at the same time , the broader paradigm shift towards quality-based reimbursement and the launch of several value-based purchasing initiatives have placed demands on the pharmaceutical industry to offer products with proven real-world outcomes data and a favorable economic profile . international international operations also are generally subject to extensive price and market regulations . cost-containment measures exist in a number of countries , including additional price controls and mechanisms to limit reimbursement for our products . such policies are expected to increase in impact and reach , given the pressures on national and regional health care budgets that come from a growing aging population and ongoing economic challenges . in addition , governments in many emerging markets are becoming increasingly active in expanding health care system offerings . given the budget challenges of increasing health care coverage for citizens , policies may be proposed that promote generics only and reduce current and future access to human pharmaceutical products . 36 tax matters we are subject to income taxes in the u.s. and numerous foreign jurisdictions . changes in the relevant tax laws , regulations , administrative practices , principles , and interpretations could adversely affect our future effective tax rates . the u.s. and a number of other countries are actively considering changes in this regard . for example , the obama administration proposed changes to the manner in which the u.s. would tax the international income of u.s.-based companies , including unremitted earnings of foreign subsidiaries , and other tax proposals under discussion or introduced in the u.s. congress could change the tax rate and manner in which u.s. companies would be taxed . additionally , the organisation for economic co-operation and development launched and continues to advance an initiative to analyze and potentially influence international tax policy in major countries in which we operate . while outcomes of these initiatives are uncertain , changes to key elements of the u.s. or international tax framework could have a material effect on our consolidated operating results and cash flows . legal matters information regarding contingencies relating to certain legal proceedings can be found in note 15 to the consolidated financial statements and is incorporated here by reference . operating results— 2014 revenue our worldwide revenue for 2014 was $ 19.62 billion , a decline of 15 percent compared with 2013 . this decrease was comprised of 13 percent due to volume , 2 percent due to the unfavorable impact of foreign exchange rates and 1 percent due to lower prices ( numbers do not add due to rounding ) . total revenue in the u.s. decreased 29 percent , to $ 9.13 billion , due to lower demand for cymbalta and evista following patent expirations , and to a lesser extent , to wholesaler buying patterns . revenue outside the u.s. increased 3 percent , to $ 10.48 billion , due to increased volume , partially offset by the unfavorable impact of foreign exchange rates . the following table summarizes our revenue activity in 2014 compared with 2013 : replace_table_token_6_th 1 u.s. revenue includes revenue in puerto rico . 2 collaboration and other revenue consists primarily of royalties for erbitux ® and revenue associated with trajenta ® . 37 sales of alimta , a treatment for various cancers , increased 2 percent in the u.s. , driven by increased volume . sales outside the u.s. increased 5 percent , driven by increased volume , partially offset by the unfavorable impact of foreign exchange rates and lower prices . sales of humalog , our injectable human insulin analog for the treatment of diabetes , increased 7 percent in the u.s. , driven by increased demand , partially offset by lower net effective selling prices as a result of payer contracts and greater medicaid and medicare utilization , as well as wholesaler buying patterns . sales outside the u.s. increased 6 percent , driven by increased volume and , to a lesser extent , higher prices , partially offset by the unfavorable impact of foreign exchange rates . sales of cialis , a treatment for erectile dysfunction and benign prostatic hyperplasia , increased 10 percent in the u.s. , driven by higher prices , partially offset by wholesaler buying patterns .
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financial results worldwide total revenue decreased 15 percent to $ 19.62 billion in 2014 , primarily as a result of the loss of united states ( u.s. ) patent exclusivity for cymbalta ® in december 2013 and to a lesser extent evista ® in march 2014 , partially offset by volume growth in several other products . in 2014 , net income decreased 49 percent to $ 2.39 billion and eps decreased 48 percent to $ 2.23 , compared to 2013 net income and eps of $ 4.68 billion and $ 4.32 , respectively . the decreases were due to lower gross margin , higher asset impairment , restructuring , and other special charges and decreased other income , partially offset by lower marketing , selling , and administrative expenses , research and development expenses , and income tax expense . the following highlighted items affect comparisons of our 2014 and 2013 financial results : 2014 acquired in-process research & development ( ipr & d ) ( notes 3 and 4 to the consolidated financial statements ) we recognized acquired ipr & d charges of $ 200.2 million ( pretax ) , or $ 0.12 per share , related to acquired ipr & d from collaboration agreements with adocia , astrazeneca uk limited , boehringer ingelheim , and immunocore limited . collaborations ( note 4 to the consolidated financial statements ) we recognized income of $ 92.0 million ( pretax ) , or $ 0.06 per share , related to the transfer of our linagliptin and empagliflozin commercial rights in certain countries to boehringer ingelheim . asset impairment , restructuring , and other special charges ( note 5 to the consolidated financial statements ) we recognized charges of $ 468.7 million ( pretax ) , or $ 0.38 per share , related to severance costs associated with our ongoing cost containment efforts to reduce our cost structure and global workforce and asset impairments primarily associated with the closure of a manufacturing site in puerto rico .
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story_separator_special_tag overview we design , manufacture and sell versatile and high performance video infrastructure products and system solutions that enable our customers to efficiently create , prepare and deliver broadcast and on-demand video services to televisions , personal computers and mobile devices . historically , the majority of our sales have been derived from sales of video processing solutions and network edge and access systems to cable television operators and from sales of video processing solutions to direct-to-home satellite operators . more recently , we are providing our video processing solutions to telecommunications companies , or telcos , broadcasters and other media companies that create video programming or offer video services . in september 2010 , we acquired omneon , inc. , a private , venture-backed company specializing in file-based infrastructure for the production , preparation and playout of video content typically deployed by broadcasters , satellite operators , content owners and other media companies . the acquisition of omneon is complementary to harmonic 's core business , expanding our customer reach into content providers and extending our product lines into video servers and video-optimized storage for content production and playout . harmonic 's net revenue increased by 32 % in 2010 from 2009. the increase in net revenue in 2010 , compared to 2009 , was in part due to stronger worldwide customer demand for video processing solutions . the growth in video processing revenue of 25 % also contributed to the growth in service and support activity related to the associated video processing solutions , thus resulting in services and support revenue growth of 33 % in 2010 , when compared to 2009. in addition , harmonic 's revenue also increased as a result of the acquisition of omneon in september 2010 and its inclusion in our results from the date of acquisition . omneon 's product revenue , which for 2010 was $ 32.6 million , is included in the production and playout product line . we also experienced an improved gross margin percentage in 2010 , compared to 2009 , primarily due to a more favorable mix of revenue towards higher gross margin products , such as video processing and production and playout . further , when comparing 2010 to 2009 , note that in 2009 we recorded a charge of approximately $ 6.3 million to cost of revenue , primarily consisting of excess and obsolete inventories expenses from product discontinuances and severance expenses for 41 terminated scopus employees , which lowered 2009 margins relative to 2010 margins . our operating results in 2010 also included total charges of $ 8.9 million related to acquisition costs and excess facilities associated with the omneon purchase and subsequent consolidation of omneon personnel into our san jose , california facility . harmonic 's net revenue decreased by 12 % in 2009 from 2008. the decrease in revenues in 2009 , compared to 2008 , was primarily due to weaker demand in 2009 from our domestic cable and satellite customers , and our european cable customers , for edge products and solutions primarily related to vod , switched digital video , modular cable modem termination systems , or m-cmts , deployments , and hdtv , offset by increased revenue resulting from the acquisition of scopus of $ 19.3 million . we experienced a lower gross margin percentage in 2009 , compared to 2008 , primarily due to the previously mentioned charge to cost of revenue in 2009 associated with the scopus operations , lower gross margins on sales of edge and access products due to competitive pricing pressures and the deployment of our then current nsg platform , which platform carries lower initial gross margins than our average gross margins , and increased amortization of intangibles expense . our operating results in 2009 included a charge of $ 3.4 million for acquisition costs associated with the scopus acquisition . financial difficulties of certain of our customers and changes in our customers ' deployment plans have adversely affected our business in the past . in 2008 and 2009 , economic conditions in many of the countries in which we sell products were very weak , and global economic conditions and financial markets experienced a severe downturn . the downturn stemmed from a multitude of factors , including adverse credit conditions , slower economic activity , concerns about inflation and deflation , rapid changes in foreign exchange rates , increased energy costs , decreased consumer confidence , reduced corporate profits and capital spending , adverse business conditions and liquidity concerns . although there was an increase in global economic activity in 2010 , economic growth may remain sluggish during 2011 in a few developed countries and in some emerging market countries . the severity or length of time that these adverse economic and financial market conditions may persist , or whether such adverse conditions may return in the u.s. and in other countries , is unknown . during challenging or uncertain economic times , and in tight credit markets , many customers may delay or reduce capital expenditures , which in turn often results in lower demand for our products . sales to customers outside of the u.s. in 2010 , 2009 , and 2008 represented 50 % , 49 % , and 44 % of net revenue , respectively . a significant portion of international sales are made to distributors and system integrators , which are generally responsible for importing the products and providing installation and technical support and service to customers within their territory . we expect international sales to continue to account for a substantial portion of our net revenue for the foreseeable future , and expect that , partially as a result of the acquisitions of scopus and omneon , our international sales may increase . further , we have a number of international customers to whom sales are denominated in u.s. dollars . sales denominated in foreign currencies were approximately 6 % , 7 % and 6 % of net revenue in 2010 , 2009 and 2008 , respectively . story_separator_special_tag the purchase price , net of $ 23.3 million of cash acquired , was $ 63.1 million , which was paid from existing cash balances . the company also incurred a total of $ 3.4 million of transaction expenses , which were expensed as selling , general and administrative expenses in the first quarter of 2009. the acquisition of scopus was intended to extend harmonic 's worldwide customer base and strengthen its market and technology leadership , particularly in video broadcast in international markets , and the contribution and distribution markets . in the fourth quarter of 2010 , the company recorded a charge , net of estimated sublease income , of $ 3.0 million in selling , general and administrative expenses for excess facilities related to the closure of omneon 's leased premises in sunnyvale , california . the employees were moved into harmonic 's nearby san jose , california corporate headquarters during the fourth quarter . 43 we continue to expand our international operations and staffing to better support our expansion into international markets . this expansion includes the implementation of an international structure that includes , among other things , an international support center in europe , a research and development cost-sharing arrangement , and certain licenses and other contractual arrangements by and among the company and its wholly-owned domestic and foreign subsidiaries . our foreign subsidiaries have acquired certain license rights to use our existing intellectual property and intellectual property that will be developed or licensed in the future , including omneon 's existing and future intellectual property . as a result of these changes and an expanding customer base internationally , we expect that an increasing percentage of our consolidated pre-tax income will be derived from , and reinvested in , our international operations . we anticipate that this pre-tax income will be subject to foreign tax at relatively lower tax rates when compared to the united states federal statutory tax rate in future periods . critical accounting policies , judgments and estimates the preparation of financial statements and related disclosures requires harmonic to make judgments , assumptions and estimates that affect the reported amounts of assets and liabilities , the disclosure of contingencies and the reported amounts of revenue and expenses in the financial statements and accompanying notes . material differences may result in the amount and timing of revenue and expenses if different judgments or different estimates were made . see note 1 of notes to consolidated financial statements for details of harmonic 's accounting policies . critical accounting policies , judgments and estimates which we believe have the most significant impact on harmonic 's financial statements are set forth below : revenue recognition ; allowances for doubtful accounts , returns and discounts ; valuation of inventories ; impairment of goodwill or long-lived assets ; restructuring costs and accruals for excess facilities ; assessment of the probability of the outcome of current litigation ; accounting for income taxes ; and stock-based compensation . revenue recognition harmonic 's principal sources of revenue are from sales of hardware products , software products , solution sales , services and hardware and software maintenance agreements . harmonic recognizes revenue when persuasive evidence of an arrangement exists , delivery has occurred or services have been provided , the sale price is fixed or determinable , collection is reasonably assured , and risk of loss and title have transferred to the customer . we generally use contracts and customer purchase orders to determine the existence of an arrangement . shipping documents and customer acceptance , when applicable , are used to verify delivery . we assess whether the sales price is fixed or determinable based on the payment terms associated with the transaction and whether the price is subject to refund or adjustment . we assess collectability based primarily on the creditworthiness of the customer as determined by credit checks and analysis , as well as the customer 's payment history . we evaluate our products to assess whether software is more-than-incidental to a product . when we conclude that software is more-than-incidental to a product , we account for the product as a software product . revenue on software products and software-related elements are recognized in accordance with applicable accounting guidance . significant judgment may be required in determining whether a product is a software or hardware product . revenue from hardware product sales is recognized in accordance with the applicable accounting guidance on revenue recognition . subject to other revenue recognition provisions , revenue on hardware product sales is recognized when risk of loss and title has transferred , which is generally upon shipment or delivery , based on the terms of the arrangement . revenue on shipments to distributors , resellers and systems integrators is generally 44 recognized on delivery . allowances are provided for estimated returns and discounts . such allowances are adjusted periodically to reflect actual and anticipated experience . distributors and systems integrators purchase our products for specific capital equipment projects of the end-user and do not hold inventory . they perform functions that include importation , delivery to the end-customer , installation or integration , and post-sales service and support . our agreements with these distributors and systems integrators have terms which are generally consistent with the standard terms and conditions for the sale of our equipment to end users and do not provide for product rotation or pricing allowances , as are typically found in agreements with stocking distributors . we have long-term relationships with most of these distributors and systems integrators and substantial experience with similar sales of similar products . we do have instances of accepting product returns from distributors and system integrators . however , such returns typically occur in instances where the system integrator has designed a product into a project for the end user , but the integrator requests permission to return the component as it does not meet the specific project 's functional requirements .
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results of operations harmonic 's historical consolidated statements of operations data for each of the three years ended december 31 , 2010 , 2009 , and 2008 , as a percentage of net revenue , are as follows : replace_table_token_3_th net revenue net revenue consolidated harmonic 's consolidated net revenue , by product line , for each of the three years ended december 31 , 2010 , 2009 and 2008 are presented in the table below . also presented is the related dollar and percentage change in consolidated net revenue , by product line , as compared with the prior year , for each of the two years ended december 31 , 2010 and 2009 . 49 replace_table_token_4_th the increase in net revenue in 2010 , compared to 2009 , was in part due to stronger worldwide customer demand for video processing solutions . the growth in video processing revenue of 24.7 % also contributed to the growth in service and support activity related to the associated video processing solutions , thus resulting in services and support revenue growth of 32.9 % in 2010 , when compared to 2009. services and support revenue is derived mainly from maintenance agreements , system integration services and customer repairs . in addition , net revenue increased as a result of the acquisition of omneon in september 2010 and the inclusion of omneon 's results from the date of acquisition . omneon 's product revenue is included in the production and playout product line . our edge and access product line increased 15.3 % from 2009 to 2010 due to an increase in sales of our nsg edge qam devices . net revenue decreased in 2009 , compared to 2008 , principally due to , in 2009 , weaker demand from domestic satellite operators and cable operators for their vod and hdtv deployments and a decrease in sales to customers internationally .
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we had net income ( losses ) of approximately $ ( 87.0 ) million , $ ( 117.3 ) million and $ 125.7 million in the years ended december 31 , 2018 , 2017 and 2016 , respectively . we have funded our operations primarily through the sale of equity securities and convertible debt securities , borrowings under the mann group loan arrangement , receipt of a $ 45.0 million upfront payment under the ut license agreement , receipt of upfront and milestone payments under the sanofi license agreement and borrowings under a senior secured revolving promissory note and a guaranty and security agreement that we entered into with an affiliate of sanofi in september 2014 in connection with the sanofi license agreement ( the “ sanofi loan facility ” ) , which provided us with a secured loan facility of up to $ 175.0 million to fund our share of net losses under the sanofi license agreement , which was terminated in 2016. as discussed below in “ liquidity and capital resources ” , if we are unable to obtain additional funding , there is substantial doubt about our ability to continue as a going concern . our business is subject to significant risks , including but not limited to our need to raise additional capital to fund our operations , our ability to successfully commercialize afrezza and manufacture sufficient quantities of afrezza , competition from other products and technologies and uncertainties associated with obtaining and enforcing patent rights . additional significant risks include the risks inherent in clinical trials and the regulatory approval process for our product candidates , which in some cases depends upon the efforts of our partners . critical accounting policies the preparation of our consolidated financial statements is in accordance with accounting principles generally accepted in the united states of america ( gaap ) . the preparation of our consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , and expenses and related disclosure of contingent assets and liabilities . we consider an accounting estimate to be critical to the consolidated financial statements if ( i ) the estimate is complex in nature or requires a high degree of judgment and ( ii ) different estimates and assumptions were used , the results could have a material impact on the consolidated financial statements . on an ongoing basis , we evaluate our estimates and the application of our policies . we base our estimates on historical experience , current conditions and on various other assumptions that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we consider our critical accounting policies to be those related to revenue recognition and gross-to-net adjustments , inventory costing and recoverability , recognized loss on purchase commitments , impairment of long-lived assets , milestone rights liability , clinical trial expenses , stock-based compensation and accounting for income taxes . these critical accounting policies are also considered significant accounting policies and are more fully described in note 2 — summary of significant accounting policies of the notes to consolidated financial statements included in part ii , item 8 — financial statements and supplementary data . revenue recognition – net revenue – commercial product sales – on january 1 , 2018 , we adopoted accounting standards codification ( “ asc ” ) topic 606 - revenue from contracts with customers ( “ the new revenue guidance ” ) . we recognize revenue on product sales when the customer obtains control of the company 's product , in an amount that reflects the consideration which the company expects to be entitled in exchange for those goods or services . product revenues are recorded net of applicable reserves for variable consideration , including discounts , rebates , allowances and fees . for further detail refer to note 2 – summary of significant accounting policies . prior to janaury 1 , 2018 , we invoiced our customers upon shipment of afrezza to them and record an accounts receivable , with a corresponding liability for deferred revenue equal to the gross invoice price net of estimated gross-to-net adjustments . we were required to reliably estimate returns in a very narrow range in order to recognize revenue upon shipment . while we can currently estimate returns within a range , it is not sufficiently precise to meet the requirements . accordingly , we defered recognition of revenue and the related estimated discounts and allowances on afrezza product shipments until the right of return no longer existed , which occurs at the earlier of the time afrezza is dispensed through patient prescriptions or expiration of the right of return . through december 31 , 2017 , we recognized revenue based on afrezza prescriptions dispensed , as estimated by syndicated data provided by a third party . we also analyzed additional data points to ensure that such third-party data is reasonable , including data related to inventory movements within the channel and ongoing prescription demand . in addition , the costs of afrezza associated with the deferred revenue were recorded as deferred costs until such time as the related deferred revenue is recognized . as of december 31 , 2017 , prior to the adoption of topic 606 , the ending balance for net deferred revenue , was $ 3.0 million on the company 's consolidated balance sheets , which is presented net of $ 1.5 million in gross-to-net revenue adjustments . 39 revenue recognition – collaborations and ser vices — we enter into licensing or research ag reements under which we license certain rights to our prod uct candidates to third parties or provi de research services to third-parties . story_separator_special_tag the date on which certain services commence , the level of services performed on or before a given date and the cost of the services are often judgmental . we make these judgments based upon the facts and circumstances known to us in accordance with generally accepted accounting principles . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting amounts that are too high or too low for any particular period . 40 stock-based compensation — share-based payments to employees , including grants of stock options , restricted stock units , performance-based awards and the compensatory elements of employee stock purchase plans , are recognized in the consolidated statements of operations based upon the fair value of the awards at the grant date subject to an estima ted forfeiture rate . we use the black-scholes option valuation model to estimate the grant date fair value of employee stock options and the compensatory elements of employee stock purchase plans . restricted stock units are valued based on the market price on the grant date . we evaluate stock awards with performance conditions as to the probability that the performance conditions will be met and estimates the date at which the performance conditions will be met in order to properly recognize stock-based compensation expense over the requ isite service period . accounting for income taxes — our management must make judgments when determining our provision for income taxes , our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets . at december 31 , 2018 and december 31 , 2017 , respectively , we had established a valuation allowance of $ 665.4 million and $ 654.3 million against all of our net deferred tax asset balances , due to uncertainties related to the realizability of our deferred tax assets as a result of our history of operating losses . the valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable . in the event that actual results differ from these estimates or we adjust these estimates in future periods , we may need to change the valuation allowance , which could materially impact our financial position and results of operations . on december 22 , 2017 , the tax cuts and jobs act of 2017 ( the “ act ” ) was signed into law making significant changes to the internal revenue code of 1986 , as amended . the changes include , but are not limited to , a corporate tax rate decrease from 35 % to 21 % effective for tax years beginning after december 31 , 2017 , a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of december 31 , 2017 , and expanded limits on employee remuneration . in 2017 , we recorded provisional amounts for certain enactment-date effects of the act by applying the guidance in sab 118 because we had not yet completed our enactment-date accounting for these effects . in 2018 and 2017 , we did not record tax expense related to the enactment-date effects of the act as we maintained a full valuation allowance and we estimated a deficit in post-1986 earnings and profits from its foreign subsidiaries . at december 31 , 2018 , we have now completed the accounting for all of the enactment-date income tax effects of the act . during 2018 , we did not recognize adjustments to the provisional amounts recorded at december 31 , 2017 as all changes were off-set by the valuation allowance . story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:2pt ; text-indent:4.25 % ; color : # 000000 ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > general and administrative expenses increased by $ 3.5 million , or 12 % , compared with the prior year ended december 31 , 2017. this increase was primarily attributable to $ 1.7 million in headcount increases in human resources , corporate communications , and office support departments , a $ 1.3 million increase in stock-based compensation expenses , a $ 1.1 million increase in transition costs due to transitioning certain corporate support functions from connecticut to our headquarters in california , and a $ 0.4 million increase in investor relations and corporate communication . these increases were offset by decreases of $ 0.8 million in accounting consulting fees . in order to conform to the 2018 presentation above , we reclassified approximately $ 3.6 million of personnel costs for the year ended december 31 , 2017 related to afrezza medical affair activities from general and administrative expenses to selling expenses . the resulted in a change in general and administrative expenses for the year ended december 31 , 2017 from $ 32.4 million as previously reported in our annual report on form 10-k filed on february 27 , 2018 , to $ 28.8 million . 42 under the insulin supply agreement with amphastar , payment obligations are denominated in euros . we are required to record the foreign currency translation impact of the u.s. dollar to euro exchange rate associated with the recognized loss o n purchase commitments . the gain on foreign currency translation for the year ended december 31 , 2018 was $ 4.5 million as compared to a loss of $ 13.6 million for the year ended december 31 , 2017 , resulting in an $ 18.1 million net change due to favorable u. s. dollar to euro exchange rates .
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results of operations years ended december 31 , 2018 and 2017 revenues the following table provides a comparison of the revenue categories for the years ended december 31 , 2018 and 2017 ( dollars in thousands ) : replace_table_token_4_th gross revenue from the sales of afrezza increased by $ 17.7 million for the year ended december 31 , 2018 , or 141 % , compared to the prior year , primarily driven by higher product demand and price increases , as well as a more favorable mix of cartridges . effective as of the beginning of 2018 , we adopted topic 606 , the new revenue standard under which we now recognize revenue on a sell-to model rather than a sell-through model . the estimated gross-to-net adjustment of $ 13.0 million ( 43 % of gross revenue ) for the year ended december 31 , 2018 , compared to the prior year ended december 31 , 2017 estimated gross-to-net adjustment was $ 3.4 million ( 27 % of gross revenue ) was primarily due to commercial and government rebates related to increases in the wholesale acquisition cost of afrezza as well as product returns . we were not required to reduce revenue in 2017 for product returns because we deferred recognition of revenue on afrezza product delivered to wholesalers until the right of return no longer existed , which occurred at the earlier of the time afrezza was dispensed from pharmacies to patients or expiration of the right of return . net revenue from collaborations and services increased by $ 10.3 million , or 4,133 % , for the year ended december 31 , 2018 compared to the prior year . the increase was primarily attributable to $ 6.5 million earned from our collaboration agreements with cipla and ut , which were executed in the second and fourth quarters of 2018 , respectively .
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currently , we have six approved oncology/hematology products ( fusilev , folotyn , zevalin , marqibo , beleodaq , and evomela ) that target different types of cancer including : nhl , mcrc , all , and mm . we also have three drugs in mid-to-late stage development ( in phase 2 or phase 3 clinical trials ) : poziotinib , a novel pan-her inhibitor used in the treatment of patients with a variety of solid tumors , including breast and lung cancer . rolontis ( formerly referred to as spi-2012 or laps-g-csf ) for chemotherapy-induced neutropenia . qapzola ( formerly referred to as apaziquone ) for immediate intravesical instillation in post-transurethral resection of bladder tumors in patients with nmibc . see item 1. business , for our discussion of : company overview cancer background and market size product portfolio manufacturing sales and marketing customers competition research and development recent highlights of our business , product development initiatives , and regulatory approvals during the year ended december 31 , 2017 and through the filing date of this annual report on form 10-k , we accomplished various critical business objectives , which included : 50 poziotinib , a novel pan-her inhibitor : in march 2016 , we initiated a phase 2 breast cancer trial for poziotinib . the phase 2 study is an open-label study that will enroll approximately 75 patients with her2 positive metastatic breast cancer , who have failed at least two her2 directed therapies . the dose and schedule of oral poziotinib is based on clinical experience from the studies in south korea , and will include the use of prophylactic therapies to help minimize the known side-effects of pan-her directed therapies . tumors with egfr or her2 exon 20 insertion mutations are rare , and have generally not been responsive to several other tyrosine kinase inhibitors so there are currently no drugs approved to treat these patients who have a poor prognosis of approximately 2 months of progression-free survival . however , poziotinib , due to its unique chemical structure and characteristics , is believed to inhibit cell growth of egfr or her2 exon 20 insertions . in collaboration with the university of texas md anderson cancer center , an investigator-sponsored phase 2 trial is currently enrolling in nsclc patients with egfr or her2 exon 20 mutations . the study yielded preliminary results demonstrating evidence of significant antitumor activity in nsclc patients with egfr exon 20 mutations , with interim data presented at the world conference on lung cancer in october 2017 showing an unconfirmed objective response rate of 73 % in 11 treated patients . based on feedback from the fda , we have initiated an additional multi-center study in patients with egfr or her2 exon 20 insertion mutations . this study will enroll up to 87 patients with egfr exon 20 insertion mutations and up to 87 patients with her2 exon 20 insertion mutations . we began enrolling patients in october 2017. we are engaging the fda to discuss the potential to expedite the development of poziotinib for this unmet medical need . additionally , as these mutations are also seen in other tumor types , we are planning a basket study to investigate the potential for poziotinib to treat patients with these mutations in other solid tumors . in addition to the these studies , other phase 2 studies for poziotinib in breast , lung , head-and-neck , and gastric cancer indications are being conducted in south korea by hanmi and the korean national oncoventure . rolontis , a novel long-acting g-csf : a pivotal phase 3 study ( advance study , or spi-gcf-301 ) was initiated in the first quarter of 2016 to evaluate rolontis as a treatment for chemotherapy-induced neutropenia . based on the amended spa received from the fda , the size of the advance study was reset to 400 evaluable patients . the advance study has completed enrollment with 406 patients and we announced on february 5 , 2018 that the top line result of this study met the primary endpoint of non-inferiority in duration of severe neutropenia between rolontis and pegfilgrastim , with a similar adverse profile between the two study arms . we initiated a second pivotal phase 3 study ( recover study , or spi-gcf-302 ) and also announced the completion of its enrollment on february 5 , 2018. we expect to file our bla with the fda for rolontis in the fourth quarter of 2018. qapzola , a potent tumor-activated drug being investigated for nmibc : in february 2017 , we received a spa from the fda for our redesigned phase 3 study of qapzola . this phase 3 study has been specifically designed to build on learnings from our previous studies , as well as recommendations from the fda . the phase 3 study is currently planning to enroll 425 evaluable patients , using a single dose of 8 mg of qapzola , and will evaluate time-to-recurrence as the primary endpoint . we began enrolling patients in the third quarter of 2017. characteristics of our revenue and expenses the below summarizes the nature of our revenue and operating expense line items within our consolidated statements of operations : revenue the majority of our revenue is derived from sales of our drug products to large pharmaceutical wholesalers and distributors , which we recognize upon title transfer ( which is typically at time of delivery ) , provided our other revenue recognition criteria have been met . to a lesser extent we also derive revenue from ( i ) upfront license fees , milestone receipts from our licensees ' sales or regulatory achievements , and royalties from out-licensing our licensees ' sales in applicable territories , and ( ii ) service revenue from third-parties under certain arrangements for our research and development activities , sales and marketing activities , clinical trial management , and supply chain services conducted for the benefit of third parties . we are subject to normal inflationary trends and anticipate that any increased costs would be passed on to our customers . story_separator_special_tag the chargeback amount we incur represents the difference between our contractual sales price to our customer , and the end-user 's applicable discounted purchase price under the government program . there may be significant lag time between our reported net product sales and our receipt of the corresponding government chargeback claims from our customers . prompt pay discounts : discounts for prompt payment are estimated at the time of sale , based on our eligible customers ' prompt payment history and the contractual discount percentage . commercial rebates : commercial rebates are based on ( i ) our estimates of end-user purchases through a gpo , ( ii ) the corresponding contractual rebate percentage tier we expect each gpo to achieve , and ( iii ) our estimates of the impact of any prospective rebate program changes made by us . medicaid rebates : our products are subject to state government-managed medicaid programs , whereby rebates are issued to participating state governments . these rebates arise when a patient treated with our product is covered under medicaid , resulting in a discounted price for our product under the applicable medicaid program . our medicaid rebate accrual calculations require us to project the magnitude of our sales , by state , that will be subject to these rebates . there is a significant time lag in us receiving rebate notices from each state ( generally several months or longer after our sale is recognized ) . our estimates are based on our historical claim levels by state , as supplemented by management 's judgment . distribution , data , and gpo administrative fees : distribution , data , and gpo administrative fees are paid to authorized wholesalers/distributors of our products ( except for u.s. sales of zevalin ) for various commercial services , including : contract administration , inventory management , delivery of end-user sales data , and product returns processing . these fees are based on a contractually-determined percentage of our applicable sales . license fees : our out-license arrangements with licensees for their limited rights to market our product ( s ) may include one or more of the following forms of consideration : ( a ) upfront license fees , ( b ) royalties from our licensees ' sales , ( c ) milestone receipts from our licensees ' sales , and ( d ) milestone receipts upon regulatory achievements by us or our licensees . we recognize revenue from these categories based on the contractual terms that establish the legal rights and obligations between us and our licensees . 53 service revenue : we receive fees under certain arrangements for ( a ) sales and marketing services , ( b ) supply chain services , ( c ) research and development services , and ( d ) clinical trial management services . payment for these services may be triggered by ( i ) an established fixed-fee schedule , ( ii ) the completion of product delivery in our capacity as a procurement agent , ( iii ) the successful completion of a phase of development , ( iv ) favorable results from a clinical trial , and or ( v ) regulatory approval events . inventories – lower of cost or net realizable value we adjust our inventory value for estimated amounts of excess , obsolete , or unmarketable items . such assumptions involve projections of future customer demand , as driven by economic and market conditions , and the product 's shelf life . if actual demand , or economic or market conditions are less favorable than those projected by us , incremental inventory write-downs may be required and could be significant . fair value of acquired assets and assumed liabilities the accounting for business combinations and asset acquisitions requires extensive use of estimates and judgments to measure the fair value of the identifiable tangible and intangible assets acquired , including in-process research and development , and liabilities assumed . additionally , we must determine whether the acquisition meets the criteria for business combination accounting ( rather than asset acquisition accounting ) , because in a business combination , the excess of the purchase price over the fair value of net assets acquired can only be recognized as “ goodwill. ” the fair value of acquired tangible and identifiable intangible assets and liabilities assumed , are based on their estimated fair values at the acquisition date and requires extensive use of accounting estimates , judgments , and assumptions , including but not limited to the following : ( i ) the likelihood , timing , and costs to complete the in-process projects ; ( ii ) the probability of achieving regulatory approvals ; ( iii ) the cash flows to be derived from the acquired assets , and ( iv ) the application of appropriate discount rates . for each acquisition , we engage an independent third-party valuation specialist to assist management in determining the fair value of in-process research and development , identifiable intangible assets , and any contingent consideration . in connection with certain of our acquisitions , we must record a contingent consideration liability for cash or stock payments upon the completion of certain future performance milestones . in these cases , a liability is recorded on the acquisition date for an estimate of the acquisition date fair value of the contingent consideration by applying the income approach utilizing variable inputs such as probability of achievement and risk-free adjusted discount rates . any change in the fair value of the contingent consideration subsequent to the acquisition date is recognized in earnings . goodwill and intangible assets – impairment evaluations goodwill and other intangible assets with indefinite lives are not subject to amortization , but are evaluated for impairment annually as of october 1 , or whenever events or changes in circumstance indicate that the asset might be impaired .
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results of operations operations overview – 2017 , 2016 , and 2015 replace_table_token_8_th year ended december 31 , 2017 versus december 31 , 2016 total revenues 55 replace_table_token_9_th * value does not foot by an immaterial amount due to rounding . product sales , net . to derive net product sales , gross product revenues in each period are reduced by management 's latest estimated provisions for ( i ) product returns , ( ii ) government chargebacks , ( iii ) prompt pay discounts , ( iv ) commercial rebates , ( v ) medicaid rebates , and ( vi ) distribution , data , and gpo administrative fees . management considers various factors in the determination of these provisions , which are described in more detail within “ critical accounting policies and estimates ” above . fusilev revenue decreased $ 27.5 million in 2017 compared to 2016 as a result of the continued significant decline in both our net average sales price and unit sales due to the competitive launch of generic levo-leucovorin products beginning in april 2015 ( see note 3 ( g ) to the accompanying consolidated financial statements ) . we expect to report further net sales declines of fusilev in 2018 due to ongoing pricing pressure from generic competition . folotyn revenue decreased $ 3.2 million in 2017 compared to 2016 as a result of a decrease in the numbers of units sold in the year , partially offset by an increase in our net average sales price per unit . zevalin revenue increased $ 1.1 million in 2017 compared to 2016 primarily as a result of an overall increase in units sold and an increase in the net average price per unit in our ex-u.s territories . marqibo revenue decreased $ 0.6 million in 2017 compared to 2016 as a result of a decline in the number of units sold in the year , partially offset by an increase in our net average sales price per unit .
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our organization and compensation committee also administers our 2016 equity incentive plan , as amended ( the “ 2016 plan ” ) and will administer the 2021 omnibus incentive plan if approved by our stockholders at the next annual meeting of stockholders . the organization and compensation committee is responsible for determining the compensation of our chief executive officer , and conducts its decision-making process with respect to that issue without the chief executive officer present . all members of the organization and compensation committee qualify as independent under story_separator_special_tag forward-looking statements this “ management 's discussion and analysis of financial condition and results of operations ” section and other sections of this annual report on form 10-k contain forward-looking statements that are based on current expectations , estimates , forecasts and projections about the industry and markets in which the company operates and on management 's beliefs and assumptions . in addition , other written or oral statements , which constitute forward-looking statements , may be made by or on behalf of the company . words such as “ expects , ” “ anticipates , ” “ intends , ” “ plans , ” “ believes , ” “ seeks , ” “ estimates , ” variations of such words and similar expressions are intended to identify such forward-looking statements . these statements are not guarantees of future performance , and involve certain risks , uncertainties and assumptions , which are difficult to predict . see “ item 1a : risk factors ” above . therefore , actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements . the company undertakes no obligation to update publicly any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by law . company overview strategic overview teligent , inc. and its subsidiaries ( collectively ( the “ company ” ) is a generic pharmaceutical company . all references to `` teligent , '' the `` company , '' `` we , '' `` us , '' and `` our '' refer to teligent , inc. and its subsidiaries . our mission is to become a leader in the high-barrier to entry generic pharmaceutical market . our platform for growth is centered around the development , manufacturing and marketing of a portfolio of generic pharmaceutical products under our own label and private label for other pharmaceutical companies in topical , injectable , complex and other high-barrier dosage forms . we believe that expanding our development and commercial base beyond topical generics , historically the cornerstone of our expertise , to include injectable generics and other high-barrier generics , will leverage our existing expertise and capabilities , and broaden our platform for more diversified strategic growth . we currently market and sell generic topical and generic and branded generic injectable pharmaceutical products in the united states and canada . in the united states , we currently market thirty-seven generic topical pharmaceutical products and two branded injectable pharmaceutical products . we have received fda approvals for thirty-six topical generic products from our internally developed pipeline , and we have seven abbreviated new drug applications , ( `` andas '' ) and three new drug application ( `` nda '' ) prior approval supplements ( `` pass '' ) submitted to the fda that are awaiting approval . in canada , we market 25 generic injectable , three generic topical , and three generic ophthalmic products . we have one abbreviated new drug submission ( “ ands ” ) pending at health canada . generic pharmaceutical products are bioequivalent to their brand name counterparts . in the united states , approved anda generic drugs are usually interchangeable with the innovator drug . this means that the generic version may generally be substituted for the branded product by either a physician or pharmacist when dispensing a prescription . we also provide contract development and manufacturing services to the prescription and over-the-counter ( `` otc '' ) pharmaceutical and cosmetic markets . we operate our business under one operating segment . our common stock is traded on the nasdaq global select market under the trading symbol “ tlgt. ” our principal executive office , laboratories and manufacturing facilities are located at 105 lincoln avenue , buena , new jersey . we have additional offices located in iselin , new jersey , and mississauga , canada . in late 2020 , we decided to reposition the research and development operation mainly performed at our tallinn , estonia office to our us manufacturing site at buena , new jersey and consequently we are in the process of working to dissolve our estonia operations . the manufacturing and commercialization of generic high-barrier pharmaceutical products is competitive , and there are established manufacturers , suppliers and distributors actively engaged in all phases of our business . we currently manufacture and sell topical , injectable and ophthalmic generic pharmaceutical products under our own label in both the us and canada . in the united states , the three large wholesale drug distributors are amerisource bergen corporation ( `` abc '' ) ; cardinal health , inc. ( `` cardinal '' ) ; and mckesson drug company , ( `` mckesson '' ) . abc , cardinal and mckesson are key distributors of our products , as well as a broad range of health care products for many other companies . none of these distributors is an end user of our products . generally , if sales to any one of these distributors were to diminish or cease , we believe that the end users of our products would likely find little difficulty obtaining our products either directly from us or from another distributor . however , the loss of one or more of these distributors , together with a delay or inability to secure an alternative distribution source for end users , could have a material negative impact on our revenue , business , financial condition and results of operations . story_separator_special_tag the increase in net loss for the current year was due primarily to ( i ) a decrease in revenues of $ 20.6 million , ( ii ) an increase in costs and expenses of $ 111.3 million , ( iii ) an increase in interest expense of $ 7.7 million , and ( iv ) the derivative liability increase of $ 9.1 million offset by ( v ) the gain on debt restructuring and inducement loss of $ 43.6 million , ( vi ) a $ 6.5 million increase in foreign exchange gain , and ( vii ) gain of $ 3.4 million in other income from government grant as stated above . liquidity and capital resources the company has incurred significant losses and generated negative cash flows from operations in recent years and expects to continue to incur losses and generate negative cash flow for the foreseeable future . as a result , we had an accumulated deficit of $ 243.5 million , total principal amount of outstanding borrowings of $ 181.6 million , and limited capital resources to fund ongoing operations at december 31 , 2020. these capital resources were comprised of cash and equivalents of $ 6.7 million at december 31 , 2020 and the generation of cash inflows from working capital . the company is not currently generating revenues from operations that are sufficient to cover its operating expenses , and its available capital resources are not sufficient for it to continue to meet its obligations as they become due . as a result , the company has engaged financial and legal advisors to assist it in , among other things , analyzing all available strategic alternatives to address its liquidity and capital structure . however , the company can not provide assurances that additional capital will be available when needed or that any strategic alternatives or restructuring pursued will be on acceptable terms . the company 's liquidity needs have typically arisen from the funding of its new manufacturing facility , product manufacturing costs , research and development programs , and the launch of new products . in the past , the company has met these cash requirements through cash inflows from operations , working capital management , and proceeds from borrowings . although the construction of the company 's new manufacturing facility was substantially completed in october 2018 , additional investment was made in order to prepare the facility and the company 's employees for a prior approval inspection from the fda for the new injectable line . the company 's liquidity was negatively impacted in 2020 as a result of the covid-19 pandemic , and the company believes its liquidity will be negatively impacted during 2021 by disruptions with respect to certain of its products and the diversion of resources to remediate the product quality issues identified in connection with the company 's response to the fda 's warning letter . in addition , the company expects to continue to incur significant expenditures for the development of new products in its pipeline , and the manufacturing , sales and marketing of its existing products . as described above , notwithstanding the company 's significant current liquidity needs , the company can not provide assurances that additional capital will be available on acceptable terms or at all . the $ 9.5 million decrease in our cash during the twelve months ended december 31 , 2020 was mainly to support our operational activities , which included continued inventory management/build to help avoid failure-to-supply fees and normal timing differences in working capital balances . in addition , we had an accumulated deficit of $ 243.5 million as of december 31 , 2020 , inclusive of a $ 122.0 million net loss in this year . series a notes in the beginning of 2019 , the company used a total of $ 2.7 million of proceeds from the senior credit facilities to repurchase a portion of the remaining 2019 convertible 3.75 % senior notes ( the “ 2019 notes ” ) . the repurchase of the 2019 notes was considered a debt extinguishment under asc 470-50. the 2019 notes were accounted for under cash conversion guidance asc 470-20 , which required the company to allocate the fair value of the consideration transferred upon settlement to the extinguishment of the liability component and the reacquisition of the equity component upon derecognition . in accordance with the guidance above , the company allocated a portion of the $ 2.7 million to the extinguishment of the liability component equal to the fair value of that component immediately before extinguishment and recognized a $ 0.2 million extinguishment loss in the condensed consolidated statement of operations to measure the difference between ( i ) the fair value of the liability component and ( ii ) the net carrying value amount of the liability component ( which was already net of any unamortized debt issuance costs ) . the reduction of additional paid in capital in connection with this extinguishment was immaterial . the company settled the remaining 2019 notes of $ 13.0 million in principal upon its maturity in december 2019. following the issuance of the series d notes described below , all amounts owing with respect to the series a notes were extinguished through exchange of series c notes and series d notes ( see below ) . series b notes on october 31 , 2019 , the company closed its offering of the series b notes . the series b notes were scheduled to mature in may 2023 and were convertible at the option of the holder at any time prior to their maturity . the initial conversion price was $ 7.20 per share , subject to adjustment under certain circumstances . as part of the offering , the company entered into agreements with certain holders of its existing series a notes to exchange $ 9.0 million of the series a notes for $ 5.1 million of the series b notes .
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results of operations fiscal year ended december 31 , 2020 compared to fiscal year ended december 31 , 2019 we had a net loss of $ 122.0 million , or $ 14.67 per share , during the year ended december 31 , 2020 ( `` current year '' ) compared to a net loss of $ 25.1 million , or $ 4.67 per share , during the year ended december 31 , 2019 ( `` prior year '' ) . product sales , net , include company product sales and contract manufacturing sales , as follows : revenues ( in thousands ) : replace_table_token_3_th total revenues were $ 45.3 million in the current year compared to $ 65.9 million in the prior year . research and development services and other income will not be consistent and will vary , from period to period , depending on the required timeline of each development project and or agreement . costs and expenses ( in thousands ) : replace_table_token_4_th total costs and expenditures increased 151 % , or $ 111.3 million to $ 185.2 million in the current year from $ 73.9 million in the prior year . cost of revenues increased as a percentage of total revenue to 108 % in the current year as compared to 64 % in the prior year . cost of revenues increased $ 6.7 million in the current year mainly due to ( i ) lower sales volume increased absorption expense ( ii ) additional quality expenses ( iii ) excess inventory reserve . selling , general and administrative expenses in the current year increased by $ 6.2 million as compared to the prior year .
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in aggregate , they are expected to increase our annual harvest volumes by 0.2 million to 0.3 million tons over the next decade . these acquisitions complement our existing timberland portfolio and expand our customer base into new markets within the u.s. south . 32 index to consolidated financial statements as of december 31 , 2015 , we owned interests in approximately 425,000 acres of timberland within an attractive and competitive fiber basket encompassing a numerous and diverse group of pulp , paper and wood products manufacturing facilities . we believe that our timberlands are high-quality industrial forestlands that have been intensively managed for sustainable commercial timber production . as of december 31 , 2015 , our timberlands contained acreage comprised of 74 % pine stands and 26 % hardwood stands , and our timber inventory consisted of an estimated 16.8 million tons of merchantable timber inventory , including 8.6 million tons of pulpwood and 8.2 million tons of sawtimber . we generate recurring income and cash flow from the harvest and sale of timber , as well as from non-timber related revenue sources , such as rents from recreational leases . when and where we believe it is appropriate , we also periodically generate income and cash flow from the sale of hbu timberland . we also expect to realize additional long-term returns from the potential appreciation in value of our timberlands as well as from the potential biological growth of our standing timber inventory in excess of our timber harvest . a substantial portion of our timber sales are derived from the mahrt timber agreements under which we sell specified amounts of timber to westrock subject to market pricing adjustments . the percentage of our annual net timber sales revenue derived from westrock continues to decrease as a result of our recent acquisitions and expansion of our customer base . for the years ended december 31 , 2015 , 2014 , and 2013 , approximately 23 % , 34 % , and 60 % , respectively , of our net timber sales revenue was derived from the mahrt timber agreements . see item 1 – business for additional information regarding the material terms of the mahrt timber agreements . our operating strategy entails funding expenditures related to the recurring operations of our timberlands , including interest on outstanding indebtedness and certain capital expenditures ( excluding timberland acquisitions ) , with operating cash flows , assessing the amount of operating cash flows that will be required for additional timberland acquisitions , and distributing residual operating cash flows , if any , to our stockholders . in connection with furthering that strategy , we will continue to focus on enhancing long-term value for our stockholders and providing durable earnings to grow our dividend to stockholders by efficiently integrating new acquisitions in high demand fiber basket markets , increasing sustainable harvest volumes , and improving product mix . we continue to practice intensive forest management and silvicultural techniques that increase the biological growth of the forest . before the impact of any potential acquisitions , we plan to sustainably harvest between 1.9 million and 2.1 million tons of timber in 2016 , up from the 1.8 million tons in 2015. we expect to monetize 1 % to 2 % of our fee timberland acreage pursuant to our land sales program , resulting in timberland sales revenue between $ 11.0 million and $ 13.0 million . capital expenditures ( excluding timberland acquisitions ) for 2016 are expected to be between $ 3.5 million and $ 4.5 million . we will continue our deliberate growth strategy for new acquisitions , focusing at present in the u.s. south , by targeting : markets that demonstrate favorable long-term demand and allow for superior merchandizing to mill customers ; timberland properties with superior productivity characteristics from soil attributes and forest genetics which can provide durable harvest revenue and sustain long-term growth ; and properties with trees at the right age classes to complement existing holdings and support sustainable harvest volumes . we believe that we have access to adequate capital resources to achieve our growth targets for 2016 with the credit facilities available under the 2014 amended credit agreement ( see liquidity and capital resources for details ) . general economic conditions and timber market factors impacting our business our operating results are influenced by a variety of factors , including timber prices ; the demand for pulp and paper products , lumber , panel , and other wood-related products ; the supply of timber ; and competition . timber prices can experience significant variations and have been historically volatile . the demand for timber and wood products is 33 affected primarily by the level of new residential construction activity , repair and remodeling activity , the supply of manufactured timber products including imports , and , to a lesser extent , other commercial and industrial uses . the demand for timber also is affected by the demand for wood chips in the pulp and paper markets and for hardwood in the furniture and other hardwood industries . the u.s. economy as well as the housing market continued to recover in 2015. according to the u.s. bureau of economic analysis , the real gross domestic product increased by 2.4 % in 2015 , which is comparable to the increase of 2.4 % in 2014. the u.s. census bureau estimated that 1.1 million housing units were started in 2015 as compared to 1.0 million housing units in 2014 , up by 10.8 % . the continued recovery of the housing market helped strengthen our product mix and our net timber pricing . in the markets in which we operate , average timber prices continued the upward trend and all categories increased in 2015 as compared to 2014 , with the exception of hardwood pulpwood pricing . story_separator_special_tag additionally , in 2014 , we filed a universal shelf-registration statement with the sec ( see shelf registration below ) , which provides us with future flexibility to offer a variety of debt and equity securities , from time-to-time , in one or more offerings . currently , we do not have any immediate plans to utilize the universal shelf registration . contractual obligations and commitments as of december 31 , 2015 , our contractual obligations are as follows : replace_table_token_10_th ( 1 ) represents respective obligations under the 2014 amended credit agreement as of december 31 , 2015 . $ 100 million of which was outstanding under the 2014 term loan facility and $ 85 million of which was outstanding under the 2014 multi-draw term facility ( see 2014 amended credit facilities below ) . ( 2 ) amounts include impact of an interest rate swap . see note 5 – interest rate swaps of our accompanying consolidated financial statements for additional information . ( 3 ) includes payment obligation on approximately 7,330 acres that are subleased to a third party . ( 4 ) represents net present value of future payments to satisfy a liability assumed upon a timberland acquisition . 2014 amended credit facilities on december 23 , 2014 , we entered into a fourth amended and restated credit agreement ( the “ 2014 amended credit agreement '' ) with cobank , agfirst farm credit bank , ( “ agfirst ” ) , cooperatieve rabobank , u.a . ( “ rabobank ” ) and certain other financial institutions . the 2014 amended credit agreement originally provided for borrowing under credit facilities consisting of : a $ 35 million revolving credit facility ( the “ 2014 revolving credit facility ” ) , a $ 275 million multi-draw term credit facility ( the “ 2014 multi-draw term facility ” ) , and a $ 100 million term loan ( the “ 2014 term loan facility ” , and together with the revolving credit facility and the multi-draw term facility , the “ 2014 amended credit facilities ” ) . the 2014 amended credit agreement provides that the 2014 amended credit facilities may be increased , upon the agreement of lenders willing to increase their loans , by up to $ 200 million . on december 11 , 2015 , we increased our credit availability under the 2014 multi-draw term facility by $ 90 million , from $ 275 million to $ 365 million . 36 index to consolidated financial statements borrowings under the 2014 revolving credit facility may be used for general working capital , to support letters of credit , to fund cash earnest money deposits , to fund acquisitions in an amount not to exceed $ 5.0 million , and other general corporate purposes . the 2014 multi-draw term facility may be drawn upon up to eight times during the period beginning on december 23 , 2014 through december 23 , 2017 and may be used to finance domestic timber acquisitions and associated expenses , refinance loan amounts under the 2014 revolving credit facility , and purchase up to $ 25.0 million in catchmark timber trust common stock . amounts repaid under the 2014 multi-draw term facility may be re-borrowed prior to the third anniversary of the closing date . the 2014 revolving credit facility bears interest at an adjustable rate equal to a base rate plus between 0.50 % and 1.50 % or a libor rate plus between 1.50 % and 2.50 % , in each case depending on our ltv ratio , and will terminate and all amounts under the facility will be due and payable on december 23 , 2019 . the 2014 multi-draw term facility bears interest at an adjustable rate equal to a base rate plus between 0.75 % and 1.75 % or a libor rate plus between 1.75 % and 2.75 % , in each case depending on the ltv ratio , and will terminate and all amounts under the facility will be due and payable on december 23 , 2021 . the 2014 multi-draw term facility is interest only until the maturity date ; however , if the our ltv ratio is equal to or in excess of 40 % , then principal payments will be required to be made beginning on december 31 , 2017 at a per annum rate of 5 % of the principal amount outstanding under the 2014 multi-draw term facility . the 2014 term loan facility bears interest at an adjustable rate equal to a base rate plus 1.75 % or a libor rate plus 1.75 % , and will terminate and all amounts under the facility will be due and payable on december 23 , 2024 . patronage refunds under the terms of the 2014 amended credit agreement , we are now eligible to receive annual patronage refunds , which are profit distributions made by cobank and other farm credit system banks ( the `` patronage banks '' ) . the annual patronage refund is dependent on the weighted-average debt balance under the 2014 multi-draw term facility and the 2014 term loan facility with each participating lender , as calculated by cobank , for the respective fiscal year , as well as the financial performance of the patronage banks . in march 2015 , we received a patronage refund on our borrowings during the nine days of 2014 where the 2014 amended credit facilities were outstanding . debt covenants the 2014 amended credit agreement contains , among others , the following financial covenants : limits the ltv ratio to 45 % at the end of each fiscal quarter and upon the sale or acquisition of any property ; and requires that we maintain a fixed coverage charge ratio of not less than 1.05:1. we were in compliance with the financial covenants of the 2014 amended credit agreement as of december 31 , 2015 .
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results of operations overview our results of operations are materially impacted by the fluctuating nature of timber prices , changes in the levels and mix of our harvest volumes , the level of timberland sales , changes to associated depletion rates , and varying interest expense based on the amount and cost of outstanding borrowings . timber sales volumes , net timber sales prices , and timberland sales , and changes in the levels and composition of each of the years ended december 31 , 2015 , 2014 , and 2013 are shown in the following tables : replace_table_token_11_th 38 index to consolidated financial statements replace_table_token_12_th ( 1 ) includes sales of chip-n-saw and sawtimber . ( 2 ) prices per ton are rounded to the nearest dollar and shown on a stumpage basis ( i.e. , net of contract logging and hauling costs ) and , as such , the sum of these prices multiplied by the tons sold does not equal timber sales in the accompanying consolidated statements of operations for the years ended december 31 , 2015 , 2014 , and 2013 . comparison of the year ended december 31 , 2015 versus the year ended december 31 , 2014 revenues . revenues increased to $ 69.1 million for the year ended december 31 , 2015 from $ 54.3 million for the year ended december 31 , 2014 primarily due to an increase in timber sales revenue of $ 12.2 million , an increase in timberland sales revenue of $ 1.2 million and an increase of $ 1.4 million in other revenues . timber sales revenue increased by 30 % , mainly due to an increase in harvest volume as a result of incremental harvest on properties acquired in the past 12 months .
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the subsidiaries of the llc that constructed the plants entered into financing agreements in the first quarter of 2008 for the purchase of certain rolling stock equipment to be used at the facilities for $ 748,000 . the notes have fixed interest rates ( weighted average rate of approximately 5.6 % ) and require story_separator_special_tag you should read the following discussion in conjunction with the audited consolidated financial statements and the accompanying notes included in this form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . specifically , forward-looking statements may be preceded by , followed by or may include such words as “ estimate ” , “ plan ” , “ project ” , “ forecast ” , “ intend ” , “ expect ” , “ is to be ” , “ anticipate ” , “ goal ” , “ believe ” , “ seek ” , “ target ” or other similar expressions . you are cautioned not to place undue reliance on any forward-looking statements , which speak only as of the date of this form 10-k , or in the case of a document incorporated by reference , as of the date of that document . except as required by law , we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this form 10-k or to reflect the occurrence of unanticipated events . our actual results may differ materially from those discussed in or implied by any of the forward-looking statements as a result of various factors , including but not limited to those listed elsewhere in this form 10-k and those listed in other documents we have filed with the securities and exchange commission . overview biofuel energy corp. produces and sells ethanol and distillers grain through its two ethanol production facilities located in wood river , nebraska and fairmont , minnesota . each of these plants has an undenatured nameplate production capacity of approximately 110 million gallons per year ( “ mmgy ” ) . we work closely with cargill , inc. , one of the world 's leading agribusiness companies , with whom we have an extensive commercial relationship . the two plant locations were selected primarily based on access to corn supplies , the availability of rail transportation and natural gas and cargill 's competitive position in the area . at each location , cargill has a strong local presence and owns adjacent grain storage and handling facilities , which we lease from them . cargill provides corn procurement services , markets the ethanol we produce and provides transportation logistics for our two plants under long-term contracts . we are a holding company with no operations of our own , and are the sole managing member of biofuel energy , llc ( the “ llc ” ) , which is itself a holding company and indirectly owns all of our operating assets . as the sole managing member of the llc , biofuel energy corp. operates and controls all of the business and affairs of the llc and its subsidiaries . the company 's ethanol plants are owned and operated by the operating subsidiaries of the llc . in february 2011 , we completed a rights offering to the company 's common stockholders of rights to purchase 63,773,603 depositary shares representing fractional interests in shares of series a non-voting convertible preferred stock ( “ preferred stock ” ) . concurrent with the rights offering , the llc conducted a private placement of llc interests that was structured to provide the holders of the membership interests in the llc ( other than the company ) with a private placement that was economically equivalent to the rights offering . on february 2 , 2011 , the company 's stockholders approved an increase in the number of authorized shares of common stock of the company , which resulted in the automatic conversion of shares of the preferred stock into shares of the company 's common stock such that subscribers in the rights offering were issued one share of common stock in lieu of each depositary share subscribed for . these transactions were completed , and 63,773,603 shares of common stock and 18,369,262 llc interests ( along with an equivalent number of shares of class b common stock ) were issued , on february 4 , 2011 , and the aggregate gross proceeds of the rights offering and the concurrent private placement were $ 46.0 million . in contemplation of the rights offering , on september 23 , 2010 we entered into a letter agreement with cargill pursuant to which we issued 6,597,790 shares of common stock to cargill on february 15 , 2011 , in exchange for the extinguishment of certain indebtedness . see “ — liquidity and capital resources — rights offering and llc concurrent private placement ” . in june 2011 the company terminated its long-term distillers grains marketing agreements with cargill . the company has entered into separate marketing agreements with independent third party marketers for its dry and wet distillers grains . these agreements are for a term of one year , with options to renew for subsequent years , and contain other customary commercial terms . during 2011 , the company decided to install corn oil extraction systems at each of its ethanol plants so that it could begin producing corn oil as an additional co-product . these systems were installed using certain patented technology we have licensed from greenshift corporation for which we pay a royalty . on october 28 , 2011 , the company 's operating subsidiaries received funding under an operating lease each operating subsidiary entered into with farnam street financial , inc. these operating leases provided the funding to pay for most of the costs of installing the corn oil extraction systems at each operating subsidiary . story_separator_special_tag these factors include government policies and subsidies with respect to agriculture and international trade , and global and local demand and supply for corn and for other agricultural commodities for which it may be substituted , such as soybeans . historically , the cash price we pay for corn , relative to the spot price of corn , tends to rise during the spring planting season in april and may as the local basis ( i.e. , discount ) contracts , and tends to decrease relative to the spot price during the fall harvest in october and november as the local basis expands . 34 we also purchase natural gas to power steam generation in our ethanol production process and as fuel for our dryers to dry our distillers grain . natural gas represents our second largest operating cost after corn , and natural gas prices are extremely volatile . historically , the spot price of natural gas tends to be highest during the heating and cooling seasons and tends to decrease during the spring and fall . corn procurement fees paid to cargill are included in our cost of goods sold . other cost of goods sold primarily consists of our cost of chemicals and enzymes , electricity , depreciation , manufacturing overhead and rail car lease expenses . general and administrative expenses general and administrative expenses consist of salaries and benefits paid to our management and administrative employees , expenses relating to third party services , travel , office rent , marketing and other expenses , including expenses associated with being a public company , such as fees paid to our independent auditors associated with our annual audit and quarterly reviews , directors ' fees , and listing and transfer agent fees . 35 story_separator_special_tag depreciation and amortization . cash used in investing activities . net cash used in investing activities was $ 2.8 million for the year ended december 31 , 2011 , compared to $ 4.6 million for the year ended december 31 , 2010. the net cash used in investing activities during both periods was for capital expenditures related to various plant improvement projects . cash used in financing activities . net cash used in financing activities was $ 13.0 million for the year ended december 31 , 2011 , compared to $ 7.0 million for the year ended december 31 , 2010. for the year ended december 31 , 2011 , the amount was primarily comprised of $ 46.0 million of proceeds related to our rights offering and llc concurrent private placement , offset by $ 12.6 million in principal payments under our term loan facility , a $ 21.5 million payment to pay off our subordinated debt , a $ 20.0 million payment to pay off our bridge loan , $ 3.2 million in payments of notes payable and capital leases , and $ 1.7 million in payments for debt and equity issuance costs . for the year ended december 31 , 2010 , the amount was primarily comprised of $ 6.6 million of borrowings under our term loan facility , $ 1.5 million of borrowings under our working capital facility , and $ 19.4 million of borrowings under our bridge loan , which were offset by $ 12.6 million in payments under our term loan facility , $ 18.0 million in payments under our working capital facility , $ 1.1 million in payments of notes payable and capital leases , and $ 2.8 million in payments for debt and equity issuance costs . our principal source of liquidity at december 31 , 2011 consisted of cash generated from operations and cash and cash equivalents of $ 15.1 million . we have also relied upon extensions of payment terms by cargill as an additional source of liquidity and working capital . as of december 31 , 2011 we had payables to cargill of $ 5.6 million related to corn purchases . pursuant to an arrangement with cargill , we have been permitted to extend corn payment terms beyond the $ 10.0 million contractual limit so long as the amounts cargill owes us for ethanol exceed the accounts payable balance by an amount that is satisfactory to cargill . this arrangement may be terminated at any time on little or no notice , in which case we would need to use cash on hand or other sources of liquidity , if available , to fund our operations . our principal liquidity needs are expected to be funding our plant operations , capital expenditures , debt service requirements , and general corporate purposes . as noted elsewhere in this annual report , the company was profitable during the last half of 2011 , with net income of $ 7.0 million , as commodity margins improved significantly from earlier in the year . however , primarily due to the narrow commodity margins in the first half of the year , the company incurred a net loss of $ 10.4 million for the year ended december 31 , 2011. we have had , and continue to have , limited liquidity . we can not predict when or if crush spreads will fluctuate again or if the current commodity margins will improve or worsen . commodity margins have narrowed since the end of 2011. if crush spreads were to remain at current levels for an extended period of time , we may expend all of our sources of liquidity , in which event we would not be able to pay principal or interest on our debt . any inability to pay principal or interest on our debt would lead to an event of default under our senior debt facility and , in the absence of forbearance , debt service abeyance or other accommodations from our lenders could require us to seek relief through a filing under the u.s. bankruptcy code .
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results of operations the following discussion summarizes the significant factors affecting the consolidated operating results of the company for the years ended december 31 , 2011 and 2010. this discussion should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements contained in this annual report on form 10-k. at december 31 , 2011 , the company owned 85.0 % of the llc membership units with the remaining 15.0 % owned by certain individuals and by certain investment funds affiliated with some of the original equity investors of the llc . as a result , the company consolidates the results of the llc . the amount of income or loss allocable to the 15.0 % holders is reported as noncontrolling interest in our consolidated statements of operations . 36 the following table sets forth net sales , expenses and net loss , as well as the percentage relationship to net sales of certain items in our consolidated statements of operations : replace_table_token_6_th the following table sets forth key operational data for the years ended december 31 , 2011 and 2010 that we believe are important indicators of our results of operations : replace_table_token_7_th year ended december 31 , 2011 compared to the year ended december 31 , 2010 net sales : net sales were $ 653.1 million for the year ended december 31 , 2011 compared to $ 453.4 million for the year ended december 31 , 2010 , an increase of $ 199.7 million or 44.0 % . this increase was primarily attributable to an increase in ethanol revenues of $ 151.9 million and an increase in distillers grain revenues of $ 47.8 million . the increase in both ethanol and distillers grain revenue was primarily due to an increase in the per unit price we received for each product , reflecting increases in their respective market prices compared to the prior year .
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all statements other than statements of historical fact are statements that could be deemed to be forward-looking statements , including any statements regarding trends in future revenue or results of operations , gross margin , operating margin , expenses , earnings or losses from operations , cash flow , synergies or other financial items ; any statements of the plans , strategies and objectives of management for future operations and the anticipated benefits of such plans , strategies and objectives ; any statements regarding future economic conditions or performance ; any statements regarding pending investigations , claims or disputes ; any statements regarding the financial impact of customer bankruptcies ; any statements regarding the timing of closing of , future cash outlays for , and benefits of completed , pending or anticipated acquisitions ; any statements regarding expected restructuring costs ; any statements concerning our expectation of satisfying the liquidity conditions in our revolving credit facility ; any statements concerning our plans to refinance our secured 2019 due notes ; any statements concerning the adequacy of our current liquidity and the availability of additional sources of liquidity ; any statements regarding the amount of future potential tariffs we may be subject to ; our expectations for and timing of remediation of the material weakness identified in the fourth quarter ; any statements of expectation or belief ; and any statements of assumptions underlying any of the foregoing . generally , the words “ anticipate , ” “ believe , ” “ plan , ” “ expect , ” “ future , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ estimate , ” “ predict , ” “ potential , ” “ continue ” and similar expressions identify forward-looking statements . our forward-looking statements are based on current expectations , forecasts and assumptions and are subject to risks and uncertainties , including those contained in part i , item 1a of this report . as a result , actual results could vary materially from those suggested by the forward looking statements . we undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this report with the securities and exchange commission . overview we are a leading global provider of integrated manufacturing solutions , components , products and repair , logistics and after-market services . our revenue is generated from sales of our products and services primarily to original equipment manufacturers ( oems ) that serve the industrial , medical , defense and aerospace , automotive , communications networks and cloud solutions industries . our operations are managed as two businesses : 1 ) integrated manufacturing solutions ( ims ) . our ims segment consists of printed circuit board assembly and test , final system assembly and test , and direct-order-fulfillment . 2 ) components , products and services ( cps ) . components include interconnect systems ( printed circuit board fabrication , backplane , cable assemblies and plastic injection molding ) and mechanical systems ( enclosures and precision machining ) . products include memory , rf , optical and microelectronic , and enterprise solutions from our viking technology division ; defense and aerospace products from sci technology ; and cloud-based manufacturing execution software from our 42q division . services include design , engineering , logistics and repair services . our only reportable segment for financial reporting purposes is ims , which represented approximately 80 % of our total revenue in 2018 . our cps business consists of multiple operating segments which do not meet the quantitative thresholds for being presented as reportable segments . therefore , financial information for these operating segments is presented in a single category entitled “ components , products and services ” . all references in this section to years refer to our fiscal years ending on the last saturday of each year closest to september 30th . fiscal 2018 , 2017 and 2016 were each 52 weeks . our strategy is to leverage our comprehensive product and service offerings , advanced technologies and global capabilities to further penetrate diverse end markets that we believe offer significant growth opportunities and have complex products that require higher value-added services . we believe this strategy differentiates us from our competitors and will help drive more sustainable revenue growth and provide opportunities for us to ultimately achieve operating margins that exceed industry standards . there are many challenges to successfully executing our strategy . for example , we compete with a number of companies in each of our key end markets . this includes companies that are much larger than we are and smaller companies 34 that focus on a particular niche . although we believe we are well-positioned in each of our key end markets and seek to differentiate ourselves from our competitors , competition remains intense and profitably growing our revenues has been challenging . for example , revenue in our ims business was negatively impacted in 2018 by parts shortages and delays in new program ramps caused by customer design changes , yield issues and other factors . these factors , together with unfavorable program mix , under absorption of labor and overhead costs , and high fixed costs associated with new program ramps caused gross margins for our ims business to decline from 7.2 % in 2017 to 6.0 % in 2018. additionally , gross margins for our cps business decreased from 8.9 % in 2017 to 8.1 % in 2018 and continue to be well below our expectations for this business . we continue to address these challenges on both a short-term and long-term basis . however , we expect the supply constrained environment to continue through at least the first half of calendar 2019. a small number of customers have historically generated a significant portion of our net sales . sales to our ten largest customers typically represent approximately 50 % of our net sales . story_separator_special_tag certain payments received from customers for inventories that have not been shipped to customers or otherwise disposed of are netted against inventory . we generally procure inventory based on specific customer orders and forecasts . customers generally have limited rights of modification ( for example , rescheduling or cancellations ) with respect to specific orders . customer modifications of orders affecting inventory previously procured by us and our purchases of inventory beyond customer needs may result in excess and obsolete inventory . although we may be able to use some excess inventory for other products we manufacture , a portion of this excess inventory may not be returnable to the vendors or recoverable from customers . write-offs or write-downs of inventory could be caused by : changes in customer demand for inventory , such as cancellation of orders , and our purchases of inventory beyond customer needs that result in excess quantities on hand that we are not able to return to the vendor , use to fulfill orders from other customers or charge back to the customer ; financial difficulties experienced by specific customers for whom we hold inventory ; and declines in the market value of inventory . long-lived assets —we review property , plant and equipment and intangible assets subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not 36 be recoverable . an asset group is the unit of accounting that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets . an asset or asset group is considered impaired if its carrying amount exceeds the undiscounted future net cash flows the asset or asset group is expected to generate . if an asset or asset group is considered impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the asset or asset group exceeds its fair value . for asset groups for which a building is the primary asset , we estimate fair value primarily based on data provided by commercial real estate brokers . for other assets , we estimate fair value based on projected discounted future net cash flows , which requires significant judgment . goodwill— we test goodwill for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable , as assessed at a reporting unit level . if , based on a qualitative assessment , we determine it is more-likely-than-not that goodwill is impaired , we perform a quantitative assessment to determine whether the fair value of our reporting unit is less than its carrying value and , if so , we perform a further analysis to determine the amount , if any , of the impairment . as a result of our impairment analysis in 2018 , we concluded that the fair value of one of our cps operating segments was below its carrying value , resulting in an impairment charge of $ 31 million . income taxes— we estimate our income tax provision or benefit in each of the jurisdictions in which we operate , including estimating exposures related to examinations by taxing authorities . we believe our accruals for tax liabilities are adequate for all open years based on our assessment of many factors , including past experience and interpretations of tax law applied to the facts of each matter . although we believe our accruals for tax liabilities are adequate , tax regulations are subject to interpretation and the tax controversy process is inherently lengthy and uncertain ; therefore , our assessments can involve a series of complex judgments about future events and rely heavily on estimates and assumptions . to the extent the probable tax outcome of these matters changes , such changes in estimate will impact our income tax provision in the period in which such determination is made . we only recognize or continue to recognize tax positions that meet a “ more likely than not ” threshold of being upheld . interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense . we must also make judgments regarding the realizability of deferred tax assets . the carrying value of our net deferred tax assets is based on our belief that it is more likely than not that we will generate sufficient future taxable income in certain jurisdictions to realize these deferred tax assets . we evaluate positive and negative evidence each reporting period when assessing the need for a valuation allowance . a valuation allowance is established for deferred tax assets if we believe realization of such assets is not more likely than not . our judgments regarding future taxable income may change due to changes in market conditions , new or modified tax laws , tax planning strategies or other factors . if our assumptions , and consequently our estimates , change in the future , the valuation allowances we have established may be increased or decreased , resulting in a respective increase or decrease in income tax expense . as a result of our analysis of the positive and negative evidence available at the end of 2016 , we released $ 96 million of our valuation allowances against our u.s. and foreign deferred tax assets . we based this conclusion on continued improved operating results in recent prior years and our expectations about generating taxable income in future periods . we exercised significant judgment and utilized estimates about our ability to generate revenue , gross profit , operating income and jurisdictional taxable income in future periods before expiration of our net operating losses . we will continue to evaluate all positive and negative evidence in future periods to determine if an adjustment to our valuation allowances is necessary . however , as of september 29 , 2018 and september 30 , 2017 , we no longer had a valuation allowance against our u.s. federal deferred tax assets .
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results of operations years ended september 29 , 2018 , september 30 , 2017 and october 1 , 2016 . the following table presents our key operating results . replace_table_token_5_th ( 1 ) our net loss in 2018 includes the impact of the tax act , which increased income tax expense by approximately $ 161 million . net sales net sales increased from $ 6.9 billion for 2017 to $ 7.1 billion for 2018 , an increase of 3.5 % . net sales increased from $ 6.5 billion for 2016 to $ 6.9 billion for 2017 , an increase of 6.0 % . sales by end market were as follows : replace_table_token_6_th comparison of 2018 to 2017 in 2018 , sales to customers in our industrial , medical , defense , and automotive end market increased 8.4 % , primarily as a result of increased demand and new program wins for medical products , certain programs ramping up for automotive products , partially offset by decreased demand for industrial products . sales to customers in our communications networks end market increased 1.3 % , primarily as a result of new program wins and increased demand for existing wireless products . sales to customers in our cloud solutions end market decreased 9.5 % , primarily due to reduced demand from a storage customer . comparison of 2017 to 2016 in 2017 , sales to customers in our industrial , medical , defense , and automotive end market increased 9.5 % , primarily as a result of a customer program acquisition in february 2016. sales to customers in our communications networks end market increased 9.8 % , primarily as a result of program ramps with existing customers as well as increased demand from existing customers . sales to customers in our cloud solutions end market decreased 14.9 % , primarily due to decreased end-market demand for our customers ' point-of-sale equipment and set-top boxes .
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story_separator_special_tag the following discussion and analysis of our financial condition and results of operations focuses on and is intended to clarify the results of our operations , certain changes in our financial position , liquidity , capital structure and business developments for the periods covered by the consolidated financial statements included in this form 10-k. this discussion should be read in conjunction with , and is qualified by reference to , the other related information including , but not limited to , the audited consolidated financial statements ( including the notes thereto ) , the description of our business , all as set forth in this form 10-k , as well as the risk factors discussed above in item 1a . as previously noted , the discussion set forth below , as well as other portions of this form 10-k , contain statements concerning potential future events . readers can identify these forward-looking statements by their use of such verbs as “ expects , ” “ anticipates , ” “ believes ” or similar verbs or conjugations of such verbs . if any of our assumptions on which the statements are based prove incorrect or should unanticipated circumstances arise , our actual results could materially differ from those anticipated by such forward-looking statements . the differences could be caused by a number of factors or combination of factors including , but not limited to , those discussed above in item 1a . readers are strongly encouraged to consider those factors when evaluating any such forward-looking statement . we do not undertake to update any forward-looking statements in this form 10-k. garmin 's fiscal year is a 52-53 week period ending on the last saturday of the calendar year . fiscal year 2011 contained 53 weeks compared to 52 weeks for 2010 and 2009. unless otherwise stated , all years and dates refer to the company 's fiscal year and fiscal periods . unless the context otherwise requires , references in this document to `` we , '' `` us , '' `` our '' and similar terms refer to garmin ltd. and its subsidiaries . unless otherwise indicated , dollar amounts set forth in the tables are in thousands , except per share data . overview we are a leading worldwide provider of navigation , communications and information devices , most of which are enabled by global positioning system , or gps , technology . we operate in five business segments , which serve the marine , outdoor , fitness , automotive/mobile , and aviation markets . our segments offer products through our network of subsidiary distributors and independent dealers and distributors . however , the nature of products and types of customers for the five segments can vary significantly . as such , the segments are managed separately . our portable gps receivers and accessories for marine , recreation/fitness and automotive/mobile segments are sold primarily to retail outlets . our aviation products are portable and panel-mount avionics for visual flight rules and instrument flight rules navigation and are sold primarily to retail outlets and certain aircraft manufacturers . since our first products were delivered in 1991 , we have generated positive income from operations each year and have funded our growth from these profits . since our principal locations are in the united states , taiwan and the u.k. , we experience some foreign currency fluctuations in our operating results . the table below provides a listing of our functional currency by subsidiary excluding the european subsidiaries that utilize the euro . 44 garmin ( europe ) ltd us dollar garmin corporation taiwan dollar garmin international us dollar garmin norge norwegian kroner dynastream innovations canadian dollar garmin danmark danish krone garmin sweden swedish brona garmin australasia australian dollar garmin polska polish zloty garmin japan japanese yen garmin china chinese renminbi tri-tronics us dollar garmin brazil brazilian real garmin south africa south african rand navigon srl romanian leu navigon asia hong kong dollar approximately 81 % of sales by our european subsidiaries are now denominated in british pounds sterling or the euro . we experienced ( $ 12.1 ) million , ( $ 88.4 ) million , and ( $ 6.0 ) million in foreign currency losses during fiscal years 2011 , 2010 , and 2009 , respectively . the 2009 foreign currency loss includes a realized gain of $ 21.5 million due to the strengthening of the euro between the date we purchased shares in tele atlas n.v. in october 2007 and the tender of shares in february , march , and june 2009. to date , we have not entered into hedging transactions related to any currency , and we do not currently plan to utilize hedging transactions in the future . critical accounting policies and estimates general garmin 's discussion and analysis of its financial condition and results of operations are based upon garmin 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the presentation of these financial statements requires garmin 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 on-going basis , garmin evaluates its estimates , including those related to customer sales programs and incentives , product returns , bad debts , inventories , investments , intangible assets , income taxes , warranty obligations , and contingencies and litigation . garmin bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . revenue recognition garmin recognizes revenue when persuasive evidence of an arrangement exists , delivery has occurred , the sales price is fixed or determinable , and collection is probable . story_separator_special_tag as such , beginning in the third quarter of 2011 , the company changed its estimate of selling price of the undelivered element to be based on the relative selling price method using a weighted average of the stand-alone sales price , the price differential between bundled and unbundled units , and the royalty or subscription cost plus a normal margin . the impact of the 2011 change in estimate for lifetime map updates and premium traffic service , as described above , was an increase in revenue , gross profit , net income , basic net income per share , and diluted net income per share of $ 77.8 million , $ 66.5 million , $ 59.3 million , $ 0.31 , and $ 0.30 , respectively . in 2009 and 2010 respectively , garmin introduced the nüvi 1690 and 1695 , premium pnds with a built-in wireless module that lets customers access garmin 's nülink ! service , which provides direct links to certain online information . additional models were introduced in 2011. the company has identified two deliverables contained in arrangements involving the sale of the nüvi products with the nülink feature . the first deliverable is the hardware and software essential to the functionality of the hardware device delivered at the time of sale , and the second deliverable is the nülink service . the company has allocated revenue between these two deliverables using the relative selling price method determined using vsoe . amounts allocated to the delivered hardware and the related essential software are recognized at the time of sale provided the other conditions for revenue recognition have been met . the revenue and associated cost allocated to the nülink services are deferred and recognized on a straight-line basis over the life of the service , which is either 12 or 24 months . garmin records estimated reductions to revenue for customer sales programs , returns and incentive offerings including rebates , price protection ( product discounts offered to retailers to assist in clearing older products from their inventories in advance of new product releases ) , promotions and other volume-based incentives . the reductions to revenue are based on estimates and judgments using historical experience and expectation of future conditions . changes in these estimates could negatively affect garmin 's operating results . these incentives are reviewed periodically and , with the exceptions of price protection and certain other promotions , are accrued for on a percentage of sales basis . if market conditions were to decline , garmin may take actions to increase customer incentive offerings , possibly resulting in an incremental reduction of revenue at the time the incentive is offered . the company records revenue net of sales tax , trade discounts and customer returns . the reductions to revenue for expected future product returns are based on garmin 's historical experience . trade accounts receivable we sell our products to retailers , wholesalers , and other customers and extend credit based on our evaluation of each customer 's financial condition . potential losses on receivables are dependent on each individual customer 's financial condition . we carry our trade accounts receivable at net realizable value . typically , our accounts receivable are collected within 80 days and do not bear interest . we monitor our exposure to losses on receivables and maintain allowances for potential losses or adjustments . we determine these allowances by ( 1 ) evaluating the aging of our receivables ; and ( 2 ) reviewing our high-risk customers . past due receivable balances are written off when our internal collection efforts have been unsuccessful . in 2011 , garmin purchased credit insurance to provide security against large losses . warranties garmin 's products are generally covered by a warranty for periods ranging from one to three years . garmin accrues a warranty reserve for estimated costs to provide warranty services . garmin 's estimate of costs to service its warranty obligations is based on historical experience and expectation of future conditions . to the extent garmin experiences increased warranty claim activity or increased costs associated with servicing those claims , its warranty accrual will increase , resulting in decreased gross profit . 47 inventory garmin writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . if actual market conditions are less favorable than those projected by management , additional inventory write-downs may be required . investments investments are classified as available for sale and recorded at fair value , and unrealized investment gains and losses are reflected in stockholders ' equity . investment income is recorded when earned , and gains and losses are recognized when investments are sold . fair value of investments in auction rate securities , if any , are determined using third party estimates which follow an income approach valuation methodology . investments are reviewed periodically to determine if they have suffered an impairment of value that is considered other than temporary . if investments are determined to be impaired , a loss is recognized at the date of determination . testing for impairment of investments requires significant management judgment . the identification of potentially impaired investments , the determination of their fair value and the assessment of whether any decline in value is other than temporary are the key judgment elements . the discovery of new information and the passage of time can significantly change these judgments . revisions of impairment judgments are made when new information becomes known , and any resulting impairment adjustments are made at that time . the economic environment and volatility of securities markets increase the difficulty of determining fair value and assessing investment impairment .
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results of operations the following table sets forth our results of operations as a percentage of net sales during the periods shown ( the table may not foot due to rounding ) : replace_table_token_4_th the following table sets forth our results of operations through income before income taxes for each of our five segments during the period shown . for each line item in the table the total of the segments ' amounts equals the amount in the consolidated statements of income data included in item 6 . 51 replace_table_token_5_th replace_table_token_6_th replace_table_token_7_th 52 comparison of 53-weeks ended december 31 , 2011 and 52-weeks ended december 25 , 2010 net sales replace_table_token_8_th net sales increased 3 % in 2011 when compared to the year-ago period . the increase occurred in all segments excluding automotive/mobile . the fitness segment experienced the greatest increase at 24 % with outdoor contributing 14 % growth . automotive/mobile revenue remains the largest portion of our revenue mix , but declined from 62 % in 2010 to 58 % in 2011. total unit sales decreased 1 % to 15.8 million units in 2011 from 16.0 million units in 2010. the declining unit sales volume in 2011 was attributable to a decline in automotive/mobile units as the north american pnd market slowed due to penetration rates and competing technologies partially offset by increasing volumes in the outdoor , fitness , and marine segments . automotive/mobile segment revenue declined 5 % in 2011 , as the average selling price ( asp ) was flat and volumes declined 5 % . asp was stable due to the substantial increase in our bundled product offerings , which include lifetime map updates and premium traffic services , as a percentage of total units sold , offset by a decrease in the asp of comparable models from the previous year .
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during the year ended december 31 , 2020 , the company granted 1,468,118 stock options , in the aggregate , to certain employees and directors . these award vest over 4.5 months to 4 years as continuous services are provided , and expense is being recognized over this period . during the year ended december 31 , 2020 , the company granted 24,145 shares common stock to its employee stock purchase plan ( `` espp `` ) participants . fair value of the grants are valued using the black-scholes option pricing model and compensation cost is recognized based on the resulting value over the derived service period . 72 9. income tax the company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized differently in the financial statements and tax returns . under this method , deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of liabilities and assets using enacted tax rates and laws in effect in the years in which the differences are expected to reverse . deferred tax assets are evaluated for realization based on a more-likely-than-not criteria in determining if a valuation allowance should be provided . the ultimate realization of deferred tax assets is dependent upon the company attaining future taxable income during periods in which those temporary differences become deductible . as of december 31 , 2020 and 2019 , the company had deferred tax assets of $ 2.8 million and $ 1 million , respectively , against which a full valuation allowance had been recorded . the change in the valuation allowance for the year ended december 31 , 2020 was an increase of $ 1.9 million . the increase in the valuation allowance for the year ended december 31 , 2020 was mainly attributable to increases in net operating losses and capitalization of research and development expenses , which resulted in an increase in the deferred tax assets with a corresponding valuation allowance . significant components of the company 's deferred tax assets at december 31 , 2020 and 2019 were as follows : replace_table_token_14_th a reconciliation of the federal statutory tax rate and the effective tax rates for the year ended december 31 , 2020 is as follows : replace_table_token_15_th the company had approximately $ 3.2 million and $ 4.2 million of federal gross net operating loss ( “ nol ” ) carryforwards as of december 31 , 2020 and 2019 , respectively . due to the change in ownership provisions of the internal revenue code , the availability of the company 's net operating loss carry forwards and r & d credits could be subject to annual limitations against taxable income in future periods , which could substantially limit story_separator_special_tag this management 's discussion and analysis provides material historical and prospective disclosures intended to enable investors and other users to assess our financial condition and results of operations . statements that are not historical are forward-looking and involve risks and uncertainties discussed under the headings “ special note regarding forward-looking statements ” and “ risk factors ” of this report . the following discussion of our results of operations and financial condition should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this report . these risks could cause our actual results to differ materially from any future performance suggested below . introduction our management 's discussion and analysis of financial condition and results of operations , or md & a , is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations , financial condition , and cash flows . overview we are a clinical-stage biotechnology company focused on developing effective epigenetic-based cancer treatments for indications with high unmet medical need . our lead epigenetic enzyme technology was licensed from the university of utah research foundation in 2011. epigenetics refers to the system that regulates gene expression through conformational changes to the chromatin rather than changes to the dna sequence itself . our lead compound , seclidemstat ( “ sp-2577 ” ) , is a small molecule that inhibits the epigenetic enzyme lysine specific demethylase 1 ( “ lsd1 ” ) . lsd1 is an enzyme that removes mono- and di-methyl marks on histones ( core protein of chromatin ) to alter gene expression . lsd1 's enzymatic activity can cause genes to turn on or off and thereby affect the cell 's gene expression and overall activity . in addition , lsd1 can act via its scaffolding properties , independently of its enzymatic function , to alter gene expression and modulate cell fate . in healthy cells , lsd1 is necessary for stem cell maintenance and cell development processes . however , in several cancers lsd1 is highly expressed and acts aberrantly to incorrectly silence or activate genes leading to disease progression . high levels of lsd1 expression are often associated with aggressive cancer phenotypes and poor patient prognosis . hence , development of targeted lsd1 inhibitors is of interest for the treatment of various cancers . sp-2577 uses a novel , reversible mechanism to effectively inhibit lsd1 's enzymatic and scaffolding properties and thereby treat and prevent cancer progression . our first indication of interest for sp-2577 is a devastating bone and soft-tissue cancer called ewing sarcoma . ewing sarcoma mostly afflicts adolescents and young adults , with the median age of diagnosis being 15. the most commonly expressed fusion oncoprotein in ewing sarcoma is the ews-fli fusion protein , which is present in approximately 85 % of ewing sarcoma cases . the lsd1 enzyme associates with ews-fli ( and other e26 transformation-specific ( “ ets ” ) fusion proteins ) and is thought to promote tumorigenesis . story_separator_special_tag on february 11 , 2021 , we completed an at the marketing offering ( `` atm offering '' ) with total gross proceeds of approximately $ 6.3 million . total common shares sold by the atm offering were 2,820,490 , with an average selling price of $ 2.24 per share . during the fourth quarter of 2020 and first quarter of 2021 , we received $ 1.7million from the cancer prevention research institute of texas . we estimate we will have approximately $ 37 million cash availability when we issue the form 10-k annual report for the year ended december 31 , 2020 story_separator_special_tag during the year ended december 31 , 2020 . principal payments on the insurance financing note were $ 0.97 million during the year ended december 31 , 2020 compared to $ 0.42 for the year ended december 31 , 2019. future capital requirements we expect to continue to incur additional costs associated with operating as a public company . in addition , subject to obtaining regulatory approval of any of our product candidates , we anticipate we will need substantial additional funding in connection with our continuing operations . we expect our research and development expenses to substantially increase in connection with our ongoing activities , particularly as we advance our product candidates in or towards clinical development . salarius ' future capital requirements are difficult to forecast and will depend on many factors , including but not limited to : the terms and timing of any strategic alliance , licensing and other arrangements that salarius may establish ; the initiation and progress of salarius ' ongoing pre-clinical studies and clinical trials for its product candidates ; the number of programs salarius pursues ; the outcome , timing and cost of regulatory approvals ; the cost and timing of hiring new employees to support salarius ' continued growth ; the costs involved in patent filing , prosecution , and enforcement ; and the costs and timing of having clinical supplies of salarius ' product candidates manufactured . we believe that our cash and cash equivalents currently on hand ( approximately $ 37 million on march 18 , 2021 ) are sufficient to fund our anticipated operating and capital requirements through at least 12 months from the date this report is filed . we expect to finance our future cash needs primarily through the issuance of additional equity and potentially through borrowing and strategic alliances with partner companies and cprit . to the extent that we raise additional capital through the issuance of additional equity or convertible debt securities , the ownership interest of our stockholders will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders . debt financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends . if we raise additional funds through marketing and distribution arrangements or other collaborations , strategic alliances or licensing arrangements with third parties , we may have to relinquish valuable rights to our technologies , future revenue streams , research programs or product candidates or grant licenses on terms that may not be favorable to us . if we are unable to raise additional funds through equity or debt financings when needed , we may be required to delay , limit , reduce or terminate our product development or 54 commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market itself . successful development of product candidates is highly uncertain and may not result in approved products . completion dates and completion costs can vary significantly for each product candidate and are difficult to predict . we anticipate that we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each product candidate and ongoing assessments as to each product candidate 's commercial potential . we will need to raise additional capital and may seek to do so through public or private equity or debt financings , government or other third-party funding , marketing and distribution arrangements and other collaborations , strategic alliances and licensing arrangements or a combination of these approaches . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with gaap . the preparation of these consolidated financial statements requires us to make estimates , judgments and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities as of the date of the consolidated balance sheet and the reported amounts of expenses during the reporting period . in accordance with gaap , we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made . actual results may differ materially from our estimates and judgments under different assumptions or conditions . we periodically review our estimates in light of changes in circumstances , facts and experience . the effects of material revisions in estimates are reflected in our consolidated financial statements prospectively from the date of the change in estimate . our significant accounting policies are described in note 2 to our audited consolidated financial statements for the
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results of operations the following table sets forth the consolidated results of our operations for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. replace_table_token_2_th grant revenue grant revenue , which was derived solely from the cprit grant , was $ 5.2 million during the year ended december 31 , 2020 compared to $ 3.5 million during the year ended december 31 , 2019. the increase in revenue from the cprit grant was due to an increase in overall expenses which resulted in an increase in the amount of expenses reimbursable under the grant . given the nature of the development process , grant revenue will fluctuate depending on the stage of development and the timing of expenses . research and development expenses research and development expenses were $ 6.9 million during the year ended december 31 , 2020 compared to $ 4.0 million during the year ended december 31 , 2019. this increase of $ 2.9 million was principally due to the manufacturing of our active pharmaceutical ingredient in preparation of forecasted increased enrollment and clinical trial activity and higher personnel and consulting fees offsetting lower clinical trial spending . general and administrative expense general and administrative expenses were $ 6.1 million for the year ended december 31 , 2020 compared to $ 7.7 million for the year ended december 31 , 2019 , a decrease of $ 1.6 million . during the current period lower professional fees and non-recurring costs associated with our july 2019 merger and transformation into a public company more than offset significantly higher personnel related expenses and increased director & officers insurance costs .
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additionally , the company determined that the series a preferred would be recorded as permanent equity , not temporary equity , based on the guidance of asc 480 given that there is no scenario where the holders of equally and more subordinated equity of the entity would not be entitled to also receive the same form of consideration upon the occurrence of the event that gives rise to the redemption . dividends holders of the series a preferred stock are entitled to receive dividends , if and when declared by the board of directors . liquidation preference holders of the series a preferred stock have preference in the event of a liquidation or dissolution of the company equal to $ 0.001 per share , plus any declared dividends . thereafter , the holders story_separator_special_tag management 's discussion and analysis of financial condition and results of operations you should read the following discussion and analysis of our financial condition and results of operations together with the section entitled “ selected financial data ” and our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. our actual results and timing of certain events may differ materially from the results discussed , projected , anticipated , or indicated in any forward-looking statements . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report on form 10-k , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . in addition , even if our results of operations , financial condition and liquidity , and the development of the industry in which we operate are consistent with the forward-looking statements contained in this annual report on form 10-k , they may not be predictive of results or developments in future periods . overview we are a late-stage biopharmaceutical company focused on the development of novel , first-in-class pharmaceuticals to address the medical needs of patients with kidney and vascular disease . our product candidate , vonapanitase , is a recombinant human elastase that we are developing to improve vascular access outcomes in patients with chronic kidney disease , or ckd , undergoing or preparing for hemodialysis , a lifesaving treatment that can not be conducted without a functioning vascular access . we believe the data from our completed phase 2 and phase 3 clinical trials of vonapanitase in patients undergoing creation of an arteriovenous fistula support that a one-time , local application of vonapanitase during surgical creation of a radiocephalic fistula for hemodialysis may improve fistula use for hemodialysis and secondary patency ( time to fistula abandonment ) , thereby improving patient outcomes and reducing the burden on patients and the healthcare system . we are currently evaluating vonapanitase in our second phase 3 trial , patency-2 , for vonapanitase in radiocephalic fistulas , our initial indication . following our review of the complete data sets from our first phase 3 trial , patency-1 and discussions with the u.s. food and drug administration , or fda , we amended the protocol for the patency-2 trial in the first quarter of 2017. the protocol amendment reordered the existing endpoints for this ongoing trial , establishing fistula use for hemodialysis and secondary patency as co-primary endpoints . we also increased the planned enrollment for this trial from 300 to 600 patients . the increased sample size provides power to detect the differences observed in the patency-1 trial for fistula use for hemodialysis and secondary patency of 98 % and 88 % , respectively , with a p-value ≤0.05 for each of the co-primary endpoints . we received written confirmation from the fda that , if patency-2 is successful in showing statistical significance ( p-value ≤0.05 ) on each of the co-primary endpoints , the patency-2 trial together with data from previously completed studies would provide the basis for a biologics license application , or bla , submission as a single pivotal study , in which case no additional studies would need to be conducted prior to submitting the bla . vonapanitase also received breakthrough therapy designation from the fda in may 2017 for hemodialysis vascular access . the fda awards breakthrough therapy designations to expedite the development and review of investigational drugs that are intended to treat serious or life-threatening conditions when preliminary clinical evidence indicates that the treatment may offer a substantial improvement over currently available therapies on one or more clinically significant endpoints . in march 2018 , we completed the enrollment of 603 treated patients in the patency-2 trial at 39 centers in the u.s. and canada . we expect to report top-line data from the patency-2 trial in march 2019. if the patency-2 trial is successful , we further expect to submit a bla in 2019. we commenced business operations in june 2001 and incorporated in march 2006. our operations to date have been limited to organizing and staffing our company , business planning , raising capital , undertaking preclinical studies and clinical trials of vonapanitase , protecting our intellectual property and providing general and administrative support for these operations . to date , we have not generated any product revenue and have primarily financed our operations through the private placement of our equity securities , business development activities , convertible note financings , and our initial public offering , or ipo , completed in october 2014 . story_separator_special_tag we recognize costs for certain development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations or information provided to us by our vendors . we can not determine with certainty the duration and completion costs of the current or future clinical trials or if , when , or to what extent we will generate revenues from the commercialization and sale of vonapanitase . we may never succeed in achieving regulatory approval for vonapanitase . the duration , costs and timing of clinical trials and development of vonapanitase will depend on a variety of factors , which include : the scope , rate of progress and expense of our ongoing as well as any additional clinical trials and other research and development activities ; uncertainties in clinical trial enrollment rate ; future clinical trial results ; significant and changing government regulation ; and the timing and receipt of any regulatory approvals . a change in any of these factors could mean a significant change in the costs and timing associated with the development of vonapanitase . for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . our current development activities and future plans include the following : we completed enrollment in our second phase 3 trial , patency-2 , and expect to report top-line data in march 2019. we may , based on additional data including the data from our ongoing phase 3 clinical trial and if sufficient funds become available , choose to conduct a clinical trial of vonapanitase in europe ; we may , based on additional data including the data from our ongoing phase 3 clinical trial and if sufficient funds become available , study the effects of vonapanitase versus placebo on brachiocephalic fistulas and in patients undergoing placement of an arteriovenous graft , or graft ; we initiated two phase 1 clinical trials of vonapanitase in patients with peripheral artery disease ( pad ) in the fourth quarter of 2016. these multicenter , dose-escalation trials are designed to evaluate the safety and technical feasibility of a single administration of vonapanitase as a monotherapy and as an adjunct to angioplasty for patients with pad above the knee and below the knee , respectively . in 2018 , we expect to complete the enrollment and treatment of 24 patients in the phase 1 trial evaluating vonapanitase as an adjunct to angioplasty for pad below the knee . based on our current operating plan , we have decided not to begin patient enrollment in the phase 1 trial evaluating vonapanitase as a monotherapy for pad . however , if sufficient funds become available , we may increase enrollment in the phase 1 trial evaluating vonapanitase below the knee and begin patient enrollment in the phase 1 trial evaluating vonapanitase as a monotherapy above the knee ; we may , based on additional data including the data from our phase 3 clinical trials and if sufficient funds become available , choose to conduct a clinical trial of vonapanitase in an additional pad indication ; and we expect to continue to manufacture clinical trial materials in support of our clinical trials and to also perform process validation activities in anticipation of a potential bla submission . marketing , general and administrative expenses marketing , general and administrative expenses consist principally of salaries and related costs for personnel , including stock-based compensation and travel expenses , in executive and other administrative functions . other marketing , general and administrative expenses also include professional fees for legal , patent review , consulting and accounting services as well as facility related costs . we anticipate increased expenses related to audit , legal , regulatory and tax-related services associated with maintaining compliance with our nasdaq listing and sec requirements , director and officer liability insurance premiums and investor relations costs associated with being a public company . additionally , if and when we believe a regulatory approval of vonapanitase appears likely , we anticipate that we will increase our salary and personnel costs and other expenses as a result of our preparation for commercial operations . 77 investment income investment income consists of interest income earned on our cash , cash equivalents and marketable securities . other income ( expense ) , net other income ( expense ) , net consists of the gain realized from non-cash gains and losses from currency exchange rate fluctuations on transactions or balances denominated in a foreign currency and realized and unrealized gains and losses on the forward foreign currency contracts we entered into in the second quarter of 2015 to purchase swiss francs to reduce our foreign currency exposure through 2016. this foreign currency exposure is the result of a contract with the manufacturer of active pharmaceutical ingredient ( “ api ” ) for our lead product candidate , vonapanitase , which requires us to make payments in swiss francs . the last outstanding forward foreign currency contract was executed during december 2016. derivative financial instruments we purchase swiss francs or have entered into forward foreign currency contracts to reduce our foreign currency exposure in making contractual payments under our lonza agreement . we record these derivative financial instruments on the consolidated balance sheet at fair value . although these derivative contracts are intended to economically hedge foreign exchange risk , we have not elected to apply hedge accounting . as such , changes in the fair value of the swiss francs we hold or in these derivative instruments are recorded directly in earnings as a component of other income ( expense ) as they occur .
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results of operations comparison of the years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 ( in thousands ) : replace_table_token_7_th research and development expenses . the following table identifies research and development expenses on both an external and internal basis for the years ended december 31 , 2017 and 2016 ( in thousands ) : replace_table_token_8_th during the year ended december 31 , 2017 , our total research and development expenses increased by $ 2.8 million compared to the year ended december 31 , 2016 primarily due to $ 3.3 million in increased external expenses . the increase of $ 3.3 million in external expenses was primarily driven by $ 4.1 million in increased expenses for our manufacturing pre-validation and offset by $ 0.8 million in decreased expenses for our ongoing clinical trials . our internal research and development expenses decreased by $ 0.5 million in the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 due primarily to decreased personnel costs . marketing , general and administrative expenses . during the year ended december 31 , 2017 , our total marketing , general and administrative expenses were $ 1.2 million lower as compared to the year ended december 31 , 2016 primarily due to reductions in overhead and personnel costs in the year ended december 31 , 2017 of $ 1.2 million to support our ongoing corporate activities . investment income . during the year ended december 31 , 2017 , investment income increased by $ 0.1 million primarily due to an increase in interest income of $ 0.1 million . other expense , net .
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overview zebra technologies corporation and its subsidiaries ( “ zebra ” or the “ company ” ) is a global leader respected for innovative enterprise asset intelligence ( “ eai ” ) solutions in the automatic identification and data capture solutions industry . we design , manufacture , and sell a broad range of products that capture and move data , including : mobile computers ; barcode scanners and imagers ; radio frequency identification device ( “ rfid ” ) readers ; specialty printers for barcode labeling and personal identification ; real-time location systems ( “ rtls ” ) ; related accessories and supplies , such as self-adhesive labels and other consumables ; and software utilities and applications . we also provide a full range of services , including maintenance , technical support , and repair , managed and professional services , including cloud-based subscriptions . end-users of our products and services include those in the retail and e-commerce , transportation and logistics , manufacturing , healthcare , hospitality , warehouse and distribution , energy and utilities , government and education enterprises around the world . we provide products and services in approximately 180 countries , with 124 facilities and approximately 8,200 employees worldwide . our customers have traditionally benefited from proven solutions that increase productivity and improve efficiency and asset utilization . the company is poised to drive , and capitalize on , the evolution of the data capture industry into the broader eai industry , based on important technology trends like the internet of things ( “ iot ” ) , ubiquitous mobility , automation and cloud computing . eai solutions offer additional benefits to our customers including real-time , data-driven insights that improve operational visibility and drive workflow optimization . segments the company 's operations consist of two reportable segments : asset intelligence & tracking ( “ ait ” ) and enterprise visibility & mobility ( “ evm ” ) . the ait segment is an industry leader in barcode printing and asset tracking technologies . its major product lines include barcode and card printers , supplies , services , location solutions , and retail solutions . industries served include retail and e-commerce , transportation and logistics , manufacturing , healthcare , and other end markets within the following regions : north america ; europe , middle east , and africa ( “ emea ” ) ; asia-pacific ; and latin america . the evm segment is an industry leader in automatic information and data capture solutions . its major product lines include mobile computing , data capture , rfid , and services . industries served include retail and e-commerce , transportation and logistics , manufacturing , healthcare , and other end markets within the following regions : north america ; emea ; asia-pacific ; and latin america . geographic information for the year ended december 31 , 2019 , the company generated $ 4.5 billion of net sales , of which approximately 50.4 % were attributable to north america ; approximately 32.6 % were attributable to emea ; and approximately 17.0 % were attributable to other foreign locations . relative net sales attributable to each region is comparable with the prior year period . acquisitions and integration acquisitions are accounted for under the acquisition method of accounting for business combinations , with results included in the company 's operating results beginning on each respective acquisition date . recent acquisitions contributed 1.9 % to the current year consolidated net sales growth . on november 5 , 2019 , the company acquired cortexica vision systems limited ( “ cortexica ” ) , a provider of computer vision-based artificial intelligence solutions primarily serving the retail industry , for $ 7 million in cash . additionally , we incurred approximately $ 2 million of acquisition-related costs in 2019 , which primarily included third-party transaction and advisory fees and are reflected within acquisition and integration costs on the consolidated statements of operations . the operating results of cortexica are included within the evm segment . on may 31 , 2019 , the company acquired profitect , inc. ( “ profitect ” ) , a provider of prescriptive analytics primarily serving the retail industry . the company 's total purchase consideration was $ 79 million , which consisted of $ 75 million in cash paid , net of cash acquired , and the fair value of the company 's existing minority ownership interest in profitect of $ 4 million , as 25 remeasured upon acquisition . included within other , net on the consolidated statements of operations is a $ 4 million gain resulting from the remeasurement of the company 's previously held ownership interest in profitect . additionally , we incurred $ 13 million of acquisition-related costs in 2019 , which primarily consisted of payments to settle profitect employee stock option awards , as well as third party transaction and advisory fees . those acquisition-related costs are included within acquisition and integration costs on the consolidated statements of operations . the operating results of profitect are included within the evm segment . on february 21 , 2019 , the company acquired temptime corporation ( “ temptime ” ) , a developer and manufacturer of temperature-monitoring labels and devices . in connection with this acquisition , the company paid $ 180 million in cash , net of cash acquired . additionally , we incurred $ 3 million of acquisition-related costs in 2019 , which primarily included third-party transaction and advisory fees and are reflected within acquisition and integration costs on the consolidated statements of operations . the operating results of temptime are included within the ait segment . on august 14 , 2018 , the company completed its tender offer to acquire all outstanding common stock of xplore technologies corporation ( “ xplore ” ) for $ 6.00 per share . in connection with this acquisition , the company paid $ 87 million in cash , which included $ 72 million for the net assets acquired , a $ 9 million payment of xplore debt , as well as $ 6 million of other xplore transaction-related obligations . story_separator_special_tag the company anticipates incurring additional one-time operating costs of up to $ 25 million by the middle of fiscal year 2020 as well as incremental equipment purchases of approximately $ 10 million to $ 15 million . as a result of these actions , along with certain u.s. pricing actions and based on current economic and operating conditions , the company expects to substantially mitigate the ongoing financial impacts of chinese tariffs . in december 2019 , a strain of the coronavirus surfaced in wuhan , china . in january 2020 , a broad number of governmental and commercial efforts commenced to contain the spread of the virus in china . as a result , many of our supply chain partners in china temporarily suspended or modified their business operations beyond the normal chinese lunar new year shutdown . as of february 10 , 2020 , operations have resumed , to varying degrees , at many of our supply chain partners . the situation is complex and rapidly-evolving . we are not yet able to fully ascertain its impact on our results of operations , either with respect to its impact on our manufacturing operations in china or with respect to its impact on our sales to customers in china . our current expectation is the coronavirus outbreak could have a negative impact to our sales of between $ 0 and $ 50 million . this expectation is based solely on facts as we understand them to be today . the impact could be significantly greater if the coronavirus outbreak were to develop in a manner that is significantly worse than our current expectations . 27 results of operations : year ended 2019 versus 2018 and year ended 2018 versus 2017 story_separator_special_tag primarily due to the unfavorable impacts of chinese import tariffs and foreign currency changes , partially offset by favorable product mix . operating income increased 9.2 % due to higher net sales , gross profit , and lower operating expenses . enterprise visibility & mobility segment ( “ evm ” ) ( amounts in millions , except percentages ) replace_table_token_12_th evm organic net sales growth : replace_table_token_13_th evm organic net sales growth is a non-gaap financial measure . see the non-gaap measures section at the end of this item . ( 1 ) operating results reported in u.s. dollars are affected by foreign currency exchange rate fluctuations . foreign currency translation impact represents the difference in results that are attributable to fluctuations in the 30 currency exchange rates used to convert the results for businesses where the functional currency is not the u.s. dollar . this impact is calculated by translating the current period results at the currency exchange rates used in the comparable prior year period , inclusive of the company 's foreign currency hedging program . ( 2 ) for purposes of computing organic net sales , amounts directly attributable to the xplore , profitect , and cortexica acquisitions are excluded for twelve months following their respective acquisition dates . 2019 compared to 2018 net sales for evm increased $ 211 million or 7.5 % compared to the prior year , including the impacts of acquisitions and unfavorable foreign currency changes . evm organic net sales growth of 7.2 % was primarily attributable to higher mobile computing product sales and support services , which were partially offset by lower sales of data capture products . gross margin was 45.6 % in both the current and prior year periods , as the unfavorable impacts of product and business mix , chinese import tariffs , and foreign currency changes collectively offset operational efficiencies . operating income for the current year increased 19.6 % due to higher net sales and gross profit , which were partially offset by higher operating expenses . critical accounting policies and estimates management prepared the consolidated financial statements of the company under accounting principles generally accepted in the u.s. the application of these principles requires the use of estimates , judgments , and assumptions which affect the amounts reported in our consolidated financial statements . we believe that our estimates , judgments , and assumptions are reasonable based upon available information . our more significant estimates and assumptions include those related to the recognition and measurement of income tax assets and liabilities , development of reporting unit fair values as part of our annual goodwill impairment testing , and the measurement of variable consideration and allocation of transaction price to performance obligations in revenue transactions . see note 2 , significant accounting policies in the notes to consolidated financial statements for additional discussion of these as well as other accounting policies . new accounting pronouncements effective january 1 , 2019 , the company adopted a new accounting standard related to leases . see note 2 , significant accounting policies in the notes to consolidated financial statements for further information on this and other accounting pronouncements . liquidity and capital resources the primary factors that influence our liquidity include the amount and timing of our revenues , cash collections from our customers , cash payments to our suppliers , capital expenditures , repatriation of foreign cash and investments , acquisitions , and share repurchases . management believes that our existing capital resources , inclusive of available borrowing capacity on debt and other financing facilities , and funds generated from operations are sufficient to meet anticipated capital requirements and service our indebtedness . the following table summarizes our cash flow activities for the years indicated ( in millions ) : replace_table_token_14_th 2019 vs. 2018 the change in our cash and cash equivalents balance during the current year is reflective of the following : cash flow provided by operating activities decreased by $ 100 million compared to the prior year . the decrease was primarily due to timing of vendor payments , timing of accounts receivable collections , as well as higher income tax and incentive compensation payments , which were partially offset by higher net income , reduced inventory levels , and lower cash payments for interest .
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consolidated results of operations ( amounts in millions , except percentages ) replace_table_token_6_th net sales to customers by geographic region were as follows ( amounts in millions , except percentages ) : replace_table_token_7_th operating expenses are summarized below ( amounts in millions , except percentages ) : replace_table_token_8_th consolidated organic net sales growth : replace_table_token_9_th consolidated organic net sales growth is a non-gaap financial measure . see the non-gaap measures section at the end of this item . ( 1 ) operating results reported in u.s. dollars are affected by foreign currency exchange rate fluctuations . foreign currency translation impact represents the difference in results that are attributable to fluctuations in the currency exchange rates used to convert the results for businesses where the functional currency is not the u.s. dollar . this impact is calculated by translating the current period results at the currency exchange rates used in the comparable prior year period , inclusive of the company 's foreign currency hedging program . 28 ( 2 ) for purposes of computing organic net sales , amounts directly attributable to business acquisitions are excluded for twelve months following their respective acquisition dates . 2019 compared to 2018 net sales increased $ 267 million or 6.3 % compared with the prior year , reflecting growth in the north america and emea regions . excluding the effects of acquisitions and unfavorable foreign currency changes , the increase in consolidated organic net sales was 5.5 % , primarily due to higher sales of mobile computing products and support services , which were partially offset by lower sales of data capture products . gross margin decreased to 46.8 % in the current period compared to 47.0 % in the prior year period . ait gross margin was slightly lower compared to the prior period , while evm gross margin was unchanged .
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the new warrant did not contain the antidilution price adjustment protection that was contained within the exercised warrants . in june 2018 , the company recorded stock compensation expense of $ 1.7 million representing the fair value of the of 56,696 inducement warrants issued . the company estimated the fair value of the common stock warrants , exercisable at $ 36.40 per share , to be $ 1.7 million using a black scholes model based on the following significant inputs : common stock price of $ 42.20 ; comparable company volatility of 72.6 % ; remaining term 5 years ; dividend yield of 0 % and risk-free interest rate of 2.8 % . also , in june 2018 , an additional 17,088 of the november 8 , 2017 warrants that were in the money at the time of exercise , were exercised for gross proceeds of $ 513 . on august 13 , 2018 , in connection with a rights offering of 267,853 shares of its common stock , the company issued 267,853 warrants to purchase shares of its common stock at an exercise price of $ 23.00 per share . the company estimated the fair value of the common stock warrants , exercisable at $ 23.00 per share , to be $ 3.6 million using a monte carlo model based on the following significant inputs : common stock price of $ 18.80 ; comparable company volatility of 159.0 % ; remaining term 5 years ; dividend yield of 0 % and risk-free interest rate of 2.77 % . in connection with the closing of the rights offering , the company issued a warrant to purchase 13,393 shares of common stock to maxim partners llc , an affiliate of the dealer-manager of the rights offering . the company estimated the fair value of the common stock warrants , exercisable at $ 34.50 per share , to be $ 169 using a using a monte carlo model based on the following significant inputs : common stock price of $ 18.80 ; comparable company volatility of 159.0 % ; remaining term 5 years ; dividend yield of 0 % and risk-free interest rate of 2.77 % . common stock warrant issued to underwriter of common stock offering in july 2019 , the company issued to h.c. wainwright & co. , as placement agent , a warrant to story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes . some statements and information contained in this management 's discussion and analysis of financial condition and results of operations , notes to our condensed consolidated financial statements and elsewhere in this report are not historical facts but are forward- looking statements within the meaning of 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 ” ) . in some cases , readers can identify forward- looking statements by terms such as “ may , ” “ will , ” “ should , ” “ expect , ” “ plan , ” “ intend , ” “ forecast , ” “ anticipate , ” “ believe , ” “ estimate , ” “ predict , ” “ potential , ” “ continue , ” or the negative of these terms or other comparable terminology , which when used are meant to signify the statement as forward-looking . see “ cautionary note regarding forward-looking statements ” immediately prior to item 1 of part i , “ business. ” overview since our inception , we have sustained significant operating losses in the course of our research and development and commercialization activities and expect such losses to continue for the near future . we have generated limited revenue to date from product sales , research grants and licensing fees received under our former license agreement with neogen . in 2017 , we began to prepare and launch commercialization of our first product , contrapest . we have primarily funded our operations to date through the sale of equity securities , including convertible preferred stock , common stock and warrants to purchase common stock . see “ description of capital stock ” elsewhere in this filing for a description of our public equity sales . we have also raised capital through debt financing , consisting primarily of convertible notes ; and , to a lesser extent , payments received in connection with product sales , research grants and licensing fees . through december 31 , 2019 , we had received net proceeds of $ 67.2 million from our sales of common stock , preferred stock and issuance of convertible and other promissory notes and an aggregate of $ 1.7 million from research grants and licensing fees and an aggregate of $ 0.6 million in product sales . at december 31 , 2019 , we had an accumulated deficit of $ 95.9 million and cash and cash equivalents of $ 1.9 million . we have incurred significant operating losses every year since our inception . our net losses were $ 10.0 million and $ 12.2 million for the years ended december 31 , 2019 and 2018 respectively . we expect to continue to incur significant expenses and generate operating losses for at least the next 12 months . we have historically utilized , and intend to continue to utilize , various forms of stock-based awards in order to hire , retain and motivate talented employees , consultants and directors and encourage them to devote their best efforts to our business and financial success . story_separator_special_tag maintain , expand and protect our intellectual property portfolio ; and ● add operational , financial and management information systems and personnel , including personnel to support our product development and commercialization efforts and operations as a public company . 25 cash flows the following table summarizes our sources and uses of cash for each of the years presented : replace_table_token_3_th operating activities . during the year ended december 31 , 2019 , operating activities used $ 8.1 million of cash , primarily resulting from our net loss of $ 10.0 million , changes in our operating assets and liabilities of $ 0.5 million and non-cash charges of $ 1.4 million . our net loss was primarily attributed to research and development activities and our selling , general and administrative expenses , as we generated limited product sales and no research grant and licensing revenue during the year . net cash used by changes in our operating assets and liabilities for the year ended december 31 , 2019 consisted primarily of a $ 547,000 increase in accrued expenses and accounts payable , a decrease in prepaid expenses and deposits of $ 85,000 and a decrease in inventories of $ 81,000 offset by a decrease in deferred rent of $ 16,000 and a net increase in accounts receivable and deposits of $ 139,000. during the year ended december 31 , 2018 , operating activities used $ 9.1 million of cash , primarily resulting from our net loss of $ 11.9 million and changes in our operating assets and liabilities of $ 1.0 million , partially offset by non-cash charges of $ 3.8 million . our net loss was primarily attributed to research and development activities and our selling , general and administrative expenses , as we generated limited product sales and no research grant and licensing revenue during the period . net cash used by changes in our operating assets and liabilities for the year ended december 31 , 2018 consisted primarily of a $ 29,000 decrease in accrued expenses and accounts payable , an increase in inventories of $ 721,000 , a net increase in accounts receivable and deposits of $ 113,000 and an increase in prepaid expenses of $ 172,000 investing activities during the year ended december 31 , 2019 , we used $ 71,000 of cash in investing activities , which consisted entirely of the purchases of property and equipment . during the year ended december 31 , 2018 , we generated $ 5.0 million of cash in investing activities , which consisted of $ 5 million in the sale of short term , highly liquid investments and $ 185,000 generated from the sale of equipment , offset by $ 239,000 used in the purchases of property and equipment . financing activities during the year ended december 31 , 2019 , net cash provided by financing activities was $ 5.1 million as a result of $ 3.6 million in net proceeds from the issuance of common stock , $ 1.8 million in proceeds from warrant exercises , partially offset by $ 220,000 of repayments related to notes payable and $ 55,000 of payments for employee withholding taxes related to share-based awards . during the year ended december 31 , 2018 , net cash provided by financing activities was $ 6.9 million as a result of $ 5.1 million in proceeds from the issuance of common stock , net , $ 2.2 million in proceeds from warrant exercises and $ 9,000 in proceeds from issuances of notes , offset by $ 293,000 of repayments of related to notes payable and notes payable , related party , $ 71,000 in repayments of finance lease obligations and $ 58,000 of payments for employee withholding taxes related to share-based awards . recent developments our common stock is listed on the nasdaq capital market . in order to maintain that listing , we must satisfy minimum financial and other continued listing requirements and standards . 26 on november 12 , 2019 , we received an initial deficiency letter from the listing qualifications staff of the nasdaq stock market ( “ nasdaq ” ) providing notification that the bid price for our common stock had closed below $ 1.00 per share for the previous 30 consecutive business days and that as a result our common stock no longer met the minimum bid price requirement for listing on the nasdaq capital market . we were provided with an initial compliance period of 180 calendar days , or until may 11 , 2020 , to regain compliance with the minimum bid price requirement . we implemented a 1-for-20 reverse stock split on february 4 , 2020. on february 20 , 2020 we received notification from nasdaq that we had regained compliance with the minimum bid price requirement . we have also in the past received minimum bid deficiency notices . we can not provide any assurance that our stock price will maintain the minimum bid price requirements of nasdaq or that we will be able to satisfy any other continued listing requirement of the nasdaq stock market . in the event that our common stock is not eligible for quotation on another market or exchange , trading of our common stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the pink sheets or the otc bulletin board . in such event , it could become more difficult to dispose of , or obtain accurate price quotations for , our common stock , and there would likely be a reduction in our coverage by security analysts and the news media , which could cause the price of our common stock to decline further . in addition , it may be difficult for us to raise additional capital if we are not listed on a major exchange .
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components of our results of operations net sales net sales are comprised primarily of sales , net of discounts and promotions , of contrapest and related components , to our distributors and customers . 21 operating expenses research and development expenses research and development expenses consist primarily of costs incurred in connection with the research and development of contrapest and our other product candidates , which include : ● employee related expenses , including salaries , related benefits , travel and stock-based compensation expense for employees engaged in research and development functions ; ● expenses incurred in connection with the development of our product candidates ; and ● facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and supplies . we expense research and development costs as incurred . we continue to investigate other applications of our core technology to other product candidates , which includes laboratory tests and academic collaborations . we also continue to develop our supply chain , particularly identifying and improving our sourcing of triptolide , a key active ingredient for our product candidates . at this time , we can not reasonably estimate the costs for further development of contrapest or the cost associated with the development of any of our other product candidates . selling , general and administrative expenses selling , general and administrative expenses consist primarily of salaries and related costs , including stock-based compensation , for personnel in executive , finance , sales , marketing and administrative functions . selling , general and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal , consulting , accounting and audit services . we continue to focus on improving our cost structure , with the goals of shifting resources to commercialization , significantly reducing our year over year burn rate and achieving a 50 % or greater gross margin .
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all other intangible assets related to pls were fully amortized as of september 30 , 2013. prior to 2013 , the company had not previously recorded any story_separator_special_tag overview pra is a financial and business services company . our primary business is the purchase , collection and management of portfolios of defaulted consumer receivables . we also service receivables on behalf of clients on either a commission or transaction-fee basis as well as providing class action claims settlement recovery services and related payment processing to our corporate clients . pra is headquartered in norfolk , virginia , and employs approximately 3,500 people . the shares of pra are traded on the nasdaq global select market under the symbol “ praa. ” on february 19 , 2014 , we entered into an agreement to acquire the equity of aktiv kapital as ( “ aktiv ” ) , a norway-based company specializing in the acquisition and servicing of non-performing consumer loans throughout europe and in canada , for approximately $ 880 million , we also agreed to assume approximately $ 435 million of aktiv 's corporate debt , resulting in an acquisition of estimated total enterprise value of $ 1.3 billion . this acquisition will provide us entry into thirteen new markets , providing us additional geographical diversity in portfolio purchasing and collection , and with entry into new growth markets . we expect aktiv 's chief executive officer and his executive team and the more than 400 aktiv employees to join our workforce upon the closing of the transaction . the transaction is expected to close in the second quarter of 2014 , upon successful completion of customary closing conditions , including approval of the transaction by applicable competition authorities and our ability to obtain the necessary financing to consummate the transaction . we expect to finance this transaction with a combination of cash , $ 170 million of seller financing , $ 435 million from our domestic revolving credit facility , and by accessing an accordion feature on our credit facility of up to $ 214 million . we may choose to use other debt instruments to expand , replace or pay down any of these financing options . we anticipate transaction costs of approximately $ 15 million , which we expect to incur between both the first and second quarters of 2014. our total borrowings are projected to be approximately $ 1.8 billion after closing , compared to pra 's total borrowings of $ 452 million at december 31 , 2013. a publicly traded company from 1997 until early 2012 , aktiv has developed a mixed in-house and outsourced collection strategy . it maintains in-house servicing platforms in eight markets , and owns portfolios in fifteen markets . aktiv has more than 20 years of experience and data in a wide variety of consumer asset classes , across an extensive geographic background . aktiv has acquired more than 2,000 portfolios , with a face value of more than $ 38 billion . in 2013 , aktiv collected $ 318 million on its portfolios and purchased $ 248 million in new portfolios , up from $ 222 million in 2012. aktiv 's total assets were approximately $ 900 million at december 31 , 2013. story_separator_special_tag the accounts brought into the legal collection process resulted in significant initial expenses , which may drive additional future cash collections and revenue . legal collection fees increased from $ 34.4 million for the year ended december 31 , 2012 to $ 41.5 million for the year ended december 31 , 2013 , an increase of $ 7.1 million or 20.6 % . this increase was the result of an increase in cash collections from outside attorneys from $ 157.8 million in the year ended december 31 , 2012 to $ 192.4 million for the year ended december 31 , 2013 , an increase of $ 34.6 million or 21.9 % . other operating expenses increased from $ 19.7 million for the year ended december 31 , 2012 to $ 25.8 million for the year ended december 31 , 2013 , an increase of $ 6.1 million or 31.0 % . of the $ 6.1 million increase , $ 4.1 million is related to the additional expense incurred as a result of the earn-out provision of the asset purchase agreement entered into in connection with the acquisition of certain finance receivables and operating assets of national capital management ( `` ncm '' ) in 2012 and $ 0.8 million is due to an increase in insurance expenses . none of the remaining $ 1.2 million increase was attributable to any significant identifiable items . during the year ended december 31 , 2013 , we acquired finance receivables portfolios with an aggregate face value amount of $ 7.9 billion at a cost of $ 656.8 million . during the year ended december 31 , 2012 , excluding the initial investment in the pra uk portfolio , we acquired finance receivable portfolios with an aggregate face value of $ 6.2 billion at a cost of $ 538.5 million . during the year ended december 31 , 2011 , we acquired finance receivable portfolios with an aggregate face value of $ 9.8 billion at a cost of $ 408.4 million . in any period , we acquire defaulted consumer receivables that can vary dramatically in their age , type and ultimate collectability . we may pay significantly different purchase rates for purchased receivables within any period as a result of this quality fluctuation . in addition , market forces can drive pricing rates up or down in any period , irrespective of other quality fluctuations . as a result , the average purchase rate paid for any given period can fluctuate dramatically based on our particular buying activity in that period . story_separator_special_tag the increase in revenue from ccb is due primarily to larger distributions of class action settlements in the year ended december 31 , 2013 as compared to the year ended december 31 , 2012. in particular , there was one large class action settlement which generated approximately $ 9.3 million in fee income . this was partially offset by declines in revenue at our pls and pra uk businesses . the decline from pls is due primarily to the adverse impact of the economic slowdown on automobile financing and related collateral recovery activities . the decline in fee income from pra uk is due primarily to a decline in the amount of contingent fee work provided to us by debt owners for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 . 40 operating expenses total operating expenses were $ 437.6 million for the year ended december 31 , 2013 , an increase of $ 60.9 million or 16.2 % compared to total operating expenses of $ 376.7 million for the year ended december 31 , 2012 . total operating expenses were 36.0 % of cash receipts for the year ended december 31 , 2013 compared with 38.8 % for the year ended december 31 , 2012 . compensation and employee services compensation and employee service expenses were $ 192.5 million for the year ended december 31 , 2013 , an increase of $ 24.1 million or 14.3 % compared to compensation and employee service expenses of $ 168.4 million for the year ended december 31 , 2012 . compensation expense increased primarily as a result of larger staff sizes , as well as an increase in share-based compensation expense and incentive and other performance based compensation incurred as a result of the overall strong company performance . total employees grew 10.0 % to 3,543 as of december 31 , 2013 from 3,221 as of december 31 , 2012 . additionally , some existing employees received appropriate salary increases based on performance . compensation and employee service expenses as a percentage of cash receipts decreased to 15.9 % for the year ended december 31 , 2013 from 17.3 % of cash receipts for the year ended december 31 , 2012 . legal collection fees legal collection fees represent contingent fees incurred for the cash collections generated by our independent third party attorney network . legal collection fees were $ 41.5 million for the year ended december 31 , 2013 , an increase of $ 7.1 million , or 20.6 % , compared to legal collection fees of $ 34.4 million for the year ended december 31 , 2012 . this increase was the result of an increase in our external legal collections which increased $ 34.6 million or 21.9 % , from $ 157.8 million for the year ended december 31 , 2012 to $ 192.4 million for the year ended december 31 , 2013 . legal collection fees for the year ended december 31 , 2013 were 3.4 % of cash receipts , compared to 3.5 % for the year ended december 31 , 2012 . legal collection costs legal collection costs consist of costs paid to courts where a lawsuit is filed and the cost of documents paid to sellers of defaulted consumer receivables . legal collection costs were $ 83.1 million for the year ended december 31 , 2013 , an increase of $ 10.8 million , or 14.9 % , compared to legal collection costs of $ 72.3 million for the year ended december 31 , 2012 . beginning in early 2012 and continuing into 2013 , as a result of the refinement of our internal scoring methodology that expanded our account selections for legal action , we expanded the accounts brought into the legal collection process which resulted in significant initial expenses , which may continue to drive additional future cash collections and revenue . these legal collection costs represent 6.8 % and 7.4 % of cash receipts for the years ended december 31 , 2013 and 2012 , respectively . agent fees agent fees primarily represent costs paid to repossession agents to repossess vehicles . agent fees were $ 5.9 million for both the years ended december 31 , 2013 , and 2012 , respectively . outside fees and services outside fees and services expenses were $ 31.6 million for the year ended december 31 , 2013 , an increase of $ 2.7 million or 9.3 % compared to outside fees and services expenses of $ 28.9 million for the year ended december 31 , 2012 . of the $ 2.7 million increase , $ 1.8 million was attributable to an increase in corporate legal expenses and the remaining $ 0.9 million increase was attributable to other outside fees and services including increases in non-capitalized software development costs . communications communications expenses were $ 28.9 million for the year ended december 31 , 2013 , an increase of $ 3.0 million or 11.6 % compared to communications expenses of $ 25.9 million for the year ended december 31 , 2012 . the increase was primarily due to additional postage expense resulting from an increase in special letter campaigns . the remaining increase was mainly attributable to increased telephone expenses . expenses related to customer mailings were responsible for 66.7 % or $ 2.0 million of this increase , while the remaining 33.3 % or $ 1.0 million was attributable to increased telephone and telecommunication related expenses . rent and occupancy rent and occupancy expenses were $ 7.5 million for the year ended december 31 , 2013 , an increase of $ 0.7 million or 10.3 % compared to rent and occupancy expenses of $ 6.8 million for the year ended december 31 , 2012. the increase was primarily due to the additional space leased at our norfolk headquarters , the addition of ncm in december of 2012 as well as increased utility charges .
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earnings summary for the year ended december 31 , 2013 , net income attributable to pra was $ 175.3 million , or $ 3.45 per diluted share , compared with $ 126.6 million , or $ 2.46 per diluted share , for the year ended december 31 , 2012 . total revenues were $ 735.1 million for the year ended december 31 , 2013 , up 24.0 % from the same year ago period . revenues during the year ended december 31 , 2013 consisted of $ 663.5 million in income recognized on finance receivables , net of allowance charges , and $ 71.6 million in fee income . income recognized on finance receivables , net of allowance charges , for the year ended december 31 , 2013 increased $ 132.9 million , or 25.1 % , over 2012 , primarily as a result of a significant increase in cash collections . cash collections were $ 1,142.4 million during the year ended december 31 , 2013 , up 25.7 % over $ 908.7 million in the year ended december 31 , 2012. during the year ended december 31 , 2013 , pra recorded $ 2.0 million in net allowance charge reversals , compared with $ 6.6 million in net allowance charges in the year ended december 31 , 2012. our performance has been positively impacted by operational efficiencies surrounding the cash collections process , including the continued refinement of account scoring analytics as it relates to both legal and non-legal collection channels . additionally , we have continued to develop our internal legal collection staff resources , which enables us to place accounts into that channel that otherwise would have been prohibitively expensive for legal action and to collect these accounts more efficiently and profitably .
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notwithstanding such designation , however , to the extent story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and the audited consolidated notes to those statements included elsewhere in this annual report on form 10-k. this discussion includes forward-looking statements that involve risks and uncertainties . as a result of many factors , our actual results may differ materially from those anticipated in these forward-looking statements . overview our mission is to develop first-in-class biological therapies for the treatment of diseases , with a focus on duchenne muscular dystrophy , or dmd , and other rare disorders . our executive offices are located at 8840 wilshire blvd. , 2 nd floor , beverly hills , california 90211. our telephone number is ( 310 ) 358-3200 and our internet address is www.capricor.com . consummation of the merger we were originally incorporated in delaware in august 2005 under the name nile pharmaceuticals , inc. and we changed our name to nile therapeutics , inc. , or nile , in january 2007. on november 20 , 2013 , pursuant to that certain agreement and plan of merger and reorganization dated as of july 7 , 2013 , as amended by that certain first amendment to agreement and plan of merger and reorganization dated as of september 27 , 2013 , or as amended , the merger agreement , by and among nile , nile 's wholly-owned subsidiary , bovet merger corp. , a delaware corporation , or merger sub , and capricor , inc. , or capricor , merger sub merged with and into capricor and capricor became a wholly-owned subsidiary of nile ( referred to herein as the merger ) . immediately prior to the effective time of the merger , and in connection therewith , nile filed certain amendments to its certificate of incorporation which , among other things ( i ) effected a 1-for-50 reverse split of its common stock , ( ii ) changed its corporate name from “ nile therapeutics , inc. ” to “ capricor therapeutics , inc. , ” and ( iii ) effected a reduction in the total number of authorized shares of common stock from 100,000,000 to 50,000,000 , and a reduction in the total number of authorized shares of preferred stock from 10,000,000 to 5,000,000. capricor , our wholly-owned subsidiary , was founded in 2005 as a delaware corporation based on the innovative work of its founder , eduardo marbán , m.d. , ph.d. , and his collaborators . first located in baltimore , maryland , adjacent to the johns hopkins university , or jhu , where dr. marbán was chief of cardiology , capricor moved to los angeles , california in 2007 when dr. marbán became director of the heart institute at cedars-sinai medical center , or csmc . capricor 's laboratories and manufacturing facilities are located in space that capricor leases from csmc . drug candidates our product candidates we currently have four drug candidates , two of which are in various stages of active development . our current research and development efforts have been focused on cap-1002 and cap-2003 . in 2018 we commenced enrollment of patients in a clinical trial of cap-1002 in patients with dmd called hope-2 . cap-1002 was also the subject of three previous clinical trials conducted by us . recently , we decided to end the long term follow-up which had been ongoing in our previously completed trials . cap-1002 is also currently being investigated in two additional trials sponsored by csmc , which are the regress trial investigating heart failure with preserved ejection fraction and the alpha trial investigating pulmonary arterial hypertension . although , we are not the sponsor of these trials , we are providing the cap-1002 investigational product for use in the trials . we are also evaluating cap-2003 in pre-clinical studies for the treatment of various indications . cap-1001 ( autologous cdcs ) was the subject of the csmc and jhu-sponsored phase i caduceus trial and is not in active development . both cap-1002 and cap-1001 are derived from cardiospheres , or csps , and we do not plan to develop csps as a therapeutic . cap-1002 for the treatment of duchenne muscular dystrophy : based on our understanding of the mechanism of action of cap-1002 which has been seen in pre-clinical models of dmd , we believe that cap-1002 has the potential to decrease inflammation and muscle degeneration while exerting positive effects on muscle regeneration , all of which may translate into patients retaining muscle function for a longer period of time . data supporting peripheral intravenous route of administration of cap-1002 in the dmd setting has been provided by pre-clinical mouse studies where cdcs , the active ingredient in cap-1002 , have been shown to increase exercise capacity and diaphragmatic function . 61 phase ii hope-2 clinical trial hope-2 is a randomized , double-blind , placebo-controlled clinical trial which is being conducted at multiple sites located in the united states . originally , hope-2 was designed as an 84 patient clinical trial , but we are pursuing a sample size re-estimation that will likely lead to a significant reduction in the number of dmd patients . to date , we have enrolled 20 patients in our hope-2 clinical trial . the clinical trial will evaluate the safety and efficacy of repeat , intravenous , or iv , doses of cap-1002 , in boys and young men with evidence of skeletal muscle impairment regardless of ambulatory status and on a stable regimen of systemic glucocorticoids . while there are many clinical initiatives in dmd , hope-2 is one of the very few to focus on non-ambulant patients . these boys and young men are looking to maintain what function they have in their arms and hands , and capricor 's previous study of a single intracoronary dose of cap-1002 provided preliminary evidence of efficacy that cap-1002 may be able to help dmd patients retain , or slow the loss of , upper limb function . story_separator_special_tag in a post-hoc analysis of function of the mid- and distal-level upper limb in which a responder was defined as a patient who demonstrated a 10 % improvement from baseline in score on the pul test , cap-1002 patients were more likely to be responders than patients in usual care ( p=0.045 ) at week 6. in addition , numerical results in some other cardiac and skeletal muscle measures , including cardiac scar ( p=0.09 ) , were consistent with a treatment effect although differences between treatment groups were not statistically significant . the observed clinical results appear to generally corroborate a large body of pre-clinical data from studies in dmd animal models . we reported our 12-month data from the hope-duchenne trial at a late-breaking science session of the american heart association scientific sessions 2017. as shoulder function had already been lost in most of the hope participants , investigators used the combined mid-distal pul subscales to assess changes in skeletal muscle function and found significant improvement in those treated with cap-1002 in a defined post-hoc analysis . among the lower-functioning patients , defined as patients with a baseline mid-distal pul score < 55 out of 58 , investigators reported sustained or improved motor function at 12 months in 8 of 9 ( 89 % ) patients treated with cap-1002 as compared to none ( 0 % ) of the usual care participants ( p=0.007 ) . to assess cardiac structure and function , investigators used magnetic resonance imaging , or mri . they found significant improvements in systolic thickening of the left ventricular wall among those patients treated with cap-1002 . systolic wall thickening is the component of myocardial contraction ultimately responsible for ejection of blood from the left ventricle . preservation or enhancement of systolic wall thickening may potentially be the result of the reversal of fibrosis . in the inferior wall , they recorded a mean ( sd ) 31.2 % ( 47.0 % ) increase in thickening six months after treatment and a mean 25.8 % ( 46.7 % ) increase in thickening 12 months after treatment . in comparison , the usual care group showed a mean 8.8 % ( 27.7 % ) decrease at six months and a mean 1.6 % ( 37.9 % ) increase at 12 months in the systolic thickening of the inferior wall . the difference between the groups in absolute change from baseline to six months achieved statistical significance ( p=0.04 ) and trended in favor of cap-1002 treatment group ( p=0.09 ) from baseline to 12 months . investigators also found that scarring of the heart muscle among those treated with cap-1002 decreased relative to the control group . progressive cardiac scarring eventually impairs the heart 's pumping ability and is currently the leading cause of death in duchenne muscular dystrophy . at the 12-month follow-up , those treated with cap-1002 had a mean ( sd ) 7.1 % ( 10.3 % ) reduction in scar size , in contrast to a mean 4.8 % ( 22.3 % ) increase in scar size in the usual care group , a difference that achieved statistical significance using non-parametric analysis to account for outliers ( p=0.03 ) . cap-1002 was generally safe and well-tolerated in the hope-duchenne trial . there was no significant difference in the incidence of treatment-emergent adverse events in either group . there were no early study discontinuations due to adverse events . 63 additionally , in 2018 we conducted an open-label extension of the hope-duchenne trial , or hope-ole , where 8 patients who were randomized into the control group of the hope-duchenne trial were given two doses of cap-1002 . we have completed enrollment and treatment of the patients in the hope-ole trial . in january 2019 , we entered into an amendment to the cirm notice of award pursuant to which cirm allowed us to use excess funds from our grant award to fund , in part , certain activities associated with hope-ole . regulatory designations for cap-1002 for the treatment of dmd in april 2015 , the fda granted orphan drug designation to cap-1002 for the treatment of dmd . orphan drug designation is granted by the fda 's office of orphan drug products to drugs intended to treat a rare disease or condition affecting fewer than 200,000 people in the united states or a disease or condition that affects more than 200,000 people in the united states and for which there is no reasonable expectation that the cost of developing and making available in the united states a drug for this type of disease or condition will be recovered from sales in the united states for that drug . this designation confers special incentives to the drug developer , including tax credits on the clinical development costs and prescription drug user fee waivers and may allow for a seven-year period of market exclusivity in the united states upon fda approval . in july 2017 , the fda granted rare pediatric disease designation to cap-1002 for the treatment of dmd . the fda defines a “ rare pediatric disease ” as a serious or life-threatening disease affecting individuals primarily aged from birth to 18 years and that affects fewer than 200,000 individuals in the united states . under the fda 's rare pediatric disease priority review voucher program , upon the approval of a qualifying new drug application , or nda , or bla for the treatment of a rare pediatric disease , the sponsor of such application would be eligible for a rare pediatric disease priority review voucher that can be used to obtain priority review for a subsequent nda or bla . the priority review voucher may be sold or transferred an unlimited number of times . in february 2018 , we were notified by the fda office of tissues and advanced therapies , that we were granted the regenerative medicine advanced therapy , or rmat , designation for cap-1002 for the treatment of dmd .
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general and administrative expenses . g & a expenses for the years ended december 31 , 2018 and 2017 were approximately $ 4.9 million and $ 4.8 million , respectively . the increase of approximately $ 0.1 million in g & a expenses in the year ended december 31 , 2018 compared to the year ended december 31 , 2017 is primarily attributable to investor relations expenses . research and development expenses . r & d expenses for the years ended december 31 , 2018 and 2017 were approximately $ 12.1 million and $ 10.8 million , respectively . the increase of approximately $ 1.3 million for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 is primarily due to the timing of clinical development activities of cap-1002 ( hope-duchenne , hope-2 and hope-ole clinical trials ) . these activities resulted in an increase of approximately $ 3.3 million . furthermore , for the year ended december 31 , 2018 , there was a decrease of approximately $ 1.3 million related to reduced clinical development expenses in connection with the allstar clinical trial . additionally , there was a decrease of approximately $ 0.8 million in research and development expenses related to cap-1002 and cap-2003 for the year ended december 31 , 2018 as compared to the same period in 2017. other expenses interest expense . interest expense for the years ended december 31 , 2018 and 2017 was zero and $ 398,807 , respectively . the decrease in interest expense in 2018 as compared to 2017 is due to the forgiveness of the cirm loan award in december 2017. forgiveness of loan payable . forgiveness of loan payable , a non-cash income , was approximately $ 15.7 million for the year ended december 31 , 2017 . forgiveness of loan payable included $ 14,405,857 in principal and $ 1,248,276 in accrued interest .
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generally , the words “ we , ” “ our , ” “ ours ” and “ us ” include hep and its subsidiaries as consolidated subsidiaries of hollyfrontier , unless when used in disclosures of transactions or obligations between hep and hollyfrontier or its other subsidiaries . this document contains certain disclosures of agreements that are specific to hep and its consolidated subsidiaries and do not necessarily represent obligations of hollyfrontier . when used in descriptions of agreements and transactions , “ hep ” refers to hep and its consolidated subsidiaries . overview we are principally an independent petroleum refiner that produces high-value refined products such as gasoline , diesel fuel , jet fuel , specialty lubricant products , and specialty and modified asphalt . we own and operate refineries having a combined nameplate crude oil processing capacity of 457,000 barrels per day that serve markets throughout the mid-continent , southwest and rocky mountain regions of the united states . our refineries are located in el dorado , kansas ( the el dorado refinery ) , tulsa , oklahoma ( the tulsa refineries ) , which comprise two production facilities , the tulsa west and east facilities , artesia , new mexico , which operates in conjunction with crude , vacuum distillation and other facilities situated 65 miles away in lovington , new mexico ( collectively , the navajo refinery ) , cheyenne , wyoming ( the cheyenne refinery ) and woods cross , utah ( the woods cross refinery ) . on october 29 , 2016 , our wholly-owned subsidiary , 9952110 canada inc. ( “ purchaser ” ) , entered into a share purchase agreement with suncor energy inc. ( “ suncor ” ) to acquire 100 % of the outstanding capital stock of petro-canada lubricants inc. ( “ pcli ” ) that closed on february 1 , 2017. cash consideration paid was cad $ 1.125 billion , including working capital with an estimated value of cad $ 342 million . the pcli plant , located in mississauga , ontario , is the largest producer of base oils in canada with 15,600 bpd of lubricant production capacity , and is the only north american producer of high margin group iii base oils . for the year ended december 31 , 2016 , net loss attributable to hollyfrontier stockholders was $ 260.5 million compared to net income of $ 740.1 million and $ 281.3 million for the years ended december 31 , 2015 , and 2014 , respectively . overall gross refining margins per produced product sold for 2016 decreased 48 % over the year ended december 31 , 2015 , which was due principally to lower crack spreads throughout 2016. included in our financial results for the current year were non-cash items consisting of goodwill and long-lived asset impairment charges , offset by an inventory reserve adjustment . pursuant to the 2007 energy independence and security act , the epa promulgated the rfs2 regulations , which increased the volume of renewable fuels mandated to be blended into the nation 's fuel supply . the regulations , in part , require refiners to add annually increasing amounts of “ renewable fuels ” to their petroleum products or purchase credits , known as rins , in lieu of such blending . compliance with rfs2 regulations significantly increases our cost of products sold , with rins costs totaling $ 242.0 million for the year ended december 31 , 2016 . year-over-year increased costs of ethanol blended into our petroleum products , which exceeded the cost of crude oil , also contributed to lower refining margins for the year . outlook our profitability is affected by the spread , or differential , between the market prices for crude oil on the world market ( which is based on the price for brent , north sea crude ) and the price for inland u.s. crude oil ( which is based on the price for wti ) . we expect continued volatility in the pricing relationship between inland and coastal crude , currently averaging in the range of $ 1.00 to $ 2.00 per barrel . we have recently curtailed production at the woods cross refinery due to insufficient crude supply provided by the plains rocky mountain pipeline . we are unable to predict the duration of the supply disruption at this time , but are considering alternative solutions and working with plains and others to rectify the situation . our rins costs are material and represent a cost of products sold . the price of rins may be extremely volatile due to real or perceived future shortages in rins . as of december 31 , 2016 , we are purchasing rins in order to meet approximately half of our renewable fuel requirements . a more detailed discussion of our financial and operating results for the years ended december 31 , 2016 , 2015 and 2014 is presented in the following sections . 37 table of content 38 table of content results of operations financial data replace_table_token_13_th other financial data replace_table_token_14_th ( 1 ) earnings before interest , taxes , depreciation and amortization , which we refer to as “ ebitda , ” is calculated as net income ( loss ) plus ( i ) interest expense , net of interest income , ( ii ) income tax provision , and ( iii ) depreciation and amortization . 39 table of content ( 2 ) `` adjusted ebitda '' is calculated as ebitda plus or minus ( i ) lower of cost or market inventory valuation adjustment and ( ii ) goodwill and asset impairment charges . ebitda and adjusted ebitda are not calculations provided for under gaap ; however , the amounts included in these calculations are derived from amounts included in our consolidated financial statements . ebitda and adjusted ebitda should not be considered as alternatives to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity . story_separator_special_tag results of operations – year ended december 31 , 2015 compared to year ended december 31 , 2014 summary net income attributable to hollyfrontier stockholders for the year ended december 31 , 2015 was $ 740.1 million ( $ 3.91 per basic and $ 3.90 per diluted share ) , a $ 458.8 million increase compared to $ 281.3 million ( $ 1.42 per basic and diluted share ) for the year ended december 31 , 2014. net income increased due principally to a year-over-year increase in refining margins and sales volumes , improved operational reliability and lower operating expenses . additionally , non-cash lower of cost or market inventory valuation adjustments reduced 2015 pre-tax income by $ 227.0 million , compared to $ 397.5 million in 2014. refinery gross margins for the year ended december 31 , 2015 increased to $ 16.07 per produced barrel from $ 13.98 for the year ended december 31 , 2014. sales and other revenues sales and other revenues decreased 33 % from $ 19,764.3 million for the year ended december 31 , 2014 to $ 13,237.9 million for the year ended december 31 , 2015 due to a year-over-year decrease in sales prices , partially offset by higher refined product sales volumes . the average sales price we received per produced barrel sold decreased 35 % from $ 110.19 for the year ended december 31 , 2014 to $ 71.32 for the year ended december 31 , 2015. sales and other revenues for the years ended december 31 , 2015 and 2014 include $ 66.7 million and $ 57.3 million , respectively , in hep revenues attributable to pipeline and transportation services provided to unaffiliated parties . 43 table of content cost of products sold total cost of products sold decreased 41 % from $ 17,625.9 million for the year ended december 31 , 2014 to $ 10,466.2 million for the year ended december 31 , 2015 , due principally to lower crude oil costs , partially offset by higher sales volumes of refined products . additionally , cost of products sold reflects a $ 227.0 million charge that is attributable to the lower of cost or market reserve for the year ended december 31 , 2015 , a $ 170.5 million decrease compared to $ 397.5 million for the year ended december 31 , 2014. the reserve at december 31 , 2015 was based on market conditions and prices at that time . excluding this non-cash adjustment , the average price we paid per barrel for crude oil and feedstocks and the transportation costs of moving the finished products to the market place decreased 43 % from $ 96.21 for the year ended december 31 , 2014 to $ 55.25 for the year ended december 31 , 2015. gross refinery margins gross refinery margin per produced barrel increased 15 % from $ 13.98 for the year ended december 31 , 2014 to $ 16.07 for the year ended december 31 , 2015. this was due to the effects of decreased crude oil and feedstock prices , partially offset by a decrease in the average per barrel sales price for refined products sold during the current year . gross refinery margin does not include the non-cash effects of lower of cost or market inventory valuation adjustments or depreciation and amortization . see “ reconciliations to amounts reported under generally accepted accounting principles ” following item 7a of part ii of this form 10-k for a reconciliation to the income statement of prices of refined products sold and cost of products purchased . operating expenses operating expenses , exclusive of depreciation and amortization , decreased 7 % from $ 1,144.9 million for the year ended december 31 , 2014 to $ 1,060.4 million for the year ended december 31 , 2015 due principally to a year-over-year decrease in repair and maintenance and natural gas fuel costs and lower environmental accruals compared to 2014. for the years ended december 31 , 2015 and 2014 , operating expenses include $ 102.3 million and $ 104.8 million , respectively , in costs attributable to hep operations . general and administrative expenses general and administrative expenses increased 5 % from $ 114.6 million for the year ended december 31 , 2014 to $ 120.8 million for the year ended december 31 , 2015. this is attributable to overall higher incentive compensation and legal costs in 2015 , net of the effects of state high-wage credits recognized during the second quarter of 2015. for the years ended december 31 , 2015 and 2014 , general and administrative expenses include $ 10.2 million and $ 8.5 million , respectively , in costs attributable to hep operations . depreciation and amortization expenses depreciation and amortization decreased 5 % from $ 363.4 million for the year ended december 31 , 2014 to $ 346.2 million for the year ended december 31 , 2015. this decrease was due principally to the recognition of higher accelerated depreciation levels of assets no longer in operation during 2014 , partially offset by depreciation and amortization during 2015 attributable to capitalized improvement projects and capitalized refinery turnaround costs . for the years ended december 31 , 2015 and 2014 , depreciation and amortization expenses include $ 61.7 million and $ 60.9 million , respectively , in costs attributable to hep operations . interest income interest income for the year ended december 31 , 2015 was $ 3.4 million compared to $ 4.4 million for the year ended december 31 , 2014. this decrease was due to lower investment levels in marketable debt securities during 2015. interest expense interest expense was $ 43.5 million for the year ended december 31 , 2015 compared to $ 43.6 million for the year ended december 31 , 2014. this slight decrease is due principally to the effects of lower hollyfrontier interest expense as a result of the june 2015 redemption of the $ 150.0 million hollyfrontier senior notes , net of increased hep interest expense attributable to higher year-over-year hep debt levels .
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summary net loss attributable to hollyfrontier stockholders for the year ended december 31 , 2016 was $ 260.5 million ( $ 1.48 per basic and diluted share ) , a $ 1,000.6 million decrease compared to net income attributable to hollyfrontier stockholders of $ 740.1 million ( $ 3.91 per basic and $ 3.90 per diluted share ) for the year ended december 31 , 2015 . net income decreased due principally to non-cash goodwill and long-lived asset impairment charges of $ 309.3 million and $ 344.8 million , respectively , and a year-over-year decrease in refining margins and sales volumes , net of the effects of a year-over-year change in lower of cost or market inventory reserve adjustments . for the year ended december 31 , 2016 , lower of cost or market inventory reserve adjustments increased pre-tax earnings by $ 291.9 million compared to a pre-tax earnings decrease of $ 227.0 million for the year ended december 31 , 2015 . collectively , the impairment charges , net of the lower of cost or market valuation benefit , reduced 2016 pre-tax income by $ 362.1 million . refinery gross margins for the year ended december 31 , 2016 decreased to $ 8.38 per produced barrel from $ 16.07 for the year ended december 31 , 2015 . sales and other revenues sales and other revenues decreased 20 % from $ 13,237.9 million for the year ended december 31 , 2015 to $ 10,535.7 million for the year ended december 31 , 2016 due to a year-over-year decrease in sales prices and lower refined product sales volumes . the average sales price we received per produced barrel sold decreased 19 % from $ 71.32 for the year ended december 31 , 2015 to $ 58.02 for the year ended december 31 , 2016 .
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trends in our business we are a leading provider of voice recognition and natural language understanding solutions . our solutions and technologies are used in the healthcare , mobile , consumer , enterprise customer service , and imaging markets . we are seeing 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 from speech recognition to natural language understanding , semantic processing , domain-specific reasoning , dialog management capabilities , artificial intelligence , and biometric speaker authentication . during the first quarter of fiscal year 2016 , we reorganized the organizational management and oversight of our dragon consumer business , which was previously reported within our mobile segment and has now been moved into our healthcare segment . during the second quarter of fiscal year 2016 , we reclassified certain government payroll incentive credits previously reported in the general and administrative expense to research and development expense , cost of revenue and sales and marketing . 18 accordingly , the segment results in prior periods have been recast to conform to the current period segment presentation . these changes had no impact on consolidated net income or cash flows in any period . confronted by dramatic increases in electronic information , consumers , business personnel and healthcare professionals must use a variety of resources to retrieve information , transcribe patient records , conduct transactions and perform other job-related functions . we believe that the power of our solutions can transform the way people use the internet , telecommunications systems , electronic medical records ( `` emr '' ) , wireless and mobile networks and related corporate infrastructure to conduct business . healthcare . trends in our healthcare business include growing customer preference for hosted solutions and subscription-based license models and increased use of mobile devices to access healthcare systems and create clinical documentation within electronic health record systems . in addition , we experienced growing demand in bundled arrangements , combining our dragon medical and hosted transcription offerings . the volume processed in our hosted transcription services has continued to experience erosion as customers adopt electronic medical record systems and our dragon medical solutions . this decline has been partially offset by new customer wins and the increased sale of bundled arrangements of our transcription and dragon medical solutions . we have also experienced some decline in our licensed dragon medical product sales as customers shift toward dragon medical cloud and subscription offerings , and we expect these trends to continue into fiscal year 2017. these cloud offerings are enabling the expansion of our dragon medical solutions to include new clinical language understanding and artificial intelligence innovations , providing real time queries to the physician at the point of care . we believe an important trend in the healthcare market is the desire to improve efficiency in the coding and revenue cycle management process . our solutions reduce costs by increasing automation of this important workflow and also enable hospitals to improve documentation used to support billings . the industry 's recent shift in international classification of diseases ( `` icd '' ) from icd-9 to icd-10 , together with evolving reimbursement reform that is increasingly focused on clinical outcomes , has increased the complexity of the clinical documentation and coding processes . this recent shift is reinforcing our customers ' desire for improved efficiency . we are investing to expand our product set to address the various opportunities , including deeper integration with our clinical documentation solutions ; investing in our cloud-based products and operations ; entering new and adjacent markets such as ambulatory care ; and expanding our international capabilities . mobile . trends in our mobile business include automotive oems differentiating using voice and content to provide an enhanced experience for drivers ; consumer electronics companies and cable operators competing to develop virtual assistant technologies for the home ; geographic expansion of our mobile operator services ; and , the adoption of our technology on a broadening scope of devices , such as televisions , set-top boxes , and third-party applications . the more powerful capabilities within automobiles and mobile devices require us to supply a broader portfolio of specialized virtual assistants and connected services providing voice recognition , content integration , text-to-speech , and natural language understanding capabilities . within given levels of our technology set , we have seen growth opportunities limited by the consolidation of the handset market to a small number of customers as well as increased competition in voice recognition and natural language solutions and services sold to oems . we continue to see demand involving the sale and delivery of both software and non-software related services , as well as products to help customers define , design and implement increasingly robust and complex custom solutions such as virtual assistants . we continue to see an increasing proportion of revenue from on-demand and transactional arrangements as opposed to traditional perpetual licensing of our mobile products and solutions . although this has a negative impact on near-term revenue , we believe this model will build more predictable revenues over time . we are investing in the expansion of the cloud capabilities and content of our automotive solutions ; machine learning technologies , expansion across the iot in our devices solutions ; and go-to market strategies with mobile operators . enterprise . trends in our enterprise business include increasing interest in the use of mobile applications and web sites to access customer care systems and records , voice-based authentication of users , increasing interest in coordinating actions and data across customer care channels , and the ability of a broader set of hardware providers and systems integrators to serve the market . in addition , for large enterprise businesses around the world , customer service interactions are accelerating toward more pervasive digital engagement across web , mobile and social platforms . story_separator_special_tag actual revenue could vary from our estimates due to factors such as cancellations , non-renewals or volume fluctuations . story_separator_special_tag replace_table_token_4_th fiscal year 2016 compared with fiscal year 2015 the increase in professional services and hosting revenue was driven by a $ 20.8 million increase in hosting revenue and a $ 15.1 million increase in professional services revenue . in our hosting business , mobile hosting revenue grew $ 21.9 million primarily driven by continued trend toward cloud-based services in our automotive and devices solutions . enterprise hosting revenue increased $ 19.7 million . these increases were partially offset by a $ 20.8 million decrease in the healthcare hosting revenue as we continue to experience erosion in our transcription services owed in part to the growing penetration of our dragon medical cloud and subscription offerings . in our professional services business , the revenue increase was driven primarily by a $ 13.6 million increase in our healthcare segment driven by a recent acquisition . fiscal year 2015 compared with fiscal year 2014 the increase in professional services and hosting revenue was driven by a $ 19.3 million increase in hosting revenue offset by a $ 10.7 million decrease in professional services revenue . in our hosting business , mobile on-demand revenue grew $ 21.2 million driven by a continued trend toward cloud services in our automotive and devices solutions , as well as a recent acquisition in our mobile operator services . enterprise on-demand revenue grew $ 7.3 million . these increases were offset by a $ 9.2 million decrease in healthcare hosting revenue as we continue to experience some volume erosion in our transcription solutions . in our professional services business , enterprise professional services revenue decreased $ 20.2 million driven by lower professional services from our on-premise solutions , partially offset by a $ 10.5 million increase in healthcare professional services driven by our cdi and coding solutions . as a percentage of total revenue , professional services and hosting revenue increased from 47.3 % for the year ended september 30 , 2014 to 47.6 % for the year ended september 30 , 2015. this increase was driven by our recent acquisitions which have a higher proportion of professional services and hosting revenue . the increase also includes the continuing shift toward on-demand and hosting services in our mobile segment and enterprise segment . maintenance and support revenue maintenance and support revenue primarily consists of technical support and maintenance services . the following table shows maintenance and support revenue , in dollars and as a percentage of total revenues ( dollars in millions ) : 22 replace_table_token_5_th fiscal year 2016 compared with fiscal year 2015 the increase in maintenance and support revenue was driven primarily by maintenance renewals in our imaging segment and prior year license sales in our healthcare segment , partially offset by a decline in maintenance renewals in our mobile segment . fiscal year 2015 compared with fiscal year 2014 the increase in maintenance and support revenue was driven by strong maintenance renewals , including an increase of $ 11.1 million in healthcare maintenance and support revenue and an increase of $ 5.9 million in imaging maintenance and support revenue . costs and expenses cost of product and licensing revenue cost of product and licensing revenue primarily consists of material and fulfillment costs , manufacturing and operations costs and third-party royalty expenses . the following table shows the cost of product and licensing revenue , in dollars and as a percentage of product and licensing revenue ( dollars in millions ) : replace_table_token_6_th fiscal year 2016 compared with fiscal year 2015 the decrease in cost of product and licensing revenue was primarily driven by lower costs in our mobile and healthcare segments . gross margins increased 0.3 percentage points , primarily driven by higher revenues from higher margin license products in our enterprise and imaging segments . fiscal year 2015 compared to fiscal year 2014 this decrease in cost of product and licensing revenue was primarily driven by a $ 3.4 million decrease in costs within our imaging segment . gross margins increased 0.5 percentage points , primarily driven by higher revenues from higher margin license products in our mobile business . cost of professional services and hosting revenue cost of professional services and hosting revenue primarily consists of compensation for services personnel , outside consultants and overhead , as well as the hardware , infrastructure and communications fees that support our hosting solutions . the following table shows the cost of professional services and hosting revenue , in dollars and as a percentage of professional services and hosting revenue ( dollars in millions ) : replace_table_token_7_th fiscal year 2016 compared with fiscal year 2015 the increase in cost of professional services and hosting revenue was primarily driven by higher professional services compensation expense in our healthcare segment and higher hosting services expenses in our enterprise segment driven by recent 23 acquisitions . these increases were partially offset by a reduction in medical transcription expense and mobile cloud-based services expenses as a result of our cost-savings initiatives including our on-going efforts to move costs and activities to lower-cost countries . gross margins increased 1.7 percentage points primarily driven by margin expansion in our cloud-based services within our mobile segment , partially offset by higher professional services revenue in our healthcare segment which carries a lower gross margin . fiscal year 2015 compared with fiscal year 2014 the decrease in cost of professional services and hosting revenue was due to a $ 8.4 million and a $ 8.1 million reduction in costs in our enterprise and healthcare segments , respectively , driven by lower compensation related expense and our on-going efforts to move costs to lower-cost countries during the fiscal year . these decreases were partially offset by a $ 3.2 million increase in costs within our mobile business driven by investment in our connected services infrastructure .
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results of operations total revenues the following tables show total revenues by product type and revenue by geographic location , based on the location of our customers , in dollars and percentage change ( dollars in millions ) : replace_table_token_2_th fiscal year 2016 compared with fiscal year 2015 the geographic split for fiscal year 2016 was 71 % of total revenue in the united states and 29 % internationally , as compared to 73 % of total revenue in the united states and 27 % internationally for the same period last year . fiscal year 2015 compared with fiscal year 2014 the geographic split for fiscal years 2015 and 2014 was 73 % of total revenue in the united states and 27 % internationally . international revenue was negatively impacted by weakening foreign currencies offset by an increase in revenue driven by an acquisition in fiscal year 2015. product and licensing revenue product and licensing revenue primarily consists of sales and licenses of our technology . the following table shows product and licensing revenue , in dollars and as a percentage of total revenues ( dollars in millions ) : replace_table_token_3_th fiscal year 2016 compared with fiscal year 2015 the decrease in product and licensing revenue consisted of a $ 26.2 million decrease in our mobile segment and a $ 24.1 million decrease in our healthcare segment , partially offset by a $ 13.7 million increase in our enterprise segment and a $ 9.6 million increase in our imaging segment . the revenue decrease in our mobile business was driven by a decline in handset revenues resulting from deterioration in mature markets , partially offset by revenue growth in our automotive business . the revenue decrease in our healthcare segment was mainly driven by lower revenues from our licensed dragon medical product sales as we transition from perpetual to cloud and subscription models .
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accretion is a non-cash charge that represents changes in our asset retirement liability due to the passage of time . depletion , depreciation and amortization . under the full cost accounting method , we capitalize all acquisition , exploration and development costs , including certain related employee costs , incurred for the purpose of finding oil and natural gas within a cost center and then systematically expense those costs on a units of production basis based on evaluated oil , ngl and natural gas reserve quantities . we calculate depletion on the following types of costs : ( i ) all capitalized costs , other than the cost of investments in unevaluated properties and major development projects for which evaluated reserves can not yet be assigned , less accumulated depletion ; ( ii ) the estimated future expenditures to be incurred in developing evaluated reserves ; and ( iii ) the estimated dismantlement and abandonment costs , net of estimated salvage values . we calculate depreciation on the cost of fixed assets related to our pipelines and other fixed assets utilizing the straight-line method over the useful life of the asset , or in the case of leasehold improvements over the shorter of the estimated useful lives of the assets or the terms of the related leases . impairment expense . the full cost ceiling is based principally on the estimated future net revenues from our proved oil and natural gas properties discounted at 10 % . our realized prices ( as defined below ) are utilized to calculate the discounted future net revenues in our full cost ceiling calculation . in the event the unamortized cost of our evaluated oil and natural gas properties being depleted exceeds the full cost ceiling , the excess is charged to expense in the period such excess occurs . once incurred , a write-down of oil and natural gas properties is not reversible . long-lived assets are considered impaired when their net carrying value is greater than the future undiscounted cash flows . once an asset is recognized as impaired , costs are incurred to write the asset down . with the continuing volatility in commodity prices , we may incur additional write-downs on our oil and natural gas properties . materials and supplies inventory and line-fill are recorded at the lower of cost or net realizable value ( `` nrv '' ) , with costs determined using the weighted-average cost method . 59 other income ( expense ) gain ( loss ) on derivatives , net . we utilize derivatives to reduce our exposure to fluctuations in the price of crude oil , ngl and natural gas . this amount represents ( i ) the recognition of gains and losses associated with our open derivatives as commodity prices change and derivatives expire or new contracts are entered into , and ( ii ) our gains and losses on the settlement , termination and modification of these derivatives . we classify these gains and losses as operating activities in our consolidated statements of cash flows . income ( loss ) from equity method investee . we have invested in a company where we own 49 % of the ownership units . as such , we account for this investment under the equity method of accounting with our proportionate share of net income ( loss ) reflected in the consolidated statements of operations as `` income ( loss ) from equity method investee '' and the carrying amount reflected in the consolidated balance sheets as `` investment in equity method investee . '' see note 14 to our consolidated financial statements included elsewhere in this annual report for additional information regarding this investment . interest expense . we finance a portion of our working capital requirements , capital expenditures and acquisitions with borrowings under our senior secured credit facility and our senior unsecured notes . as a result , we incur interest expense that is affected by both fluctuations in interest rates and our financing decisions . we reflect interest paid to the lenders and bondholders in interest expense , net of amounts capitalized . in addition , we include the amortization of : ( i ) debt issuance costs ( including origination , amendment and professional fees ) , ( ii ) deferred premiums associated with our derivative contracts , ( iii ) commitment fees and ( iv ) annual agency fees in interest expense . interest and other income . this represents the interest received on our cash and cash equivalents as well as other miscellaneous income . loss on early redemption of debt . this represents the loss on extinguishment recognized in the early redemption of our january 2019 notes in april 2015 , related to the difference between the redemption price and the net carrying amount . write-off of debt issuance costs . debt issuance fees , which are stated at cost , net of amortization , are amortized over the life of the respective debt agreements utilizing the effective interest and straight-line methods . write-offs of such costs can occur when borrowing terms change and or debt has been extinguished . loss on disposal of assets , net . this represents losses recorded from selling or disposing of property and equipment or inventory . sale proceeds are compared with the recorded net book value of the asset and the appropriate gain ( loss ) is recorded . income tax benefit ( expense ) . income taxes in our financial statements are generally presented on a consolidated basis . we are subject to federal and state corporate income taxes and texas franchise tax . these taxes are accounted for under the asset and liability method . story_separator_special_tag deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating losses and tax credit carry-forwards . under this method , 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 laws or tax rates is recognized in income in the period that includes the enactment date . on a quarterly basis , management evaluates the need for and adequacy of valuation allowances based on the expected realization of the deferred tax assets and adjusts the amount of such allowances , if necessary . we considered all available evidence , both positive and negative , in determining whether , based on the weight of that evidence , a valuation allowance was needed on either the federal or oklahoma net operating loss carry-forwards . such consideration included estimated future projected earnings based on existing reserves and projected future cash flows from our oil and natural gas reserves ( including the timing of those cash flows ) , the reversal of deferred tax liabilities recorded as of december 31 , 2016 , our ability to capitalize intangible drilling costs rather than expensing these costs in order to prevent an operating loss carry-forward from expiring unused and future projections of oklahoma sourced income . during the year ended december 31 , 2016 , we determined it is more likely than not that we will not realize our net deferred tax assets and , as a result , a valuation allowance of $ 87.5 million was recorded . as of december 31 , 2016 , a total valuation allowance of $ 764.8 million has been recorded against the deferred tax asset . see note 7 to our consolidated financial statements included elsewhere in this annual report for additional discussion of our valuation allowance . 60 story_separator_special_tag $ 16.9 million decrease in production taxes for the year ended december 31 , 2015 compared to 2014 , which are based on and fluctuate in proportion to our oil , ngl and natural gas revenue . midstream service expenses . see `` —results of operations - midstream and marketing '' for a discussion of these expenses . minimum volume commitments . minimum volume commitments decreased by $ 3.0 million for the year ended december 31 , 2016 compared to 2015 , and increased by $ 2.7 million for the year ended december 31 , 2015 compared to 2014 . these changes are mainly a result of our 2015 buyout of a minimum volume commitment to medallion related to natural gas gathering infrastructure constructed by medallion on acreage we do not plan to develop . see notes 12.d and 14 to our consolidated financial statements included elsewhere in this annual report for further discussion of our minimum volume commitments . costs of purchased oil . see `` —results of operations - midstream and marketing '' for a discussion of these expenses . general and administrative ( `` g & a '' ) . the table below shows the changes in the significant components of g & a expense for the periods presented : replace_table_token_20_th g & a expense , excluding stock-based compensation , net of amounts capitalized , decreased by $ 3.4 million , or 5 % , for the year ended december 31 , 2016 compared to 2015 . this change is primarily due to decreases in expenses related to our 2013 performance unit awards and professional fees , partially offset by an increase in salaries , benefits and bonuses , net of amounts capitalized . expense incurred for our 2013 performance unit awards was $ 4.1 million for the year ended december 31 , 2015. there was no comparable expense during the year ended december 31 , 2016 as these types of awards are no longer a part of our compensation at this time . the performance criteria of these awards were satisfied on december 31 , 2015 and paid during the first quarter of 2016. stock-based compensation , net of amounts capitalized , increased by $ 4.7 million , or 19 % , for the year ended december 31 , 2016 compared to 2015 . this increase is mainly due to the issuance of restricted stock awards , stock option awards and performance share awards during the year ended december 31 , 2016. for further discussion of our stock-based compensation , see note 6 to our consolidated financial statements included elsewhere in this annual report . g & a expense , excluding stock-based compensation , net of amounts capitalized , decreased by $ 17.0 million , or 21 % , for the year ended december 31 , 2015 compared to 2014. this change is primarily due to ( i ) professional fees paid to a consulting company in 2014 that was engaged to assist us with the optimization of our development operations , ( ii ) reduced personnel expenses as a result of the reduction in force ( the `` rif '' ) which occurred early in the first quarter of 2015 and ( iii ) our $ 3.0 million charitable contribution pledge expensed in 2014 , which will be paid in annual installments through 2024. these contributors are partially offset by an increase in the fair value of the 2013 performance unit awards as of december 31 , 2015 compared to 2014 , based on the performance of our stock price relative to the peer group specified in the award agreement and utilized in the forward-looking monte carlo simulation . stock-based compensation , net of amounts capitalized , increased by $ 1.4 million , or 6 % , for the year ended december 31 , 2015 compared to 2014 due to the varying service periods of
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results of operations consolidated for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 , and for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 oil , ngl and natural gas sales volumes , revenues and pricing the following table sets forth information regarding oil , ngl and natural gas sales volumes , revenues and average sales prices per boe sold , for the periods presented : replace_table_token_16_th _ ( 1 ) for the period prior to january 1 , 2015 , we presented our sales volumes , sales and average sales prices for oil and natural gas , which combined ngl with the natural gas stream , and did not separately report ngl . this change impacts the comparability of 2016 and 2015 with 2014 . ( 2 ) boe is calculated using a conversion rate of six mcf per one bbl . ( 3 ) the volumes presented are based on actual results and are not calculated using the rounded numbers presented in the table above . ( 4 ) realized oil , ngl and natural gas prices are the actual prices realized at the wellhead adjusted for quality , transportation fees , geographical differentials , marketing bonuses or deductions and other factors affecting the price received at the wellhead . the prices presented are based on actual results and are not calculated using the rounded numbers presented in the table above . ( 5 ) hedged prices reflect the after-effects of our hedging transactions on our average sales prices . our calculation of such after-effects includes current period settlements of matured derivatives in accordance with gaap and an adjustment to reflect premiums incurred previously or upon settlement that are attributable to instruments that settled in the period . the prices presented are based on actual results and are not calculated using the rounded numbers presented in the table above .
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beginning with the second quarter of fiscal 2012 , we redefined our reportable operating segments based on geography as our company is organized and managed along geographic lines , with product offerings and channels based on local custom and regulation . for this reason , we concluded that segment reporting based on geography more closely aligns with our management organization and strategic direction . in connection with the new segment structure , we have changed the accountability for , and reporting of , certain items , including administrative expenses , depreciation and amortization , interest and our equity in the net income of unconsolidated affiliates . when practical , these items are allocated to segments . interest is also allocated to operating segments when debt is incurred at the local country level and is nonrecourse to ezcorp , inc. these items are now included in the segment 's measure of profit or loss ( “ segment contribution ” ) . expenses that can not be allocated are included as corporate expenses . in fiscal 2011 , we reclassified fees from our product protection plan and jewelry vip program , as well as layaway fees , from “ other ” revenue to “ sales , ” as fees from these products are incidental to sales of merchandise . prior year figures have been reclassified to conform to this presentation and margins have been recalculated accordingly . overview we are a leading provider of instant cash solutions . we provide collateralized , non-recourse loans , commonly known as pawn loans , and a variety of short-term consumer loans , including single-payment and multiple-payment unsecured loans and single-payment and multiple-payment auto title loans . in texas , we provide fee-based credit services to customers seeking loans . at our pawn and buy/sell stores , we also sell merchandise , primarily collateral forfeited from pawn lending operations and used merchandise purchased from customers . we offer prepaid debit card services to help customers better manage their money and control their spending . during the second quarter of fiscal 2012 , we entered into the unsecured lending market in mexico with the acquisition of a 60 % interest in crediamigo . at september 30 , 2012 , crediamigo had approximately 100 payroll withholding agreements with mexican employers , primarily federal , state and local governments and agencies , and provides consumer loans to the agencies ' employees . in april 2012 , we acquired a 72 % interest in cash genie , which offers short-term consumer loans online in the united kingdom . subsequent to the end of fiscal 2012 , we increased our ownership interest in cash genie to 95 % . 25 at september 30 , 2012 , we operated a total of 1,262 locations , consisting of 470 u.s. pawn stores ( operating as ezpawn or value pawn ) , seven buy/sell stores in the u.s. ( operating as cash converters ) , 230 pawn stores in mexico ( operating as empeño fácil or empeñe su oro ) , 442 u.s. financial services stores ( operating primarily as ezmoney ) , 33 financial services stores in canada ( operating as cashmax ) , 35 buy/sell and financial services stores in canada ( operating as cash converters ) and 45 crediamigo locations in mexico . in addition , we are the franchisor for 10 franchised cash converters stores in canada . we also own almost 30 % of albemarle & bond holdings plc , one of the u.k. 's largest pawnbroking businesses with approximately 230 stores , and almost 33 % of cash converters international limited , which franchises and operates a worldwide network of approximately 700 locations that buy and sell second-hand merchandise and offer financial services . our business consists of three reportable segments : the u.s. & canada segment , which includes all business activities in the united states and canada ; the latin america segment , which includes our empeño fácil pawn operations and crediamigo financial services operations in mexico ; and the other international segment , which includes the cash genie online business in the u.k. and our equity interests in the net income of albemarle & bond and cash converters international . the following tables present stores by segment : replace_table_token_12_th replace_table_token_13_th replace_table_token_14_th 26 pawn and retail activities we earn pawn service charge revenues on our pawn lending . while allowable service charges vary by state and loan size , a majority of our u.s. pawn loans earn 20 % per month . our average u.s. pawn loan amount typically ranges between $ 130 and $ 145 , but varies depending on the valuation of each item pawned . the total u.s. loan term ranges between 60 and 120 days , consisting of the primary term and grace period . in mexico , pawn service charges range from 15 % to 21 % per month , including applicable taxes , with the majority of loans earning 21 % . the total mexico pawn loan term is 40 days , consisting of the primary term and grace period . individual loans are made in mexican pesos and vary depending on the valuation of each item pawned , but typically average $ 60 u.s. dollars . in our pawn stores , buy/sell stores in pennsylvania and virginia and certain financial services stores in canada , we acquire inventory for retail sales through pawn loan forfeitures , purchases of customers ' second hand merchandise or purchases of new or refurbished merchandise from third party vendors . the gross profit on sales of inventory depends primarily on our assessment of the loan or purchase value at the time the property is either accepted as loan collateral or purchased . margins achieved on sale of inventory are a function of the assessment of value at the time the pawn loan was originated or , in the case of purchased merchandise , the purchase price . we record a valuation allowance for obsolete or slow-moving inventory based on the type and age of merchandise . story_separator_special_tag the results of all acquired stores and businesses have been consolidated with our results since their acquisition . in the year ended september 30 , 2011 , we acquired 40 pawn stores in the chicago metropolitan area , georgia , central and south florida , iowa , wisconsin , utah and the mexican states of hidalgo and tlaxcala for approximately $ 66.2 million in cash and the issuance of approximately 0.2 million shares of ezcorp stock valued at $ 7.3 million . in april 2011 we also acquired the trademark and licensing rights of cash converters in canada , including rights to receive fees from 13 stores operated by franchisees in canada . the results of all acquired stores have been consolidated with our results since their acquisition . international growth with continued execution of the our geographic and product diversification strategy , nearly 18 % of our consolidated segment contribution in fiscal 2012 was attributable to areas outside the united states , up from 8 % during fiscal 2011. total revenue in the latin america and other international segments combined more than doubled from fiscal 2011 to fiscal 2012 , with combined segment contribution increasing 160 % . these year-over year increases are the result of continued strength in our empeño fácil business in mexico , the acquisition of controlling interests in crediamigo and cash genie and our strategic investments in the united kingdom and australia . other included in the results for the fiscal year ended september 30 , 2011 is a pre-tax administrative expense charge of $ 10.9 million related to the october 2010 retirement of our former chief executive officer , including $ 3.4 million attributable to a cash payment and $ 7.5 million attributable to the vesting of restricted stock . the prior year income tax expense reflects a $ 3.8 million tax benefit related to this charge . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates and judgments , including those related to revenue recognition , inventory , loan loss allowances , long-lived and intangible assets , income taxes , contingencies and litigation . we base our estimates on historical experience , observable trends and various other assumptions that we believe to be reasonable under the circumstances . we use this information to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from the estimates under different assumptions or conditions . we believe the following critical accounting policies and estimates could have a significant impact on our results of operations . you should refer to note 1 , “ organization and summary of significant accounting policies , ” to our consolidated financial statements included in “ part ii — item 8 — financial statements and supplemental data ” for a more complete review of other accounting policies and estimates used in the preparation of our consolidated financial statements . 28 consolidation the consolidated financial statements include the accounts of ezcorp , inc. and our controlled subsidiaries . all significant inter-company accounts and transactions have been eliminated in consolidation . we own 60 % of the outstanding equity interests in prestaciones finmart , s.a. de c.v. , sofom , e.n.r . ( `` crediamigo '' ) and 72 % of ariste holding limited and its affiliates ( `` cash genie '' ) and , therefore , include their results in our consolidated financial statements . we account for our investments in albemarle & bond holdings , plc and cash converters international limited using the equity method . pawn loan and sales revenue recognition we record pawn service charges using the interest method for all pawn loans we believe to be collectible . we base our estimate of collectible loans on several factors , including recent redemption rates , historical trends in redemption rates and the amount of loans due in the following two months . unexpected variations in any of these factors could change our estimate of collectible loans , affecting our earnings and financial condition . if a pawn loan is not repaid , we value the forfeited collateral ( inventory ) at the lower of cost ( pawn loan principal ) or market value of the property . we record sales revenue and the related cost when this inventory is sold or when we receive the final payment on a layaway sale . sales tax collected upon the sale of inventory is excluded from the amount recognized as sales and instead recorded as a liability in “ accounts payable and other accrued expenses ” on our balance sheets until remitted to the appropriate governmental authorities . consumer loans we provide a variety of short-term consumer loans , including single-payment and multiple-payment unsecured loans and single-payment and multiple-payment auto title loans . in texas , we provide fee-based credit services to customers seeking loans . in mexico , crediamigo enters into agreements with employers that permit it to market consumer loans to employees . payments are withheld by the employers through payroll deductions and remitted to crediamigo . revenue recognition unsecured consumer loan credit service fees — we earn credit service fees when we assist customers in obtaining unsecured loans from unaffiliated lenders . we initially defer recognition of the fees we expect to collect , net of direct expenses , and recognize that deferred net amount over the life of the related loans . we reserve the percentage of credit service fees we expect not to collect . accrued fees related to defaulted loans reduce credit service fee revenue upon loan default , and increase credit service fee revenue upon collection .
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results of operations fiscal 2012 compared to fiscal 2011 the following discussion compares our results of operations for the year ended september 30 , 2012 to the year ended september 30 , 2011 . it should be read with the accompanying consolidated financial statements and related notes . in fiscal 2012 , consolidated total revenues increased 14 % , or $ 123.2 million , to $ 992.5 million , compared to the prior year . same store total revenues decreased $ 13.2 million , or 2 % , and new and acquired stores contributed $ 136.4 million . excluding the one-time $ 10.9 million charge related to the retirement of our former chief executive officer and the related tax benefit , net income before taxes increased 11 % to $ 221.6 million from $ 199.7 million in the prior year . net income attributable to ezcorp , inc. increased $ 21.5 million , or 18 % , after a $ 6.9 million of net income attributable to noncontrolling interest . 32 u.s. & canada the following table presents selected financial data for the u.s. & canada segment : replace_table_token_15_th ( a ) average yield on pawn loan portfolio is calculated as pawn service charge revenues for the period divided by the average pawn loan balance during the period . the u.s. & canada segment total revenues increased $ 60.3 million , or 7 % , from the prior year to $ 871.3 million . same store total revenues decreased $ 17.3 million , or 2.1 % , and new and acquired stores net of closed stores contributed $ 77.6 million . the overall increase in total revenues consisted of a $ 32.7 million increase in merchandise and jewelry scrapping sales , a $ 26.4 million increase in pawn service charges and a $ 1.2 million increase in loan fees and other revenues .
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prior restatement the company previously disclosed in its annual report on form 10-k/a ( “ form 10-k/a ” ) and quarterly report on form 10-q/a ( “ form 10-q/a ” ) , both filed with the sec on july 3 , 2013 , that it restated its financial statements for the periods described therein because the company was incorrectly accounting for work-in-process inventory at one of its subsidiaries , scb . the company restated : ( i ) its previously issued consolidated financial statements for the fiscal year ended september 30 , 2012 ( “ fy 2012 ” ) , as included in the company 's annual report on form 10-k for fy 2012 , as well as the unaudited interim consolidated financial statements as of and for the fiscal quarter and year-to-date periods ended december 30 , 2011 ( “ q1-2012 ” ) , march 30 , 2012 ( “ q2-2012 ” ) and june 29 , 2012 ( “ q3-2012 ” ) ( collectively , the “ 2012 restated periods ” ) as included in its quarterly reports on form 10-q for q-1 2012 , q-2 2012 and q-3 2012 , and ( ii ) its previously issued financial statements for the quarter ended december 28 , 2012 ( “ q1-2013 ” ) as included in its quarterly report on form 10-q for q1-2013 . comparative information for the fiscal 2012 restated periods , as well as for q1-2013 , included in this form 10-k reflect information contained in the financial statements as so restated . 17 three months ended september 30 , 2013 and 2012 ( fourth fiscal quarter ) a summary of selected income statement amounts for the three months ended follows : replace_table_token_3_th as more fully described in note 2 restatement of consolidated financial statements to the consolidated financial statements included in this form 10-k , the company has restated its financial statements for the three month period and year ended september 30 , 2012. a summary of sales , according to the market sector within which iec 's customers operate , follows : replace_table_token_4_th revenue increased in the fourth quarter of fiscal 2013 by $ 2.1 million or 5.6 % as compared to the fourth quarter of the prior fiscal year . aggregate revenue increases in the communications & other market sector of $ 1.1 million as well as increases in all other market sectors resulted in the increase . the increase in the communications & other market sector was primarily due to a $ 1.8 million increase in a program for one of our telecom customers that ramped up in fiscal 2013. the increase was partially offset by decreased demand from two customers . one of the communications customers is now producing a component part in house due to its decreased end customer demand and the other has implemented a strategic initiative to move some of its assembly work off-shore . the increase in the industrial market sector of $ 0.4 million was primarily due to fluctuations in demand for various customers . revenue for the medical market sector increased $ 0.4 million primarily due to increased demand from two customers for ongoing programs partially offset by decreased demand from a customer upon completion of the customer 's product recall program . the net increase in military & aerospace revenue was $ 0.2 million . military & aerospace revenue increases of $ 4.3 million were primarily related to new programs from existing customers . these increases were partially offset by decreases from some of our military customers aggregating $ 2.9 million due to lack of government funding . also offsetting these increases were decreases aggregating $ 1.1 million from military & aerospace customers , primarily due to a customer who chose to manufacture products in house due to its decreased end customer demand . 18 our fourth fiscal quarter gross profit decreased $ 0.7 million over the prior fiscal year , and decreased to 13.9 % of sales from 16.7 % of sales in the fourth quarter of the prior fiscal year . an unfavorable change in product mix in the fourth quarter of the current year caused a portion of the decrease . this shift in product mix is the result of several factors . one of these factors is increased revenue in the telecom industry , for which we earn lower margins . we expect gross profit as a percent of revenue in this industry to remain somewhat consistent with the fourth fiscal quarter . shifts in volume between programs within other market sectors also impacted gross profit . throughout fiscal 2013 , we maintained a level of overhead in our business to support higher sales expected in future periods . we obtained orders from a number of new customers and additional operating locations for existing customers during the second half of fiscal 2013 which resulted in higher overhead costs due to the upfront investment required to establish new programs . most programs become more profitable after they ramp up and we expect that trend to continue . selling and administrative ( `` s & a '' ) expense is presented excluding restatement and related expenses discussed below . s & a expense increased $ 0.2 million , and represents 9.6 % of sales in the fourth quarter of fiscal 2013 , compared to 9.7 % of sales in the same quarter of the prior fiscal year . the increase in s & a expense for the fourth quarter of fiscal 2013 was primarily increased wage and related expenses . the net increase in wage and related expenses was due to increased medical insurance costs partially offset by decreases resulting from changes in the company 's organizational structure made during the second quarter of the current fiscal year . during the fourth quarter of fiscal 2013 , we recorded impairment charges of $ 14.2 million relating to our scb reporting unit . $ 11.8 million of the impairment charge relates to goodwill and $ 2.4 million relates to a customer relationship intangible asset . story_separator_special_tag a $ 3.3 million decrease in revenue from one of our aerospace customers was due to the move of some production back in house to use excess capacity created by decreased end customer demand . decreases aggregating $ 2.5 million at three of our military customers were due to reduced government funding . additional decreases include lower demand from four of our military customers aggregating $ 3.3 million . 20 our gross profit decreased $ 8.6 million from the prior fiscal year , and decreased to 12.5 % of sales from 18.1 % of sales in the prior fiscal year . an unfavorable change in product mix caused a portion of the decrease . this shift in product mix is the result of several factors . revenue in the telecom industry , for which we earn lower margins , has increased . technical problems that impacted gross profit related to the above-referenced telecom customer earlier in fiscal 2013 have been resolved . we expect gross profit as a percent of revenue in the telecom industry to remain somewhat consistent with the current fiscal year . revenue from programs for some of our military customers for which we earn lower margins also increased . various other factors also contributed to the decrease in gross profit . we earn a lower gross profit at one of our large industrial customers due to pricing pressures and maturing programs . in the prior year , we began supplying components for a major program for this customer . higher sales prices paid by this customer in the early stages of this program have decreased as the program matures . lower than anticipated sales volumes at some locations during the first half of fiscal 2013 reduced leverage on fixed manufacturing costs as well as indirect labor . despite this , we have continued to maintain overhead to support higher sales expected in future periods . we obtained orders from a number of new customers and additional operating locations of existing customers during the second half of fiscal 2013 which resulted in higher overhead costs due to the upfront investment required to establish new programs . we expect the majority of these programs to ramp up and begin producing revenue in the first and second quarters of fiscal 2014. most programs become more profitable as they mature and we expect that trend to continue . there was no material impact of inflation or price volatility for fiscal 2013 and 2012. s & a expense is presented excluding restatement and related expenses discussed below . s & a expense decreased $ 0.3 million and represented 11.0 % of sales for the current fiscal year compared to 10.9 % of sales in the prior fiscal year . lower bonus and commission expense primarily caused by lower sales volumes was the reason for the decrease . organizational changes implemented during the second quarter of the current fiscal year resulted in no net impact on s & a expense for the current fiscal year as severance costs were offset by cost savings subsequent to implementation of the changes . during the fourth quarter of fiscal 2013 , we recorded impairment charges of $ 14.2 million relating to our scb reporting unit . $ 11.8 million of the impairment charge relates to goodwill and $ 2.4 million relates to a customer relationship intangible asset . the impairment analysis and resulting charges are due to slower than anticipated growth and poor operating performance at scb , as well as market uncertainties and strategic changes made by the company as more particularly discussed in note 6 intangible assets and note 7 goodwill to the consolidated financial statements included in this form 10-k. while the strategic change to direct future military & aerospace revenue growth to our albuquerque reporting unit contributed to an impairment for our scb reporting unit , it is intended to improve overall profitability for the consolidated company . although uncertainties in the military & aerospace market sector will likely continue , the majority of our military & aerospace customers participate in complex , advanced technology programs including unmanned vehicles , space defense and space exploration , which we expect to be continued over the long term . restatement and related expenses of $ 1.8 million in fiscal 2013 represent third party legal and accounting fees directly attributable to the restatement as well as other matters arising from the restatement including those more fully described in note 17-litigation to the accompanying consolidated financial statements . we anticipate elevated levels of legal expenses due to the restatement and other matters ( including the now formal sec investigation and consolidated shareholder class action ) for the foreseeable future . interest expense was flat at $ 1.2 million in the current and prior fiscal year . decreases in interest expense due to increases in the fair value of the interest rate swap of $ 0.3 million during the year , were offset by higher debt balances and covenant waiver fees . iec 's average outstanding debt balance increased to $ 31.5 million for the current fiscal year from $ 30.7 million for the prior fiscal year . average borrowings in fiscal 2013 were higher than the prior fiscal year primarily due to increased borrowings on the revolver to fund operations . the weighted average interest rate on iec 's debt , excluding the impact of the interest rate swap , was 0.15 % lower than in the prior fiscal year . detailed information regarding our borrowings , including a summary of modifications in the fourth amended and restated credit facility agreement , is provided in note 8 - credit facilities to the consolidated financial statements included in this form 10-k. the other ( income ) /expense category of iec 's income statement reflects non-operating items such as acquisition costs and various gains and losses .
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summary of cash flows replace_table_token_7_th operating activities cash flows provided by operations , before considering changes in iec 's working capital accounts was $ 4.5 million and $ 16.1 million for the years ended september 30 , 2013 and 2012 , respectively . the decrease was primarily driven by a $ 16.2 million decrease in net income , a $ 8.9 million lower add-back for deferred taxes and a $ 1.1 million decrease in contingent consideration , offset by a $ 14.2 million impairment charge of goodwill and intangible assets taken in fiscal 2013 as well as a $ 0.5 million increase in depreciation and amortization . cash flows used by working capital increased from $ 3.1 million for the year ended september 30 , 2012 to $ 8.9 million for the year ended september 30 , 2013. an increase of accounts receivable of $ 4.9 million and an increase of inventory of $ 4.2 million were the primary cause of change in working capital . accounts receivable increased primarily due to increased revenue during the last month of the fiscal 2013 as compared to fiscal 2012. inventory levels increased in fiscal 2013 due to additional safety stock at the request of a customer as well as anticipated increased sales in the first quarter of fiscal 2014 over the first quarter of fiscal 2013. the transition from utilization of customer furnished materials to turn-key manufacturing services for a telecom customer that ramped up in fiscal 2013 also caused a portion of the increase . investing activities cash flows used by investing activities were $ 5.1 million and $ 3.0 million for the years ended september 30 , 2013 and 2012 , respectively , primarily related to purchases of equipment and the celmet building . financing activities cash flows provided by financing activities were $ 9.3 million for the year ended september 30 , 2013 and cash flows used in financing activities were $ 7.3 million for the year ended september 30 , 2012.
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as a result of many factors , such as those set forth under the section entitled risk factors , cautionary note regarding forward-looking statements and elsewhere herein , our actual results may differ materially from those anticipated in these forward-looking statements . executive overview insmed is a global biopharmaceutical company focused on the unmet needs of patients with rare diseases . we were incorporated in the commonwealth of virginia on november 29 , 1999. on december 1 , 2010 , we completed a business combination with transave , inc. , a privately held , new jersey-based pharmaceutical company focused on the development of differentiated and innovative inhaled pharmaceuticals for the site-specific treatment of serious lung diseases . our continuing operations are based on the technology and products historically developed by transave . during 2015 we formed subsidiaries in a number of countries in europe in preparation for the commercialization of arikayce , upon approval in the european union , and to support our global tax structure . the company has legal entities in the us , ireland , germany , france , the united kingdom ( uk ) and the netherlands . we have not generated material revenue to date , except for in 2013 , and through december 31 , 2016 , we had an accumulated deficit of $ 765.2 million . we have financed our operations primarily through the public offerings of our equity securities and debt financings . although it is difficult to predict our future funding requirements , based upon our current operating plan , we anticipate that our cash and cash equivalents as of december 31 , 2016 will enable us to fund our operations for at least the next 12 months . we expect that over the next several years we will continue to incur losses from operations as we increase our expenditures in research and development in connection with our ongoing clinical trials , and for expenses related to the preparation for the commercial launch of arikayce globally , if approved . if adequate funds are not available to us on a timely basis , or at all , we may be required to terminate or delay certain development activities , or delay our investment in sales and marketing capabilities or other activities that may be necessary to commercialize arikayce , if we obtain marketing approval . pipeline progress arikayce our lead product candidate is arikayce , or liposomal amikacin for inhalation ( lai ) , which is in late-stage development for adult patients with treatment refractory nontuberculous mycobacteria ( ntm ) lung disease caused by mycobacterium avium complex ( mac ) , a rare and often chronic infection that is capable of causing irreversible lung damage and which can be fatal . in the fourth quarter of 2016 , we completed enrollment in our global phase 3 clinical study of arikayce ( the 212 or convert study ) in adult patients with treatment refractory ntm lung disease caused by mac , which is the predominant infective species in ntm lung disease in the united states ( us ) , europe , and japan . we expect to report top-line results for the month 6 primary endpoint 67 in the second half of 2017. if the convert study meets its primary endpoint , we intend to seek accelerated marketing approval for arikayce in the us . convert study subjects who are non-converters by month 6 may be eligible to enter a separate 12-month open-label study ( the 312 study ) . the primary objective of the 312 study is to evaluate the long-term safety and tolerability of arikayce in combination with a standard multi-drug regimen . in the fourth quarter of 2014 , we filed an maa with the european medicines agency ( ema ) for arikayce as a treatment for ntm lung disease in adult patients and for cystic fibrosis ( cf ) patients with pseudomonas lung infections . the filing was based on data from our phase 3 study in cf patients with pseudomonas and our phase 2 study in patients with ntm . in february 2015 , the ema validated our maa as complete for review . the ema subsequently requested additional information with respect to the cf indication regarding the similarity of arikayce to another product that has an orphan designation for the same pseudomonas indication . in the third quarter of 2015 , the ema adopted our request to withdraw the pseudomonas indication from our maa . in april 2016 , we submitted our written responses to the ema 's 180-day list of outstanding issues ( loi ) . in may 2016 , we participated in an oral explanation meeting with the chmp for the ntm indication to address the loi . after the oral explanation meeting , the chmp concluded that the data submitted did not provide enough evidence to support an approval . in june 2016 , we withdrew our maa . we intend to seek marketing approval for arikayce in the eu , japan and certain other countries outside the us when sufficient data are available . ins1007 ins1007 is a novel oral reversible inhibitor of dipeptidyl peptidase 1 ( dpp1 ) , an enzyme responsible for activating neutrophil serine proteases , which are implicated in the pathology of chronic inflammatory lung diseases , such as non-cystic fibrosis ( non-cf ) bronchiectasis . in october 2016 , we acquired the exclusive global rights to ins1007 ( formerly known as azd7986 ) from astrazeneca and we are finalizing our plans for a phase 2 study in our lead indication , non-cf bronchiectasis . in a phase 1 study of healthy volunteers , azd7986 was well tolerated and demonstrated inhibition of the activity of the neutrophil serine protease neutrophil elastase in a dose and concentration dependent manner . in preclinical studies , ins1007 was shown to reversibly inhibit dpp1 and the activation of neutrophil serine proteases within maturing neutrophils . story_separator_special_tag general and administrative expenses general and administrative expenses for the year ended december 31 , 2015 and 2014 were comprised of the following : replace_table_token_7_th 73 general and administrative expenses increased to $ 43.2 million during the year ended december 31 , 2015 from $ 31.1 million in the same period in 2014. the $ 12.1 million increase was primarily due to higher compensation related expenses due to an increase in headcount , an increase in pre-commercial expenses in europe , a $ 1.5 million increase in noncash stock-based compensation expense related to the vesting of certain performance based stock options as the recognition criteria was met upon the maa for arikayce being accepted for filing by the ema in february 2015 , and fees and expenses related to the build-out of our european operations and global tax infrastructure . interest expense interest expense was $ 2.9 million during the year ended december 31 , 2015 as compared to $ 2.4 million in the same period in 2014. the $ 0.5 million increase in interest expense in 2015 relates to an increase in our borrowings from hercules . in december 2014 , we entered into a third amendment to the loan and security agreement with hercules which increased our borrowings by an additional $ 5.0 million to an aggregate total of $ 25.0 million . income tax benefit the income tax benefit was $ 2.0 million and $ 10.4 million for the years ended december 31 , 2015 and 2014 , respectively . the income tax benefit recorded for the year ended december 31 , 2014 primarily reflects the reversal of a valuation allowance previously recorded against our new jersey state nols that resulted from the sale of a portion of our new jersey state nols under the program for cash of $ 10.4 million , net of commissions . the decrease in tax benefit in 2015 was due to timing , as we recognized the full tax benefits of the 2014 sales of nols in calendar year 2014 , while the 2013 sales of nols were recognized in the first quarter of 2014. liquidity and capital resources overview there is considerable time and cost associated with developing a potential drug or pharmaceutical product to the point of regulatory approval and commercialization . in recent years , we have funded our operations through public offerings of equity securities and debt financings . we expect to continue to incur losses both in our us and certain international entities , as we plan to fund research and development activities and commercial launch activities . we will need to raise additional capital to fund our operations , to develop and commercialize arikayce , to develop ins1007 and ins1009 , and to develop , acquire , in-license or co-promote other products that address orphan or rare diseases . we believe we currently have sufficient funds to meet our financial needs for at least the next 12 months . we will opportunistically raise additional capital and may do so through equity or debt financing ( s ) , strategic transactions or otherwise . such additional funding will be necessary to continue to develop our potential product candidates , to pursue the license or purchase of other technologies , to commercialize our product candidates or to purchase other products . we can not assure you that adequate capital will be available on favorable terms , or at all , when needed . if we are unable to obtain sufficient additional funds when required , we may be forced to delay , restrict or eliminate all or a portion of our research or development programs , dispose of assets or technology or cease operations . during 2017 , we plan to continue to fund further clinical development of arikayce and ins1007 , support efforts to obtain regulatory approvals , and prepare for commercialization of arikayce . our cash requirements in 2017 will be impacted by a number of factors , the most significant of which , are expenses related to the convert study and 74 pre-commercialization efforts for arikayce , and to a lesser extent , research and clinical expenses related to ins1007 . on april 6 , 2015 , we completed an underwritten public offering of 11.5 million shares of our common stock , which included the underwriter 's exercise in full of its over-allotment option of 1.5 million shares , at a price to the public of $ 20.65 per share . our net proceeds from the sale of the shares , after deducting the underwriter 's discount and offering expenses of $ 14.5 million , were $ 222.9 million . cash flows as of december 31 , 2016 , we had total cash and cash equivalents of $ 162.6 million , as compared with $ 282.9 million as of december 31 , 2015. the $ 120.3 million decrease was due primarily to the use of cash in operating activities . our working capital was $ 140.4 million as of december 31 , 2016 as compared with $ 265.9 million as of december 31 , 2015. net cash used in operating activities was $ 146.7 million and $ 100.7 million for the years ended december 31 , 2016 and 2015 , respectively . the net cash used in operating activities during 2016 and 2015 was primarily for the clinical , regulatory and pre-commercial activities related to arikayce . in addition , in the fourth quarter of 2016 , we made a payment of $ 30 million to astrazeneca under the az license agreement for ins1007 . net cash used in investing activities was $ 4.2 million and $ 3.5 million for the years ended december 31 , 2016 and 2015 , respectively . the net cash used in investing activities during 2016 was primarily related to payments for the build out of our headquarters and lab facility in bridgewater , new jersey . net cash provided by financing activities was $ 30.7 million and $ 227.8 million for the years ended december 31 , 2016 and 2015 , respectively .
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results of operations comparison of the years ended december 31 , 2016 and 2015 net loss net loss for the year ended december 31 , 2016 was $ 176.3 million , or $ 2.85 per common sharebasic and diluted , compared with a net loss of $ 118.2 million , or $ 2.02 per common sharebasic and diluted , for the year ended december 31 , 2015. the $ 58.1 million increase in our net loss for the year ended december 31 , 2016 as compared to the same period in 2015 was due to : · increased research and development expenses of $ 48.4 million primarily resulting from a $ 30.0 million upfront payment for the license agreement entered into with astrazeneca ab ( astrazeneca ) for exclusive global rights to ins1007 in october 2016 ( az license agreement ) , an increase in clinical trial expenses related to the convert study and higher compensation and related expenses due to an increase in headcount ; and · increased general and administrative expenses of $ 7.5 million resulting from an increase in pre-commercial planning activities , legal and consulting expenses and higher compensation and related expenses , including an increase in noncash stock-based compensation , related to an increase in headcount . in addition , there was a $ 2.1 million decrease in the income tax benefit resulting from the sale of a portion of our new jersey state net operating losses ( nols ) under the state of new jersey 's technology business tax certificate transfer program ( the program ) for cash of $ 2.0 million in 2015 .
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the company believes that the combination of its bank borrowing facilities and expected funds from operations will be sufficient to operate on both a short-term and long-term basis . in 2002 , management 's strong emphasis on managing working capital and the balance sheet resulted in cash from operations of over $ 45 million . accounts receivable and inventory turnover both improved significantly in 2002 compared to the 2001 rates . the company was able to reduce its investment in franchise stores under development ( included in other current assets on the balance sheet ) by $ 4.6 million compared to the december 31 , 2001 level . the balance in other noncurrent assets was also significantly reduced , primarily as a result of collections of noncurrent notes receivable . the company expects its future growth to include additional strategic acquisitions such as the june 2000 acquisition of tire kingdom . it is likely that at least one such acquisition will be made in 2003. significant future acquisitions could require additional capital resources and would involve new or amended credit facilities . see forward-looking statements and risks below , which identifies certain risks associated with the company 's acquisition strategy , as well as many of the other factors which influence the company 's operating results , its future growth potential and the industry in which it operates . critical accounting policies 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 , liabilities , revenues and expenses , as well as certain financial statement disclosures . actual results could differ from those estimates . significant accounting policies employed by the company , including the use of estimates and assumptions , are presented in the notes to consolidated financial statements . management bases its estimates on its historical experience , together with other relevant factors , in order to form the basis for making judgements , which will affect the carrying values of assets and liabilities . on an ongoing basis , management evaluates its estimates and makes revisions as deemed necessary . the following areas are considered to be of critical importance : inventories - inventories , consisting of tires and other automotive products held for resale , are valued at the lower of cost or market . certain inventories are valued using the last in-first out method . revenue recognition - sales are recognized upon shipment of products . estimated costs of returns , allowances and customer rebates are accrued at the time products are shipped . franchise fees - each big o franchisee is required to pay an initial franchise fee as well as monthly royalty fees of 2 % of gross sales . initial franchise fees are deferred and recognized when all material services or conditions relating to the sale or transfer of the franchise have been substantially completed . retirement plan obligations - the values of certain assets and liabilities associated with the company 's retirement plan obligations are determined on an actuarial basis and include estimates and assumptions such as the expected return on plan assets and discount rates . discount rates are determined based on rates of high quality , fixed income investments . actual changes in the fair market value of plan assets , differences between the actual return and the expected return on plan assets and changes in the discount rate affect the amount of the pension expense recognized . long-lived assets - the company periodically reviews the recoverability of its long-lived assets . if facts or circumstances support the possibility of impairment , the company will prepare a projection of the undiscounted future cash flows of the specific assets and determine if the assigned value is recoverable or if an adjustment to the carrying value of the assets is necessary . there were no facts or circumstances which indicated an impairment of recorded assets as of december 31 , 2002 or 2001 . -13- goodwill , trademarks and other intangible assets - goodwill represents the excess of cost over the fair value of identifiable net assets acquired . under the provisions of sfas no . 142 , goodwill and other indefinite-lived intangible assets ceased the amortization of goodwill effective january 1 , 2002 , with charges being recorded only if impairment is found to exist . at least annually , the company compares the carrying values of its reporting units to their fair value , with a reporting unit being defined as an operating segment or one level below a segment if discrete financial information is prepared and reviewed regularly by management . if the carrying value of a reporting unit exceeds its fair value , an impairment loss is required to be recognized . no impairment to the recorded value of company 's indefinite-lived assets was found to exist as a result of the required testing . warranty costs - the costs of anticipated adjustments for workmanship and materials that are the responsibility of the company are estimated and charged against earnings currently . reserves for future warranty claims and service are included in liabilities in the balance sheets . impact of recently issued accounting standards in june 2001 , statement of financial accounting standards no . 143 , accounting for asset retirement obligations was issued , effective for financial statements for fiscal years beginning after june 15 , 2002. sfas 143 requires entities to establish liabilities for legal obligations associated with the retirement of tangible long-lived assets . the company will adopt this statement in 2003 as required , but does not expect it to have a material impact on its financial statements . story_separator_special_tag in october 2001 , statement of financial accounting standards no . 144 , accounting for the impairment or disposal of long-lived assets was issued , effective for years beginning after december 15 , 2001. sfas no . 144 superseded sfas 121 and addresses financial accounting and reporting for long-lived assets to be held and used , and of long-lived assets and components of an entity to be disposed of . the company adopted this statement on january 1 , 2002 , as required , and it did not have a material effect on its financial statements . in april 2002 , statement of financial accounting standards no . 145 , rescission of fasb statements no . 4 , 44 , and 64 , amendment of fasb statement no . 13 , and technical corrections. was issued . sfas no . 145 rescinded three previously issued statements and amended sfas no . 13 , accounting for leases. the statement provides reporting standards for debt extinguishments and provides accounting standards for certain lease modifications that have economic effects similar to sale-leaseback transactions . the statement was effective for certain lease transactions occurring after may 15 , 2002 and all other provisions of the statement were effective for financial statements issued on or after may 15 , 2002. adoption of this standard did not have any impact on the company 's financial statements . in june 2002 , statement of financial accounting standards no . 146 , accounting for costs associated with exit or disposal activities was issued , effective for such activities initiated after december 31 , 2002. the statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies emerging issues task force issue no . 94-3. sfas no . 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and establishes that fair value is the objective for initial measurement of the liability . the company does not expect the adoption of sfas no . 146 to have a material effect on its financial statements . in december 2002 , statement of financial accounting standards no . 148 , accounting for stock-based compensation-transition and disclosure was issued . sfas no . 148 amends sfas no . 123 , accounting for stock-based compensation , and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation . sfas no . 148 also amends the disclosure requirements of sfas no . 123 to require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation . the company will adopt the disclosure provisions of sfas no . 148 beginning in 2003 and therefore does not expect the statement to have any impact on its financial position or results of operations . in november 2002 , fasb interpretation no . 45 , guarantor 's accounting and disclosure requirements for guarantees , including indirect guarantees of indebtedness of others , was issued . fin 45 elaborates on the financial statement disclosures to be made by a guarantor about its obligations under certain guarantees . it also clarifies that a guarantor is required to recognize , at inception of a guarantee , a liability for -14- the fair value of the obligation undertaken in issuing the guarantee . the initial recognition and initial measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after december 31 , 2002. the disclosure requirements in the interpretation are effective for financial statements of interim or annual periods ending after december 15 , 2002 and the company has included such disclosures in note 11 to the consolidated financial statements . the company does not expect adoption of the liability recognition provisions to have a material impact on its financial position or results of operations . in january 2003 , fasb interpretation no . 46 , consolidation of variable interest entities , was issued . this interpretation provides guidance on how to identify a variable interest entity ( vie ) and determine when the assets , liabilities , noncontrolling interests , and results of operations of a vie need to be included in a company 's consolidated financial statements . a company that holds variable interests in an entity must consolidate the entity if the company 's interest in the vie is such that the company will absorb a majority of the vie 's expected losses and or receive a majority of the entity 's expected residual returns , if they occur . fin 46 also requires additional disclosures by primary beneficiaries and other significant variable interest holders . the provisions of this interpretation apply immediately to vie 's created after january 31 , 2003. for vie 's created prior to february 1 , 2003 , the company must apply fin 46 to financial statements for periods beginning july 1 , 2003. the company has certain synthetic lease agreements that may be affected by the provisions of fin 46 , but the company does not expect this interpretation to have a material impact on its financial position or results of operations . forward-looking statements and risks this management 's discussion and analysis of financial condition and results of operations contains certain forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities act of 1934 , as amended , including , without limitation , statements containing the words believes , expects , anticipates , estimates and words of similar import . such forward-looking statements relate to expectations for future financial performance , which involve known and unknown risks , uncertainties and other factors . such factors include , but are not limited to : changes in economic and business conditions in the world ; increased competitive activity ; consolidation within and among both competitors , suppliers
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results of operations 2002 compared to 2001 : the company has two operating segments : retail and wholesale . the retail segment includes the franchised retail tire business conducted by big o tires , inc. , as well as the operation of retail tire and service centers by tire kingdom , inc. the wholesale segment markets and distributes the company 's proprietary brands of tires , as well as other tires and related products , on a wholesale basis to distributors who resell to or operate independent tire dealers . net sales for 2002 increased 9.9 % from the 2001 level , due principally to the combined effects of a 5.4 % gain in total unit tire volume , a 2.7 % increase in the average tire sales price and greater service revenues in company-operated retail tire outlets . in comparison , unit tire shipments for the u.s. replacement tire industry as a whole declined approximately 0.3 % during 2002 ( based on preliminary data ) . the percentage of total company sales attributable to tires was 85 % in 2002 compared to 86 % in 2001. net sales by the company 's retail segment increased 14.8 % compared to the 2001 level , including a 7.7 % increase in unit tire volume , a 2.6 % increase in the average retail tire sales price and the previously-mentioned increase in service revenues . sales by the retail segment were favorably affected by an increase in the number of company-operated and franchised stores in the company 's retail systems . at the end of 2002 , the company had a total of 758 stores in its two retail systems compared to 686 stores at december 31 , 2001. net sales by the wholesale segment increased 6.1 % over the 2001 level , due principally to a 4.4 % increase in unit tire sales and a 2.4 % increase in average tire sales prices . gross profit as a percentage of net sales increased from 26.3 % in 2001 to 27.2 % in 2002.
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for example , 2018 refers to fiscal 2018 , which is the period from april 1 , 2017 to march 31 , 2018. the following discussion and analysis of our financial condition and results of our operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that are based on the beliefs of our management , as well as assumptions made by , and information currently available to , our management . our actual results could differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in the sections titled “ item 1a . risk factors ” and “ cautionary statement about forward-looking statements ” included elsewhere in this annual report on form 10-k. please read the following discussion together with the sections titled “ item 1a . risk factors , ” “ item 6. selected financial and operating data ” and our consolidated financial statements , including the related notes , included in “ item 8. financial statements and supplementary data ” of this form 10-k. we consolidate all of our joint ventures for purposes of gaap , except for our south american joint venture and our tigre-ads usa joint venture . overview we are the leading manufacturer of high performance thermoplastic corrugated pipe , providing a comprehensive suite of water management products and superior drainage solutions for use in the underground construction and infrastructure marketplace . our innovative products are used across a broad range of end markets and applications , including non-residential , residential , agriculture and infrastructure applications . we have established a leading position in many of these end markets by leveraging our national sales and distribution platform , our overall product breadth and scale and our manufacturing excellence . in the united states , our national footprint combined with our strong local presence and broad product offering make us the leader in an otherwise highly fragmented sector comprised of many smaller competitors . we believe the markets we serve in the united states represent approximately $ 11 billion of annual revenue opportunity . in addition , we believe the increasing acceptance of thermoplastic pipe products in international markets represents an attractive growth opportunity . our products are generally lighter , more durable , more cost effective and easier to install than comparable alternatives made with traditional materials . following our entrance into the non-residential construction market with the introduction of n-12 corrugated polyethylene pipe in the late 1980s , our pipe has been displacing traditional materials , such as reinforced concrete , corrugated steel and pvc , across an ever expanding range of end markets . this has allowed us to consistently gain share and achieve above market growth throughout economic cycles . we expect to continue to drive conversion to our products from traditional materials as contractors , civil design engineers and municipal agencies increasingly acknowledge the superior physical attributes and compelling value proposition of our thermoplastic products . in addition , we believe that overall demand for our products will benefit as the regulatory environment continues to evolve . our broad product line includes hdpe pipe , pp pipe and related water management products . building on our core drainage businesses , we have aggressively pursued attractive ancillary product categories such as storm and septic chambers , pvc drainage structures , fittings and filters , and water quality filters and separators . we refer to these ancillary product categories as allied products . given the scope of our overall sales and distribution platform , we have been able to drive growth within our allied products and believe there are significant growth opportunities going forward . 39 advanced drainage systems , inc. restructuring activities in fiscal 2018 , we initiated restructuring activities designed to improve our cost structure , including closing four underutilized manufacturing facilities , reducing headcount and eliminating nonessential costs . the following table summarizes the restructuring activity included in loss on disposal of assets and costs from exit and disposal activities recorded during the fiscal year ended march 31 , 2018 : ( amounts in thousands ) 2018 accelerated depreciation $ 3,759 plant severance 2,041 corporate severance 4,133 product rationalization 1,351 other restructuring activities 159 total restructuring activities $ 11,443 the following table summarizes the line items of the consolidated statements of operations where the expenses above would have been recorded absent a restructuring program : ( amounts in thousands ) 2018 cost of goods sold $ 7,878 selling expenses 1,620 general and administrative expenses 1,945 total restructuring activities $ 11,443 the restructuring costs above may not indicative of expected costs or cost savings in future periods . as of march 31 , 2018 , we have $ 3.4 million and $ 0.5 million of restructuring liabilities related to the restructuring activities recorded in other accrued liabilities and other liabilities , respectively , in the consolidated balance sheet . federal income tax reform the tax cuts and jobs act ( the “ tax act ” ) was enacted on december 22 , 2017. the tax act significantly revises the future ongoing u.s. corporate income tax by , among other things , lowering the u. s. corporate income tax rate from 35 % to 21 % , full expensing on qualified property , eliminates the domestic manufacturing deduction and implements a territorial tax system . the 21 % u.s. corporate income tax rate is effective january 1 , 2018. based on the company 's fiscal year end of march 31 , the u.s. statutory federal rate is 31.5 % for the fiscal year ended march 31 , 2018. we currently estimate the provisional future effective tax rate will be in the range of 30 % to 32 % which is a decrease of 8 % to 10 % from our previous historical expectation . story_separator_special_tag we also expect to expand our allied product offerings through acquisitions . raw material costs - our raw material cost and product selling prices fluctuate with changes in the price of resins utilized in production . we actively manage our resin purchases and pass fluctuations in the cost of resin through to our customers , where possible , in order to maintain our profitability . fluctuations in the price of crude oil and natural gas prices may impact the cost of resin . in addition , changes in and disruptions to existing ethylene or polyethylene capacities could also significantly increase resin prices ( such as the aftermath of hurricanes katrina in 2005 , rita in late 2005 and harvey in 2017 ) , often within a short period of time , even if crude oil and natural gas prices remain low . our ability to pass through raw material price increases to our customers may , in some cases , lag the increase in our costs of goods sold . sharp rises in raw material prices over a short period of time have historically occurred with a significant supply disruption ( hurricanes or fires at petrochemical facilities ) , which may increase prices to levels that can not be fully passed through to customers due to pricing of competing products made from different raw materials or the anticipated length of time the raw material pricing will stay elevated . for more information regarding risks relating to our raw material costs , see “ item 1a . risk factors — risks relating to our business. ” we currently purchase in excess of 850 million pounds of virgin and recycled resin annually from over 460 suppliers in north america . as a high-volume buyer of resin , we are able to achieve economies of scale to negotiate favorable terms and pricing . our purchasing strategies differ based on the material ( virgin resin versus recycled material ) ordered for delivery to our production locations . the price movements of the different materials also vary , resulting in the need to use a number of strategies to reduce volatility . in order to reduce the volatility of raw material costs in the future , our raw material strategies for managing our costs include the following : increasing the use of less price-volatile recycled hdpe resin in our pipe products in place of virgin resin while meeting or exceeding industry standards ; internally processing an increasing percentage of our recycled hdpe resin in order to closely monitor quality and minimize costs ( approximately 98 % of our recycled hdpe resin was internally processed ( enhanced ) in fiscal year 2018 ) ; managing a resin price risk program that entails both physical fixed price and volume contracts along with financial hedges . for our polypropylene virgin resin price exposure , we utilize financial hedges of propylene as a proxy for the polypropylene . maintaining supply agreements with our major resin suppliers that provide multi-year terms and volumes that are in excess of our projected consumption . we also consume a large amount of energy and other petroleum products in our operations , including the electricity we use in our manufacturing process as well as the diesel fuel consumed in delivering a significant volume of products to our customers through our in-house fleet . as a result , our operating profit also depends upon our ability to manage the cost of the energy and fuel we require , as well as our ability to pass through increased prices or surcharges to our customers . seasonality - our operating results are impacted by seasonality . historically , sales of our products have been higher in the first and second quarters of each fiscal year due to favorable weather and longer daylight conditions accelerating construction project activity during these periods while fourth quarter results are impacted by the timing of spring in the northern united states and canada . seasonal variations in operating results may also be significantly 42 advanced drainage systems , inc. impacted by inclement weather conditions , such as cold or wet weather , which can delay projects , resulting in decreased net sales for one or more quarters , but we believe that these delayed projects generally result in increased net sales during subsequent quarters . in the non-residential , residential and infrastructure markets in the northern united states and canada , the construction season typically begins to gain momentum in late march and lasts through november , before winter sets in , significantly slowing the construction markets . in the southern and western united states , mexico , central america and south america , the construction markets are less seasonal . the agricultural drainage market is concentrated in the early spring just prior to planting and in the fall just after crops are harvested prior to freezing of the ground in winter . currency exchange rates - although we sell and manufacture our products in many countries , our sales and production costs are primarily denominated in u.s. dollars . we have wholly-owned facilities in canada , the netherlands and joint venture facilities in mexico , chile , brazil , argentina , colombia and peru . the functional currencies in the areas in which we have wholly-owned facilities and joint venture facilities other than the u.s. dollar are the canadian dollar , euro , mexican peso , chilean peso , brazilian real , argentine peso and colombian peso . from time to time , we use derivatives to reduce our exposure to currency fluctuations . description of our segments we operate a geographically diverse business , serving customers in approximately 80 countries . for fiscal 2018 , approximately 88 % ( $ 1,174.4 million ) of net sales were attributable to customers located in the united states and approximately 12 % ( $ 155.9 million ) of net sales were attributable to customers outside of the united states . our operations are organized into two reportable segments based on the markets we serve : domestic and international .
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results of operations by segment the following table presents our net sales by segment , net sales by segment as a percentage of total net sales , net income by segment , net income by segment as a percentage of total net income , segment adjusted ebitda and segment adjusted ebitda as a percentage of total adjusted ebitda by segment for the periods presented . replace_table_token_8_th fiscal year ended march 31 , 2018 compared with fiscal year ended march 31 , 2017 the following table summarizes our operating results as a percentage of net sales that have been derived from our consolidated financial statements for the fiscal years ended march 31 , 2018 and 2017. we believe this presentation is useful to investors in comparing historical results . replace_table_token_9_th 45 advanced drainage systems , inc. net sales - net sales totaled $ 1,330.4 million in fiscal 2018 , increasing $ 73.1 million or 5.8 % , as compared to $ 1,257.3 million in fiscal 2017. replace_table_token_10_th our domestic sales increased $ 72.2 million , or 6.5 % , as compared to fiscal 2017. our domestic pipe sales increased by $ 48.9 million , or 6.2 % , which was primarily the result of pipe volume increase of $ 27.0 million and price increases and changes in product mix of $ 21.4 million . allied product sales increased $ 23.3 million , or 7.4 % . international sales remained relatively flat with an increase of $ 0.9 million , or 0.6 % , to $ 155.9 million in fiscal year 2018 , as compared to $ 155.0 million in the prior year . the increase was primarily attributable to an increase in allied product sales of $ 4.6 million , or 14.2 % . this increase was offset by a decrease in international pipe sales of $ 3.7 million .
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the effect of income taxes and discounting on the standardized measure of discounted future net cash flows is presented as follows ( in thousands ) : replace_table_token_61_th 55 the principal sources of changes in the standardized measure of discounted future net flows are as follows ( in thousands ) : replace_table_token_62_th results of operations for oil and gas producing activities - the results of oil and gas producing activities , excluding corporate overhead and interest costs story_separator_special_tag story_separator_special_tag display : block ; margin-right : 18pt ; text-indent : 36pt '' > equipment additions and retirement for the transportation fleet were as follows : replace_table_token_14_th the sale of retired equipment produced gains of $ 16,000 and $ 432,000 in 2015 and 2014 , respectively . the company 's predominate customers are the domestic petrochemical industry . contributing to customer demand is low natural gas prices ( a basic feedstock cost for the petrochemical industry ) and high export demand for petrochemicals . lower natural gas prices beginning in 2011 stimulated and provided an opportunity for increased profitability and this was evident in 2011 and 2012 results . however , increased operating expenses and an industry wide shortage of qualified drivers affected the company by suppressing revenues and results of operations during the heavy demand cycle of 2014 and early 2015. more recently , the united states economy appears to have weakened with demand slackening . in addition , the recent strengthening of the u.s. dollar relative to foreign currency may weaken demand for u.s. sourced petrochemical products . as transportation revenues increase or decrease , operating earnings will typically increase or decrease at an accelerated rate . this occurs because the fixed cost components of the company 's operation do not vary with changing revenues . as currently configured , operating earnings achieve break-even levels when annual revenues average approximately $ 60 million . above that level , operating earnings will grow and below that level , losses result . - oil and gas oil and gas segment revenues and operating earnings are primarily a function of crude oil and natural gas production volumes and prices . comparative amounts for revenues , operating earnings and selected expenses were as follows ( in thousands ) : replace_table_token_15_th ( 1 ) represents the percentage increase ( decrease ) from the prior year . ( 2 ) includes gains from property sales of $ 2.5 million in 2014 . 21 as shown in the table below , declining crude oil , natural gas and natural gas liquid prices coupled with declining volumes acted to reduce revenues and earnings for the comparative years presented . the sales volume decrease followed normal production declines as persistently low prices curtailed the development of natural gas properties in 2013 and 2014 and curtailed crude oil properties in 2015. contributing to operating losses were property impairments as shown above . property impairments resulted in 2015 and 2014 following fourth quarter declines in crude oil prices while impairments in 2013 followed adverse drilling results . comparative volumes and prices were as follows : replace_table_token_16_th during 2015 , the company participated in the drilling of 14 wells with one dry hole . no wells were in process as of december 31 , 2015 and no drilling is currently planned for 2016. an independent evaluation of estimated oil and gas reserves and the estimated future income derived therefrom is prepared on an annual basis . see also note ( 11 ) to consolidated financial statements . the following estimates of future net income from oil and gas properties before income taxes based on average prices during 2015 is presented in such report as of december 31 , 2015 as follows ( in thousands ) : replace_table_token_17_th net capitalized oil and gas property costs ( remaining net book value ) associated with the projected future net income stream as of december 31 , 2015 was as follows ( in thousands ) : as of december 31 , 2015 net capitalized cost of oil and gas properties $ 8,001 capitalized oil and gas property costs are amortized against income as the underlying oil and gas reserves are produced ( units-of-production method ) . therefore as illustrated above , absent price increases , it is unlikely that the company will report operating income from its oil and gas segment for the foreseeable future . 22 - oil and gas property sales during 2014 , the company sold its interest in certain oklahoma and texas properties for proceeds totaling $ 2,553,000 and half of its interest in certain south texas ( lavaca county ) properties for proceeds totaling $ 1,509,000. combined , the company recorded a $ 2,528,000 pre-tax gain from these transactions . the company retained an interest in the south texas properties as development of such project continues , although the company chose to reduce its level of risk associated with the development . the other texas and oklahoma properties were sold because they were nearing the end of their economic life . - general and administrative expense , interest income and income tax general and administrative expenses were elevated in 2015 due to a $ 1.1 million lump sum payment made during the first quarter of 2015 to the company 's former president upon retirement and termination of his previous employment agreement . the provision for income taxes is based on federal and state tax rates and variations are consistent with taxable income in the respective accounting periods . - discontinued operations during 2012 , the company sold certain assets associated with its then petroleum refined products marketing business and discontinued that operation . in 2014 , the company sold the warehouse and real estate used by the former operation for $ 664,000 in cash resulting in a pre-tax gain on sale of $ 533,000 , with such gain reported in discontinued operations for 2014. in 2013 , the company completed an orderly wind-down and closure of its natural gas marketing business due to inadequate earnings . story_separator_special_tag when crude oil prices dropped in 2015 , all such activity was no longer economical . medical management is a january 2016 initiative where the company acquired a 30 % member interest in ben cap llc ( bencap ) for $ 2,200,000. this investment evolved from the company 's efforts to manage employee medical insurance costs . bencap provides medical insurance brokerage and medical claims auditing services to employers utilizing erisa governed employee benefit plans . unlike the traditional approach to employee medical insurance , bencap 's methodology audits and pays claims based on a multiplier which takes into consideration a premium over medicare rates and or a premium over the ‟cost-to-charge ratio ” which medical facility providers must file with the federal government . the company has utilized the bencap methodology over the past three years to process and pay medical claims for its employees , including all management personnel . the company believes the bencap approach provides self-insured employers the opportunity for substantial savings over conventional medical insurance without sacrificing the level of employee benefits . in fact , employee benefits may improve since the individual employee is no longer locked into a narrow list of providers . bencap will primarily use this funding to expand its back-office and sales support functions as it seeks to compete in the medical benefits marketplace . off-balance sheet arrangements and contractual cash obligations the company maintains certain lease arrangements with independent truck owner-operators for use of their equipment and driver services on a month-to-month basis . in addition , the company enters into office space and certain lease and terminal access contracts in order to provide tank storage and dock access for its crude oil marketing business . such storage and access contracts require certain minimum monthly payments for the term of the contracts . all lease commitments qualify for off-balance sheet treatment . the company has no capital lease obligations . rental expense was as follows ( in thousands ) : 25 replace_table_token_20_th as of december 31 , 2015 , rental obligations under long-term non-cancelable operating leases and terminal arrangements for the next five years and thereafter are payable as follows ( in thousands ) : 2016 2017 2018 2019 2020 thereafter total $ 6,218 $ 4,160 $ 1,697 $ 318 $ - $ - $ 12,393 in addition to its lease obligations , the company is also committed to purchase certain quantities of crude oil in connection with its marketing activities . such commodity purchase obligations are the basis for commodity sales , which generate the cash flow necessary to meet such purchase obligations . approximate commodity purchase obligations as of december 31 , 2015 are as follows ( in thousands ) : replace_table_token_21_th insurance from time to time , the marketplace for all forms of insurance enters into periods of severe cost increases . in the past , during such cyclical periods , the company has seen costs escalate to the point where desired levels of insurance were either unavailable or unaffordable . the company 's primary insurance needs are workers ' compensation , automobile and umbrella coverage for its trucking fleet and medical insurance for its employees . insurance costs are as follows ( in thousands ) : 2015 2014 2013 insurance costs $ 15,570 $ 14,800 $ 14,900 insurance rates may experience increases during 2016 subject to market conditions and claims experience . because the company is generally unable to pass on such cost increases , any increase must be absorbed by existing operations . competition in all phases of its operations , the company encounters strong competition from a number of entities . many of these competitors possess financial resources substantially in excess of those of the company . the company faces competition principally in establishing trade credit , pricing of available materials and quality of service , as well as for the acquisition of mineral properties . the company 's marketing division competes with major oil companies and other large industrial concerns that own or control significant refining and marketing facilities . these major oil companies may offer their products to others on more favorable terms than those available to the company . from time to time in recent years , there have been supply imbalances for crude oil and natural gas in the marketplace . this in turn has led to significant fluctuations in prices for crude oil and natural gas . as a result , there is a high degree of uncertainty regarding both the future market price for crude oil and natural gas and the available margin spread between wholesale acquisition costs and sales realization . 26 outlook persistently low crude oil prices , coupled with declining oil production , are expected to adversely impact the company 's crude oil marketing operation . the goal is to maintain at least 85 percent of 2015 supply volumes , but such effort may come at the expense of reduced unit margins . demand for transportation services remains uncertain . the focus in transportation , therefore , is on both aggressive marketing and cost containment . for the oil and gas segment , the effort is to reduce cost and optimize cash flow as reserves are produced . in january 2016 , the company invested in an employer-oriented medical management services firm and development of this investment area continues . the company has the following major objectives for 2016 : - marketing—manage declining supply volumes and unit margins to maintain operating earnings at the $ 15 million level , exclusive of inventory valuation changes . - transportation—increase truck utilization and improve cost efficiencies to maintain operating earnings at the $ 3 million level . - oil and gas—curtail all exploration activity ; maintain oil and gas production ; reduce operating overhead . - employer-oriented medical management services—develop earnings enhancement opportunities arising from employer and employee insurance coverage .
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results of operations - marketing crude oil marketing revenues , operating earnings and selected costs were as follows ( in thousands ) : replace_table_token_9_th supplemental volume and price information : replace_table_token_10_th _ ( 1 ) reflects the volume purchased from third parties at the field level of operations . beginning in late 2011 , crude oil purchase volumes and hence revenues started to increase following new production established by the company 's customer base , primarily in the eagle ford shale of south texas . this trend continued into late 2014 supported by a relatively high market price for crude oil in the $ 90 per barrel range . beginning in november 2014 , crude oil prices began to decline significantly and the company 's average crude oil purchase price dropped to $ 54 per barrel by december 2014 from $ 90 per barrel in september 2014. declining prices continued into 2015 curtailing new drilling efforts . the combination of reduced prices and volumes caused revenues to fall 54 percent in 2015 relative to 2014 . - field level operating earnings ( non gaap measure ) two significant factors affecting comparative crude oil segment operating earnings are inventory valuations and forward commodity contract ( derivatives or mark-to-market ) valuations . as a purchaser and shipper of crude oil , the company holds inventory in storage tanks and third-party pipelines . inventory sales turnover occurs approximately every three days , but the quantity held in stock at the end of a given period is reasonably consistent . as a result , during periods of increasing crude oil prices , the company recognizes inventory liquidation gains while during periods of falling prices , the company recognizes inventory liquidation and valuation losses . over time , these gains and losses tend to offset and have limited impact on cash flow . while crude oil prices fluctuated from 2013 through 2015 , the net impact yielded inventory valuation losses in each of the years presented .
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the determination to place a valuation allowance on the tax benefits incurred by our u.s. based operations was made during 2009 due to the 2009 results of these entities being much more unfavorable than originally forecasted during the global economic recession of 2009. while story_separator_special_tag the following discussion should be read in conjunction with , and is qualified in its entirety by , the consolidated financial statements and the notes thereto and selected financial data included elsewhere in this form 10-k. historical operating results and percentage relationships among any amounts included in the consolidated financial statements are not necessarily indicative of trends in operating results for any future period . overview and management focus our strategy and management focus is based upon the following long-term objectives : majority of our sales growth by 2018 in our current strategy coming from acquisitions sales growth in adjacent markets organic and acquisitive growth within all our segments global expansion of our manufacturing base to better address the global requirements of our customers management generally focuses on these trends and relevant market indicators : global industrial growth and economics global automotive production rates costs subject to the global inflationary environment , including , but not limited to : raw material wages and benefits , including health care costs regulatory compliance energy raw material availability trends related to the geographic migration of competitive manufacturing regulatory environment for united states public companies currency and exchange rate movements and trends interest rate levels and expectations management generally focuses on the following key indicators of operating performance : sales growth cost of products sold selling , general and administrative expense net income cash flow from operations and capital spending 19 customer service reliability external and internal quality indicators employee development critical accounting policies our significant accounting policies , including the assumptions and judgment underlying them , are disclosed in note 1 of the notes to consolidated financial statements . these policies have been consistently applied in all material respects and address such matters as revenue recognition , inventory valuation and asset impairment recognition . due to the estimation processes involved , management considers the following summarized accounting policies and their application to be critical to understanding our business operations , financial condition and results of operations . we can not assure you that actual results will not significantly differ from the estimates used in these critical accounting policies . goodwill and acquired intangibles . for new acquisitions , we use estimates , assumptions and appraisals to allocate the purchase price to the assets acquired and to determine the amount of goodwill . these estimates are based on market analyses and comparisons to similar assets . annual procedures are required to be performed to assess whether recorded goodwill is impaired . the annual tests require management to make estimates and assumptions with regard to the future operations of its reporting units , and the expected cash flows that they will generate . these estimates and assumptions could impact the recorded value of assets acquired in a business combination , including goodwill , and whether or not there is any subsequent impairment of the recorded goodwill and the amount of such impairment . goodwill is tested for impairment on an annual basis as of october 1 and between annual tests if a triggering event occurs . the impairment procedures are performed at the reporting unit level for the one reporting unit that still has goodwill . in testing goodwill , we have the option to first assess qualitative factors to determine whether it is necessary to perform a two-step test . if an entity believes , as a result of its qualitative assessment , that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount including goodwill , the quantitative impairment test is required . otherwise , no further testing is required . the decision to perform a qualitative assessment or perform a complete step 1 analysis is an annual decision made by management based on several factors including budget to actual performance , economic , market and industry considerations such as automotive production rates in the geographic markets we serve and cash flow from operations . u.s. gaap prescribes a two-step process for testing for goodwill impairments . the first step is to determine if the carrying value of the reporting unit with goodwill is less than the related fair value of the reporting unit . we determine the fair value of the reporting unit through use of discounted cash flow methods and market based multiples of earning and sales methods obtained from a grouping of comparable publicly trading companies . we believe this methodology of valuation is consistent with how market participants would value reporting units . the discount rate and market based multiples used are specifically developed for the units tested regarding the level of risk and end markets served . even though we do use other observable inputs ( level 2 inputs under the us gaap hierarchy ) the calculation of fair value for goodwill would be most consistent with level 3 under the us gaap hierarchy . if the carrying value of the reporting unit , including goodwill , is less than fair value of the reporting unit , the goodwill is not considered impaired . if the carrying value is greater than fair value then the potential for impairment of goodwill exists . the potential impairment is determined by allocating the fair value of the reporting unit among the assets and liabilities based on a purchase price allocation methodology as if the reporting unit was acquired in a business combination . the fair value of the goodwill is implied from this allocation and compared to the carrying value with an impairment loss recognized if the carrying value is greater than the implied fair value . our indefinite lived intangible asset is accounted for similarly to goodwill . story_separator_special_tag during the first half of 2013 , our sales were negatively impacted by european auto market weakness . during the third and fourth quarters , we began to experience positive sales momentum in europe due to better overall market penetration with our customers and from increased demand in the european automotive and heavy truck markets . additionally , we have experienced increased sales demand for our products in the north american and asian automotive markets during the last three quarters of 2013. despite the positive sales momentum , our businesses continue to be effected by the historically low european automotive and industrial markets and slowing overall economic growth in asia . beyond the sales volume changes , euro denominated sales increased due to appreciation in the euro compared to the u.s. dollar . mostly offsetting the increase due to foreign exchange were reductions in price and raw material pass-through driven by lower levels of material inflation incurred in 2013 , when compared with 2012 , which led to lower pass-through to our customers and due to contractual price decreases for certain long-term sales programs . cost of products sold ( exclusive of depreciation and amortization shown separately below ) . the costs of products sold increased primarily in 2013 due to euro costs appreciating relative to the u.s. dollar and from production costs incurred to support the higher overall sales volumes discussed above . these increases were partially offset by benefits from specific continuous improvement projects undertaken during 2013 and from lower overall raw material inflation experienced during 2013. selling , general and administrative . the increase in spending in selling , general and administrative expenses in 2013 was primarily due to severance costs not related to an exit activity , relocation costs for new management members , higher professional fees for consulting and recruitment and higher foreign exchange expenses . interest expense . the reduction in interest expense was due to the reduction in the interest rate charged on our variable rate loans effective with the october 2012 amendment and from lower overall debt levels in 2013 compared to 2012. provision for income taxes . the difference between the effective tax rate of 32 % for 2013 versus the effective rate of negative 19 % for 2012 was primarily due to the net $ 7.3 million tax benefit posted in 2012. this tax benefit related to the removal of valuation allowances on the deferred tax assets of our u.s. units at december 31 , 2012 partially offset by taxes related to a return of basis transaction . additionally , prior to the reversal of the valuation allowance on december 31 , 2012 , we did not recognize tax expense at our u.s. operations which provided a tax benefit of $ 2.5 million . results by segment metal bearing components segment replace_table_token_7_th the majority of the increase in net sales was due to higher sales volumes experienced at units selling into the european , north american and asian automotive markets and the european heavy truck market . partially offsetting the volume increases were lower levels of price increases and material inflation incurred by our businesses and passed on to our customers in 2013 versus 2012. we experienced positive sales momentum in europe during the second half of 2013 , due to better overall market penetration with our customers and from increased demand in the european automotive and heavy truck markets . additionally , we experienced increased demand in the north american and asian automotive markets subsequent to the first quarter of 2013 . 23 the segment net income in 2013 was negatively impacted by the u.s. unit of the segment recognizing tax expense of $ 4.0 million in 2013 versus not recognizing tax expense in 2012 as all the deferred tax assets of our u.s. units were offset by full valuation allowances . beyond the tax effects the results of the segment in 2013 were actually favorable as compared to 2012 as segment pre-tax income was $ 2.1 million higher in 2013. the 2013 segment net income was favorably impacted by $ 1.8 million after-tax from profits related to higher sales and by $ 1.6 million after-tax from continuous improvement projects undertaken in 2013. partially offsetting the favorable impacts , segment net income was reduced by $ 1.4 million after-tax from reductions related to prices , material pass throughs and mix . precision metal components segment replace_table_token_8_th the increased sales volumes were due to higher demand with certain customers in the north american automotive market during 2013 net of the segment deemphasizing certain non-strategic platforms in an effort to improve operating performance and margins . the reduction in segment net income was primarily due to recording $ 3.0 million in u.s. tax expense during 2013 versus not recognizing tax expense for the segment during 2012 as all the deferred tax assets of our u.s. units were offset by full valuation allowances . additionally , in 2012 the segment net income included $ 1.8 million of net tax benefits related to the reversal of valuation allowances on segment deferred tax assets at december 31 , 2012. beyond the tax effects , segment pre-tax income was $ 2.2 million higher in 2013 compared to 2012. the segment net income benefitted from profits of $ 0.6 million after-tax from the higher sales volumes and through cost reduction projects and operational improvements of $ 0.9 million after-tax . plastic and rubber components segment replace_table_token_9_th sales were down due to lower volume from certain sales programs ending , deemphasizing certain low margin platforms and the timing of demand at certain industrial product customers . segment net income decreased $ 1.7 million after-tax due to the negative effects of lower sales volumes and not being able to fully offset fixed production costs as sales declined . additionally , 2012 segment net income was favorably impacted by $ 2.2 million of net tax benefits related to the reversal of valuation allowances on segment deferred tax assets at december 31 , 2012 .
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results by segment metal bearing components segment replace_table_token_11_th the decrease in sales during 2012 was driven mainly by volume reductions at our european units of this segment and to a lesser extent at the u.s. unit due to lower exports into europe and at our asian unit . the reductions were due to european macro-economic issues , slowing asian macro-economic growth , much lower automotive demand in europe and , we believe , overall reductions of inventory levels in the supply chains we serve . additionally , sales were reduced as the strengthening of the us dollar caused a lower translated value of euro denominated sales . partially offsetting the reductions were increased sales from targeted price increases , favorable product mix and material inflation pass-through . the favorable mix occurred as a portion of the reduction in sales volumes experienced were in lower priced products . 26 the segment net income in 2012 was negatively impacted by lost profits from lower sales volumes and related production inefficiencies from lower production levels . these reductions were driven by much lower demand for our products at our european operating units of this segment , at the u.s. unit that exports into europe and at our asian unit , as discussed above . partially offsetting the volume effects were benefits from specific continuous improvement projects undertaken through our level 3 program in 2012 and from good overall cost control at our european units during this very difficult operating environment . additionally , targeted price increases and favorable sales mix helped offset some of negative sales volume effects .
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this factor contributed to a purchase price in excess of fair market value of socom 's net tangible and intangible assets acquired , and as a result story_separator_special_tag this document contains forward-looking statements , based on numerous assumptions and subject to risks and uncertainties . although the company believes that the forward-looking statements are reasonable , it does not and can not give any assurance that its beliefs and expectations will prove to be correct . many factors could significantly affect the company 's operations and cause the company 's actual results to be substantially different from the company 's expectations . see item 1a - risk factors . actual results might differ materially from results suggested by any forward-looking statements in this report . the company does not have an obligation to publicly update any forward-looking statements , whether as a result of the receipt of new information , the occurrence of future events or otherwise . the following is a discussion and analysis of the consolidated financial condition and results of continuing operations , unless stated otherwise , for the company for the years ended december 31 , 2012 , 2011 and 2010 , and of certain factors that may affect the company 's prospective financial condition and results of operations . the following should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere herein . overview the company designs , manufactures and sells building construction products that are of high quality and performance , easy to use and cost-effective for customers . it operates in three business segments determined by geographic region ; north america , europe and asia/pacific . the north american segment sells both wood and concrete construction products and has been highly dependent on housing starts . the company has made efforts to be less dependent on new housing construction by expanding its line of concrete construction products . the european segment also sells both wood and concrete construction products and until recently relied primarily on wood construction products for its success . the recent european acquisition of s & p clever and its concrete construction products have contributed to nearly all of the european segment 's sales growth compared to 2010. in september 2012 , the company decided to discontinue manufacturing and selling heavy-duty mechanical anchors in europe to focus on other concrete construction products such as its light and medium-duty anchors and products sold by fox industries and s & p clever . the asia/pacific segment sold both wood and concrete construction products in nearly equal amounts in both 2012 and 2010. with the recent acquisition of fox industries in north america and s & p clever in europe , the company believes its sales of concrete construction products should grow in the asia/pacific segment . the company generally manufactures products and incurs costs in the areas where sales occur . therefore , for each of the company 's foreign operations the local currency is the functional currency and each foreign operation transacts primarily in its functional currency . the company does not currently plan to enter into foreign currency contracts to hedge its exposure to foreign exchange rates . the administrative & all other segment primarily includes expenses such as self-insured workers compensation claims for certain members of management , stock-based compensation for certain members of management , interest expense , foreign exchange gains or losses and income tax expense , as well as revenues and expenses related to real estate activities , such as rental income and depreciation expense on the company 's facility in vacaville , california , which the company has leased to a third party for a 10-year term expiring in august 2020. the company experienced net sales growth from 2010 to 2012 primarily from higher volumes , partly due to acquisitions , and increased pricing . the company 's net income in 2012 increased from 2010 but is down from 2011. the following are the more significant developments in the company 's performance since 2010 : · net sales increased to $ 657.2 million in 2012 from $ 555.5 million in 2010 , reflecting improved economic conditions primarily in north america and additional net sales of $ 15.1 million from to the north american acquisitions and of $ 17.1 million from the european acquisition . net sales increased in 2012 from 2010 in all regions of the united states , with an above-average rate of increase in the southeast region of the country , and net sales to contractor distributers and lumber dealers increased significantly over the same period . overall , home center sales in 2012 decreased from their 2011 level and were comparable to their 2010 level , due to the loss of a customer , although 2012 sales to the home depot increased from 2010. sales to the home depot exceeded 10 % of the company 's consolidated net sales in the years ended december 31 , 2012 , 2011 and 2010 ( see item 27 1a risk factors and note 14 to the company 's consolidated financial statements ) . net sales also increased in 2012 from 2010 in the european and asia/pacific segments , with above average increases in the asia/pacific segment . net sales increases in north america and europe segments were partly due to the acquisitions of : · certain assets of cgmi , formerly called socom s.a. , a french company ( socom ) , in 2010 : · the assets of fox industries , inc. ( fox industries ) , a maryland company , in december 2011 : · the assets of automatic stamping , llc , and automatic stamping auxiliary services , llc , both north carolina limited liability companies ( collectively automatic stamping ) , in december 2011 ; and · s & p clever reinforcement ag and s & p clever international ag , both companies incorporated under the laws of switzerland ( collectively s & p clever ) , in january 2012 . story_separator_special_tag · the north american segment accounted for 98.0 % of the overall increase in gross profit with wood construction products representing 89 % of north american segment 's total sales in both 2011 and 2010. increased production during 2011 resulted in increased absorption of fixed overhead , also positively affecting gross profit margin . · wood construction product sales represented 92 % of the european segment 's net sales in 2011 , were down from 95 % in 2010. increased concrete construction product sales , which have a lower margin relative to the wood construction products contributed to decreased european gross profit margins . · changes to the other segments were not individually material . research and development and other engineering expense research and development and other engineering expense increased 22.6 % to $ 25.9 million in 2011 from $ 21.1 million in 2010. the increase was primarily due to increases in personnel costs of $ 1.9 million , including additional employees and a cost of living pay increase , cash profit sharing of $ 0.9 million resulting from higher operating profits , and professional services of $ 0.8 million mostly for an engineering services contract . · research and development and other engineering expense attributable to the north american segment increased $ 3.5 million , including personnel costs of $ 1.1 million , cash profit sharing of $ 0.9 million and professional fees of $ 0.7 million . · research and development and other engineering expense attributable to the european segment increased $ 1.3 million , including personnel costs of 0.8 million and professional fees of $ 0.4 million . · changes to the other segments were not material . selling expense selling expense increased 16.2 % to $ 73.6 million in 2011 from $ 63.3 million in 2010 , including increases in personnel costs of $ 4.9 million for additional employees and a cost of living pay increase , cash profit sharing and commissions of $ 2.7 million resulting from higher operating profits , promotional costs of $ 1.4 million mostly for additional printing and promotional activities , and stock-based compensation of $ 1.0 million due to meeting 2010 performance goals . 33 · selling expense attributable to the north american segment increased $ 7.1 million , including increases in personnel costs of $ 3.3 million , cash profit sharing and commissions of $ 2.5 million , promotional costs of $ 0.8 million and stock-based compensation of $ 0.8 million . · selling expense attributable to the european segment increased $ 2.1 million , including increases in personnel costs of $ 1.1 million , cash profit sharing and commissions of $ 0.2 million and promotional costs of $ 0.6 million . · changes to the other segments were not individually material . general and administrative expense general and administrative expense increased 20.1 % to $ 95.8 million in 2011 from $ 79.8 million in 2010 , including increases in professional and legal fees of $ 7.8 million primarily related to acquisitions and the defense and settlement of litigation , cash profit sharing of $ 3.2 million resulting from higher operating profits , increased personnel costs of $ 2.2 million mostly for additional employees and a cost of living pay increase , stock-based compensation of $ 1.3 million due to meeting 2010 performance goals , depreciation expense of $ 0.9 million for newly acquired assets , and impairment of available for sale assets of $ 0.7 million . these changes are mostly attributable to the north american segment . changes to the other segments were not individually material . impairment of goodwill the impairment charge taken in 2011 resulting from the company 's annual impairment test in the fourth quarter of 2011 was associated with assets in england that were acquired in 1999 and with the u.k. reporting unit . the u.k. reporting unit 's carrying value , including goodwill , exceeded the fair value , primarily due to reduced future expected net cash flows from weakening profit margins . the goodwill associated with the u.k. reporting unit was fully impaired . the method to determine the fair value of the u.k. reporting unit was a discounted cash flow model . the company 's 2010 annual goodwill impairment analysis also resulted in an impairment charge associated with the european anchor products reporting unit . these reporting units are associated with the european segment . see critical accounting policies and estimates goodwill impairment testing . gain on sale of assets in 2010 , the company 's north american segment recorded gains on sales of assets of $ 4.8 million , primarily due to the sale of its real estate in brea , california . provision for income taxes the effective tax rate was 35.4 % in 2011 , as compared to 42.6 % in 2010 , primarily due to improved operations in 2011 in countries where valuation allowances had been recorded against tax losses . in addition , the effective tax rate in 2010 was higher because of a goodwill impairment for which no tax benefit was recognized . the change in the provision for income taxes was attributable to the north american and asia/pacific segments . critical accounting policies and estimates the critical accounting policies described below affect the company 's more significant judgments and estimates used in the preparation of the consolidated financial statements . if the company 's business conditions change or if it uses different assumptions or estimates in the application of these and other accounting policies , the company 's future results of operations could be adversely affected . inventory valuation inventories are stated at the lower of cost or net realizable value ( market ) . cost includes all costs incurred in bringing each product to its present location and condition , as follows : · raw materials and purchased finished goods principally valued at cost determined on a weighted average basis : and · in-process products and finished goods cost of direct materials and labor plus attributable overhead based on a normal level of activity .
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results of operations the following table sets forth , for the years indicated , the percentage of net sales of specified items in the company 's consolidated statements of operations . replace_table_token_4_th 28 comparison of the years ended december 31 , 2012 and 2011 the following table illustrates the change in the company 's continuing operations from 2011 to 2012 , and the increases or decreases for each category by segment . ( in thousands ) replace_table_token_5_th net sales the following table represents net sales by segment for the years ended december 31 , 2011 and 2012 : ( in thousands ) replace_table_token_6_th the following table represents segment net sales as percentages of total net sales for the years ended december 31 , 2011 and 2012 : replace_table_token_7_th · the 10.1 % increase in north american segment net sales accounted for 89.6 % of the overall increase and resulted from increased sales volume and the acquisitions of fox industries and automatic stamping while average prices for the year were flat . · the 3.6 % increase in european segment net sales accounted for 8.0 % of the overall company increase and resulted from the acquisition of s & p clever and a slight price increase partly offset by reduced sales volumes due to difficult economic conditions , and unfavorable currency translations of approximately $ 5.8 million . · net sales in the asia/pacific segment , although relatively small , have increased as the company continued expanding its presence in the region . asia/pacific net sales were not materially affected by currency translations .
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the registrant story_separator_special_tag the following discussion and analysis of our financial condition and result of operations should be read in conjunction with the consolidated financial statements and the related notes and other information included elsewhere in this report . 17 overview we are a bellevue , washington based non-asset based logistics company providing domestic and international freight forwarding services & fulfillment services through a network which includes a combination of company-owned and exclusive agent offices across north america . operating under the airgroup , adcom , dba & radiant brands , we service a diversified account base including manufacturers , distributors and retailers using a network of independent carriers and international agents positioned strategically around the world . as a non-asset based provider of third-party logistics services , we seek to limit our investment in equipment , facilities and working capital through contracts and preferred provider arrangements with various transportation providers who generally provide us with favorable rates , minimum service levels , capacity assurances and priority handling status . our non-asset based approach allows us to maintain a high level of operating flexibility and leverage a cost structure that is highly variable in nature while the volume of our flow of freight enables us to negotiate attractive pricing with our transportation providers . we continue to identify a number of additional companies as suitable acquisition candidates and have completed two material acquisitions since our initial acquisition of airgroup in january of 2006. in november 2007 , we acquired the automotive services group in detroit , michigan to service the automotive industry . in september 2008 , we acquired adcom , adding an additional 30 locations across north america and augmenting our overall domestic and international freight forwarding capabilities . in april of 2011 , we acquired dba distribution services , inc. , d/b/a distribution by air ( “ dba ” ) , adding an additional 25 locations across north america further expanding our fiscal network and service capabilities . we have built a global transportation and supply chain management company offering our customers domestic and international freight forwarding services and an expanding array of value added supply chain management services , including order fulfillment , inventory management , and warehousing . our growth strategy will continue to focus on both organic growth and acquisitions . from an organic perspective , we will focus on strengthening existing and expanding new customer relationships . one of the drivers of our organic growth will be retaining existing , and securing new exclusive agency locations . since our acquisition of airgroup , we have focused our efforts on the build-out of our network of exclusive agency offices , as well as enhancing our back-office infrastructure and transportation and accounting systems . we will continue to search for targets that fit within our acquisition criteria . our acquisition strategy relies upon two primary factors : first , our ability to identify and acquire target businesses that fit within our general acquisition criteria ; and second , the continued availability of capital and financing resources sufficient to complete these acquisitions . our ability to secure additional financing will rely upon the sale of debt or equity securities , and the development of an active trading market for our securities . successful implementation of our growth strategy depends upon a number of factors , including our ability to : ( i ) continue developing new agency locations ; ( ii ) locate acquisition opportunities ; ( iii ) secure adequate funding to finance identified acquisition opportunities ; ( iv ) efficiently integrate the businesses of the companies acquired ; ( v ) generate the anticipated economies of scale from the integration ; and ( vi ) maintain the historic sales growth of the acquired businesses in order to generate continued organic growth . there are a variety of risks associated with our ability to achieve its strategic objectives , including the ability to acquire and profitably manage additional businesses and the intense competition in the industry for customers and for acquisition candidates . performance metrics our principal source of income is derived from freight forwarding services . as a freight forwarder , we arrange for the shipment of our customers ' freight from point of origin to point of destination . generally , we quote our customers a turnkey cost for the movement of their freight . our price quote will often depend upon the customer 's time-definite needs ( first day through fifth day delivery ) , special handling needs ( heavy equipment , delicate items , environmentally sensitive goods , electronic components , etc . ) , and the means of transport ( truck , air , ocean or rail ) . in turn , we assume the responsibility for arranging and paying for the underlying means of transportation . 18 our transportation revenue represents the total dollar value of services we sell to our customers . our cost of transportation includes direct costs of transportation , including motor carrier , air , ocean and rail services . we act principally as the service provider to add value in the execution and procurement of these services to our customers . our net transportation revenue ( gross transportation revenue less the direct cost of transportation ) is the primary indicator of our ability to source , add value and resell services provided by third parties , and is considered by management to be a key performance measure . in addition , management believes measuring its operating costs as a function of net transportation revenue provides a useful metric , as our ability to control costs as a function of net transportation revenue directly impacts operating earnings . our operating results will be affected as acquisitions occur . since all acquisitions are made using the purchase method of accounting for business combinations , our financial statements will only include the results of operations and cash flows of acquired companies for periods subsequent to the date of acquisition . story_separator_special_tag impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset . when fair values are not available , we estimate fair value using the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset . assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell . as a non-asset based carrier we do not own transportation assets . we generate the major portion of its air and ocean freight revenues by purchasing transportation services from direct ( asset-based ) carriers and reselling those services to our customers . based upon the terms in the contract of carriage , revenues related to shipments where we issue a house airway bill ( `` hawb '' ) or a house ocean bill of lading ( `` hobl '' ) are recognized at the time the freight is tendered to the direct carrier at origin . costs related to the shipments are also recognized at this same time based upon anticipated margins , contractual arrangements with direct carriers , and other known factors . the estimates are routinely monitored and compared to actual invoiced costs . the estimates are adjusted as deemed necessary by us to reflect differences between the original accruals and actual costs of purchased transportation . this method generally results in recognition of revenues and purchased transportation costs earlier than the preferred methods under gaap which do not recognize revenue until a proof of delivery is received or which recognize revenue as progress on the transit is made . our method of revenue and cost recognition does not result in a material difference from amounts that would be reported under such other methods . 20 story_separator_special_tag center '' > 22 agent commissions were $ 42.4 million for the year ended june 30 , 2011 , an increase of 35.0 % from $ 31.4 million for the year ended june 30 , 2010 , as a result of increased revenues associated with newly-added agent-based locations , as well as the acquisition of dba . as a percentage of net revenues , agent commissions decreased to 67.8 % for the year ended june 30 , 2011 , from 68.8 % for the year ended june 30 , 2010. the decrease is attributed to additional company-owned locations where commissions are not payable , principally associated with the acquisition of dba which includes two large company-owned locations . personnel costs consist of payroll , payroll taxes , benefits and stock compensation expense . personnel costs were $ 7.7 million for the year ended june 30 , 2011 , an increase of 31.5 % from $ 5.9 million for the year ended june 30 , 2010. the increase was primarily attributed to the increased personnel costs associated with acquiring dba . as a percentage of net revenues , personnel costs decreased to 12.4 % for the year ended june 30 , 2011 , from 12.9 % for the year ended june 30 , 2010. selling , general and administrative ( `` sg & a '' ) costs consist primarily of marketing , rent , professional services , insurance and travel expenses . sg & a costs were $ 5.3 million for the year ended june 30 , 2011 , an increase of 24.2 % from $ 4.3 million for the year ended june 30 , 2010. the increase was primarily attributed to increased costs associated with the acquisition of dba . as a percentage of net revenues , sg & a costs decreased to 8.6 % for the year ended june 30 , 2011 , from 9.4 % for the year ended june 30 , 2010. transition costs associated with dba acquisition were $ 0.6 million for the year ended june 30 , 2011. there were no such costs during the comparable prior period . as a percentage of net transportation revenue , non-recurring transition costs were 0.9 % for the year ended june 30 , 2011. depreciation and amortization costs were $ 1.3 million for the year ended june 30 , 2011 , a decrease of 17.1 % from $ 1.6 million for the year ended june 30 , 2010. the decrease related primarily to lower amortization expenses of intangibles associated with the rgl and adcom acquisitions which were slightly offset by amortization costs associated with the intangibles of dba . as a percentage of net revenues , depreciation and amortization decreased to 2.1 % for the year ended june 30 , 2011 from 3.5 % for the year ended june 30 , 2010. income from operations was $ 5.2 million for the year ended june 30 , 2011 , compared to income from operations of $ 2.5 million for the year ended june 30 , 2010. other expense was $ 0.1 million for the year ended june 30 , 2011 , as compared to other income of $ 0.7 million during year ended june 30 , 2010. the change was primarily due to gains associated with a litigation settlement , extinguishments of debt and foreign currency exchange during 2010 which were not replicated in 2011. as a percentage of net revenues , other expense was 0.2 % for the year ended june 30 , 2011 and other income was 1.5 % for the year ended june 30 , 2010. net income for the year ended june 30 , 2011 was $ 2.9 million as compared to net income of $ 2.0 million for the year ended june 30 , 2010. supplemental pro forma information the following table provides a reconciliation for the fiscal years ended june 30 , 2011 and 2010 ( pro forma and unaudited ) of adjusted ebitda to net income , the most directly comparable gaap measure in accordance with sec regulation g ( in thousands ) : replace_table_token_4_th 23 the following table summarizes transportation revenue , cost of transportation and net transportation revenue ( in thousands ) for the fiscal years ended june 30 , 2011 and 2010 ( pro forma and unaudited )
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results of operations basis of presentation the results of operations discussion which appears below has been presented utilizing a combination of historical and , where relevant , pro forma unaudited information to include the effects of the acquisition of dba on our consolidated financial statements during fiscal year 2011. the pro forma information has been presented for fiscal years ended june 30 , 2011 and 2010 as if we had acquired dba as of july 1 , 2009. the pro forma results are also adjusted to reflect a consolidation of the historical results of operations of dba and the company as adjusted to reflect the amortization of acquired intangibles and are also provided in the financial statements included within this report . the pro forma financial data is not necessarily indicative of results of operations that would have occurred had this acquisition been consummated at the beginning of the periods presented or which might be attained in the future . fiscal year ended june 30 , 2011 , compared to fiscal year ended june 30 , 2010 we generated transportation revenue of $ 203.8 million and net transportation revenue of $ 62.5 million for the year ended june 30 , 2011 , as compared to transportation revenue of $ 146.7 million and net transportation revenue of $ 45.6 million for the year ended june 30 , 2010. net income was $ 2.9 million for the year ended june 30 , 2011 , compared to net income of $ 2.0 million for the year ended june 30 , 2010. we had adjusted ebitda of $ 6.8 million and $ 4.2 million for years ended june 30 , 2011 and 2010 , respectively . ebitda is a non-gaap measure of income and does not include the effects of interest and taxes , and excludes the `` non-cash '' effects of depreciation and amortization on long-term assets .
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earnings per common share on a diluted basis for the year were $ 0.69 , down 46 % from the prior year . fully-taxable equivalent net interest income for 2020 increased $ 6 million from 2019. this reflected the impact of 9 % average earning asset growth and a 4 % growth of average interest-bearing liabilities . fte net interest margin decreased 27 basis points to 2.99 % . average earning asset growth reflects a $ 4.4 billion , or 6 % , increase in average loans and leases . the nim compression reflected an 87 basis point decline in average earning asset yields , a 19 basis point decline in the benefit from noninterest-bearing funds , partially offset by a 79 basis point decrease in average funding costs . the provision for credit losses was $ 1.0 billion , up $ 761 million , or 265 % . the increase in provision expense over the prior year was primarily attributed to the deterioration in the macroeconomic environment resulting from the covid-19 pandemic and risk rating downgrades within the commercial portfolio . noninterest income was $ 1.6 billion , up $ 137 million , or 9 % , from the prior year . among the primary drivers , mortgage banking income increased $ 199 million , or 119 % , primarily reflecting higher secondary marketing spreads and an increase in salable mortgage originations . offsetting this increase , service charges on deposit accounts decreased $ 71 million , or 19 % , primarily reflecting reduced customer activity and pandemic-related fee waivers and other noninterest income decreased $ 23 million , or 13 % , reflecting several notable items impacting both periods as well as lower fixed income brokerage revenue , deposit placement fees and operating lease income . notable items in 2020 include a $ 13 million gain on the annuitization of a retiree health plan and a $ 5 million gain on the sale of the retirement plan services recordkeeping business , whereas 2019 included a $ 14 million gain from the sale of wisconsin retail branches . noninterest expense was $ 2.8 billion , up $ 74 million , or 3 % , from the prior year . contributing to the increase , personnel costs were up $ 38 million , or 2 % , primarily reflecting increased salaries , incentives , commissions , contract help and overtime expense partially offset by lower payroll taxes . outside data processing and other services increased $ 38 million , or 11 % , primarily driven by expenses related to technology investments . equipment expense increased $ 17 million driven by increased depreciation and software development expense . offsetting these increases , other noninterest expense decreased $ 10 million , or 4 % , primarily as a result of lower travel and business development expenses partially offset by an increase in the contribution to the columbus foundation . 2020 form 10-k 46 the tangible common equity to tangible assets ratio was 7.16 % , down 72 basis points . the regulatory common equity tier 1 ( cet1 ) risk-based capital ratio was 10.00 % , up 12 basis points . the regulatory tier 1 risk-based capital ratio was 12.47 % , up 121 basis points . the balance sheet growth impact on regulatory capital ratios was largely offset by a change in asset mix during 2020 related to the ppp loans and elevated deposits at the federal reserve , both of which are 0 % risk weighted . the capital impact of earnings , adjusted for the cecl transition was largely offset by the repurchase of $ 92 million of common stock over the last four quarters ( primarily in the 2020 first quarter ) and cash dividends . the regulatory tier 1 risk-based capital ratio also reflects the issuance of $ 500 million of series f preferred stock and $ 500 million of series g preferred stock in the 2020 second quarter and third quarter , respectively . business overview general our general business objectives are : consistent organic revenue and balance sheet growth . invest in our businesses , particularly technology and risk management . deliver positive long-term operating leverage . maintain aggregate moderate-to-low risk appetite . disciplined capital management . covid-19 the covid-19 pandemic has caused and continues to cause significant , unprecedented disruption that affects daily living and negatively impacts the global economy . the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and shelter in place requirements in many states and communities , increasing unemployment levels and causing volatility in the financial markets . as further discussed in “ discussion of results of operations , ” the reduction in interest rates , borrower and counterparty credit deterioration and market volatility , among other factors , impacted our 2020 performance . though we are unable to estimate the magnitude , we expect the pandemic and related global economic crisis will adversely affect our future operating results . huntington was able to react quickly to these changes because of the commitment and flexibility of its workforce coupled with well-prepared business continuity plans . to ensure the safety of our branch colleagues , while still meeting the needs of our customers , we moved to the use of branches with drive-thru only , with in-person meetings by appointment during shelter-in-place orders . for other colleagues , we have implemented a work-from-home approach with increased communication to keep them informed , engaged , productive and connected . additional benefits have been provided , including medical , emergency paid time off and other programs for those whose families have been directly impacted by the virus . while state and local governments have partially eased temporary business closures and shelter in place requirements and we have opened our branches , we expect our colleagues who have been operating remotely to continue for some period of time . while vaccines have been approved and are being administered throughout our footprint , it remains unknown when , or if , there will be a return to historical normal economic and social activity . story_separator_special_tag legislative and regulatory a comprehensive discussion of legislative and regulatory matters affecting us can be found in item 1 : business - “ regulatory matters ” section of this form 10-k. 2020 form 10-k 48 replace_table_token_4_th ( 1 ) on a fully-taxable equivalent ( fte ) basis assuming a 21 % tax rate . 49 huntington bancshares incorporated story_separator_special_tag style= '' color : # 0000ff ; font-family : 'calibri ' , sans-serif ; font-size:11pt ; font-weight:400 ; line-height:120 % ; text-decoration : underline '' > replace_table_token_9_th 2020 versus 2019 noninterest expense was $ 2.8 billion , up $ 74 million , or 3 % , from the prior year . personnel costs increased $ 38 million , or 2 % , primarily reflecting increased salaries , incentives , commissions , contract help and overtime expense partially offset by lower payroll taxes . outside data processing and other services increased $ 38 million , or 11 % , primarily driven by expenses related to technology investments . equipment expense increased $ 17 million driven by increased depreciation and software development expense . other noninterest expense decreased $ 10 million , or 4 % , primarily as a result of a $ 23 million decrease in travel and business development expense and a $ 7 million insurance recovery in third quarter 2020. these decreases were partially offset by the $ 7 million of expense related to the november 2020 debt tender and a $ 20 million donation to the columbus foundation compared to a $ 5 million donation during 2019. provision for income taxes ( this section should be read in conjunction with note 1 - “ significant accounting policies ” and note 19 - “ income taxes ” of the notes to consolidated financial statements . ) 2020 versus 2019 the provision for income taxes was $ 155 million for 2020 compared with a provision for income taxes of $ 248 million in 2019. the effective tax rates for 2020 and 2019 were 15.9 % and 15.0 % , respectively . both years included the benefits from tax-exempt income , tax-advantaged investments , general business credits , investments in qualified affordable housing projects , excess tax deductions for stock-based compensation , and capital losses . as of december 31 , 2020 and 2019 there was no valuation allowance on federal deferred taxes . in 2020 , a $ 5 million increase in the provision for state income taxes , net of federal , was recorded for the portion of state deferred tax assets that are not more likely than not to be realized , compared to 2019 , where there was essentially no change . risk management and capital risk governance we use a multi-faceted approach to risk governance . it begins with the board of directors defining our risk appetite as aggregate moderate-to-low . this does not preclude engagement in select higher risk activities . rather , the definition is intended to represent an aggregate view of where we want our overall risk to be managed . 55 huntington bancshares incorporated three board committees primarily oversee implementation of this desired risk appetite and monitoring of our risk profile : the audit committee oversees the integrity of the consolidated financial statements , including policies , procedures , and practices regarding the preparation of financial statements , the financial reporting process , disclosures , and internal control over financial reporting . the audit committee also provides assistance to the board in overseeing the internal audit division and the independent registered public accounting firm 's qualifications and independence ; compliance with our financial code of ethics for the chief executive officer and senior financial officers ; and compliance with corporate securities trading policies . the risk oversight committee assists the board of directors in overseeing management of material risks , the approval and monitoring of the company 's capital position and plan supporting our overall aggregate moderate-to-low risk profile , the risk governance structure , compliance with applicable laws and regulations , and determining adherence to the board 's stated risk appetite . the committee has oversight responsibility with respect to the full range of inherent risks : credit , market , liquidity , legal , compliance/regulatory , operational , strategic , and reputational . the roc provides assistance to the board in overseeing the credit review division . this committee also oversees our capital management and planning process , ensures that the amount and quality of capital are adequate in relation to expected and unexpected risks , and that our capital levels exceed “ well-capitalized ” requirements . the technology committee assists the board of directors in fulfilling its oversight responsibilities with respect to all technology , cyber security , and third-party risk management strategies and plans . the committee is charged with evaluating huntington 's capability to properly perform all technology functions necessary for its business plan , including projected growth , technology capacity , planning , operational execution , product development , and management capacity . the committee provides oversight of technology investments and plans to drive efficiency as well as to meet defined standards for risk , information security , and redundancy . the committee oversees the allocation of technology costs and ensures that they are understood by the board of directors . the technology committee monitors and evaluates innovation and technology trends that may affect the company 's strategic plans , including monitoring of overall industry trends . the technology committee reviews and provides oversight of the company 's continuity and disaster recovery planning and preparedness . the audit and risk oversight committees routinely hold executive sessions with our key officers engaged in accounting and risk management . on a periodic basis , the two committees meet in joint session to cover matters relevant to both , such as the construct and appropriateness of the acl , which is reviewed quarterly . all directors have access to information provided to each committee and all scheduled meetings are open to all directors .
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discussion of results of operations this section provides a review of financial performance from a consolidated perspective . key consolidated balance sheet and income statement trends are discussed . all earnings per share data are reported on a diluted basis . for additional insight on financial performance , please read this section in conjunction with the “ business segment discussion . ” for a discussion of our results of operations for 2019 versus 2018 , see “ part ii , item 7 : management 's discussion and analysis of financial condition and results of operations ” discussion of results of operations included in our 2019 form 10-k , filed with the sec on february 14 , 2020. net interest income / average balance sheet our primary source of revenue is net interest income , which is the difference between interest income from earning assets ( primarily loans , securities , and direct financing leases ) , and interest expense of funding sources ( primarily interest-bearing deposits and borrowings ) . earning asset balances and related funding sources , as well as changes in the levels of interest rates , impact net interest income . the difference between the average yield on earning assets and the average rate paid for interest-bearing liabilities is the net interest spread . noninterest-bearing sources of funds , such as demand deposits and shareholders ' equity , also support earning assets . the impact of the noninterest-bearing sources of funds , often referred to as “ free ” funds , is captured in the net interest margin , which is calculated as net interest income divided by average earning assets . both the net interest margin and net interest spread are presented on a fully-taxable equivalent basis , which means that tax-free interest income has been adjusted to a pretax equivalent income , assuming a 21 % tax rate .
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the amortized cost , estimated fair value , and unrealized gains and losses of securities held to maturity are as follows : replace_table_token_32_th at december 31 , 2013 and 2012 , all of the mortgaged-backed securities held to maturity were comprised of u.s. story_separator_special_tag forward looking statements certain statements in this filing and future filings by the company with the sec , in the company 's press releases or other public or shareholder communications , or in oral statements made with the approval of an authorized executive officer , contain forward-looking statements , as defined in the private securities litigation reform act . these statements may be identified by the use of phrases such as “ anticipate , ” “ believe , ” “ expect , ” “ forecasts , ” “ projects , ” “ will , ” “ can , ” “ would , ” “ should , ” “ could , ” “ may , ” or other similar terms . there are a number of factors , many of which are beyond the company 's control that could cause actual results to differ materially from those contemplated by the forward looking statements . factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include , among others , the following possibilities : ( 1 ) local , regional , national and international economic conditions and the impact they may have on the company and its customers and the company 's assessment of that impact ; ( 2 ) changes in the level of non-performing assets and charge-offs ; ( 3 ) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements ; ( 4 ) the effects of and changes in trade and monetary and fiscal policies and laws , including the interest rate policies of the federal reserve board ; ( 5 ) inflation , interest rate , securities market and monetary fluctuations ; ( 6 ) political instability ; ( 7 ) acts of war or terrorism ; ( 8 ) the timely development and acceptance of new products and services and perceived overall value of these products and services by users ; ( 9 ) changes in consumer spending , borrowings and savings habits ; ( 10 ) changes in the financial performance and or condition of the company 's borrowers ; ( 11 ) technological changes ; ( 12 ) acquisitions and integration of acquired businesses ; ( 13 ) the ability to increase market share and control expenses ; ( 14 ) changes in the competitive environment among financial holding companies ; ( 15 ) the effect of changes in laws and regulations ( including laws and regulations concerning taxes , banking , securities and insurance ) with which the company and its subsidiaries must comply including those under the dodd-frank act ; ( 16 ) the effect of changes in accounting policies and practices , as may be adopted by the regulatory agencies , as well as the public company accounting oversight board , the financial accounting standards board and other accounting standard setters ; ( 17 ) changes in the company 's organization , compensation and benefit plans ; ( 18 ) the costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews ; ( 19 ) greater than expected costs or difficulties related to the integration of new products and lines of business ; and ( 20 ) the company 's success at managing the risks involved in the foregoing items . the company cautions readers not to place undue reliance on any forward-looking statements , which speak only as of the date made , and advises readers that various factors including , but not limited to , those described above , could affect the company 's financial performance and could cause the company 's actual results or circumstances for future periods to differ materially from those anticipated or projected . except as required by law , the company does not undertake , and specifically disclaims any obligations to , publicly release any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements . general the financial review which follows focuses on the factors affecting the consolidated financial condition and results of operations of the company and its wholly owned subsidiaries , the bank , nbt financial services and nbt holdings during 2013 and , in summary form , the preceding two years . collectively , the registrant and its subsidiaries are referred to herein as “ the company. ” net interest margin is presented in this discussion on a fully taxable equivalent ( fte ) basis . average balances discussed are daily averages unless otherwise described . the audited consolidated financial statements and related notes as of december 31 , 2013 and 2012 and for each of the years in the three-year period ended december 31 , 2013 should be read in conjunction with this review . amounts in prior period consolidated financial statements are reclassified whenever necessary to conform to the 2013 presentation . 33 critical accounting policies the company has identified policies as being critical because they require management to make particularly difficult , subjective and or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions . these policies relate to the allowance for loan losses , pension accounting , other-than-temporary impairment , provision for income taxes and impairment of intangible assets . management of the company considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the uncertainty in evaluating the level of the allowance required to cover credit losses inherent in the loan portfolio and the material effect that such judgments can have on the results of operations . story_separator_special_tag the company 's 2014 outlook is subject to factors in addition to those identified above and those risks and uncertainties that could impact the company 's future results are explained in item 1a . risk factors . 37 asset/liability management the company attempts to maximize net interest income and net income , while actively managing its liquidity and interest rate sensitivity through the mix of various core deposit products and other sources of funds , which in turn fund an appropriate mix of earning assets . the changes in the company 's asset mix and sources of funds , and the resulting impact on net interest income , on a fully tax equivalent basis , are discussed below . the following table includes the condensed consolidated average balance sheet , an analysis of interest income/expense and average yield/rate for each major category of earning assets and interest bearing liabilities on a taxable equivalent basis . interest income for tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 35 % . replace_table_token_11_th 1. securities are shown at average amortized cost . 2. for purposes of these computations , nonaccrual loans are included in the average loan balances outstanding . the interest collected thereon is included in interest income based upon the characteristics of the related loans . 38 2013 operating results as compared to 2012 operating results net interest income while the rate paid on interest bearing liabilities decreased 24 basis points , the yield on interest earning assets declined 39 basis points compared to the same period for 2012 , resulting in margin compression for the year ended december 31 , 2013. the yield on securities available for sale was 2.03 % for the year ended december 31 , 2013 , compared with 2.45 % for the year ended december 31 , 2012. this decrease was due primarily to the reinvestment of cash flows from maturing securities and cash received from branch acquisitions in 2012 into lower yielding securities in the current rate environment . the average balance of securities available for sale for the year ended december 31 , 2013 was $ 1.3 billion , up approximately $ 171.9 million , or 14.6 % , from the year ended december 31 , 2012. this increase was due primarily to investment of liquidity from acquisition activity and deposit growth . the yield on loans was 4.69 % for the year ended december 31 , 2013 , compared with 5.17 % for the year ended december 31 , 2012. the average balance of loans for the year ended december 31 , 2013 was $ 5.1 billion , up approximately $ 1.1 billion ( including approximately $ 904 million of acquired loans from the alliance acquisition ) , or 26.0 % , from the year ended december 31 , 2012. the reduction in yields on earning assets was partially offset by a reduction in rates paid on interest bearing liabilities . the rate on time deposits was 1.13 % for the year ended december 31 , 2013 , compared with 1.45 % for the year ended december 31 , 2012. the rate on now accounts was 0.17 % for the year ended december 31 , 2013 , compared with 0.26 % for the year ended december 31 , 2012. the following table presents changes in interest income , on a fte basis , and interest expense attributable to changes in volume ( change in average balance multiplied by prior year rate ) , changes in rate ( change in rate multiplied by prior year volume ) , and the net change in net interest income . the net change attributable to the combined impact of volume and rate has been allocated to each in proportion to the absolute dollar amounts of change . replace_table_token_12_th 39 loans and corresponding interest and fees on loans the average balance of loans increased by approximately $ 1.1 billion , or 26.0 % , from 2012 to 2013. the yield on average loans decreased from 5.17 % in 2012 to 4.69 % in 2013 , as loan rates declined due to the continued low rate environment in 2013. interest income from loans on a fte basis increased 14.4 % , from $ 209.4 million in 2012 to $ 239.6 million in 2013. this increase was due to the increase in average loan balances noted above , and was partially offset by the decrease in yields . total loans increased $ 1.1 billion , or 26.4 % ( 5.3 % organic growth ) from december 31 , 2012 to december 31 , 2013. in march 2013 , the company acquired alliance , including approximately $ 904 million in loans , which contributed to this loan growth . commercial loans increased $ 164.2 million , or 23.6 % , from $ 694.8 million at december 31 , 2012 to $ 859.0 million at december 31 , 2013 , due to strong originations in 2013 , particularly in our upstate new york markets and vermont , as well as from the aforementioned acquisition . commercial real estate loans increased $ 255.5 million , or 23.8 % , from $ 1.1 billion at december 31 , 2012 to $ 1.3 billion at december 31 , 2013 , in large part due to the acquisition of alliance as well strong originations in our upstate new york markets and from new markets , particularly vermont . the company acquired approximately $ 117.8 million in commercial real estate loans from the aforementioned acquisition . residential real estate loans increased $ 390.5 million ( including approximately $ 333.1 million from the aforementioned acquisition ) , from $ 651.1 million at december 31 , 2012 to $ 1.0 billion at december 31 , 2013. the company sold more fixed rate mortgages during 2012 than 2013 as market conditions in 2013 were not as favorable for such sales .
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overview significant factors management reviews to evaluate the company 's operating results and financial condition include , but are not limited to : net income and earnings per share , return on assets and equity , net interest margin , noninterest income , operating expenses , asset quality indicators , loan and deposit growth , capital management , liquidity and interest rate sensitivity , enhancements to customer products and services , technology advancements , market share and peer comparisons . the following information should be considered in connection with the company 's results for the fiscal year ended december 31 , 2013 : · reported net income for 2013 was $ 61.7 million , up from $ 54.6 million in 2012. reported results for 2013 include the impact of the acquisition of alliance financial corporation ( “ alliance ” ) since march 8 , 2013 , including $ 12.4 million in merger related expenses for 2013 . · core net income was $ 69.9 million for 2013 up 27.5 % from $ 54.8 million for 2012. core diluted earnings per share for 2013 was $ 1.65 up from $ 1.63 for 2012. core return on average assets and return on average equity were 0.96 % and 9.16 % , respectively , for 2013 , compared with 0.93 % and 9.77 % , respectively for 2012 ( a reconciliation of these `` core '' results is presented in the following table ) . 35 replace_table_token_10_th * reorganization expenses for 2013 ; prepayment penalty income and flood insurance recoveries , partially offset by an other asset write-down for 2012 · significant strategic expansion during 2013 : § acquired alliance financial corporation , a $ 1.4 billion financial holding company headquartered in syracuse , n.y. on march 8 , 2013 . · net interest margin for 2013 declined 20 basis points as a result of the continued low rate environment on loans and investments .
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the company employs approximately 13,600 individuals worldwide and operates approximately 80 facilities in 11 countries . during 2012 , management changes were made as part of our succession planning program . mr. david g. nord was appointed president and chief operating officer in june 2012 and assumed responsibility for oversight of business operations . also in june 2012 , mr. william r. sperry was named senior vice president and chief financial officer . effective january 1 , 2013 , mr. nord was appointed president and chief executive officer succeeding mr. timothy h. powers who remained the company 's chairman of the board of directors . in september 2012 , mr. an-ping hsieh was appointed as vice president , general counsel of the company . the company 's reporting segments consist of the electrical segment and the power segment . results for 2012 , 2011 and 2010 by segment are included under “ segment results ” within this management 's discussion and analysis . we believe our current strategy provides the means for the company to continue to grow profits and deliver attractive returns to our shareholders . in 2012 , we executed a business plan focused on : revenue organic demand : the company remains focused on expanding market share through an emphasis on new product introductions and more effective utilization of sales and marketing efforts across the organization . in 2012 , organic demand was 5 % higher than 2011 primarily due to strength in the utility market , the energy segment of the industrial market , the retrofit/relight segment within the non-residential market and the residential market . acquisitions : during 2012 , the company completed four acquisitions ; three businesses and one product line , for $ 90.7 million . three of these acquisitions were added to the electrical segment and one to the power segment . the electrical segment acquisitions consist of a manufacturer of connectors and boxes for harsh and hazardous locations , a manufacturer of motor controls and a designer of enclosures and boxes . the power segment acquisition consists of a manufacturer of enclosures and switching products . in january 2013 , the company acquired the assets of continental industries for approximately $ 37 million . this acquisition manufactures high quality exothermic welding and connector products and will be part of the electrical segment . the company continues to assess opportunities to expand sales through acquisitions of businesses that fill product line gaps or allow for expansion into new markets . see also note 2 – business acquisitions in the notes to consolidated financial statements . hubbell incorporated – form 10-k 13 back to contents price realization our goal is to achieve parity between pricing and material cost increases . commodity raw material costs , including steel , copper and aluminum , decreased in 2012 , however costs for resins , chemicals and certain purchased finished goods and value added components increased . in addition , transportation costs continued to increase during 2012 , reflecting higher levels of fuel costs . as a result , selective price increases were implemented throughout 2012 resulting in price realization being in excess of material cost increases for the year . productivity the company continued to expand upon the benefits of our enterprise resource planning system , including standardizing best practices in inventory management , production planning and scheduling to improve manufacturing throughput and to reduce costs . value-engineering efforts and product transfers , including those to our manufacturing operations in china , contributed to our productivity improvements . this continuing emphasis on operational improvements is expected to result in further reductions of lead times and improved service levels to our customers . we continued to expand our back office productivity by expanding our engineering and administrative support services offices in india . outlook for 2013 , we expect our overall net sales to increase by three to five percent compared to 2012 , including two percentage points of growth from the four acquisitions completed in 2012 and the one recently completed in 2013. the non-residential new construction market is expected to remain challenging in 2013 with the second half of the year growth forecasted to be stronger than the first half . within the non-residential construction market , retrofit and relight projects are expected to increase in the six to eight percent range . the utility market is expected to grow in the two to four percent range with modest increases anticipated for maintenance and repair spending on distribution and transmission networks . we also anticipate the investments in transmission related projects will continue at high levels but the growth rate will slow . the industrial market is expected to be flat to slightly higher with modest increases in factory utilization and energy markets partially offset by lower demand for high voltage test equipment . for the residential market , we anticipate continued broad based strengthening in single and multi-family housing starts . we plan to continue to work on productivity initiatives , including improved sourcing , product redesign and lean projects focused on both factory and back office efficiency . we anticipate cost increases from materials , including both commodities and purchased products , healthcare and other inflationary costs . we plan to continue to invest in people and resources to support our growth initiatives . overall we expect to expand operating margin by approximately 40 basis points in 2013 compared to 2012. additionally , we expect our 2013 tax rate to decrease slightly to approximately 31.5 % primarily due to the reinstatement of the research and development tax credit partially offset by a higher mix of domestic income . we expect to increase our earnings in 2013 through higher sales , careful management of pricing relative to material costs and by continuing our productivity programs . in 2013 , we anticipate free cash flow ( defined as cash flows from operations less capital expenditures ) to approximate net income . finally , with our strong financial position , we expect to continue to evaluate and pursue additional acquisitions to add to our portfolio . story_separator_special_tag hubbell incorporated – form 10-k 15 back to contents power segment replace_table_token_7_th net sales in the power segment increased 7 % in 2012 compared to 2011. volume increased net sales by six percentage points due to higher transmission project sales , increased spending on distribution and transmission maintenance programs and strong international demand . price realization added two percentage points to net sales while foreign currency translation reduced net sales by one percentage point . operating income increased 19 % to $ 168.1 million and operating margin improved 180 basis points to 18.1 % in 2012 compared to 2011. the increase in operating income and operating margin was due to productivity improvements , higher volume and price realization partially offset by material costs and other cost increases including wages , benefits and other personnel related costs . 2011 compared to 2010 net sales net sales for the year ended 2011 were $ 2.9 billion , an increase of 13 % over the year ended 2010 primarily due to higher organic volume . volume added ten points to net sales in 2011 compared to 2010 while price realization and foreign currency translation increased net sales by two and one percentage points , respectively . cost of goods sold as a percentage of net sales , cost of goods sold increased to 67.8 % in 2011 compared to 67.4 % in 2010. the increase was primarily due to higher commodity costs partially offset by price realization and productivity improvements . gross profit the gross profit margin for 2011 decreased to 32.2 % compared to 32.6 % in 2010. the decrease was primarily due to higher commodity costs partially offset by price realization and productivity improvements . selling & administrative expenses s & a expenses increased 8 % compared to 2010. as a percentage of net sales , s & a expenses declined to 17.4 % in 2011 compared to 18.1 % in 2010 as we leveraged the higher sales volume by maintaining spending discipline . operating income operating income increased 15 % to $ 423.8 million primarily due to higher net sales and gross profit partially offset by higher selling and administrative costs . operating margin of 14.8 % in 2011 increased 30 basis points compared to 14.5 % in 2010 as a result of higher volume ; partially offset by commodity costs and other inflationary and spending increases , including those to support product development initiatives , in excess of price realization and productivity improvements . total other expense in 2011 , total other expense decreased by $ 13.4 million primarily due to the absence of $ 14.7 million of costs associated with the 2010 early extinguishment of debt . in addition , net foreign currency transaction losses were $ 2.2 million higher in 2011 compared to 2010 , which were partially offset by higher levels of investment income . income taxes the effective tax rate in 2011 was 30.7 % compared to 31.7 % in 2010. the decreased tax rate for 2011 was due primarily to the absence of tax expense recorded in 2010 related to the conclusion of an irs audit of the company 's 2006 and 2007 federal income tax returns and a benefit resulting from a change in prior year estimates . net income attributable to hubbell and earnings per diluted share net income attributable to hubbell and earnings per diluted share in 2011 each increased 23 % compared to 2010 as a result of higher net sales and operating income , the absence of costs for the early extinguishment of debt in 2010 and a lower effective tax rate . the impact of the early extinguishment of debt charge was $ 0.15 on earnings per diluted share in 2010. story_separator_special_tag class a and class b common stock . during 2012 , the company spent $ 75.6 million on the repurchase of class b common stock . the company did not repurchase any class a common stock during 2012. depending upon numerous factors , including market conditions and alternative uses of cash , we may conduct discretionary repurchases through open market and privately negotiated transactions during our normal trading windows . additional information with respect to future investments in the business can be found under “ outlook ” within management 's discussion and analysis . debt to capital at december 31 , 2012 and 2011 , the company had $ 596.7 million and $ 596.3 million , respectively , of senior long-term notes , net of unamortized discount . the long-term fixed-rate notes , with amounts of $ 300 million due in both 2018 and 2022 , respectively , are callable with a make whole provision and are only subject to accelerated payment prior to maturity if we fail to meet certain non-financial covenants , all of which were met at december 31 , 2012. as of december 31 , 2012 , the company has a credit agreement for a 5.9 million brazilian reais line of credit to fund its brazilian operations . this line of credit expires in october 2013 and is not subject to annual commitment fees . at december 31 , 2012 , no borrowings were outstanding under this line of credit . at december 31 , 2011 , 5.5 million brazilian reais were outstanding ( equivalent to $ 2.9 million ) under a previous line of credit . hubbell incorporated – form 10-k 17 back to contents net debt , defined as total debt less cash and investments , is a non-gaap measure that may not be comparable to definitions used by other companies . we consider net debt to be a useful measure of our financial leverage for evaluating the company 's ability to meet its funding needs . replace_table_token_11_th in november 2010 , the company completed a public debt offering for $ 300 million of long-term , senior , unsecured notes maturing in november 2022 ( “ 2022 notes ” ) and bearing interest at a fixed rate of 3.625 % . the company received $ 294.8 million in proceeds from the offering , net of discounts and debt issuance costs .
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segment results electrical segment replace_table_token_8_th net sales in the electrical segment increased 11 % in 2011 compared with 2010. volume added eight percentage points while foreign currency translation and price realization added two and one percentage points , respectively , to net sales in 2011 compared to 2010. within the segment , electrical systems products net sales increased 13 % in 2011 compared to 2010 due to stronger underlying demand , price realization and favorable currency translation . net sales of lighting products increased 8 % in 2011 compared to 2010. net sales of commercial and industrial lighting products increased 10 % primarily driven by stronger demand in the retrofit and relight markets while net sales of residential lighting products decreased 3 % compared to 2010 due to weakness in the single family residential construction market . operating income in 2011 increased 13 % to $ 282.0 million compared to 2010 while operating margin increased 30 basis points . operating income and operating margin increased primarily due to sales volume leverage , price realization and productivity improvements , partially offset by commodity costs and other inflationary and spending increases . power segment replace_table_token_9_th net sales in the power segment increased 18 % in 2011 compared to 2010. volume increased net sales by fifteen percentage points due to higher net sales of distribution and transmission products , including international growth . price realization added three percentage points to net sales . operating income increased 19 % to $ 141.8 million and operating margin improved 10 basis points to 16.3 % in 2011 compared to 2010. the increase in operating income was due to higher volume , partially offset by commodity costs and other inflationary and spending increases , including those to support growth initiatives such as product development , in excess of price realization and productivity improvements .
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as discussed further in note 5 to the f inancial s tatements , we have discontinued operations associated with our activities in angola , west africa , have sold our interests in north texas , and have entered into a letter of intent to sell our interests in montana . a significant component of our results of operations is dependent upon the difference between prices received for our offshore gabon oil production and the costs to find and produce such oil . oil and natural gas prices have been and are expected in the future to be volatile and subject to fluctuations based on a number of factors beyond our control . beginning in the third quarter of 2014 , the prices for oil and natural gas began a dramatic decline which continued through 2015 and into early 2016. current prices , w hile higher than those in early 2016 , are significantly less than they were in the several years prior to mid-2014 . sustained low oil and natural gas prices or further decreases in oil and natural gas prices could have a material adverse effect on our financial condition and the carrying value of our proved oil and natural gas properties and undeveloped leasehold interests . current developments during 2015 and 2016 , the global oil supply continued to outpace demand , resulting in continuing lower real ized prices for oil production . prices for crude oil improved during the second half of 2016 ( ice brent crude oil prices increased from approximately $ 3 6 per bbl in early january 2016 to approximate ly $ 55 per bbl at the end of 2016 ) . these low prices relative to previous years have affected our business in numerous ways , including causing : · a material reduction in our revenues , cash flows and liquidity ; · lower valuati ons for our proved reserves , contributing to the possibility that some of our existing wells may become uneconomic ; and 34 · an increase d possibility that the purchaser of our oil and natural gas production , or some of the companies that provide us with services , may experience financial difficulties . price declines also adversely affected our borrowing capacity based mainly on the value of our oil and natural gas reserves . our borrowing base was reduced from $ 65.0 million to $ 20.1 million effective december 31 , 2015. on june 29 , 2016 , we executed a supplemental agreement with the ifc , the lender under our revolving credit facility , which among other things , amended and restated our loan agreement to convert $ 20 million of the revolving portion of the credit facility into a term loan . currently $ 15 million is outstanding as a term loan . see note 8 to the f inancial s tatements and “ — capital resources and liquidity—liquidity—credit facility ” below for additional details about the loan agreement . in january 2016 , our board of directors formed a strategic committee to oversee the evaluation of our strategic alternatives including those described below . we can give no assurances that any of these strategic alternatives can be completed , and if so , on reasonable terms that are acceptable to us : · i dentify viable acquisition targets and or merger opportunities ; · c onsider joint ventures that allow us to leverage our operating capabilities and proven west africa experience ; · e xit non-core exploration assets to focus on development opportunities ; and · o btain external funding necessary for growth opportunities and maintaining our liquidity . in light of the depressed levels of oil prices , we intend to focus on maintaining oil production and lowering operating costs with respect to current production in our etame marin block located offshore gabon . in early 2016 , we determined that additional development drilling is uneconomic at then current commodity prices . in january 2016 , we began demobilizing our contracted drilling rig and did not drill any wells in 2016 on the etame marin block . in june 2016 , we reached an agreement with the drilling contractor to pay $ 5.1 million net to vaalco 's interest for unused rig days under the contract . we paid this amount , plus the demobilization charges , in seven equal monthly installments beginning in july 2016. although prices continue to be low , if oil and natural gas prices continue at current levels ( and holding other variables constant ) , we believe that through march 31 , 2018 we will generate cash flows sufficient to cover our operating expenses . story_separator_special_tag $ 15.5 million between 2014 and 2015. working capital related changes contributed to a $ 64.4 million increase while the offsetting decrease of $ 48.6 million was primarily the result of lower revenues between the periods . property and equipment expenditures were not as significant in 2016 as in previous years where they were our most significant investing activities . during 201 6 , these expenditures on a cash basis ( including expenditures attributable to discontinued operations ) were $ 8 .7 million compared to $ 88.9 million and $ 92.2 million in 2015 and 2014 , respectively . these cash property and equipment expenditures are included in capital expenditures . see “ — capital expenditures ” below for further discussion . other significant investing activities in 2016 included $ 5.7 million for the november 2016 acquisition of sojitz ' interest in the etame marin block and $ 2.9 million to purchase oil puts used to mitigate the potential impact of price declines in 2016 and 2017 , as discussed further in note 10 to the financial statements . in addition , restricted cash inflows of $ 15.2 million in 2016 are primarily a result of us withdrawing from the joint operating agreement for block 5 offshore angola . story_separator_special_tag we and our partners have approved a budget which limits the amount of capital expenditures for 2017. as discussed in note 10 to the financial statements , we have put contracts in place at december 31 , 2016 which limit our exposure to a decline in oil pr ices through december 31 , 2017. based on our forecasts which consider these and other relevant factors , management believes that events and conditions as of march 13 , 2017 , considered in the aggregate , do not raise substantial doubt about vaalco 's ability to continue as a going concern through march 31 , 2018. at december 31 , 2016 , we had 2.6 mmboe of proved reserves , all of which are related to the etame marin block offshore gabon . the current term for exploitation of the reserves in the etame marin block ends in june 2021 , and as discussed in item 1 . “ business – strategy ” above , we are focused on extending the license for the block , and this could favorably improve our long-term liquidity . except to the extent that we conduct successful exploration or development activities or acquire properties containing proved reserves , 37 our estimated net proved reserves will generally de cline as reserves are produced . while both short-term and long-term liqu idity are impacted by crude oil prices , our long-term liquidity also depends upon our ability to find , develop or acquire additional oil and natural gas reserves that are economically recoverable . c redit facility historically , our primary sources of capital have been cash flows from operating activities , borrowings under the credit facility with the ifc and cash balance s on hand . the current $ 15 .0 million in outstanding indebtedness under our term loan matures in june 2019 , and requires quarterly principal and interest payments on the amounts currently outstanding commencing on march 31 , 2017 and co ntinuing through june 30 , 2019. interest accrues on the unpaid balance at the per annum rate of libor plus 5.75 % . approximately $ 7.5 million of the outstanding debt was classified as a current liability on our audited consolidated balance sheet as of december 31 , 2016. as of that date , we had a working capital deficit of $ 17 . 1 million . on june 29 , 2016 , we executed a supplemental agreement with the ifc which , among other things , amended and restated the existing loan agreement to convert $ 20 million of the revolving portion of the credit facility , to the term loan having $ 15 million outstanding . the indebtedness under our am ended loan agreement is secured by the assets of our gabon subsidiary , vaalco gabon s.a. and is guaranteed by vaalco as the parent company . our credit agreement contains a number of restrictive covenants that impose significant operating and financial restrictions on us . these covenants include restrictions on our ability to : · incur additional indebtedness , guarantee debt or enter into any arrangement to assume or become obligated for financial or other obligations of another ( except those pursuant to a joint operating agreement ) ; · pay dividends on or make other distributions in respect of , or purchase or redeem , shares of our capital stock ; · prepay , redeem or repurchase certain debt ; · make loans , investments and other restricted payments ; · sell , transfer or otherwise dispose of assets ; · create or incur liens ; · sell , transfer or lease all or a substantial part of our assets , other than inventory or depleted or obsolete assets in the ordinary course of our business ; · enter into non-arm's-length transactions ; · incur or commit to make certain expenditures for fixed or other non-current assets ; · enter into lease agreements or arrangements , other than the fpso contract and leases necessary to carry on our business ; · form any subsidiary ; · terminate , amend or grant consents or waivers with respect to certain material contracts ; · use the proceeds of loans other than as permitted by the credit agreement ; · reduce certain of our working interests ; · modify our organizational documents ; · alter the business we conduct ; · undertake or permit any merger , spin-off , consolidation or reorganization ; and · enter into any derivative transaction without prior approval . these covenants restrict our ability to engage in certain transactions , including potentially limiting our ability to sell assets , make future borrowings or incur other additional indebtedness . our ability to meet our quarter-end net debt to ebitdax ratio and our debt service coverage ratio can be affected by events beyond our control , including changes in commodity prices . under the amended loan agreement , quarter-end net debt to ebitdax ( as defined in the loan agreement ) must be no more than 3.0 to 1.0. however , the quarter-end net debt to ebitdax limitation was raised to 5.0 to 1.0 for all periods through the end of 2016. additionally , our debt service coverage ratio must be greater than 1.2 to 1.0 at each quarter end . forecasting our compliance with these and other financial covenants in future periods is inherently uncertain . factors that could impact our quarter-end financial covenants in future periods include future realized prices for sales of oil and natural gas , estimated future production , returns generated by our capital program , and future interest costs , among others . we are in compliance with all financial covenants as of december 31 , 2016 , and we expect to be in compliance with these covenants through maturity . however , there can be no assurance that we will be able to comply with these covenants in future periods .
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2016 highlights as further discussed in notes 5 and 6 to the financial statements : · we recorded impairments on our proved oil and natural gas properties in periods prior to 2016. it is difficult to predict with reasonable certainty the amount of expected future impairments given the many factors impacting the calculation including , but not limited to , future pricing , operating costs , drilling and completion costs , and reserve additions and adjustments . our impairment calculations have been based upon reserve economics using forecasted future prices , adjusted for specifics related to our production . we may experience additional write-downs in the future . if the per barrel prices used in the impairment calculation made as of december 31 , 2016 had been $ 10.00 lower , there would still have been no impairment charges incurred for 2016. given the uncertainty associated with the factors used in these calculations , these estimates should not be construed as indicative of our future financial results . · o n september 30 , 2016 , we notified sonangol p & p , our joint venture partner in block 5 , that we were withdrawing from the block 5 joint operating agreement effective october 31 , 2016. in addition to the withdrawal , we have taken actions to begin closing our office in angola and do not intend to conduct future activities in angola . as a result of this strategic shift , the angola segment has been reflected as discontinued in our f inancial s tatements . · o n march 14 , 2016 , we received payment of $ 19.0 million from sonangol p & p for the full amount owed us as of december 31 , 2015 , including the $ 7.6 million of pre-assignment costs . the $ 7.6 million recovery is reflected in the “ bad debt expense and other ” line of our summarized results of discontinued operations . default interest of $ 3.2
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we have attempted to identify these forward-looking statements with the words “ believes , ” “ estimates , ” “ plans , ” “ expects , ” “ anticipates , ” “ may , ” “ will , ” “ could , ” “ should ” and other similar expressions . although these forward-looking statements reflect management 's current plans and expectations , which we believe reasonable as of the filing date of this report , they inherently are subject to certain risks and uncertainties . additionally , we are is under no obligation to update any of the forward-looking statements after the date of this annual report on form 10-k to conform such statements to actual results . overview we are a leading provider of cloud-based human capital management ( hcm ) solutions , delivered as software-as-a-service ( saas ) for small and mid-sized businesses ( smbs ) . from recruitment to retirement , our solutions help more than 80,000 smbs across the united states grow their businesses . about 10,000 of our clients are direct and the approximately 70,000 remaining are indirect as they have contracts with reseller partners that white label our solutions . we strive to be the most trusted hcm resource to entrepreneurs and are focused on less densely populated u.s. metropolitan cities where fewer of our competitors have a presence . our solution strategy solves three primary challenges that prevent businesses from growing : hr complexity , allocation of human and financial capital , and the ability to build great teams . we have invested in , and we intend to continue to invest in , research and development to expand our solutions . asure hcm , our user-friendly solution , reduces the administrative burden on employers and increases employee productivity while managing the complete employment lifecycle . the primary functions of our solutions address : payroll and tax - asure payroll & tax is an integrated cloud-based solution that provides a foundation for our clients ' digital hr strategy . we automate all the complex and ever-changing regulations associated with payroll and taxes in all u.s. jurisdictions - from wages , benefits , overtime , and garnishments to tips , direct deposits , fair labor standard act ( `` flsa '' ) , and federal , state , and local payroll taxes . human resources - asure hr 's cloud-based functionality handles hr complexities that smbs face , including employee self-service so employees can access all their information ( e.g. , pay history and company documents ) . with asure hr 's dashboard , clients have convenient single-system access to every facet of the employee 's lifecycle . this solution improves benefits management by syncing to carriers and integrating with employee self-managed enrollment and life-event change adjustments . time and attendance – asure time & attendance is primarily cloud based and combines with complementary hardware ( time clocks and data collection devices ) to provide cost savings and potential roi gains in the form of a more strategic use of labor dollars and the elimination of time theft . mobile time tracking helps executives better understand where and when their employees are working , providing insight into labor schedules and labor costs . with our mobile solution , employees can punch in and out from remote locations , as geo-positioning verifies the physical coordinates . biometric time clocks , including facial recognition , reduce time theft and help combat `` buddy punching . '' automated system notifications , real-time dashboards , and flexible configuration options all work to streamline operations . finally , employees , supervisors and executives have real-time access to data and business intelligence to optimize labor costing , improve labor scheduling , and control labor costs . hr services - our recurring hr services allows clients to focus on running their businesses because we take responsibility for all of the traditional payroll and hr functions . we provide three core levels of hr services , ranging from a cloud-based online compliance library , to an on-demand call center for all hr questions , and to a fully outsourced hr function . we also support discreet functions like payroll administration and the benefit enrollment process . data integration - our solutions also enable data integration with related third-party systems , such as 401 ( k ) , benefits , and insurance provider systems . 30 in addition to state-of-the-art platforms that are hosted in amazon aws and regular upgrades and releases , we provide clients with easy access to our skilled support team . our services and support representatives are knowledgeable not just in the asure solution , but also about best practices and change management strategies in the payroll and hcm industry . many of asure 's staff have professional certifications in payroll ( certified payroll professionals , cpps ) and human resources ( professional in human resources , phr , and senior professional in human resource , sphr , certifications ) . from installation to training and post-live support , our professional services team delivers a proficient client experience on a national scale . we sell our solutions through both direct and partner models . prospective clients learn about asure in a variety of ways , including advertising , web site searches , sales calls , public relations , referral channels , direct marketing , and social media . when prospective clients show an interest in asure , they are connected with a sales representative , who works to close the sale , via asure 's web site , phone , or a face-to-face meeting by discussing solutions that meet their needs . we track our marketing and sales activities to provide immediate insights into activities , leads and pipeline opportunities . our account management teams also work with clients to promote and sell additional solutions that are relevant for each client . we supplement our direct sales efforts with partner programs . by working with partners , we gain access to opportunities in various geographic and industry niches . asure has two distinct levels of partners : reseller partners and referral partners . story_separator_special_tag we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal , state or local authorities or that we determine are in the best interests of our employees and clients . in addition , the covid-19 pandemic has disrupted the operations of our clients and client prospects and may continue to do so for an indefinite period of time . across many industries , temporary and permanent business closures as well as business occupancy limitations have resulted in significant layoffs and employee furloughs since late march 2020. because we charge our clients on a per-employee basis for certain services we provide , decreases in headcount at our clients as of the onset of the pandemic negatively impacted our recurring revenue during 2020 , and we expect that our recurring revenue in future periods will continue to be negatively impacted by such headcount reductions until employment levels among such client base return to pre-pandemic levels . further , at the onset of the covid-19 pandemic , a limited number of new clients temporarily delayed service implementation . as the covid-19 pandemic continues to create uncertainty and the potential for ongoing business disruptions , we may experience similar client-driven delays in service implementation in the future . during 2019 , interest earned on funds held for clients contributed to growth in recurring revenue , due to both higher average interest rates and an increased average funds held for clients balance . between august 2019 and march 2020 , the federal open market committee reduced the target range for short-term interest rates several times , with the most significant rate cut occurring in march 2020 to support the economy and potentially reduce the impacts of the covid-19 pandemic . further , a provision in the coronavirus aid , relief , and economic security act ( the “ cares act ” ) allowed employers to delay the payment of the employer 's share of social security taxes to a future date . to the extent our clients made such an election , we collected less money from them to hold and then remit to the appropriate taxing authorities , which adversely affected our average funds held for clients balance and , consequently , interest earned on funds held for clients . during 2020 , despite the growth in the number of clients in our base , employee headcount reductions at our clients as well as clients electing to defer payment of their share of social security taxes under the cares act resulted in nominal growth in our average funds held for clients balance , relative to 2019. due to significantly lower average interest rates in 2020 and , to a lesser extent , the lack of growth of our average funds held for clients balance , interest earned on funds held for clients for the year ended december 31 , 2020 decreased from the year ended december 31 , 2019 , which had a negative effect on recurring revenue growth . the balance of funds held for clients was approximately $ 321,069 at december 31 , 2020 , compared with approximately $ 126,625 at december 31 , 2019. much of this increase was due to acquisitions in 2020. in 2020 , we continued to aggressively invest in sales and marketing and in research and development to drive future growth and expand our market share . lower headcount at our clients and the other pandemic-related factors described above , which had and may continue to have , a negative impact on recurring revenue , combined with increased sales and marketing and research and development expenses , resulted in a decrease in net income for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. we expect net income to be negatively affected by the impact of the pandemic on our recurring revenue and our deliberate , increased level of investment in sales and marketing and research and development to drive the growth of our business . prior to the covid-19 pandemic , our sales force historically traveled frequently to sell our solution . the current remote work environment presents a unique opportunity for our sales force , in that each sales employee is able to meet virtually with a greater number of client prospects in a given day than he or she would if conducting in-person meetings . although we have not experienced such challenges to date , if clients and client prospects are not as willing or available to engage by video conference and teleconference , the shift from in-person to virtual sales meetings could negatively affect our sales efforts , impede client acquisition and lengthen our sales cycles , which would negatively impact our business and results of operations and could impact our financial condition in the future . 32 we are unable to estimate the full impact that the covid-19 pandemic could have on our business and results of operations in the future due to numerous uncertainties , including the severity of the disease , the duration of the outbreak , actions that may be taken by governmental authorities , the impact it may have on the business of our clients and other factors identified in part i , item 1a “ risk factors ” in this form 10-k. given this , the effect of the ongoing covid-19 pandemic may not be fully reflected in our results of operations and overall financial performance until future periods . operating segment we operate as one operating segment . operating segments are defined as components of an enterprise for which the chief operating decision maker , who in our case is the chief executive officer , in deciding how to allocate resources and assess performance , evaluates separate financial information regularly . during 2020 , and over the last few years , we have completed a number of acquisitions . these acquisitions have allowed us to expand our offerings , presence and reach in various market segments of the human capital management market .
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results of operations the following discussions of our results of continuing operations exclude the results related to the workspace management business which was sold in 2019. this business has been segregated from continuing operations and is reflected as a discontinued operation . the following table sets forth , for the fiscal periods indicated , the percentage of total revenues represented by certain items in asure 's consolidated statements of comprehensive income ( loss ) : replace_table_token_1_th comparison of fiscal 2020 to 2019 basis of presentation revenue revenues are comprised of recurring revenues , and implementation and other revenues . we expect our revenues to increase as we introduce new applications , expand our client base and renew and expand relationships with existing clients . as a percentage of total revenues , we expect our mix of recurring revenues , and implementation and other revenues to remain relatively constant . recurring revenues recurring revenues include fees for our payroll , payroll tax , time and labor management , and other asure hcm solutions as well as fees charged for form filings and delivery of client payroll checks and reports . these revenues are derived from ( i ) fixed amounts charged per billing period plus a fee per employee or transaction processed or ( ii ) fixed amounts charged per billing period . we do not require clients to enter into long-term contractual commitments with us . our billing period varies by client based on when each client pays its employees , which may be weekly , bi-weekly , semi-monthly or monthly . we also generate recurring revenue from our reseller partners that license our solutions . because recurring revenues are based , in part , on fees for use of our applications and the delivery of checks and reports that are levied on a per-employee basis , our recurring revenues increase as our clients hire more employees . recurring revenues are recognized in the period services are rendered .
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( 2 ) as of december 31 , 2017 , dr. gillis had outstanding options representing the right to purchase 32,018 shares of our common stock . ( 3 ) as of december 31 , 2017 , mr. higgins had outstanding options representing the right to purchase 50,836 shares of our common stock ( 4 ) as of december 31 , 2017 , mr. iwicki had outstanding options representing the right to purchase 77,881 shares of our common stock . ( 5 ) as of december 31 , 2017 , mr. mcguire had outstanding options representing the right to purchase 32,018 shares of our common stock . ( 6 ) mr. munshi was elected to the board effective june 13 , 2017 . ( 7 ) as of december 31 , 2017 , mr. munshi had outstanding options representing the story_separator_special_tag the information set forth below should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements based on our current expectations , assumptions , estimates and projections . these forward-looking statements involve risks and uncertainties . our actual results could differ materially from those indicated in these forward-looking statements as a result of certain factors , including those discussed in item 1 of this annual report on form 10-k , entitled business , under forward-looking statements and item 1a of this annual report on form 10-k , entitled risk factors. references in this discussion and analysis to us , we , our , or our company refer to pulmatrix , inc. , a delaware corporation . overview we are a clinical stage biopharmaceutical company developing innovative inhaled therapies to address serious pulmonary disease using its patented isperse ( inhaled small particles easily respirable and emitted ) technology . we are developing isperse-based therapeutic candidates targeted at the prevention and treatment of a range of respiratory diseases , including allergic bronchopulmonary aspergillosis ( abpa ) in asthmatics and in patients with cystic fibrosis ( cf ) , chronic obstructive pulmonary disease ( copd ) and idiopathic pulmonary fibrosis ( ipf ) . our product candidates are based on isperse , our proprietary dry powder delivery platform , which seeks to improve delivery of small molecule drugs , macromolecules and potentially other biologics to the lungs by maximizing local concentrations and reducing systemic side effects to improve patient outcomes . our goal is to develop breakthrough therapeutic products that are safe , convenient and more efficient than the existing therapeutic products for the treatment of respiratory diseases . in support of this goal , we are focusing on developing inhaled anti-fungal therapies to prevent and treat pulmonary infections and allergic/hypersensitivity responses to fungus in patients with asthma , cf and other rare/orphan indications . we intend to capitalize on our isperse technology platform and our expertise in inhaled therapeutics to identify new product candidates for the prevention and treatment of respiratory diseases with significant unmet medical needs to build our product pipeline beyond our existing candidates . in order to advance our clinical trials for our therapeutic candidates for asthma , cf , copd and ipf and leverage the isperse platform to enable delivery of partnered compounds , we intend to form strategic alliances with third parties , including pharmaceutical , biotechnology companies or academic or private research institutes . we do not have any products approved for sale and have not generated any revenue from product sales . we fund our operations through proceeds from issuances of common stock , collaborations with third parties and non-dilutive grants . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years based on our drug development plans . we expect our expenses and capital requirements will increase substantially in connection with our ongoing activities , as we : initiate and expand clinical trials for pulmazole for abpa , and other indications for immunocompromised at-risk patients ; seek regulatory approval for our product candidates ; hire personnel to support our product development , commercialization and administrative efforts ; and advance the research and development related activities for inhaled therapeutic products in our pipeline . 38 we will not generate product sales unless and until we successfully complete clinical developments and obtain regulatory approvals for our product candidates . additionally , we currently utilize third-party contract research organizations ( cros ) to carry out our clinical development activities and third-party contract manufacturing organizations ( cmos ) to carry out our clinical manufacturing activities ; we do not yet have a commercial organization . if we obtain regulatory approval for any of our product candidates , we expect to incur significant expenses related to developing our internal commercialization capability to support product sales , marketing and distribution . accordingly , we anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources , potentially including collaborative commercial arrangements . likewise , we intend to seek to limit our commercialization costs by partnering with other companies with complementary capabilities or larger infrastructure including sales and marketing . because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . financial overview to date , we have not generated any product sales . story_separator_special_tag while our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this annual report on form 10-k , we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements . revenue recognition our principal sources of revenue during the reporting period were income from fees for services and reimbursement of clinical study costs . in all instances , revenue is recognized only when the price is fixed or determinable , persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , and collectability of the resulting receivable is reasonably assured . milestones contingent consideration from research and development activities that is earned upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved . at the inception of each arrangement that includes milestone payments , we evaluate whether each milestone is substantive . this evaluation includes an assessment of whether : ( a ) the consideration is commensurate with either ( 1 ) the entity 's performance to achieve the milestone or ( 2 ) the enhancement of the value of the delivered item ( s ) as a result of a specific outcome resulting from the entity 's performance to achieve the milestone , ( b ) the consideration relates solely to past performance and ( c ) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement . we evaluate factors such as the scientific , clinical , regulatory , commercial and other risks that must be overcome to achieve the respective milestone , the level of effort and investment required and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment . service revenues we recognized upfront non-refundable fees ratably over the estimated non-contingent portion of the arrangement when the research and development activities related to the initial clinical studies were performed as there is no other discernible pattern of revenue recognition . at the end of each reporting period , we review and adjust , if necessary , the amounts recognized in revenue for any change in the estimated non-contingent period over which the research and development activities were performed . research and development costs costs incurred in the research and development of our product candidates are expensed as incurred . research and development costs that are paid in advance of performance are capitalized as prepaid expenses and amortized over the service period as the services are provided . stock-based compensation stock-based compensation expense is recognized on the grant-date fair value of the stock-based awards using the black-scholes valuation model . the fair value measurement date for non-employee awards is generally the date the performance of services is completed . we recognize compensation expense only for those stock-based awards expected to vest after considering expected forfeitures of the stock-based awards . stock-based compensation expense is recognized on a straight-line basis over the service period related to each award . 41 stock-based payments to non-employees are re-measured at each reporting date and recognized as services are rendered , generally on a straight line basis . we believe that the fair values of these awards are more reliably measurable than the fair values of the services rendered . basic and diluted net loss per share basic net loss per share is computed by dividing net loss by the weighted-average number of common stock outstanding during the period . diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period . in periods in which the company reports a net loss , diluted net loss per share is the same as basic net loss per share because common stock equivalents are excluded as their inclusion would be anti-dilutive . income taxes income taxes are recorded in accordance with financial accounting standards board , or fasb , accounting standards codification , or asc , topic 740 , income taxes ( asc 740 ) , which provides for deferred taxes using an asset and liability approach . we recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns . deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse . a valuation allowance is provided if , based upon the weight of available evidence , it is more likely than not that some or all of the net deferred tax assets will not be realized . we account for uncertain tax positions in accordance with the provisions of asc 740. when uncertain tax positions exist , we recognize the tax benefit of tax positions to the extent that the benefit will more likely than not be realized . the determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position , as well as consideration of the available facts and circumstances . as of december 31 , 2017 and 2016 , we did not have any significant uncertain tax positions . we recognize interest and penalties related to uncertain tax positions in income tax expense . on december 22 , 2017 , the tax cuts and jobs act ( the act ) was enacted in the united states . the act reduces the u.s. federal corporate tax rate from 34 % to 21 % , requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings .
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results of operations year ended december 31 , 2017 compared with year ended december 31 , 2016 the following table sets forth our results of operations for each of the periods set forth below ( in thousands ) : replace_table_token_3_th revenue revenue was $ 0.3 million for the year ended december 31 , 2017 , compared to $ 0.8 million for the year ended december 31 , 2016 , a decrease of $ 0.5 million . the decrease was the result of the conclusion of the clinical study funded under our collaboration agreement with mylan in 2016 , partially offset by the revenue from the cfft award in 2017. research and development expenses research and development expense was $ 10.2 million for the year ended december 31 , 2017 , compared to $ 10.2 million for the year ended december 31 , 2016. the minimal increase in 2017 was primarily due to increases in employment related costs . general and administrative expenses general and administrative expense was $ 7.6 million for the year ended december 31 , 2017 , compared to $ 8.0 million for the year ended december 31 , 2016 , a decrease of $ 0.4 million . 43 the decrease was primarily due to a decrease of $ 1.1 million in stock-based compensation expense , net of increases of $ 0.4 million in salary related expense and $ 0.3 million in patent and legal expense .
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also issued a 5-year warrant to purchase up to 712 shares of class a common stock at an exercise price of $ 2.81 per share to the investment banking firm that assisted us in placing the shares with that investor for a value of $ 1,546 , assuming a 1.15 % risk free rate and 191.8 % annual volatility . the company also paid that firm a cash fee of $ 2,000 . both the warrant value and cash fee were charged against the proceeds to additional paid in capital . stock options on july 25 , 2016 , the company granted to two consultants five-year options to purchase an aggregate of 10,000 shares of the company 's common stock at an exercise price of $ 2.81 per share . the options vest and become exercisable after the company has recorded revenue of at least $ 1,000,000 for its halo brand products that reflect the rebranding designed with the assistance of the consultants . pursuant to asc 505 , the fair value of the options is measured once the performance condition is achieved , at which time the company will recognize expense associated with the options . 38 pen inc. and subsidiaries notes to consolidated financial statements december 31 , 2016 and 2015 stock options outstanding are to purchase class a common stock , stock option activities for the years ended december 31 , 2016 and 2015 are summarized as follows : replace_table_token_20_th contingently issuable class a common shares on august 27 , 2014 , the company entered a restricted stock agreement with dr. zvi yaniv , the former chief operating officer and president , of applied nanotech , and a retired employee of the company granting dr. yaniv 37,778 shares of class a common stock , subject to forfeiture . all these shares become vested and not subject to forfeiture on the earlier of a change of control of us , dr. yaniv 's death , or if more than 180 days after closing of the august 27 , 2014 reverse merger , the average trading price of the shares during a measurement period of ten consecutive trading days reaches certain price thresholds . at an $ 18.00 price , 5,554 shares vest , with additional tranches of 5,556 shares vesting if the price reaches $ 27.00 , $ 36.00 , $ 45.00 and $ 54.00 . the last 10,000 shares vest at a $ 63.00 price threshold . any shares that have not vested five years after the effective date will be forfeited . we also entered a piggyback registration rights agreement that will allow dr. yaniv , subject to other customary terms and conditions , to register shares that are no longer subject to forfeiture if we are registering our shares . pursuant to asc 718-10 and related subsections , these shares were valued on the date of grant of august 27 , 2014 at $ 13.12 per shares for a total value of $ 495,720 . the company estimates the fair value of the awards with market conditions using a binomial simulation , which utilizes several assumptions including the risk-free interest rate , the volatility of the company 's stock and the exercise behavior of award recipients . the grant-date fair value of $ 495,720 of the awards will be recognized over the requisite service period of 3 years , which represents the derived service period for the stock grant as determined by the binomial simulation method . for each of the two years ended december 31 , 2016 and 2015 , to amortize the fair value of this stock grant , the company recorded stock-based compensation of $ 165,240 . 2015 equity incentive plan on november 30 , 2015 , the board of directors authorized the 2015 equity incentive plan ( the “ plan ” ) , which reserved 111,111 shares of common stock . if any share of common stock that has been granted pursuant to a stock option ceases to be subject to a stock option , or if any forfeiture or termination affects shares of common stock that are the subject to any other stock-based award , the shares are again available for future grants and awards under the plan . the plan 's purpose is to enable the company to offer its employees , officers , directors and consultants an opportunity to acquire a proprietary interest in the company for their contributions . as of december 31 , 2016 , 17,284 class a common shares and options to purchase up to 10,000 class a common shares have been issued under the plan and 83,827 shares are available for future issuance . 39 pen inc. and subsidiaries notes to consolidated financial statements december 31 , 2016 and 2015 note 10 – income taxes the company maintains deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . the net deferred tax asset has been fully offset by a valuation allowance because of the uncertainty of the attainment of future taxable income . the items accounting for the difference between income taxes at the effective statutory rate and the provision for income taxes for the years ended december 31 , 2016 and 2015 were as follows : replace_table_token_21_th the company 's approximate net deferred tax assets as of december 31 , 2016 and 2015 were as follows : replace_table_token_22_th the estimated net operating loss carryforward was approximately $ 8,829,000 at december 31 , 2016 , which is an estimate of the company 's net operating loss carryforward acquired in the combination after givingeffect to the limitation on the usage of story_separator_special_tag the following is management 's discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements . story_separator_special_tag revolving credit note in april 2014 , our subsidiary , nanofilm entered into a $ 1,500,000 revolving credit line agreement ( the “ revolving note ” ) with mackinac commercial credit , llc ( the “ lender ” ) with draws limited to a borrowing base as defined in the revolving note . the unpaid principal balance of this revolving note is payable on demand , is secured by all of nanofilm 's assets , and bears interest computed at a rate of interest ( the “ effective rate ” ) which is equal to 7.0 % above the libor rate , as defined , payable monthly . nanofilm will pay to lender a late charge of 5.0 % of any monthly payment not received by lender within 10 calendar days after its due date . the company may , at any time or from time to time upon three business days ' written notice to lender , prepay the note in whole provided that if ( i ) borrower prepays the revolving note in full and terminates the revolving note , or ( ii ) lender terminates the revolving note after default , then borrower will pay a termination premium equal to 2.0 % of the maximum loan amount . on may 1 , 2015 , nanofilm and the lender entered into an amendment to the loan and security agreement extending the outside maturity date to april 4 , 2016 and permitting advances against an expanded borrowing base . the borrowing base was increased by $ 450,000 through october 31 , 2015 , with this amount reducing by $ 7,500 monthly thereafter . in addition , the company guaranteed nanofilm 's obligations to the lender . on april 4 , 2016 , the maturity date under the loan & security agreement between nanofilm and the lender was automatically extended for a one-year renewal term . without the lender 's consent , so long as the obligation remains outstanding , in addition to other covenants as defined in the revolving note , nanofilm shall not a ) merge or consolidate with any other company , except for the combination and shall not suffer a change of control ; b ) make any capital expenditures , as defined , materially affecting the business ; c ) declare or pay cash dividends upon any of its stock , or distribute any of its property , make any loans , make investments , redeem , retire or acquire any of its stock , d ) become liable for the indebtedness of anyone else , as defined , and e ) incur indebtedness , other than trade payables . 16 at december 31 , 2016 and 2015 , the company had $ 979,688 and $ 1,288,748 , respectively , in borrowings outstanding under the revolving note , which includes accrued interest of $ 17,494 and $ 14,340 , respectively , with availability of up to $ 537,805 and $ 211,252 , respectively , depending on the borrowing base at the time of the request for the advance . the weighted average interest rate during the years ended december 31 , 2016 and 2015 was approximately 8.0 % and 7.3 % , respectively . equipment financing on february 10 , 2015 , nanofilm entered into a $ 373,000 promissory note ( the “ equipment note ” ) with keybank , n.a . ( the “ bank ” ) . the unpaid principal balance of this equipment note is payable in 60 equal monthly installments payments of principal and interest through june 10 , 2020. the equipment note is secured by certain equipment , as defined in the equipment note , and bears interest computed at a rate of interest of 4.35 % per annum based on a year of 360 days . at december 31 , 2016 and 2015 , the principal amount due under the equipment note amounted to $ 260,331 , and $ 334,711 , respectively . critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements , that have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated 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 . we continually evaluate our estimates , including those related to income taxes , and the valuation of equity transactions . we base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources . any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues , expenses , assets and liabilities . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the unaudited consolidated financial statements . impairment of long-lived assets in accordance with asc topic 360 , we review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable , or at least annually . we recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset .
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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 consolidated financial statements and the notes to those statements that are included elsewhere in this report . the results discussed below are for the years ended december 31 , 2016 and 2015. comparison of results of operations for the year ended december 31 , 2016 and 2015 revenues for the years ended december 31 , 2016 and 2015 , revenues consisted of the following : replace_table_token_2_th for the year ended december 31 , 2016 , sales from the product segment decreased by $ 808,201 or 10 % as compared to the year ended december 31 , 2015. this was primarily attributable to reduced sales volume of our optical cleaners and reduced volume of sales for anti-fog products to our traditional customers and delays in putting our products into other channels . for the year ended december 31 , 2016 , revenues of our contract services segment decreased by $ 761,214 or 43 % due primarily to a reduction in government and private service contracts . fewer government contracts results , in part , from our decision not to apply for contracts that require us to share a portion of the costs . cost of revenues cost of revenues includes inventory costs , materials and supplies costs , internal labor and related benefits , subcontractor costs , depreciation , overhead and shipping and handling costs incurred including costs related to government and private contracts in our contract services segment . 13 for the year ended december 31 , 2016 , cost of revenues decreased by $ 1,034,163 or 16 % reflecting the reduced revenues .
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